Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________ 
FORM 10-K
_______________________________ 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2012
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 # 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)
(I.R.S. Employer
identification Number)

3731 Wilshire Boulevard
Suite 1000
Los Angeles, California 90010
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (213) 639-1700
Securities registered pursuant to Section 12(b) of the Act

Title of Class
Name of Exchange on Which Registered
Common Stock, par value $0.001 per share
The NASDAQ Stock Market, LLC

Securities registered pursuant to Section 12(g) of the Act: None  
_________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   x
    No   o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   o     No   x
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).     x  Yes     o   No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K   x

Table of Contents


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company” 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 Act).    Yes   o     No   x
The aggregate market value of the Common Stock held by non-affiliates of the Registrant based upon the closing sale price of the Common Stock as of the last business day of the Registrant’s most recently completed second fiscal quarter, June 30, 2012, as reported on the NASDAQ Global Select Market, was approximately $849,574,000.
Number of shares outstanding of the Registrant’s Common Stock as of February 27, 2013: 78,779,140
Documents Incorporated by Reference: Definitive Proxy Statement for the 2012 Annual Meeting of Stockholders – Part III


Table of Contents


Table of Contents
 
PART I
 
Page
Forward-Looking Information
Item I.
Business
 
General
 
Business Overview
 
Lending Activities
 
Deposit Activities
 
Borrowing Activities
 
Market Area and Competition
 
Economic Conditions, Government Policies and Legislation
 
Supervision and Regulation
 
Employees
Item IA.
Risk Factors
Item 1B.

Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
 
 

PART II
 
 
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
 
 
Securities
Item 6.
Selected Financial Data
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
 
 
 
PART III
 
 
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
 
 
 
PART IV
 
 
Item 15.
Exhibits and Financial Statement Schedules
 
 
 
 
 
 


3
Table of Contents


PART I
Forward-Looking Information
Some statements in this Annual Report on Form 10-K constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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. 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 such forward-looking statements. For a more detailed discussion of factors that might cause such a difference, see Item 1A, “Risk Factors”. BBCN Bancorp, Inc. 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.

Item 1.      BUSINESS

General
BBCN Bancorp, Inc. (“BBCN Bancorp” on a parent-only basis, and the “Company,” “we” or “our” on a consolidated basis) is a bank holding company headquartered in Los Angeles, California. We offer commercial banking loan and deposit products through our wholly-owned subsidiary, BBCN Bank, a California state-chartered bank (the “Bank” or “BBCN Bank”). BBCN Bank primarily focuses its business in Korean communities in California, New York City metropolitan area, New Jersey, Chicago and Seattle. Our headquarters are located at 3731 Wilshire Boulevard, Suite 1000, Los Angeles, California 90010, and our telephone number at that address is (213) 639-1700.
BBCN Bancorp, Inc., formerly named Nara Bancorp, Inc., was formed to become the holding company for Nara Bank effective in February 2002. Nara Bank opened for business in June 1989 under the name “United Citizens National Bank” as a national banking association, was renamed “Nara Bank, National Association” in January 1994 and became “Nara Bank” upon converting to a California state-chartered bank in January 2005. On November 30, 2011, we merged with Center Financial Corporation ("Center Financial" or "Center") in a merger of equals transaction. Concurrently with the merger, Nara Bancorp changed its name to "BBCN Bancorp, Inc." At the bank level, Nara Bank merged into Center Bank, and concurrently with the merger, Center Bank changed its name to "BBCN Bank."
BBCN Bancorp is registered as a bank holding company and is regulated in that capacity by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board” or “FRB”). BBCN Bancorp exists primarily for the purpose of holding the stock of the Bank and of such other subsidiaries as it may acquire or establish. BBCN Bank’s deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”), up to applicable limits.
Through the merger with Center, we added Center Bank's 21 full-service branch offices, 18 of which are located in California, as well as a Loan Production Office in Seattle and one in Denver. Under the terms of the merger agreement, Center Financial shareholders received 0.7805 shares of Company common stock in exchange for each share of common stock of Center Financial, resulting in our issuance of approximately 31.2 million shares of our common stock, with a merger date fair value of $292 million.
On February 15, 2013, the Company acquired Pacific International Bancorp ("PIB"), a Seattle-based company, pursuant to an Agreement and Plan of Merger, dated October 22, 2012. Pacific International had total assets of approximately $185 million, including $146 million of gross loans and $144 million in deposits. PIB's primary subsidiary, Pacific International Bank, a Washington state-chartered bank, had four bank locations in the Seattle metropolitan area. With the completion of the transaction, the Company has six branches in the Seattle area.

We file reports with the Securities and Exchange Commission (the “SEC”), which include annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as proxy statements and information statements in connection with our stockholders meetings and other information. The SEC maintains a website that contains the reports, proxy and information statements and other information we file with them. The address of the site is http://www.sec.gov. Our website address is http://www.bbcnbank.com . Electronic copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, other information and reports we file with the SEC and amendments to those reports, are available free of charge by visiting the Investor Relations section of our website. These reports are generally posted as soon as reasonably practicable after they are electronically filed with the SEC.



4
Table of Contents


Business Overview
Our principal business activities are conducted through BBCN Bank and primarily consist of earning interest on loans and investment securities that are funded by customer deposits and other borrowings. Operating revenues consist of the difference between interest received and interest paid, gains and losses on the sale of financial assets, and fees earned for financial services provided. Interest rates are highly sensitive to many factors that are beyond our control, such as general economic conditions, new legislation affecting the banking industry, and the policies of various governmental and regulatory authorities. Although our business may vary with local and national economic conditions, such variations are not generally seasonal in nature.
Through our network of 40 branches and five loan production offices, we offer commercial banking loan and deposit products to our customers, who typically are small- to medium-sized businesses and individuals in our market areas. We accept deposits and originate a variety of loans, including commercial business loans, commercial real estate loans, trade finance loans, and Small Business Administration (“SBA”) loans. BBCN Bank offers cash management services to our business customers, which includes remote deposit capture, lock box and ACH origination services. BBCN Bank also offers a mobile banking application for smartphones that extends convenient banking services, such as mobile deposits and bill payment in the hands of customers 24/7. To better meet our customers’ needs, our mini-market branches generally offer extended hours from 9 a.m. to 6 p.m. Most of our branches operates 24-hour automated teller machines (“ATMs”). We also offer debit card services with a rewards program to all customers. Our banking officers focus on customers to better support their banking needs. In addition, most of our branches offer travelers’ checks, safe deposit boxes, and other customary bank services. Our website at www.bbcnbank.com offers internet banking services and applications in both English and Korean.

Lending Activities
Commercial Business Loans
We provide commercial loans to businesses for various purposes such as for working capital, purchasing inventory, debt refinancing, business acquisitions and other business related financing needs. Commercial loans are typically classified as (1) short-term loans (or lines of credit) or (2) long-term loans (or term loans to businesses). Short term loans are often used to finance current assets such as inventory and accounts receivable and typically have terms of one year with interest paid monthly on the outstanding balance and the principal balance due at maturity. Long term loans typically have terms of 5 to 7 years with principal and interest paid monthly. The credit worthiness of our borrowers is determined before a loan is originated and is periodically reviewed to ascertain whether credit quality changes have occurred. Commercial business loans are typically collateralized by the borrower’s business assets and/or real estate.
Our commercial business loan portfolio includes trade finance loans from BBCN Bank’s Corporate Banking Center, which generally serves businesses involved in international trade activities. These loans are typically collateralized by business assets and are used to meet the short-term working capital needs (accounts receivable and inventory financing) of our borrowers. The International Operations Department issues and advises on letters of credit for export and import businesses. The underwriting procedure for this type of credit is the same as for commercial business loans. We offer the following types of letters of credit to customers:
•
Commercial: An undertaking by the issuing bank to pay for a commercial transaction.
•
Standby: An undertaking by the issuing bank to pay for the non-performance of the applicant customer.
•
Revocable: Letter of credit that can be modified or cancelled by the issuing bank at any time with notice to the beneficiary (does not provide the beneficiary with a firm promise of payment).
•
Irrevocable: Letter of credit that cannot be altered or cancelled without mutual consent of all parties.
•
Sight: Letter of credit requiring payment upon presentation of conforming shipping documents.
•
Usance: Letter of credit which allows the buyer to delay payment up to a designated number of days after presentation of shipping documents.
•
Import: Letter of credit issued to assist customers in purchasing goods from overseas.
•
Export: Letter of credit issued to assist customers selling goods to overseas.
•
Transferable: Letter of credit which allows the beneficiary to transfer its drawing (payment) rights, in part or full, to another party.
•
Non-transferable: Letter of credit which does not allow the beneficiary to transfer their right, in part or full, to another.
Our trade finance services include the issuance and negotiation of letters of credit, as well as the handling of documentary collections. On the export side, we provide advice and negotiation of commercial letters of credit, and we transfer and issue

5
Table of Contents


back-to-back letters of credit. We also provide importers with trade finance lines of credit, which allow for the issuance of commercial letters of credit and the financing of documents received under such letters of credit, as well as documents received under documentary collections. Exporters are assisted through export lines of credit as well as through immediate financing of clean documents presented under export letters of credit.
Commercial Real Estate Loans
Real estate loans are extended for the purchase and refinance of commercial real estate and are generally secured by first deeds of trust. The maturities on the majority of such loans are five to seven years with a 25-year principal amortization schedule and a balloon payment due at maturity. We offer both fixed and floating rate commercial real estate loans. It is our general policy to restrict commercial real estate loan amounts to 75% of the appraised value of the property at the date of origination.
Small Business Administration Loans
The Bank also extends loans partially guaranteed by the SBA. The Bank primarily extends SBA loans known as SBA 7(a) loans and SBA 504 loans. SBA 7(a) loans are typically extended for working capital needs, purchase of inventory, purchase of machinery and equipment, debt refinance, business acquisitions, start-up financing, or to purchase or construct owner-occupied commercial property. SBA 7(a) loans are typically term loans with maturities up to 10 years for loans not secured by real estate and up to 25 years for real estate secured loans. SBA loans are fully amortizing with monthly payments of principal and interest. SBA 7(a) loans are typically floating rate loans that are secured by business assets and/or real estate. Depending on the loan amount, each loan is typically guaranteed 75% to 85% by the SBA, with a maximum gross loan amount to any one small business borrower of $5.0 million, and a maximum SBA guaranteed amount of $3.75 million.
We are generally able to sell the guaranteed portion of the SBA 7(a) loans in the secondary market at a premium, while earning servicing fee income on the sold portion over the remaining life of the loan. In addition to the interest yield earned on the unguaranteed portion of the SBA 7(a) loans that are not sold, we recognize income from gains on sales and from loan servicing on the SBA 7(a) loans that are sold.
SBA 504 loans are typically extended for the purpose of purchasing owner-occupied commercial real estate or long-term capital equipment. SBA 504 loans are typically extended for up to 20 years or the life of the asset being financed. SBA 504 loans are financed as a participation loan between the Bank and the SBA through a Certified Development Company (“CDC”). Generally, the loans are structured so as to give the Bank a 50% first deed of trust (“TD”), the CDC a 40% second TD, and the remaining 10% is funded by the borrower. Interest rates for the first TD Bank loans are subject to normal bank commercial rates and terms, and the second TD CDC loans are fixed for the life of the loans based on certain indices.
All of our SBA loans are originated through BBCN Bank’s SBA Loan Departments. The SBA Loan Departments are staffed by loan officers who provide assistance to qualified businesses. The Bank has been designated as an SBA Preferred Lender, which is the highest designation awarded by the SBA. This designation generally facilitates a more efficient marketing and approval process for SBA loans. We have attained SBA Preferred Lender status nationwide.
Consumer Loans
Our consumer loans consist of auto loans, home equity, and signature loans, with a majority of our consumer loan portfolio currently consisting of auto loans. Effective January 1, 2008, we discontinued originating new home equity loans, due to the lack of scalability and profitability of these types of loans. The consumer loans totaled $50.0 million at December 31, 2012 .

Investing Activities
The main objectives of our investment strategy are to provide a source of on-balance sheet liquidity while providing a means to manage our interest rate risk, and to generate an adequate level of interest income without taking undue risks. Subject to various restrictions, our investment policy permits investment in various types of securities, certificates of deposit (“CD”s) and federal funds sold. Our investment portfolio consists of U.S. Treasury bills, government sponsored agency bonds, mortgage backed securities, collateralized mortgage obligations (“CMOs”), corporate bonds, municipal bonds, and mutual funds. For a detailed breakdown of our investment portfolio, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – Investment Security Portfolio.”
Our securities are classified for accounting purposes as available-for-sale. We do not maintain held-to-maturity or trading portfolios. Securities purchased to meet investment-related objectives, such as liquidity management or interest rate risk and which may be sold as necessary to implement management strategies, are designated as available-for-sale at the time of purchase. At December 31, 2012 , we had $704.4 million in securities available-for-sale. We purchased $184.3 million and sold $27.5 million in investment securities during 2012 .



6
Table of Contents


Deposit Activities
We attract both short-term and long-term deposits from the general public by offering a wide range of deposit products and services. Through our branch network, we provide our banking customers with personal and business checking accounts, money market accounts, savings, certificates of deposit, individual retirement accounts, 24-hour ATMs, internet banking and bill-pay, remote deposit capture, lock box and ACH origination services. In addition to our retail deposits, we obtain both secured and unsecured wholesale deposits including public deposits such as State of California Treasurer's time deposits, brokered money market and time deposits, and deposits gathered from outside of the Bank's normal market area through deposit listing services.
FDIC-insured deposits are our primary source of funds. As part of our asset-liability management, we analyze our retail and wholesale deposits’ maturities and interest rates to monitor and manage the cost of funds, to the extent feasible in the context of changing market conditions, as well as to promote stability in our supply of funds. For more deposit information, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – Deposits.”

Borrowing Activities
When we have more funds than required for our reserve requirements or short-term liquidity needs, we sell federal funds to other financial institutions. Conversely, when we have less funds than required, we may borrow funds from the Federal Home Loan Bank of San Francisco (“FHLB”), the Federal Reserve Bank of San Francisco or our correspondent banks. In addition, we may borrow from the FHLB on a longer term basis to provide funding for certain loan or investment securities strategies, as well as asset-liability management strategies.
The FHLB functions in a reserve credit capacity for qualifying financial institutions. As a member, we are required to own capital stock in the FHLB and may apply for advances from the FHLB utilizing qualifying mortgage loans and certain securities as collateral. The FHLB offers a full range of borrowing programs on its advances, with terms ranging from one day to thirty years, at competitive market rates. A prepayment penalty is usually imposed for early repayment of these advances. Information concerning FHLB borrowings is included in Note 7 of “Notes to Consolidated Financial Statements.”
We may also borrow from the Federal Reserve Bank of San Francisco. The maximum amount that we may borrow from the Federal Reserve Bank’s discount window is up to 95% of the outstanding principal balance of the qualifying loans and the fair value of the securities that we pledge. At December 31, 2012 , the principal balance of the qualifying loans was $516.7 million and the collateral value of investment securities was $411 thousand , and no borrowings were outstanding against this line.

Market Area and Competition
We have 40 banking offices in areas having high concentrations of Korean Americans, of which 30 are located in the Los Angeles, Orange County, Oakland and Silicon Valley (Santa Clara County) areas of California, 7 are located in the New York metropolitan area and New Jersey, 2 are in Washington, and 1 is in Chicago. We also have five loan production offices located in the Dallas, Seattle, Atlanta, Northern California, and Denver markets. The banking and financial services industry generally, and in our market areas specifically, are highly competitive. The increasingly competitive environment is a result primarily of strong competition among the banks servicing the Korean-American community, changes in regulation, changes in technology and product delivery systems, and the consolidation among financial services companies. In addition, federal legislation may have the effect of further increasing the pace of consolidation within the financial services industry. See “Supervision and Regulation.”
We compete for loans, deposits, and customers with other commercial banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market funds, credit unions, and other non-bank financial service providers. Many of these competitors are much larger in total assets and capitalization, have greater access to capital markets, are more widely recognized, have broader geographic scope, and offer a broader range of financial services than we do.

Economic Conditions, Government Policies and Legislation
Our profitability, like that of most financial institutions, depends, among other things, on interest rate differentials. In general, the difference between the interest expense on interest-bearing liabilities, such as deposits and borrowings, and the interest income on our interest-earning assets, such as loans we extend to our customers and securities held in our investment portfolio, as well as the level of non-interest bearing deposits, have a significant impact on our profitability. Interest rates are highly sensitive to many factors that are beyond our control, such as the economy, inflation, unemployment, consumer spending and political events. The impact that future changes in domestic and foreign economic and political conditions might have on our performance cannot be predicted.

7
Table of Contents


Our business is also influenced by the monetary and fiscal policies of the federal government and the policies of regulatory agencies, particularly the FRB. The FRB implements national monetary policies (with objectives such as curbing inflation or preventing recession) through its open-market operations in U.S. government securities, by adjusting the required level of reserves for depository institutions subject to its reserve requirements, and by varying the targeted federal funds and discount rates applicable to borrowings by depository institutions. The actions of the FRB in these areas influence the growth of bank loans, investments, and deposits and also affect interest rates earned on interest-earning assets and paid on interest-bearing liabilities. The nature and impact on BBCN Bancorp and the Bank of future changes in monetary and fiscal policies cannot be predicted.
From time to time, legislation and regulations are enacted or adopted which have the effect of increasing the cost of doing business, limiting or expanding permissible activities, or affecting the competitive balance between banks and other financial services providers. Proposals to change the laws and regulations governing the operations and taxation of banks, bank holding companies, and other financial institutions and financial services providers are frequently made in the U.S. Congress, in state legislatures, and various regulatory agencies. These proposals may result in changes in banking statutes and regulations and our operating environment in substantial and unpredictable ways. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. We cannot predict whether any of this potential legislation will be enacted, and if enacted, the effect that it, or any implementing regulations, would have on our financial condition or results of operations. See “Supervision and Regulation.”

Supervision and Regulation
General
As a California state-chartered bank whose accounts are insured by the FDIC, BBCN Bank is subject to regulation, supervision and regular examination by the California Department of Financial Institutions (the “DFI”) and the FDIC. Such supervision and regulation covers substantially all of its business activities, including, among others, capital standards, general investment authority, deposit taking and borrowing authority, mergers, establishment of branch offices, and permitted subsidiary investments and activities. In addition, while BBCN Bank is not a member of the FRB, the Bank is subject to certain regulations of the FRB. BBCN Bancorp is registered with and subject to examination by the FRB as a bank holding company and is also subject to the bank holding company provisions of the California Financial Code. These regulatory systems are intended primarily for the protection of depositors, the FDIC insurance fund and the banking system as a whole, rather than for the protection of shareholders or other investors.
The following paragraphs summarize certain of the laws and regulations that apply to us and to the Bank. These descriptions of statutes and regulations and their possible effects do not purport to be complete descriptions of all of the provisions of those statutes and regulations and their possible effects on us, nor do they purport to identify every statute and regulation that may apply to us.
Recent Developments
In response to the economic downturn and financial industry instability, legislative and regulatory initiatives have been, and will likely continue to be, introduced and implemented, which could substantially intensify the regulation of the financial services industry. We cannot predict whether or when potential legislation or new regulations will be enacted, and if enacted, the effect that new legislation or any implemented regulations and supervisory policies would have on our financial condition and results of operations. Moreover, especially in the current economic environment, bank regulatory agencies have been very aggressive in responding to concerns and trends identified in examinations, and this has resulted in the increased issuance of enforcement actions to financial institutions requiring action to address credit quality, liquidity and risk management and capital adequacy, as well as other safety and soundness concerns.
Through its authority under the Emergency Economic Stabilization Act of 2008 (the “EESA”), as amended by the American Recovery and Reinvestment Act of 2009 (the “ARRA”), the U.S. Treasury (the “Treasury”) implemented the Capital Purchase Program under the Treasury's Troubled Asset Relief Program (the “CPP”), a program designed to bolster eligible healthy institutions by injecting capital into these institutions. We participated in the CPP so that we could continue to lend and support our current and prospective clients, especially during this unstable economic environment. Under the terms of our participation, we issued $67 million of our Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “Series A Preferred Stock”) and a warrant to purchase common stock and thereby became subject to various requirements, including certain restrictions on paying dividends on our common stock and repurchasing our equity securities, unless the Treasury has consented. Additionally, in order to participate in the CPP, we were required to adopt certain standards for executive compensation and corporate governance. Upon the merger with Center Financial, the $55 million of Fixed Rate Cumulative Perpetual Preferred Stock, Series A that Center Financial issued to the Treasury pursuant to the CPP was converted into a new series of BBCN Preferred Stock, designated as Fixed Rate Cumulative Perpetual Stock, Series B, having substantially the same

8
Table of Contents


rights, preferences, privileges and voting powers as Center Financial's Series A Preferred Stock. In June 2012, we redeemed $67 million and $55 million of the aforementioned Series A and B Preferred Stock, respectively, that was issued under the CPP.
Bank Holding Company Regulation
BBCN Bancorp is registered as a bank holding company pursuant to the Bank Holding Company Act (“BHCA”) and that capacity is subject to supervision and examination by the FRB and its authority to:
•
Require periodic reports and such additional information as the FRB may require;
•
Require bank holding companies to maintain regulatory specified levels of capital, which may be increased for individual holding companies if deemed appropriate by the FRB (See “Capital Requirements”);
•
Require that bank holding companies serve as a source of financial and managerial strength to subsidiary banks and commit resources as necessary to support each subsidiary bank;
•
Restrict the ability of bank holding companies to obtain dividends or other distributions from their subsidiary banks;
•
Terminate an activity or terminate control of or liquidate or divest subsidiaries, affiliates or investments if the FRB determines the activity or the control of the subsidiary or affiliate constitutes a significant risk to the financial safety, soundness or stability of any bank subsidiary;
•
Require prior approval of senior executive officer or director changes;
•
Regulate provisions of certain bank holding company debt and require prior approval to purchase or redeem securities in certain situations; and
•
Approve or disapprove acquisitions and mergers with banks and consider competitive, management, financial or other factors in granting these approvals, in addition to similar federal, California or other state banking agency approvals which may also be required.
The FRB’s view is that, in serving as a source of strength to its subsidiary banks, a bank holding company should stand ready to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity and should maintain financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks. A bank holding company’s failure to meet its source-of-strength obligations may constitute an unsafe and unsound practice or a violation of the FRB’s regulations, or both. The source-of-strength doctrine most directly affects bank holding companies where a bank holding company’s subsidiary bank fails to maintain adequate capital levels. In such a situation, the subsidiary bank will be required by the bank’s federal regulator to take “prompt corrective action.” See “Prompt Corrective Action” below.
Subject to prior notice or FRB approval, bank holding companies may generally engage in, or acquire shares of companies engaged in, activities determined by the FRB to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Bank holding companies which elect and retain “financial holding company” status pursuant to the Gramm-Leach-Bliley Act of 1999 (“GLBA”) may engage without prior FRB approval in these nonbanking activities and broader securities, insurance, merchant banking and other activities that are determined by the FRB, in consultation with the Treasury, to be “financial in nature” or are incidental or complementary to activities that are financial in nature. In order to elect and retain financial holding company status, all depository institution subsidiaries of a bank holding company must be well capitalized, well managed, and, except in limited circumstances, be in satisfactory compliance with the Community Reinvestment Act (“CRA”), which requires banks to help meet the credit needs of the communities in which they operate. Failure to maintain compliance with these requirements or correct any non-compliance within a fixed time period could lead to required divestiture of subsidiary banks or a requirement to conform all of the holding company's activities to those permissible for a bank holding company. BBCN Bancorp has not elected financial holding company status.
Securities Exchange Act of 1934
BBCN Bancorp’s common stock is publicly held and listed on the NASDAQ Global Select Market, and BBCN Bancorp is subject to the periodic reporting, information, proxy solicitation, insider trading, corporate governance and other requirements and restrictions of the Securities Exchange Act of 1934 and the regulations of the SEC promulgated hereunder and the NASDAQ listing requirements.
Sarbanes-Oxley Act
BBCN Bancorp is subject to the accounting oversight and corporate governance requirements of the Sarbanes-Oxley Act of 2002, which, among other things, requires executive certification of financial presentations, increased requirements for board audit committees and their members, and enhanced disclosure of controls and procedures and internal control over financial reporting.

9
Table of Contents


Dodd-Frank Act
As required by the Dodd-Frank Act, the FDIC adopted a new Deposit Insurance Fund ("DIF") restoration plan which became effective on January 1, 2011. Among other things, the plan: (1) raises the minimum designated reserve ratio, which the FDIC is required to set each year, to 1.35 percent (from the former minimum of 1.15 percent) and removes the upper limit on the designated reserve ratio (which was formerly capped at 1.5 percent) and consequently on the size of the fund; (2) requires that the fund reserve ratio reach 1.35 percent by September 30, 2020 (rather than 1.15 percent by the end of 2016, as formerly required); (3) requires that, in setting assessments, the FDIC offset the effect of requiring that the reserve ratio reach 1.35 percent by September 30, 2020, rather than 1.15 percent by the end of 2016 on insured depository institutions with total consolidated assets of less than $10 billion; (4) eliminates the requirement that the FDIC provide dividends from the fund when the reserve ratio is between 1.35 percent and 1.5 percent; and (5) continues the FDIC’s authority to declare dividends when the reserve ratio at the end of a calendar year is at least 1.5 percent, but grants the FDIC sole discretion in determining whether to suspend or limit the declaration or payment of dividends. The Federal Deposit Insurance Act continues to require that the FDIC’s Board of Directors consider the appropriate level for the designated reserve ratio annually and, if changing the designated reserve ratio, engage in notice-and-comment rule making before the beginning of the calendar year. The FDIC has set a long-term goal of getting its reserve ratio up to 2% of insured deposits by 2027.
On February 7, 2011, the FDIC approved a final rule, as mandated by the Dodd-Frank Act, changing the deposit insurance assessment system from one that is based on total domestic deposits to one that is based on average consolidated total assets minus average tangible equity. In addition, the final rule creates a scorecard-based assessment system for larger banks (those with more than $10 billion in assets) and suspends dividend payments if the DIF reserve ratio exceeds 1.5 percent, but provides for decreasing assessment rates when theDIF reserve ratio reaches certain thresholds. Larger insured depository institutions will likely pay higher assessments to the DIF than under the old system. Additionally, the final rule includes a new adjustment for depository institution debt whereby an institution would pay an additional premium equal to 50 basis points on every dollar of long-term, unsecured debt held as an asset that was issued by another insured depository institution (excluding debt guaranteed under the FDIC’s Temporary Liquidity Guarantee Program) to the extent that all such debt exceeds 3 percent of the other insured depository institution’s Tier 1 capital.
Many aspects of the Dodd-Frank Act, which address a wide variety of banking activities other than deposit insurance, are subject to rule making and will take effect over several years, making it difficult to anticipate the overall financial impact on us, our customers or the financial industry more generally. Provisions in the legislation that affect deposit insurance assessments, payment of interest on demand deposits, and interchange fees could increase the costs associated with deposits as well as place limitations on certain revenues that those deposits may generate.
Bank Regulation
BBCN Bank is subject to regulation, supervision, and regular examination by the DFI and the FDIC. In addition, while the Bank is not a member of the Federal Reserve System, the Bank is subject to certain regulations of the FRB. Federal and state laws and regulations which are specifically applicable to banks regulate, among other things, the scope of their business, their investments, their reserves against deposits, the timing of the availability of deposited funds, their activities relating to dividends, investments, loans, the nature and amount of and collateral for certain loans, borrowings, capital requirements, certain check-clearing activities, branching, and mergers and acquisitions. California banks are also subject to FRB Regulation O, and Federal Reserve Act Sections 23A and 23B and FRB Regulation W, which restrict or limit loans or extensions of credit to “insiders”, including officers, directors and principal shareholders, and loans or extension of credit by banks to affiliates or purchases of assets from affiliates, including parent bank holding companies, except pursuant to certain limits and exceptions and only on terms and conditions at least as favorable as those prevailing for comparable transactions with unaffiliated parties.
The federal and California regulatory structure gives the bank regulatory agencies extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate allowances for loan losses for regulatory purposes. The regulatory agencies have adopted guidelines to assist in identifying and addressing potential safety and soundness concerns. The guidelines establish operational and managerial standards generally relating to: (1) internal controls, information systems, and internal audit systems; (2) loan documentation; (3) credit underwriting; (4) interest-rate risk exposure; (5) asset growth and asset quality; and (6) compensation, fees, and benefits. Further, the regulatory agencies have adopted safety and soundness guidelines for asset quality and for evaluating and monitoring earnings to ensure that earnings are sufficient for the maintenance of adequate capital and reserves. If, as a result of an examination, the DFI or the FDIC should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of the bank’s operations are unsatisfactory or that the bank or its management is violating or has violated any law or regulation, the DFI and the FDIC have authority to:
•
Require affirmative action to correct any conditions resulting from any violation or practice;

10
Table of Contents


•
Direct an increase in capital and the maintenance of higher specific minimum capital ratios, which would preclude the bank from being deemed well capitalized and restrict its ability to accept certain brokered deposits;
•
Restrict the bank’s growth geographically, by products and services, or by mergers and acquisitions;
•
Enter into or issue informal or formal enforcement actions, including memoranda of understanding, written agreements and consent or cease and desist orders or prompt corrective action orders to take corrective action and cease unsafe and unsound practices;
•
Require prior approval of senior executive officer or director changes;
•
Remove officers and directors and assess civil monetary penalties; and
•
Take possession of, close and liquidate the bank or appoint the FDIC as conservator or receiver under certain circumstances.
Under the California Financial Code and the Federal Deposit Insurance Act (“FDI Act”), California state chartered commercial banks may generally engage in any activity permissible for national banks. Additionally, BBCN Bank may form subsidiaries to engage in the many so-called “closely related to banking” or “nonbanking” activities commonly conducted by national banks in operating subsidiaries. Further, California banks may conduct certain “financial” activities in a subsidiary to the same extent that national banks may conduct such activities, provided the bank is and remains well capitalized, well managed and in satisfactory compliance with the CRA. BBCN Bank currently does not conduct activities in subsidiaries.
Capital Requirements
The federal banking agencies have adopted risk-based capital guidelines for bank holding companies and banks that are expected to provide a measure of capital that reflects the degree of risk associated with a banking organization’s operations for both transactions reported on the balance sheet as assets, such as loans, and those recorded as off-balance sheet items, such as commitments, letters of credit and recourse arrangements. Under these capital guidelines, a banking organization is required to maintain its capital above certain minimum capital ratios, which are computed by dividing its qualifying capital by its total risk-adjusted assets and off-balance sheet items. In general, the dollar amounts of assets and certain off-balance sheet items are “risk-adjusted” and assigned to various risk categories. Qualifying capital is classified depending on the type of capital as follows:
•
“Tier 1 capital” consists of common equity, retained earnings, qualifying non-cumulative perpetual preferred stock, a limited amount of qualifying cumulative perpetual preferred stock and minority interests in the equity accounts of consolidated subsidiaries (including trust-preferred securities), less goodwill and certain other intangible assets. In determining bank holding company compliance with holding company level capital requirements, qualifying Tier 1 capital may consist of trust-preferred securities, subject to certain criteria and quantitative limits for inclusion of restricted core capital elements in Tier 1 capital.
•
“Tier 2 capital” includes, among other things, hybrid capital instruments, perpetual debt, mandatory convertible debt securities, qualifying term subordinated debt, preferred stock that does not qualify as Tier 1 capital, and a limited amount of allowance for loan and lease losses.
•
“Tier 3 capital” consists of qualifying unsecured subordinated debt.
Under the capital guidelines, there currently are three fundamental capital ratios: a total risk-based capital ratio, a Tier 1 risk-based capital ratio and a Tier 1 leverage ratio. To be deemed “well capitalized” a bank must have a total risk-based capital ratio, a Tier 1 risk-based capital ratio and a Tier 1 leverage ratio of at least 10%, 6% and 5%, respectively. At December 31, 2012 , the respective capital ratios of BBCN Bancorp and BBCN Bank exceeded the minimum percentage requirements to be deemed “well-capitalized.” Further information is provided in the schedule in Note 14 of Notes to Consolidated Financial Statements.
Pursuant to federal regulations, banks must maintain capital levels commensurate with the level of risk to which they are exposed, including the volume and severity of problem loans. The federal banking agencies may change existing capital guidelines or adopt new capital guidelines in the future and have required many banks and bank holding companies subject to enforcement actions to maintain capital ratios in excess of the minimum ratios otherwise required to be deemed well capitalized, in which case institutions may no longer be deemed well capitalized and may therefore be subject to restrictions on taking brokered deposits.
BBCN Bancorp and BBCN Bank are required by the U.S. bank regulatory agencies to also maintain a leverage capital ratio designed to supplement the risk-based capital guidelines. Banks and bank holding companies that have received the highest rating of the five categories used by regulators to rate banks and that are not anticipating or experiencing any significant growth must maintain a ratio of Tier 1 capital (net of all intangibles) to average total assets of at least 3%. All other institutions

11
Table of Contents


are required to maintain a leverage ratio of at least 100 to 200 basis points above the 3% minimum, for a minimum of 4% to 5%. As of December 31, 2012, BBCN Bancorp and BBCN Bank's leverage capital ratios were 14.9% and 14.5%, respectively, exceeding regulatory minimums.
The current risk-based capital guidelines are based upon the 1988 capital accord of the Basel Committee on Banking Supervision, a committee of central banks and bank supervisors and regulators from the major industrialized countries that develops broad policy guidelines for use by each country’s supervisors in determining the supervisory policies they apply. In December 2010, the Basel Committee published an agreement among its member country bank regulatory authorities to establish a new set of capital and other standards for major banking institutions, commonly referred to as Basel III. Under these standards, when fully phased in on January 1, 2019, banking institutions will be required to maintain a heightened Common Equity Tier 1 capital ratio, Tier 1 capital ratio, and Total capital ratio. Common Equity Tier 1 capital ratio and Tier 1 capital ratio requirements will be phased in incrementally between January 1, 2013 and January 1, 2015; the deductions from common equity made in calculating Common Equity Tier 1 capital ratio will be phased in incrementally over a four-year period commencing on January 1, 2014; and the capital conservation buffer will be phased in incrementally between January 1, 2016 and January 1, 2019. Under proposed implementing regulations issued by the United States federal banking regulatory agencies in June 2012, which have not yet been finally adopted, the current bank capital standards would be revised to a requirement consisting of four fully phased-in minimum capital ratios, including (1) a ratio of Common Equity Tier 1 capital to risk-weighted assets of 4.5%, (2) a Tier 1 capital to risk-weighted assets of 6.0%, (3) a Total capital to risk-weighted assets of 8% and (4) a “leverage ratio” of Tier 1 capital (with certain deductions) to average consolidated assets of 4%. For this purpose, Common equity Tier 1 capital will consist of common stock and related surplus. Total Tier 1 capital will include non-cumulative perpetual preferred stock. The rule proposal would also change the capital standards set forth in the capital category definitions used in the prompt corrective action regulations discussed below to refer to the new capital ratios and increasing the levels of captial required to be considered “well capitalized” under those regulations.
Prompt Corrective Action
The federal banking agencies have issued regulations pursuant to the FDI Act defining five categories in which an insured depository institution will be assigned, based on the level of its capital ratios: well-capitalized, adequately-capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. A bank that may otherwise meet the minimum requirements to be classified as well-capitalized, adequately capitalized, or undercapitalized may be treated instead as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition, or an unsafe or unsound practice, warrants such treatment. Under the prompt corrective action regulations, the subsidiary bank will be required to submit to its federal regulator a capital restoration plan and to comply with the plan. Each parent company that controls the subsidiary bank will be required to provide assurances of compliance by the bank with the capital restoration plan. However, the aggregate liability of such parent companies will not exceed the lesser of (i) 5% of the bank’s total assets at the time it became undercapitalized and (ii) the amount necessary to bring the bank into compliance with the plan. Failure to restore capital under a capital restoration plan can result in the bank’s being placed into receivership if it becomes critically undercapitalized. A bank subject to prompt corrective action also may affect its parent bank holding company in other ways. These include possible restrictions or prohibitions on dividends to the parent bank holding company by the bank; subordinated debt payments to the parent; and other transactions between the bank and the holding company. In addition, the regulators may impose restrictions on the ability of the holding company itself to pay dividends; require divestiture of holding company affiliates that pose a significant risk to the bank; or require divestiture of the undercapitalized subsidiary bank. At each successive lower-capital category, an insured bank may be subject, at the agencies’ discretion, to more restrictions under the agencies’ prompt corrective action regulations, including restrictions on the bank’s activities.
Deposit Insurance
The FDIC is an independent federal agency that insures deposits of federally insured banks and savings institutions, up to prescribed statutory limits for each depositor, through the DIF and safeguards the safety and soundness of the banking and savings industries. The FDIC insures our customer deposits. The Dodd-Frank Act permanently raised the standard maximum deposit insurance amount to $250,000. On November 9, 2010, the FDIC Board of Directors issued a final rule to implement the Dodd-Frank Act that provides temporary unlimited deposit insurance coverage for non-interest bearing accounts from December 31, 2010, through December 31, 2012. This temporary unlimited coverage is in addition to, and separate from, the coverage of at least $250,000 available to depositors under the FDIC's general deposit insurance rules.
The amount of FDIC assessments paid by each DIF member institution is based on its relative risk of default as measured by regulatory capital ratios and other supervisory factors. Since 2008, there have been higher levels of bank failures which has dramatically increased resolution costs of the FDIC and depleted the DIF. In order to maintain a strong funding position and restore reserve ratios of the DIF, the FDIC has increased assessment rates of insured institutions and may continue to do so in the future. As of December 31, 2012 , the Bank’s assessment rate averaged 5 cents per $100 in assessable deposits. On

12
Table of Contents


November 12, 2009, the FDIC adopted a requirement for institutions to prepay in 2009 their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012.
We are generally unable to control the amount of premiums that we are required to pay for FDIC insurance. If there are additional bank or financial institution failures or if the FDIC otherwise determines, we may be required to pay even higher FDIC premiums than the recently increased levels. These announced increases and any future increases in FDIC insurance premiums may have a material and adverse affect on our earnings. Further, all FDIC-insured institutions are required to pay assessments to the FDIC to fund interest payments on bonds issued by the Financing Corporation (“FICO”), an agency of the Federal government established to recapitalize the predecessor to the DIF. The FICO assessment rates, which are determined quarterly, averaged 0.015% of insured deposits in fiscal 2012 . These assessments will continue until the FICO bonds mature in 2017.
The FDIC has redefined its deposit insurance premium assessment base to be an institution’s average consolidated total assets minus average tangible equity as required by the Dodd-Frank Act and revised deposit insurance assessment rate schedules in light of the changes to the assessment base. The proposed rate schedule and other revisions to the assessment rules, which were adopted by the FDIC Board of Directors on February 7, 2011, became effective April 1, 2011 and were used to calculate the assessment for 2012. Our FDIC insurance expense totaled $2.4 million in 2012 .
The FDIC may terminate a depository institution’s deposit insurance upon a finding that the institution’s financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices that pose a risk to the DIF or that may prejudice the interest of the bank’s depositors. The termination of deposit insurance for a bank would also result in the revocation of the bank’s charter by the DFI.
Restrictions on Dividends and Other Capital Distributions
Under the California Financial Code, the Bank is permitted to pay dividends out of the Bank’s net profits up to the lesser of retained earnings or the Bank’s net income for the last three fiscal years (less any distributions made to shareholders during such period), or with the prior written approval of the DFI, in an amount not exceeding the greatest of (i) the Bank’s retained earnings, (ii) its net income for the Bank’s last fiscal year and (iii) the Bank’s net income for its current fiscal year.
It is the FRB’s policy that bank holding companies generally pay dividends on common stock only out of income available over the past year, and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. It is also the FRB’s policy that bank holding companies should not maintain dividend levels that undermine their ability to be a source of strength to their banking subsidiaries. Additionally, in consideration of the current financial and economic environment, the FRB has indicated that bank holding companies should carefully review their dividend policy and has discouraged payment ratios that are at maximum allowable levels unless both asset quality and capital are very strong.
Operations and Consumer Compliance Laws
The Bank must comply with numerous federal anti-money laundering and consumer protection statutes and implementing regulations, including but not limited to the Truth in Savings Act, Electronic Funds Transfer Act, Expedite Funds Availability Act, the USA PATRIOT Act of 2001, the Bank Secrecy Act, the CRA, the Equal Credit Opportunity Act, the Truth in Lending Act, the National Flood Insurance Act and various other federal and state privacy protection laws. Noncompliance with these laws could subject the Bank to lawsuits and could also result in administrative penalties, including, fines and reimbursements. BBCN Bancorp and the Bank are also subject to federal and state laws prohibiting unfair or fraudulent business practices, untrue or misleading advertising and unfair competition.
These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits, making loans, collecting loans, and providing other services. Failure to comply with these laws and regulations can subject the Bank to various penalties, including but not limited to enforcement actions, injunctions, fines or criminal penalties, punitive damages to consumers, and the loss of certain contractual rights.
On  November 18, 2009, the Department of Justice entered a Consent Decree  (CD) in the case of the United States v. Nara Bank  relating to Nara Bank's past indirect auto lending practices.  Although Nara Bank exited indirect auto lending in 2006 and BBCN Bank exited indirect auto lending as of December 1, 2011,  BBCN Bank has acceded to the former Nara Bank's obligations under the CD.  The CD will remain in place until the year 2013 and prescribes ongoing compliance with the provisions of the Equal Credit Opportunity Act.  Given the impact the economic environment has had on consumers, Fair Lending remains a high priority of regulators.

Employees
As of December 31, 2012 , we had 704 full-time equivalent employees. None of our employees are represented by a union or covered by a collective bargaining agreement. Management believes that its relations with its employees are good.


13
Table of Contents


Item 1A.
RISK FACTORS
Before deciding to purchase, hold or sell our common stock, you should carefully consider the risks described below in addition to the other cautionary statements and risks described elsewhere, and the other information contained, in this Report and in our other filings with the SEC, including our subsequent reports on Forms 10-Q and 8-K. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business. If any of these known or unknown risks or uncertainties actually occurs, our business, financial condition and results of operations may be seriously harmed. In that event, the market price for our common stock will likely decline.
Economic conditions in California, New York or other markets in which we operate may adversely affect our loan portfolio and reduce the demand for our services. We focus our business primarily in Korean-American communities in California, the greater New York City metropolitan area, New Jersey, Chicago, and the Seattle area. Adverse economic conditions in our market areas have had a material adverse impact on the quality of our business. A continued economic slowdown in California, New York or other markets in which we operate may have any or all of the following consequences, any of which may reduce our net income and adversely affect our financial condition:
•
loan delinquencies may increase;
•
problem assets and foreclosures may increase;
•
the level and duration of deposits may decline;
•
demand for our products and services may decline; and
•
collateral for loans may decline in value below the principal amount owed by the borrower.
We have a high level of loans secured by real estate collateral. A further downturn in the real estate market may seriously impair our loan portfolio . As of December 31, 2012 , approximately 74% of our loan portfolio consisted of loans secured by various types of real estate. There has been a general slowdown in the economy and declines in value in the commercial real estate market in Southern California, along with high levels of unemployment. Continued deterioration in the real estate market generally and in commercial real estate values in particular, along with high levels of unemployment, may result in additional loan charge-offs and provisions for loan losses, which may have an adverse effect on our net income and capital levels.
Our allowance for loan losses may not cover actual loan losses . If our actual loan losses exceed the amount we have allocated for estimated probable incurred losses, our business will be adversely affected. We attempt to limit the risk that borrowers will fail to repay loans by carefully underwriting our loans, but losses nevertheless occur in the ordinary course of business operations. We create allowances for estimated loan losses through provisions that are recorded as reductions in income in our accounting records. We base these allowances on estimates of the following:
•
historical experience with our loans;
•
evaluation of current economic conditions and other factors;
•
reviews of the quality, mix and size of the overall loan portfolio;
•
reviews of delinquencies; and
•
the quality of the collateral underlying our loans.
If our allowance estimates are inadequate, we may incur losses, our financial condition may be materially and adversely affected and we may be required to raise additional capital to enhance our capital position. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the adequacy of our allowance. These agencies may require us to establish additional allowances based on their judgment of the information available at the time of their examinations. No assurance can be given that we will not sustain loan losses in excess of present or future levels of the allowance for loan losses.
Changes in interest rates affect our profitability . The interest rate risk inherent in our lending, investing, and deposit taking activities is a significant market risk to us and our business. We derive our income mainly from the difference or “spread” between the interest earned on loans, securities and other interest-earning assets, and interest paid on deposits, borrowings and other interest-bearing liabilities. In general, the wider the spread, the more net interest income we earn. When market rates of interest change, the interest we receive on our assets and the interest we pay on our liabilities will fluctuate. This can cause decreases in our spread and can greatly affect our income. In addition, interest rate fluctuations can affect how much money we may be able to lend. There can be no assurance that we will be successful in minimizing the adverse effects of changes in interest rates.

14
Table of Contents


If we lose key employees, our business may suffer . There is intense competition for experienced and highly qualified personnel in the Korean-American banking industry. Our future success depends on the continued employment of existing senior management personnel. If we lose key employees temporarily or permanently, it may hurt our business. We may be particularly hurt if our key employees became employed by our competitors in the Korean-American banking industry. Effective as of the close of business on January 31, 2013, Alvin Kang stepped down from his position as President and Chief Executive Officer. The Board of Directors has established an Executive Council to carry out the responsibilities of the chief executive. We have retained an executive search firm to initiate a formal search for a new chief executive officer.
Environmental laws may force us to pay for environmental problems . The cost of cleaning up or paying damages and penalties associated with environmental problems may increase our operating expenses. When a borrower defaults on a loan secured by real property, we often purchase the property in foreclosure or accept a deed to the property surrendered by the borrower. We may also take over the management of commercial properties whose owners have defaulted on loans. We also lease premises where our branches and other facilities are located and where environmental problems may exist. Although we have lending, foreclosure and facilities guidelines that are intended to exclude properties with an unreasonable risk of contamination, hazardous substances may exist on some of the properties that we own, lease, manage or occupy. We may face the risk that environmental laws may force us to clean up the properties at our expense. The cost of cleaning up a property may exceed the value of the property. We may also be liable for pollution generated by a borrower’s operations if we take a role in managing those operations after a default. We may find it difficult or impossible to sell contaminated properties.
We are exposed to the risks of natural disasters . A significant portion of our operations is concentrated in Southern California, which is an earthquake-prone region. A major earthquake may result in material loss to us. A significant percentage of our loans are and will be secured by real estate. Many of our borrowers may suffer uninsured property damage, experience interruption of their businesses or lose their jobs after an earthquake. Those borrowers might not be able to repay their loans, and the collateral for such loans may decline significantly in value. Unlike a bank with operations that are more geographically diversified, we are vulnerable to greater losses if an earthquake, fire, flood or other natural catastrophe occurs in Southern California.
An increase in non-performing assets would reduce our income and increase our expenses . If the level of non-performing assets increases in the future, it may adversely affect our operating results and financial condition. Non-performing assets are mainly loans on which the borrowers are not making their required payments. Non-performing assets also include loans that have been restructured to permit the borrower to make payments and real estate that has been acquired through foreclosure or deed in lieu of foreclosure of unpaid loans. To the extent that assets are non-performing, we have less earning assets generating interest income and an increase in credit related expenses, including provisions for loan losses.
We may experience adverse effects from acquisitions . We have acquired other banking companies and bank offices in the past and consider additional acquisitions as opportunities arise. If we do not adequately address the financial and operational risks associated with acquisitions of other companies, we may incur material unexpected costs and disruption of our business. Acquisitions may increase the degree of such risks.
Risks involved in acquisitions of other companies include:
•
the risk of failure adequately to evaluate the asset quality of the acquired company;
•
difficulty in assimilating the operations, technology and personnel of the acquired company;
•
diversion of management’s attention from other important business activities;
•
difficulty in maintaining good relations with the loan and deposit customers of the acquired company;
•
inability to maintain uniform standards, controls, procedures and policies;
•
potentially dilutive issuances of equity securities or the incurrence of debt and contingent liabilities; and
•
amortization of expenses related to acquired intangible assets that have finite lives.
Liquidity risks may impair our ability to fund operations and jeopardize our financial condition. Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the sale of loans, and other sources may have a material adverse effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities may be impaired by factors that affect us specifically or the financial services industry in general. Factors that may detrimentally impact our access to liquidity sources include a decrease in the level of our business activity due to a market downturn or adverse regulatory action against us. Our ability to acquire deposits or borrow may also be impaired by factors that are not specific to us, such as a severe disruption of the financial markets or negative views and expectations about the prospects for the banking industry or the general financial services industry as a whole.


15
Table of Contents


Increases in the level of our problem assets, occurrence of operating losses or a failure to comply with requirements of the agencies which regulate us may result in regulatory actions against us which may adversely affect our business and the market price of our common stock. The DFI, the FDIC and the FRB each have authority to take actions to require that we comply with applicable regulatory capital requirements, cease engaging in what they perceive to be unsafe or unsound practices or make other changes in our business. Among others, the corrective measures that such regulatory authorities may take include requiring us to enter into informal or formal agreements regarding our operations, the issuance of cease and desist orders to refrain from engaging in unsafe and unsound practices, removal of officers and directors and the assessment of civil monetary penalties. See “Item 1. Business – Supervision and Regulation” for a further description of such regulatory powers.
Increased deposit insurance costs may adversely affect our results of operations . Due to the greatly increased rate of bank failures experienced in the current period of financial stress, as well as the extraordinary programs in which the FDIC has been involved to support the banking industry generally, the FDIC’s Deposit Insurance Fund has been substantially reduced and the FDIC has incurred substantially increased operating costs. For these reasons, the FDIC has significantly increased the rates of deposit insurance premiums that it charges insured banks, including BBCN Bank, which has increased our costs of operation. Additional increases in the deposit insurance premium rates of the FDIC or other increases in costs related to deposit insurance may be imposed, which may result in further increases in BBCN Bank’s operating costs.
Changes in accounting standards may affect how we record and report our financial condition and results of operations. Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. From time to time, the Financial Accounting Standards Board and SEC change the financial accounting and reporting standards that govern the preparation of our financial statements. These changes and their impacts on us can be hard to predict and may result in unexpected and materially adverse impacts on our reported financial condition and results of operations.
We are subject to operational risks relating to our technology and information systems. The continued efficacy of our technology and information systems, related operational infrastructure and relationships with third party vendors in our ongoing operations is integral to our performance. Failure of any of these resources, including but not limited to operational or systems failures, interruptions of client service operations and ineffectiveness of or interruption in third party data processing or other vendor support, may cause material disruptions in our business, impairment of customer relations and exposure to liability for our customers, as well as action by bank regulatory authorities.
Our business reputation is important and any damage to it may have a material adverse effect on our business. Our reputation is very important for our business, as we rely on our relationships with our current, former and potential clients and stockholders, and in the communities we serve. Any damage to our reputation, whether arising from regulatory, supervisory or enforcement actions, matters affecting our financial reporting or compliance with SEC and exchange listing requirements, negative publicity, our conduct of our business or otherwise may have a material adverse effect on our business.
As we expand outside our California markets, we may encounter additional risks that may adversely affect us. Currently, the majority of our offices are located in California, but we also have seven offices in New York and New Jersey. We also have banking offices in Chicago and the Seattle area. Our recently closed acquisition of PIB will bring our branch total in the Seattle area to six. Over time, we may seek to establish offices to serve Korean-American communities in other parts of the United States as well. In the course of these expansion activities, we may encounter significant risks, including unfamiliarity with the characteristics and business dynamics of new markets, increased marketing and administrative expenses and operational difficulties arising from our efforts to attract business in new markets, manage operations in noncontiguous geographic markets, comply with local laws and regulations and effectively and consistently manage our non-California personnel and business. If we are unable to manage these risks, our operations may be adversely affected.
Adverse conditions in South Korea may adversely affect our business. A substantial number of our customers have economic and cultural ties to South Korea and, as a result, we are likely to feel the effects of adverse economic and political conditions there. If economic conditions in South Korea deteriorate, we may, among other things, be exposed to economic and transfer risk, and may experience an outflow of deposits by our customers with connections to South Korea. Transfer risk may result when an entity is unable to obtain the foreign exchange needed to meet its obligations or to provide liquidity. This may adversely impact the recoverability of investments in or loans made to such entities. Adverse economic conditions in South Korea may also negatively impact asset values and the profitability and liquidity of our customers who operate in this region.
Our use of appraisals in deciding whether to make loans secured by real property does not ensure that the value of the real property collateral will be sufficient to repay our loans. In considering whether to make a loan secured by real property, we require an appraisal of the property. However, an appraisal is only an estimate of the value of the property at the time the appraisal is made and requires the exercise of a considerable degree of judgment and adherence to professional standards. If the appraisal does not accurately reflect the amount that may be obtained upon sale or foreclosure of the property, whether due to a decline in property value after the date of the original appraisal or defective preparation of the appraisal, we may not realize an amount equal to the indebtedness secured by the property and as a result, we may suffer losses.

16
Table of Contents


Changes in governmental regulation may impair our operations or restrict our growth . Federal and state bank regulatory agencies regulate many aspects of our operations. These areas include:
•
the capital that we must maintain;
•
the dividends that we may pay;
•
the kinds of activities that we may engage in;
•
the compensation that we may pay;
•
the kinds and amounts of investments that we can make;
•
the locations of our offices;
•
how much interest we can pay on demand deposits;
•
insurance of deposits and the premiums that we must pay for this insurance; and
•
how much cash we must set aside as reserves for deposits.

The governmental supervision and regulations to which we are subject, which are intended primarily for the protection of depositors rather than our stockholders, may be changed at any time, and the interpretation of these statutes and regulations by examining authorities may also change. Within the last several years, Congress and the federal bank regulatory authorities have made significant changes to these statutes and regulations. There can be no assurance that such changes to the statutes and regulations or in their interpretation will not adversely affect our business. BBCN Bank is subject to regulation and examination by the DFI and the FDIC and BBCN Bancorp is subject to the rules and regulations of the FRB. In addition to governmental supervision and regulation, BBCN Bank and BBCN Bancorp are subject to changes in other federal and state laws, including changes in tax laws, which may materially affect the banking industry. If we fail to comply with federal and state bank regulations, the regulators may limit our activities or growth, fine us or force the bank into receivership.
Implementation of the various provisions of the Dodd-Frank Act may increase our operating costs or otherwise have a material effect on our business, financial condition or results of operations. The Dodd-Frank Act includes, among other things: (i) the creation of a Financial Services Oversight Council to identify emerging systemic risks and improve interagency cooperation; (ii) the creation of a Consumer Financial Protection Bureau authorized to promulgate and enforce consumer protection regulations relating to financial products that would affect banks and non-bank finance companies; (iii) the establishment of new capital and prudential standards for banks and bank holding companies, including the elimination, with exceptions for banking organizations having assets of less than $10 billion, of the ability to treat trust preferred securities as Tier 1 capital; (iv) enhanced regulation of financial markets, including the derivatives, securitization and mortgage origination markets; (v) the elimination of proprietary trading and private equity investment activities by banks; (vi) the elimination of barriers to de novo interstate branching by banks; (vii)  permanent establishment of the previously implemented temporary increase of FDIC deposit insurance to $250,000 per insured account; (viii) the authorization of interest-bearing transaction accounts and (ix) changes in the calculation of FDIC deposit insurance assessments and an increase in the minimum designated reserve ratio for the DIF.
Certain provisions of the legislation are not immediately effective or are subject to required studies and implementing regulations. Further, community banks with less than $10 billion in assets (less than $15 billion with respect to trust preferred securities) are exempt from certain provisions of the legislation. We cannot predict how this significant new legislation may be interpreted and enforced nor how implementing regulations and supervisory policies may affect us. There can be no assurance that these or future reforms will not significantly increase our compliance or operating costs or otherwise have a significant impact on our business, financial condition and results of operations.
Our stock price may be volatile, which may result in substantial losses for our stockholders . The market price of our common stock may be subject to fluctuations in response to a number of factors, including:
•
issuing new equity securities;
•
the amount of our common stock outstanding and the trading volume of our stock;
•
actual or anticipated changes in our future financial performance;
•
changes in financial performance estimates of us or by securities analysts;
•
competitive developments, including announcements by us or our competitors of new products or services or acquisitions, strategic partnerships, joint ventures or capital commitments;
•
the operating and stock performance of our competitors;
•
changes in interest rates;
•
changes in key personnel;

17
Table of Contents


•
changes in economic conditions that affect the Bank’s performance; and
•
changes in legislation or regulations that affect the Bank.

We may raise additional capital, which could have a dilutive effect on the existing holders of our common stock and adversely affect the market price of our common stock. We periodically evaluate opportunities to access capital markets, taking into account our financial condition, regulatory capital ratios, business strategies, anticipated asset growth and other relevant considerations. It is possible that future acquisitions, organic growth or changes in regulatory capital requirements could require us to increase the amount or change the composition of our current capital, including our common equity. For all of these reasons, and subject to market conditions, we may issue additional shares of common stock or other capital securities in public or private transactions.
The issuance of additional common stock or securities convertible into or exchangeable for our common stock or that represent the right to receive common stock, or the exercise of such securities, could be substantially dilutive to holders of our common stock, including purchasers of common stock in this offering. Holders of our common stock have no preemptive or other rights that would entitle them to purchase their pro rata share of any offering of shares of any class or series and, therefore, such sales or offerings could result in dilution of the ownership interests of our stockholders.
We had suspended declaration and payment of dividends on our common stock. Our ability to declare and pay dividends in the future, as well as the ability of the Bank to make dividend payments to us, will be subject to regulatory, statutory and other restrictions. In March, 2009, we announced the suspension of our prior policy of paying quarterly dividends in order to preserve capital and to provide us with increased flexibility to invest in our business. Until November 2011, we were also subject to special regulatory limitations on the payment of dividends under resolutions adopted by the boards of directors of Nara Bancorp and Nara Bank after consultation with the DFI and the FRB. Our board of directors reinstated our quarterly dividend beginning in the fourth quarter of 2012. There can be no assurance, however, that we will continue payment of regular cash dividends. Our ability to pay dividends at that time will be subject to statutory and other limitations applicable to us or to the Bank.
Our results of operations or financial condition could be adversely affected as a result of future impairment of our intangible assets . At December 31, 2012 , we had $89.9 million of goodwill. Future acquisitions could result in increases in the amount of our goodwill or other intangible assets. We assess the carrying value of intangible assets, including goodwill, at least annually in order to determine whether such assets are impaired. We make a qualitative assessment of whether it is more likely than not that the fair value of goodwill or other intangible assets is less than its carrying amount.
If we fail to maintain an effective system of internal controls and disclosure controls and procedures, we may not be able to accurately report our financial results or prevent fraud. Effective internal controls and disclosure controls and procedures are necessary for us to provide reliable financial reports and disclosures to stockholders, to prevent fraud and to operate successfully as a public company. If we cannot provide reliable financial reports and disclosures or prevent fraud, our business may be adversely affected and our reputation and operating results would be harmed. Any failure to develop or maintain effective internal controls and disclosure controls and procedures or difficulties encountered in their implementation may also result in regulatory enforcement action against us, adversely affect our operating results or cause us to fail to meet our reporting obligations.

Item 1B.      Unresolved Staff Comments.
None.

Item 2.
PROPERTIES
Our principal executive offices are located at 3731 Wilshire Blvd., Suite 1000, Los Angeles, California 90010. As of December 31, 2012 , we operated full-service branches at 38 leased operations and 2 owned facilities operations, and we operated Loan Production Offices at 5 leased operations. Expiration dates of our leases range from January 2013 to November 2027. The two owned facilities, the Olympic and Western branches, had carrying values (including land value) of $4.4 million and $5.0 million, respectively, at December 31, 2012 . We believe our present facilities are adequate for our current needs.
As of December 31, 2012 , premises and equipment, net of accumulated depreciation and amortization, totaled $22.6 million . Total occupancy expense, including furniture and equipment expense for the year ended December 31, 2012 , was $21.3 million. Total lease expense for the year ended December 31, 2012 was $9.0 million.

Item 3.
LEGAL PROCEEDINGS
The Company has received communications from the Small Business Administration ("SBA") asserting that the SBA is entitled to receive from BBCN a portion of the amounts to be paid to BBCN by the FDIC in respect of SBA loans that are covered by the FDIC loss share agreements. The amounts claimed by the SBA with respect to covered SBA loans are based on

18
Table of Contents


the SBA's guarantee percentage of the individual covered loans referred to in the communications. An aggregate of $55 million of SBA loans were subject to the loss share agreements at inception; however, to date the SBA has only requested monies related to two loans BBCN disagrees with the SBA's position. The discussions with the SBA regarding this matter are at an early stage and BBCN is not presently able to determine the probable outcome.
We are involved in routine litigation incidental to our business, none of which is expected to have a material adverse effect on us.
Item 4.
MINE SAFETY DISCLOSURES

Not applicable.


19
Table of Contents



Part II

Item 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the NASDAQ Global Select Market under the symbol “BBCN.”
The following table sets forth, the range of high and low sales prices for, and quarterly dividend paid on our common stock for the calendar quarters indicated.
 
Quarters ended:
High Sales Price
 
Low Sales Price
 
Dividends
December 31, 2012
$
12.89

 
$
10.62

 
$
0.05

September 30, 2012
$
13.21

 
$
10.62

 
$
—

June 30, 2012
$
11.55

 
$
9.98

 
$
—

March 31, 2012
$
11.59

 
$
9.26

 
$
—

December 31, 2011
$
10.18

 
$
5.57

 
$
—

September 30, 2011
$
8.67

 
$
5.86

 
$
—

June 30, 2011
$
10.08

 
$
6.75

 
$
—

March 31, 2011
$
10.75

 
$
9.15

 
$
—


The closing price for our common stock on the NASDAQ Global Select Market on February 26, 2013 was $12.39 per share.
BBCN Bancorp’s ability to pay dividends is subject to restrictions set forth in the Delaware General Corporation Law. The Delaware General Corporation Law provides that a Delaware corporation may pay dividends either (i) out of the corporation’s surplus (as defined by Delaware law), or (ii) if there is no surplus, out of the corporation’s net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. In addition, the payment of dividends by BBCN Bancorp is subject to review and possible limitation by the FRB under its authority as regulator of bank holding companies. In general, the FRB discourages the payment of dividends on common stock in amounts exceeding a holding company’s net income available to common stockholders for the four quarters preceding a dividend payment. If we defer interest on the subordinated debentures issued in connection with our trust preferred securities, BBCN Bancorp would also be prohibited from paying any dividends on our common stock or preferred stock until BBCN Bancorp is current on its interest payments.
BBCN Bancorp’s ability to pay cash dividends in the future will depend in large part on the ability of the Bank to pay dividends on its capital stock to BBCN Bancorp. The ability of the Bank to declare a cash dividend to BBCN Bancorp is subject to compliance with its minimum capital requirements and, additional limitations under California law and regulations.
The applicable statutory and regulatory limitations on the declaration and payment of dividends are further described in “Item 1. Business – Supervision and Regulation.”

Securities Authorized for Issuance Under Equity Compensation Plans

Plan Category
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a)
 
Weighted average
exercise price of
outstanding options,
warrants and rights
(b)
 
Number of securities
remaining available for
future issuance under
equity compensation
plans excluding
securities reflected in
Column (a)
(c)
Equity compensation plans approved by security holders
797.181

 
$
16.70

 
2,638.549

Equity compensation plans not approved by security holders
—

 
—

 
—

Total
797.181

 
$
16.70

 
2,638.549


20
Table of Contents


Stock Performance Graph
The following graph compares the yearly percentage change in the cumulative total shareholder return (stock price appreciation plus reinvested dividends) on the common stock of the Company with (i) the cumulative total return of the NASDAQ Compsoite Index, (ii) the cumulative total return of the S&P Small Cap 600 Index, (iii) a published index comprised of banks and thrifts selected by SNL Financial LLC , and (iv) the cumulative total return of the S&P 500 Index. The graph assumes an initial investment of $100 and reinvestment of dividends. Points on the graph represent the performance as of the last business day of each of the years indicated. The graph is not necessarily indicative of future price performance.
The following graph does not constitute soliciting material and shall not be deemed filed or incorporated by reference into any filing by BBCN Bancorp under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we may specifically incorporate this graph by reference.
COMPARATIVE CUMULATIVE TOTAL RETURN
AMONG BBCN BANCORP, NASDAQ MARKET INDEX, S&P SMALLCAP 600 INDEX,
SNL BANK & THRIFT INDEX AND, S&P 500 INDEX

ASSUMES $100 INVESTED ON DEC. 31, 2007
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDING DEC. 31, 2012

 
Period Ending
Index
12/31/2007
 
12/31/2008
 
12/31/2009
 
12/31/2010
 
12/31/2011
 
12/31/2012
BBCN Bancorp, Inc.
100.00

 
85.04

 
98.10

 
85.25

 
81.75

 
100.51

NASDAQ Composite
100.00

 
60.02

 
87.24

 
103.08

 
102.26

 
120.42

S&P 600 Index
100.00

 
68.92

 
86.54

 
109.31

 
110.42

 
128.45

SNL Bank and Thrift
100.00

 
57.51

 
56.74

 
63.34

 
49.25

 
66.14

S&P 500
100.00

 
63.00

 
79.68

 
91.68

 
93.61

 
108.59


21
Table of Contents


Item 6.
SELECTED FINANCIAL DATA
The following table presents selected financial and other data of the Company as of and for each of the years in the five-year period ended December 31, 2012 . The information below should be read in conjunction with, and is qualified in its entirety by: the more detailed information included elsewhere herein, including our Audited Consolidated Financial Statements and Notes thereto.
 
For The Year Ended December 31,
 
2012
 
2011
 
2010
 
2009
 
2008
 
(Dollars in thousands, except share and per share data)
Income Statement Data:
 
 
 
 
 
 
 
 
 
Interest income
$
267,885

 
$
161,895

 
$
150,436

 
$
158,045

 
$
166,928

Interest expense
29,647

 
32,077

 
42,052

 
65,699

 
70,707

Net interest income
238,238

 
129,818

 
108,384

 
92,346

 
96,221

Provision for loan losses
19,104

 
27,939

 
84,630

 
61,023

 
48,825

Net interest income after provision for loan losses
219,134

 
101,879

 
23,754

 
31,323

 
47,396

Non-interest income
39,390

 
23,130

 
24,481

 
18,468

 
13,993

Non-interest expense
120,891

 
82,234

 
63,374

 
61,713

 
57,009

Income before income tax provision (benefit)
137,633

 
42,775

 
(15,139
)
 
(11,922
)
 
4,380

Income tax provision (benefit)
54,410

 
15,660

 
(7,900
)
 
(6,199
)
 
1,625

Net income (loss)
$
83,223

 
$
27,115

 
$
(7,239
)
 
$
(5,723
)
 
$
2,755

Dividends and discount accretion on preferred stock
(5,640
)
 
(4,568
)
 
(4,291
)
 
(4,276
)
 
(474
)
Net income (loss) available to common stockholders
$
77,583

 
$
22,547

 
$
(11,530
)
 
$
(9,999
)
 
$
2,281

Per Common Share Data:

 

 
 
 
 
 
 
Earnings (loss)—basic
$
0.99

 
$
0.53

 
$
(0.30
)
 
$
(0.35
)
 
$
0.09

Earnings (loss)—diluted
0.99

 
0.53

 
(0.30
)
 
(0.35
)
 
0.09

Book value (period end, excluding preferred stock and warrants)
9.62

 
8.64

 
7.69

 
7.99

 
8.49

Cash dividends declared per common share
0.05

 
—

 
—

 
—

 
0.11

Number of common shares outstanding (period end)
78,041,511

 
77,984,252

 
37,983,027

 
37,824,007

 
26,246,560

Balance Sheet Data—At Period End:

 

 
 
 
 
 
 
Assets
$
5,640,661

 
$
5,166,604

 
$
2,963,296

 
$
3,227,957

 
$
2,672,054

Securities available for sale and held to maturity
704,403

 
740,920

 
528,262

 
782,690

 
406,586

Gross loans, net of unearned loan fees and discounts(excludes loans held for sale)
4,296,252

 
3,738,826

 
2,147,745

 
2,221,433

 
2,119,354

Deposits
4,384,035

 
3,940,892

 
2,176,114

 
2,434,190

 
1,938,603

Federal Home Loan Bank borrowings
420,722

 
344,402

 
350,000

 
350,000

 
350,000

Subordinated debentures
41,846

 
52,102

 
39,268

 
39,268

 
39,268

Stockholders’ equity
751,104

 
795,939

 
358,563

 
367,975

 
289,953

Average Balance Sheet Data:

 

 
 
 
 
 
 
Assets
$
5,228,557

 
$
3,168,124

 
$
3,007,294

 
$
3,038,969

 
$
2,544,667

Securities available for sale
694,719

 
520,460

 
516,460

 
619,594

 
298,886

Gross loans, including loans held for sale
3,974,626

 
2,352,253

 
2,173,840

 
2,124,615

 
2,089,803

Deposits
3,989,401

 
2,360,786

 
2,213,940

 
2,291,346

 
1,855,629

Stockholders’ equity
775,718

 
414,768

 
364,159

 
304,770

 
238,800

Selected Performance Ratios:

 

 
 
 
 
 
 
Return on average assets (1)
1.59
%
 
0.86
%
 
(0.24
)%
 
(0.19
)%
 
0.11
%
Return on average stockholders’ equity (2)
10.73
%
 
6.54
%
 
(1.99
)%
 
(1.88
)%
 
1.15
%
Average stockholders’ equity to average assets
14.84
%
 
13.09
%
 
12.11
 %
 
10.03
 %
 
9.38
%

22
Table of Contents


Dividend payout ratio
 
 
 
 
 
 
 
 
 
(Dividends per share/earnings per share)
5.05
%
 
0.00
%
 
0.00
 %
 
0.00
 %
 
122.22
%
Net interest spread (3)
4.59
%
 
3.92
%
 
3.35
 %
 
2.64
 %
 
3.22
%
Net interest margin (4)
4.88
%
 
4.29
%
 
3.75
 %
 
3.15
 %
 
3.96
%
Yield on interest-earning assets (5)
5.48
%
 
5.35
%
 
5.21
 %
 
5.39
 %
 
6.87
%
Cost of interest-bearing liabilities (6)
0.89
%
 
1.43
%
 
1.86
 %
 
2.75
 %
 
3.65
%
Efficiency ratio (7)
43.54
%
 
53.77
%
 
47.70
 %
 
55.69
 %
 
51.73
%
 
For The Year Ended December 31,
 
2012
 
2011
 
2010
 
2009
 
2008
 
(Dollars in thousands)
Regulatory Capital Ratios:
 
 
 
 
 
 
 
 
 
Bancorp: Leverage
12.76
%
 
19.81
%
 
12.61
%
 
12.36
%
 
12.61
%
Tier 1 risk-based
14.91
%
 
18.15
%
 
16.42
%
 
16.73
%
 
14.32
%
Total risk-based
16.16
%
 
19.41
%
 
17.69
%
 
17.99
%
 
15.58
%
Bank:      Leverage
12.38
%
 
18.13
%
 
12.27
%
 
11.77
%
 
12.43
%
Tier I risk-based
14.47
%
 
16.62
%
 
16.00
%
 
16.02
%
 
14.10
%
Total risk-based
15.73
%
 
17.88
%
 
17.27
%
 
17.29
%
 
15.34
%
Asset Quality Data:
 
 
 
 
 
 
 
 
 
Nonaccrual loans
$
29,653

 
$
32,291

 
$
43,803

 
$
51,674

 
$
37,580

Loans 90 days or more past due and still accruing (8)
17,742

 
23,885

 
—

 
—

 
—

Restructured loans (accruing)
29,849

 
18,776

 
35,103

 
64,341

 
3,256

Total non-performing loans (9)
77,244

 
74,952

 
78,906

 
116,015

 
40,836

Other real estate owned
2,698

 
7,624

 
1,581

 
2,044

 
2,969

Total non-performing assets
$
79,942

 
$
82,576

 
$
80,487

 
$
118,059

 
$
43,805

Asset Quality Ratios:
 
 
 
 
 
 
 
 
 
Nonaccrual loans to gross loans
0.69
%
 
0.86
%
 
2.04
%
 
2.33
%
 
1.77
%
Non-performing loans to gross loans
1.80
%
 
2.00
%
 
3.67
%
 
5.22
%
 
1.93
%
Non-performing assets to total assets
1.55
%
 
1.60
%
 
2.72
%
 
3.66
%
 
1.64
%
Non-performing assets to gross loans and OREO
1.86
%
 
2.20
%
 
3.74
%
 
5.31
%
 
2.06
%
Allowance for loan losses to gross loans
1.56
%
 
1.66
%
 
2.90
%
 
2.68
%
 
2.05
%
Allowance for loan losses to nonaccrual loans
225.75
%
 
191.86
%
 
142.27
%
 
115.00
%
 
115.54
%
Allowance for loan losses to non-performing loans
86.66
%
 
82.66
%
 
78.98
%
 
51.22
%
 
106.33
%
Allowance for loan losses to non-performing assets
83.74
%
 
75.02
%
 
77.43
%
 
50.33
%
 
99.12
%
Net charge-offs to average gross loans
0.36
%
 
1.20
%
 
3.76
%
 
2.12
%
 
1.22
%
(1)
Net income (loss) divided by the average assets
(2)
Net income (loss) divided by the average stockholders’ equity
(3)
Difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities
(4)
Net interest income expressed as a percentage of average interest-earning assets
(5)
Interest income divided by the average interest-earning assets
(6)
Interest expense divided by the average interest-bearing liabilities
(7)
Non-interest expense divided by the sum of net interest income plus non-interest income
(8)
Acquired loans that were originally recorded at fair value upon acquisitions. These loans are considered to be accruing as we can reasonably estimate future cash flows on acquired loans and we expect to fully collect the carrying value of these loans. Therefore, we are accreting the difference between the carrying value of these loans and their expected cash flows.
(9)
Non-performing loans include portions of certain loans that are guaranteed by the SBA and state agencies. The total guaranteed portions of non-performing loans were $3.6 million and $2.2 million during the years ended December 31, 2012 and 2011, respectively. The guaranteed portions of non-performing loans were immaterial for years ended December 31, 2010, 2009, and 2008.



23
Table of Contents


Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our Consolidated Financial Statements and accompanying notes presented elsewhere in this Report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under Item 1A “Risk Factors” and elsewhere in this Report.

Overview
BBCN Bancorp, Inc., formerly named Nara Bancorp, Inc., is a bank holding company headquartered in Los Angeles, California. BBCN Bank, formerly named Nara Bank, opened for business in June 1989 under the name “United Citizens National Bank” as a national banking association, was renamed “Nara Bank, National Association” in January 1994 and, in January 2005, became “Nara Bank” upon converting to a California state-chartered bank in connection with its holding company reorganization transaction. On November 30, 2011, we merged with Center Financial Corporation ("Center Financial" or "Center") in a merger of equals transaction. Concurrently with the merger, Nara Bancorp changed its name to "BBCN Bancorp, Inc." At the bank level, Nara Bank merged into Center Bank, and concurrently with the merger, Center Bank changed its name to "BBCN Bank."
We offer a full range of commercial banking and consumer deposit products through BBCN Bank, a California state-chartered bank. BBCN Bank primarily focuses its business in Korean-American communities in California, in the New York City metropolitan area, and New Jersey. Our November 2011 merger with Center Financial allowed us to expand our organization by adding banking operations in Chicago and Seattle and strengthen our strategic position in California. We now have 40 banking offices in California, the New York metropolitan area, New Jersey, Chicago and Seattle and five loan production offices located in the Atlanta, Dallas, Seattle, Northern California and Denver markets. We offer our banking services through our network of banking offices and loan production offices to our customers who typically are small- to medium-sized businesses in our market areas. We accept deposits and originate a variety of loans including commercial business loans, commercial real estate loans, trade finance and SBA loans. We have discontinued origination of consumer loans, but continue to service such loans in our portfolio. Effective December 1, 2011, upon the merger with Center, we resumed originating direct auto loans and started issuing credit cards.
Through the merger with Center Financial, we acquired Center Bank's 21 full-service branch offices, 18 of which are located in California, as well as two Loan Production Offices in Seattle and Denver. Under the terms of the merger agreement, Center Financial shareholders received 0.7805 shares of Company common stock in exchange for each share of common stock of Center Financial, resulting in our issuance of approximately 31.2 million shares of Company common stock, with a merger date fair value of $292 million.
The merger was accounted for as an acquisition of Center Financial by Nara Bancorp in accordance with the acquisition method of accounting as detailed in Accounting Standards Codification ("ASC") 805, Business Combination . The acquisition method of accounting requires an acquirer to recognize the assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree based on their fair values as of the date of acquisition. This process is heavily reliant on measuring and estimating the fair values of all the assets and liabilities of the acquired entity. We engaged a third party valuation specialist to assist us in determining the fair value of Center's loan portfolio, time deposits, servicing assets, FDIC loss share receivable, debt, investments in affordable housing partnerships and operating leases. Additionally, the firm was asked to assist in the determination of the value of the intangible asset associated with the core deposit intangibles. Goodwill of $88.0 million was recorded, which is equal to the excess of the consideration transferred over the fair value of identifiable net assets acquired in connection with the merger. See Note 2 of Notes to the Consolidated Financial Statements for more detailed information on the Center merger.
Our principal business involves earning interest on loans and investment securities that are funded by customer deposits and other borrowings. Our operating income and net income are derived primarily from the difference between interest income received from interest-earning assets and interest expense paid on interest-bearing liabilities and, to a lesser extent, from fees received in connection with servicing loan and deposit accounts and income from the sale of SBA loans. Our major expenses are the interest we pay on deposits and borrowings, provisions for loan losses and general operating expenses, which primarily consist of salaries and employee benefits and occupancy costs. Interest rates are highly sensitive to many factors that are beyond our control, such as changes in the national economy and in the related monetary policies of the Board of Governors of the Federal Reserve System, inflation, unemployment, consumer spending and political events. We cannot predict the impact that these factors and future changes in domestic and foreign economic and political conditions might have on our performance.
We have a significant business and geographic concentration in the Korean-American communities in California, the New York City metropolitan area, New Jersey, Washington, and Chicago and our results are affected by economic conditions in

24
Table of Contents


these areas and in South Korea. A further decline in economic and business conditions in our market areas and in South Korea may have some impact on the quality of our loan portfolio or the demand for our products and services, which in turn may have some adverse effect on our results of operations.
On November 4, 2011, the DFI and the FRB notified the Company that they would not object to termination by the boards of directors of the Company and the Bank of the resolutions previously adopted by the respective boards at the request of such bank regulatory authorities.  The resolutions, which provided among other things for submission to the DFI and the FRB of plans for improvements in the operations of the Company and the Bank and that neither company would declare dividends without regulatory approval, have now been terminated since their objectives have been accomplished.
Critical Accounting Policies
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and general practices within the banking industry. The financial information contained within these statements is, to a significant extent, financial information that is based on approximate measures of the financial effects of transactions and events that have already occurred. All of our significant accounting policies are described in Note 1 of our Consolidated Financial Statements presented elsewhere herein and are essential to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations. GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.
The following is a summary of the more judgmental and complex accounting estimates and principles affecting the financial condition and results reported in our financial statements. In each area, we have identified the variables we believe to be the most important in the estimation process. We use the best information available to us to make the estimations necessary to value the related assets and liabilities in each of these areas.
Investment Securities
The fair values of investment securities are generally determined by quoted market prices obtained from independent external brokers or or external pricing services providers who have experience in valuing these securities. We perform a monthly analysis on the broker quotes received from third parties to assess whether the prices represent a reasonable estimate of the fair value. The procedures include, but are not limited to, initial and on-going review of third party pricing methodologies as well as independent auditors' reports from the third party regarding its controls over valuation of financial instruments, review of pricing trends, and monitoring of trading volumes. We also compare the market prices obtained from one source to another reputable independent external brokers or independent external pricing service providers for the reasonableness of the initial market prices obtained on a quarterly basis. We did not adjust any of the prices provided to us by the independent pricing services at December 31, 2012 or 2011 .
We evaluate securities for other-than-temporary impairment on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the financial condition and near-term prospects of the issuer; the length of time and the extent to which the fair value has been less than cost, and our intention to sell, or whether it is more likely than not that we will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. In analyzing an issuer’s financial condition, we consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. We do not believe that we had any investment securities available for sale with unrealized losses that would be deemed to be “other-than-temporarily” impaired as of December 31, 2012 . Investment securities are discussed in more detail under “Financial Condition—Investment Securities Portfolios” below.
Allowance for Loan Losses
Accounting for the allowance for loan losses involves significant judgments and assumptions by management, which has a material impact on the carrying value of net loans. The judgments and assumptions used by management are based on historical data and management’s analysis of other qualitative factors, including the current economic environment as described under “Financial Condition—Allowance for Loan Losses” below.
Acquired Loans
Loans that we acquired are recorded at fair value with no carryover of the related allowance for loan losses. We considered all classified and criticized loans as credit impaired loans ("Credit Impaired Loans") under the provisions of Accounting Standards Codification ("ASC") 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality resulting from the Center Financial merger. Pass graded loans acquired from Center Financial and pass graded loans from the FDIC assisted Innovative Bank acquisition ("Performing Loans") were not accounted for under ASC 310-30. The Performing Loans were placed in pools with similar risk characteristics and were recorded at fair value at the merger date. Management

25
Table of Contents


will periodically reassess the net realizable value of each loan pool and record interest income resulting from the accretion of the purchase discount in accordance with ASC 310-20.
Credit Impaired Loans
In accordance with ASC 310-30, Credit Impaired Loans acquired from Center were aggregated into pools based on individually evaluated common risk characteristics (including whether the loans were currently in nonperforming status) and expected cash flows were estimated on a pool basis. A pool was accounted for as a single asset with a single interest rate, cumulative loss rate and cash flow expectation. We aggregated all of Credit Impaired Loans into 17 different pools. A loan will be removed from a pool of loans only if the loan is sold or foreclosed, assets are received in satisfaction of the loan, or the loan is written off, and will be removed from the pool at its carrying value.
The cash flows expected to be received over the life of the pool were estimated by management with the assistance of a third party valuation specialist. These cash flows were utilized in calculating the carrying values of the pools and underlying loans, book yields, effective interest income and impairment, if any, based on actual and projected events. Default rates, loss severity, and prepayment speeds assumptions will be periodically reassessed and updated within the accounting model to update the expectation of future cash flows. The excess of the cash expected to be collected over the pool's carrying value is considered to be the accretable yield and is recognized as interest income over the estimated life of the loan or pool using the effective interest yield method. The accretable yield will change due to changes in the timing and amounts of expected cash flows. Changes in the accretable yield will be disclosed quarterly.
The excess of the contractual balances due over the cash flows expected to be collected is considered to be nonaccretable difference. The nonaccretable difference represents our estimate of the credit losses expected to occur and was considered in determining the fair value of the loans as of the merger date. Subsequent to the merger date, any increases in expected cash flows over those expected at purchase date in excess of fair value are adjusted through the accretable difference on a prospective basis. Any subsequent decreases in expected cash flows over those expected at the merger date are recognized by recording a provision for loan losses.
Credit Impaired Loans that met the criteria for nonaccrual of interest prior to the merger may be considered performing upon merger, regardless of whether the customer is contractually delinquent, if we can reasonably estimate the timing and amount of the expected cash flows on such loans and if we expect to collect the new carrying value of the loans in full. As such, we may no longer consider the loan to be nonaccrual or nonperforming and may accrue interest on these loans, including the impact of any accretable discount. We have determined that we can reasonably estimate future cash flows on any such acquired loans that are past due 90 days or more and on which we are accruing interest and we expect to fully collect the carrying value of the loans.
FDIC Loss Share Receivable
In conjunction with the FDIC-assisted acquisition of Innovative Bank by Center Financial in 2010, Center Bank entered into shared-loss agreements with the FDIC for amounts receivable covered by the shared-loss agreements. At the date of merger with Center Financial, consistent with Center Financial's accounting treatment, we elected to account for amounts receivable under the loss sharing agreement with the FDIC as FDIC loss share receivable in accordance with ASC 805. The FDIC loss share receivable was recorded at fair value, based on the discounted value of expected future cash flows under the loss sharing agreement. The cash flows expected to be received under the loss sharing agreement were estimated by management with the assistance of a third party valuation specialist. The difference between the present value and the undiscounted cash flows we expect to collect from the FDIC will be accreted into other income over the life of the FDIC loss share receivable.
The FDIC loss share receivable is reviewed quarterly and adjusted for any changes in expected cash flows based on recent performance and expectations for future performance of the covered portfolio. These adjustments are measured on the same basis as the related covered loans and covered other real estate owned. Any increases in the cash flows of the covered assets over those expected will reduce the FDIC loss share receivable and any decreases in cash flows of the covered assets under those expected will increase the FDIC loss share receivable. Increase and decrease to the FDIC loss share receivable are recorded as adjustments to other income.
Goodwill
We test goodwill for impairment annually. Before applying the two-step goodwill impairment test, in accordance with ASU 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment , we make a qualitative assessment of whether it is more likely than not that a reporting unit's fair value is less than its carrying amount. If we conclude that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, we do not perform the two-step impairment test. Goodwill is also tested for impairment on an interim basis if circumstances change or an event occurs between annual tests that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Significant judgment is applied when goodwill is assessed for impairment. This judgment includes developing cash

26
Table of Contents


flow projections, selecting appropriate discount rates, identifying relevant market comparables, incorporating general economic and market conditions and selecting an appropriate control premium. The selection and weighting of the various fair value techniques may result in a higher or lower fair value. Judgment is applied in determining the weighting that is most representative of fair value. Based on our qualitative assessment, we were not required to perform the two-step impairment test as of December 31, 2012 .
Income Taxes
The provision for income taxes is based on income reported for financial statement purposes, and differs from the amount of taxes currently payable, since certain income and expense items are reported for financial statement purposes in different periods than those for tax reporting purposes. Taxes are discussed in more detail in Note 9 to our Consolidated Financial Statements presented elsewhere herein. Accrued taxes represent the net estimated amount due or to be received from taxing authorities. In estimating accrued taxes, we assess the relative merits and risks of the appropriate tax treatment of transactions taking into account statutory, judicial, and regulatory guidance in the context of our tax position. We account for income taxes using the asset and liability approach, the objective of which is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the tax basis of our assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. 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 and taxable income, applicable tax planning strategies, and assessments of current and future economic and business conditions. This analysis is updated quarterly and adjusted as necessary.

Section 382 of the Internal Revenue Code imposes limitations on a corporation's ability to use any net unrealized built in losses and other tax attributes, such as net operating loss and tax credit carryforwards, when it undergoes a 50% “ownership change” over a designated testing period (not to exceed three years).  As a result of the merger on November 30, 2011, both Nara Bancorp and Center Financial underwent a greater than 50% ownership change.  There is expected to be no limitation on the use of either company's tax attributes, because as of November 30, 2011 both companies had net unrealized built in gains, rather than net unrealized built in losses.  However, future transactions, such as issuances of common stock or sales of shares of our stock by certain holders of our shares, including persons who have held, currently hold or may accumulate in the future 5% or more of our outstanding common stock for their own account, could trigger future Section 382 limitations on the Company's use of tax attributes.

Results of Operations
General
Our most significant source of income is net interest income, which is the difference between our interest income and our interest expense. Generally, interest income is generated from the loans we extend to our customers and investments, and interest expense is generated from interest-bearing deposits our customers have with us and borrowings that we may have, such as Federal Home Loan Bank of San Francisco borrowings and subordinated debentures. Our ability to generate profitable levels of net interest income is largely dependent on our ability to manage the levels of interest earning assets and interest-bearing liabilities, and the rates received or paid on them, as well as our ability to maintain sound asset quality and appropriate levels of capital and liquidity. As mentioned above, interest income and interest expense may fluctuate based on factors beyond our control, such as economic or political conditions.
We attempt to minimize the effect of interest rate fluctuations on net interest margin by monitoring our interest-sensitive assets and our interest-sensitive liabilities. Net interest income can be affected by a change in the composition of assets and liabilities, such as replacing higher yielding loans with a like amount of lower yielding investment securities. Changes in the level of nonaccrual loans and changes in volume and interest rates can also affect net interest income. Volume changes are caused by differences in the level of interest-earning assets and interest-bearing liabilities. Interest rate changes result from differences in yields earned on assets and rates paid on liabilities.
The other significant source of our income is non-interest income, including service charges and fees on deposit accounts, loan servicing fees, fees from trade finance activities and the issuance of letters of credit, and net gains on sale of loans that were held for sale and investment securities available for sale. Our non-interest income can be reduced by net losses on sales of other real estate owned and charges for other than temporary impairment on investment securities and derivative instruments.
In addition to interest expense, our income is impacted by provisions for loan losses, and non-interest expenses, primarily salaries and benefits and occupancy expense.

27


Net Income
Our net income (loss) available to common stockholders was $ 77.6 million for 2012 compared to $22.5 million for 2011 and ($11.5) million for 2010 . Our earnings (loss) per common share based on fully diluted shares were $0.99 , $0.53 and ($0.30) for 2012 , 2011 and 2010 , respectively. The return on average assets was 1.59%, 0.86% and (0.24)% and the return on average stockholders’ equity was 10.73%, 6.54% and (1.99)%.
The increase in earnings for 2012 compared to 2011 was primarily due to an increase in net interest income, a decrease in the provision for loan losses, and an increase in non-interest income which were partially offset by increases in non-interest expense and the income tax provision. The increase in earnings for 2011 compared to 2010 was primarily due to decreases in the provision for loan losses and an increase in net interest income due to the higher level of interest earning assets following the merger which were partially offset by increases in non-interest expense and the income tax provision.
Operations Summary

 
Year Ended December 31,
 
 
 
Increase
(Decrease)
 
 
 
Increase
(Decrease)
 
 
(Dollars in thousands)
2012
 
Amount
 
%
 
2011
 
Amount
 
%
 
2010
Interest income
$
267,885

 
$
105,990

 
65
 %
 
$
161,895

 

$11,459

 
8
 %
 
$
150,436

Interest expense
29,647

 
(2,430
)
 
(8
)%
 
32,077

 
(9,975
)
 
(24
)%
 
42,052

Net interest income
238,238

 
108,420

 
84
 %
 
129,818

 
21,434

 
20
 %
 
108,384

Provision for loan losses
19,104

 
(8,835
)
 
(32
)%
 
27,939

 
(56,691
)
 
(67
)%
 
84,630

Non-interest income
39,390

 
16,260

 
70
 %
 
23,130

 
(1,351
)
 
(6
)%
 
24,481

Non-interest expense
120,891

 
38,657

 
47
 %
 
82,234

 
18,860

 
30
 %
 
63,374

Income before income tax provision
137,633

 
94,858

 
222
 %
 
42,775

 
57,914

 
(383
)%
 
(15,139
)
Income tax provision
54,410

 
38,750

 
247
 %
 
15,660

 
23,560

 
(298
)%
 
(7,900
)
Net income
$
83,223

 
$
56,108

 
207
 %
 
$
27,115

 
$
34,354

 
(475
)%
 
$
(7,239
)


Net Interest Margin and Net Interest Rate Spread
We analyze our earnings performance using, among other measures, the net interest spread and net interest margin. The net interest spread represents the difference between the weighted average yield earned on interest-earning assets and average rate paid on interest-bearing liabilities. Net interest income, when expressed as a percentage of average total interest-earning assets, is referred to as the net interest margin. Our net interest margin is affected by changes in the yields earned on assets and rates paid on liabilities, as well as the ratio of the amounts of interest-earning assets to interest-bearing liabilities.
Interest rates charged on our loans are affected principally by the demand for such loans, the supply of money available for lending purposes, and other competitive factors. These factors are in turn affected by general economic conditions and other factors including those beyond our control, such as federal economic policies, the general supply of money in the economy, legislative tax policies, governmental budgetary matters, and the actions of the Federal Reserve Board. The table below presents the weighted average yield on each category of interest-earning assets, the average rate paid on each category of interest-bearing liabilities, and the resulting net interest spread and net interest margin for each year in the three-year period ended December 31, 2012 .

28


Average Balance Sheet and Analysis of Net Interest Income
 
Year Ended December 31,
 
2012
 
2011
 
2010
 
Average
Balance
 
Interest
Income/
Expense
 
Average
Yield/
Rate
 
Average
Balance
 
Interest
Income/
Expense
 
Average
Yield/
Rate
 
Average
Balance
 
Interest
Income/
Expense
 
Average
Yield/
Rate
 
(Dollars in thousands)
INTEREST-EARNING ASSETS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans (1)(2)(3)
$
3,974,626

 
$
250,583

 
6.30
%
 
$
2,352,253

 
$
145,554

 
6.19
%
 
$
2,173,840

 
$
134,390

 
6.18
%
Securities (3)
694,719

 
16,480

 
2.37
%
 
520,460

 
15,501

 
2.98
%
 
516,460

 
15,141

 
2.93
%
Other investments
205,743

 
744

 
0.36
%
 
148,339

 
812

 
0.55
%
 
192,459

 
856

 
0.44
%
Federal funds sold
11,342

 
78

 
0.68
%
 
3,469

 
28

 
0.81
%
 
6,082

 
49

 
0.81
%
Total interest-earning assets
4,886,430

 
267,885

 
5.48
%
 
3,024,521

 
161,895

 
5.35
%
 
2,888,841

 
150,436

 
5.21
%
Non-interest earning assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and due from bank
74,605

 
 
 
 
 
48,632

 
 
 
 
 
29,844

 
 
 
 
Premises and equipment, net
21,894

 
 
 
 
 
11,036

 
 
 
 
 
11,082

 
 
 
 
Accrued interest receivable
12,029

 
 
 
 
 
9,381

 
 
 
 
 
9,560

 
 
 
 
Intangible assets
93,564

 
 
 
 
 
11,207

 
 
 
 
 
3,312

 
 
 
 
Other assets
140,035

 
 
 
 
 
63,347

 
 
 
 
 
64,655

 
 
 
 
Total non-interest earning assets
342,127

 
 
 
 
 
143,603

 
 
 
 
 
118,453

 
 
 
 
Total assets
$
5,228,557

 
 
 
 
 
$
3,168,124

 
 
 
 
 
$
3,007,294

 
 
 
 
INTEREST-BEARING LIABILITIES:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Demand, interest-bearing
$
1,191,548

 
7,566

 
0.63
%
 
$
751,783

 
6,322

 
0.84
%
 
$
608,051

 
6,374

 
1.05
%
Savings
187,301

 
3,364

 
1.80
%
 
130,568

 
2,945

 
2.26
%
 
135,008

 
3,274

 
2.43
%
Time certificates
1,543,550

 
10,425

 
0.68
%
 
1,002,780

 
10,978

 
1.09
%
 
1,118,383

 
18,234

 
1.63
%
FHLB advances
374,938

 
6,229

 
1.66
%
 
314,216

 
9,774

 
3.11
%
 
353,384

 
12,099

 
3.42
%
Other borrowings
44,535

 
2,064

 
4.56
%
 
44,971

 
2,058

 
4.58
%
 
42,895

 
2,071

 
4.83
%
Total interest-bearing liabilities
3,341,872

 
29,648

 
0.89
%
 
2,244,318

 
32,077

 
1.43
%
 
2,257,721

 
42,052

 
1.86
%
Non-interest bearing liabilities and equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Demand deposits
1,072,631

 
 
 
 
 
475,655

 
 
 
 
 
352,498

 
 
 
 
Other liabilities
38,336

 
 
 
 
 
33,383

 
 
 
 
 
32,916

 
 
 
 
Stockholders’ equity
775,718

 
 
 
 
 
414,768

 
 
 
 
 
364,159

 
 
 
 
Total liabilities and stockholders’ equity
$
5,228,557

 
 
 
 
 
$
3,168,124

 
 
 
 
 
$
3,007,294

 
 
 
 
NET INTEREST INCOME AND YIELD:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
 
 
$
238,237

 
 
 
 
 
$
129,818

 
 
 
 
 
$
108,384

 
 
Net interest margin
 
 
 
 
4.88
%
 
 
 
 
 
4.29
%
 
 
 
 
 
3.75
%
Net interest margin, excluding non-accrual interest
 
 
 
 
4.90
%
 
 
 
 
 
4.31
%
 
 
 
 
 
3.80
%
Net interest margin, excluding non-accrual interest and loan prepayment fee income
 
 
 
 
4.88
%
 
 
 
 
 
4.29
%
 
 
 
 
 
3.78
%
Net interest spread (4)
 
 
 
 
4.59
%
 
 
 
 
 
3.92
%
 
 
 
 
 
3.35
%
Net interest spread (5)
 
 
 
 
4.81
%
 
 
 
 
 
4.17
%
 
 
 
 
 
3.60
%
Cost of funds (6)
 
 
 
 
0.67
%
 
 
 
 
 
1.18
%
 
 
 
 
 
1.61
%

29


(1) Interest income on loans includes amortization of loan fees, prepayment fees received on loan pay-offs, and accretion of discount on acquired loans from Center. See the table below for detail. The average balance of loans is net of deferred loan fees.
Year ended December 31,
 
Loan Fees
 
Deferred (Fees) cost
 
Loan prepayment fee income
 
Non-accrual Loan Income (expense)
 
Accretion of discount on acquired loans from Center
 
 
(In Thousands)
2012
 
$
2,171

 
$
2,086

 
$
(746
)
 
$
(998
)
 
$
23,253

2011
 
2,173

 
(2,744
)
 
487

 
(368
)
 
2,429

2010
 
1,855

 
(2,261
)
 
525

 
(1,415
)
 
—


(2) Average balances of loans are net of deferred loan fees and costs and include non-accrual loans and loans held for sale.
(3) Interest income and yields are not presented on a tax-equivalent basis.
(4) Interest on interest-earning assets minus interest on interest-bearing liabilities
(5) Interest on interest-earning assets minus interest on interest-bearing liabilities and non-interest bearing deposits
(6) Interest on interest-bearing liabilities and non-interest bearing deposits

 
Year Ended December 31,
 
2012 compared to 2011
 
2011 compared to 2010
 
Net
Increase
(Decrease)
 
Change due to
 
Net
Increase
(Decrease)
 
Change due to
 
Rate
 
Volume
 
Rate
 
Volume
 
(In thousands)
INTEREST INCOME:
 
 
 
 
 
 
 
 
 
 
 
Interest and fees on loans
$
105,029

 
$
2,644

 
$
102,385

 
$
11,164

 
$
116

 
$
11,048

Interest on other investments
(68
)
 
(334
)
 
266

 
(44
)
 
175

 
(219
)
Interest on securities
979

 
(3,570
)
 
4,549

 
360

 
242

 
118

Interest on federal funds sold
50

 
(5
)
 
55

 
(21
)
 
—

 
(21
)
TOTAL INTEREST INCOME
$
105,990

 
$
(1,265
)
 
$
107,255

 
$
11,459

 
$
533

 
$
10,926

INTEREST EXPENSE:
 
 
 
 
 
 
 
 
 
 
 
Interest on demand deposits
$
1,243

 
$
(1,855
)
 
$
3,098

 
$
(52
)
 
$
(1,396
)
 
$
1,344

Interest on savings
419

 
(689
)
 
1,108

 
(329
)
 
(224
)
 
(105
)
Interest on time certificates of deposit
(553
)
 
(5,082
)
 
4,529

 
(7,256
)
 
(5,519
)
 
(1,737
)
Interest on FHLB
(3,545
)
 
(5,208
)
 
1,663

 
(2,325
)
 
(1,051
)
 
(1,274
)
Interest on other borrowings
6

 
21

 
(15
)
 
(13
)
 
(111
)
 
98

TOTAL INTEREST EXPENSE
$
(2,430
)
 
$
(12,813
)
 
$
10,383

 
$
(9,975
)
 
$
(8,301
)
 
$
(1,674
)
NET INTEREST INCOME
$
108,420

 
$
11,548

 
$
96,872

 
$
21,434

 
$
8,834

 
$
12,600


Net Interest Income and Net Interest Margin
Net interest income was $238.2 million for 2012 , compared to $129.8 million for 2011 and $108.4 million for 2010 . The net interest margin was 4.88% for 2012 compared to 4.29% for 2011 and 3.75% for 2010 . Interest income reversed for non-accrual loans (net of income recognized) was $998 thousand for 2012 , compared to $368 thousand for 2011 and $1.4 million for 2010 . Excluding this effect, the net interest margin for 2012 , 2011 and 2010 was 4.90%, 4.31% and 3.80%, respectively.
Comparison of 2012 with 2011
Net interest income increased $108.4 million , or 84% , during 2012 . The increase in net interest income was primarily attributable to an improvement in the net interest margin and a full year of net interest income following the merger with Center. Net interest income for the year ended December 31, 2012 , also included approximately $23.5 million of additional loan interest income resulting from the accretion of the loan discount on acquired loans. The cost of deposits decreased during

30


2012 due to the decrease in the rates paid on certificates of deposit upon renewal as well as a favorable shift in the mix of deposits,

Comparison of 2011 with 2010
Net interest income increased $21.4 million, or 20%, during 2011. The increase in net interest income was primarily attributable to an improvement in the net interest margin and one month of net interest income following the merger with Center. Net interest income for the year ended December 31, 2011, also included approximately $2.4 million of additional loan interest income resulting from the December 2011 accretion of the loan discount on acquired loans. The cost of deposits decreased during 2011 due to the decrease in the rates paid on certificates of deposit upon renewal as well as a favorable shift in the mix of deposits following the merger.
Interest Income
Interest income was $267.9 million for 2012 , compared to $161.9 million for 2011 and $150.4 million for 2010 . The yield on average interest-earning assets was 5.48% for 2012 , compared to 5.35% for 2011 and 5.21% for 2010 .
Comparison of 2012 with 2011
The increase in interest income of $106.0 million , or 65% , for 2012 compared to 2011 was primarily due to the increase in in average interest earning assets as a result of the net growth in loans receivable. The weighted average yield on investment securities for 2012 decreased due to $184 million in available-for-sale securities purchased during 2012, yielding 1.98% compared to $236 million in available-for-sale securities purchased during 2011, yielding 2.57%, and $293 million in available-for-sale securities acquired from the merger, yielding 1.86%. 
Comparison of 2011 with 2010
The increase in interest income of $11.5 million, or 8%, for 2011 compared to 2010 was primarily due to the interest income on loan acquired in the merger for the month of December 2011, which approximate $6.9 million. The weighted average yield on investment securities for 2011 increased due to $236 million in available-for-sale securities purchased during 2011, yielding 2.57%, and $293 million in available-for-sale securities acquired in the merger, yielding 1.86%. 
Interest Expense
Deposits
Interest expense on deposits was $21.4 mllion for 2012 compared to $20.2 million for 2011 and $27.9 million for 2010 . The average cost of total deposits was 0.54% for 2012 compared to 0.86% for 2011 and 1.26% for 2010 . The average cost of interest-bearing deposits was 0.73% compared to 1.07% for 2011 and 1.50% for 2010 .

Comparison of 2012 with 2011
The increase in interest expense on total deposits of $1.1 million, or 5%, for 2012 compared to 2011 was due to the higher level of interest earning assets following the merger, a steady increase in interest bearing deposits from the addition in wholesale deposits, and a shift in the mix of deposits to time deposits. Non-interest bearing deposits accounted for 27% of total deposits at December 31, 2012 , compared to 25% at December 31, 2011 .
Comparison of 2011 with 2010
The decrease in interest expense on total deposits of $7.6 million, or 27%, for 2011 compared to 2010 was due to the decrease in the rates paid on certificates of deposit upon renewal as well as a favorable shift in the mix of deposits following the merger. Non-interest bearing deposits accounted for 25% of total deposits at December 31, 2011, compared to 18% at December 31, 2010.
Borrowings
Borrowings include borrowings from the FHLB, the FRB, federal funds purchased and subordinated debentures. As part of our asset-liability management, we utilize FHLB borrowings to supplement our deposit source of funds. Therefore, there may be fluctuations in these balances depending on the short-term liquidity and longer-term financing needs of the Bank.
Average FHLB advances were $374.9 million in 2012 , compared to $314.2 million in 2011 and $353.4 million in 2010 . Interest expense on FHLB borrowings was $6.2 million in 2012 , compared to $9.8 million for 2011 and $12.1 million for 2010 . The average cost of FHLB advances was 1.66% for 2012 , compared to 3.11% for 2011 and 3.42% for 2010 . The decrease in the average cost of FHLB advances in 2012 was primarily due to the replacement of maturing borrowings with lower rate advances.

31


The average cost of other borrowings, including subordinated debentures and secured borrowings, was 4.56% for 2012 , compared to 4.58% for 2011 and 4.83% for 2010 . The decrease in the average cost of other borrowings decreased two basis points despite an increase in the average 3-month LIBOR, to which all but one of our issues of subordinated debentures are tied. For 2012 , the 3-month LIBOR average was 0.43%, compared to 0.34% and 0.34% for 2011 and 2010 , respectively. The increases in average cost due to the change in LIBOR were offset by a decrease in the amount of secured borrowings during the year. Interest expense on secured borrowings was $0 for 2012, compared to $152 thousand for 2011 and $220 thousand for 2010. Interest expense on subordinated debentures was $2.1 million for 2012 , compared to $1.9 million for 2011 and $1.9 million for 2010 .
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 on 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, we may be required to record additional loan loss provision, which may have a material adverse effect on our financial condition.
Comparison of 2012 with 2011
The provision for loan losses was $19.1 million for 2012 , a decrease of $8.8 million , or 32% , from $27.9 million for 2011 . The reduction in the the provision for loan losses reflects a decrease in net charge offs, which decreased to $14.1 million for 2012 , compared to $28.3 million for 2011 .
Comparison of 2011 with 2010
The provision for loan losses was $27.9 million for 2011, a decrease of $56.7 million, or 67%, from $84.6 million for 2010. The reduction in the the provision for loan losses reflects a decrease in net charge offs, which decreased to $28.3 million for 2011, compared to $81.7 million for 2010.
See “Financial Condition—Allowance for Loan Losses” for a description of our methodology for determining the allowance for loan losses.
Non-interest Income
Non-interest income was $39.4 million for 2012 , compared to $23.1 million for 2011 and $24.5 million for 2010 .
Comparison of 2012 with 2011
The increase in non-interest income for 2012 over 2011 primarily reflected increases in service charges on deposit accounts, loan servicing fees, and other income and fees.
Service charges on deposit accounts increased $6.1 million , or 96% to $12.5 million in 2012 from $6.4 million in 2011 primarily due to increases of $3.3 million in non-sufficient funds charges and $2.4 million in service charges on business analysis checking accounts which reflected a full twelve months of the combined operations of Nara and Center during 2012 compared to only one month of combined operations during 2011.
Loan servicing fees increased $2.6 million, or 168% to $4.1 million in 2012 from $1.5 million in 2011. Loan servicing fees are comprised mainly of servicing fee income on SBA loans which increased by $3.2 million during year due to the merger and sales of SBA loans.
Other income and fees, which includes losses on sales of fixed assets, earnings on bank owned life insurance, and other miscellaneous fee income increased $3.2 million, or 138% to $5.5 million in 2012 from $2.3 million in 2011. The increase was primarily due to an increase in Debit Card Pass Rebate of $734 thousand and an increase of $571 thousand on earnings on bank owned life insurance. The remaining increase was from minor fluctuations in other miscellaneous income and fee accounts.
Comparison of 2011 with 2010
Net gains on sales of SBA loans increased $6.0 million, or 425%, to $7.4 million in 2011 from $1.4 million in 2010. Total SBA loan originations during 2011 increased $41.8 million, or 77% to $96.4 million compared to $54.6 million for 2010 due to the continued improvement of the SBA secondary market. Sales of SBA loans for 2011 were $71.1 million compared to $27.4 million for 2010. The increase reflected higher levels of SBA loan production and sales. Of the net gains of $7.4 million, $1.2

32


million was due to recognition of deferred gains from sales of $11.9 million in SBA loans during 2010. Other loans sold in 2011 and 2010 were $28.1 million and $77.2 million, respectively.
Net gains on sales of securities available-for-sale decreased $5.1 million, or 80%, to $1.3 million for 2011 from $6.4 million for 2010. A total of $138.2 million in available-for-sale investment securities were sold in December 2011 as part of the rebalancing of duration and mix of the investment securities portfolio, and purchased replacement investment securities with an aggregate book value of $108.9 million.
Net gains on sales of other real estate owned ("OREO") was $193 thousand in 2011 compared to $605 thousand loss in 2010. We sold 12 properties during 2011 compared to 13 properties during 2010.
A breakdown of non-interest income by category is shown below:
 
 
Year Ended December 31,
 
 
 
Increase
(Decrease)
 
 
 
Increase
(Decrease)
 
 
(Dollars in thousands)
2012
 
Amount
 
%
 
2011
 
Amount
 
%
 
2010
Non-interest Income:
 
 
 
 
 
 
 
 
 
 
 
 
 
Service charges on deposit accounts
$
12,466

 
$
6,096

 
96
 %
 
$
6,370

 
$
(94
)
 
(1
)%
 
$
6,464

International service fees
5,038

 
2,413

 
92
 %
 
2,625

 
256

 
11
 %
 
2,369

Loan servicing fees, net
4,112

 
2,579

 
168
 %
 
1,533

 
(303
)
 
(17
)%
 
1,836

Wire transfer fees
3,250

 
1,695

 
109
 %
 
1,555

 
363

 
30
 %
 
1,192

Other income and fees
5,459

 
3,167

 
138
 %
 
2,292

 
374

 
19
 %
 
1,918

Net gains on sales of SBA loans
8,180

 
826

 
11
 %
 
7,354

 
5,954

 
425
 %
 
1,400

Net gains on sales of other loans
152

 
119

 
361
 %
 
33

 
(4,335
)
 
(99
)%
 
4,368

Net gains on sales and calls of securities available for sale
949

 
(340
)
 
(26
)%
 
1,289

 
(5,107
)
 
(80
)%
 
6,396

Net gains (losses) on sales of OREO
(251
)
 
(444
)
 
(230
)%
 
193

 
798

 
(132
)%
 
(605
)
Net valuation gains (losses) on interest rate swaps
35

 
149

 
(131
)%
 
(114
)
 
743

 
(87
)%
 
(857
)
Total non-interest income
$
39,390

 
$
16,260

 
70
 %
 
$
23,130

 
$
(1,351
)
 
(6
)%
 
$
24,481


Non-interest Expense
Non-interest expense was $120.9 million for 2012 , compared to $82.2 million for 2011 and $63.4 million for 2010 . The increases were $38.7 million , or 47% for 2012 as compared to 2011 and $18.9 million , or 30% for 2011 as compared to 2010.
Comparison of 2012 with 2011
The increase in non-interest expense for 2012 over 2011 primarily reflected increases in salaries and employee benefits, occupancy expense, credit-related expense, and other expenses and was offset by a decrease in prepayment charge on retirement of debt.
Salaries and employee benefits amounted to $56.5 million for 2012 , an increase of $24.9 million , or 79% , compared to $31.6 million for 2011 . The increase was due to an additional $20.9 million in salary expenses we incurred for the combined operations of Nara and Center for the full twelve months in 2012 compared to only one month of combined operations in 2011, an increase in bonus expenses, and an increase in the number of full-time equivalent employees, which increased to 704 at December 31, 2012 from 678 as of December 31, 2011 . Group insurance expenses increased by $2.5 million due to increases in premium costs, and 401(k) plan employer contributions increased by $683 thousand.
Our occupancy expense increased $3.8 million , or 32% , to $15.6 million for 2012 compared to $11.8 million for 2011 .  The increase is primarily due to an increase in the number of branches as a result of the merger, from 23 branches pre-merger to 40 branches as of December 31, 2012. Lease expense and other occupancy costs related to our branches increased by a total of $2.3 million during the year. The increase in occupancy expense is also due to an increase of $702 thousand in leasehold amortization expenses as a result of the amortization of significant leasehold improvements during 2012 and the amortization of Nara and Center leasehold improvements for the full year in 2012.

33


Credit-related expense increased $5.2 million, or 138%, to $9.0 million for 2012 compared to $3.8 million in 2011 primarily due to an increase of $1.9 million and $707 thousand in valuation expense for OREO and LHFS, respectively. Loan collection activity also increased during the year which accounted for a $1.4 million increase in credit-related expenses.
Other expenses increased $5.9 million, or 97%, to $12.1 million for 2012 compared to $6.1 million in 2011 due to an increase of $990 thousand in CRA investment expenses, an increase of $935 thousand in amortization of intangible assets, an increase of $676 thousand in Director fees, and an increase of $1.4 million in miscellaneous expenses.
Pre-payment charges on retirement of debt decreased $5.9 million, or 138%, to $461 thousand for 2012 compared to $6.4 million in 2011 primarily due to a $6.4 million prepayment charge for early retirement of FHLB advances in 2011 with no such charge in the year ended December 31, 2012.
Comparison of 2011 with 2010
The increase in non-interest expense for 2011 over 2010 primarily reflected higher costs associated with the combined operations of the former Nara and Center for one month, the $6.4 million prepayment charge for early retirement of FHLB advances as part of a balance sheet restructuring strategy implemented during the fourth quarter of 2011, and merger and integration expenses of $4.7 million.
Salaries and employee benefits amounted to $31.6 million for 2011, an increase of $6.4 million, or 25%, compared to $25.3 million for 2010. The increase was due to an increase in the number of full-time equivalent employees, which increased to 678 at December 31, 2011 from 376 as of December 31, 2010, an increase of $1.2 million in bonus accrual, an increase of $773 thousand in group insurance expense due to the increase in premium costs, and an increase of $591 thousand in 401(k) plan contributions, as we reinstated the company matching program effective January 1, 2011. The increase in FTE employee was primarily due to the inclusion of the former Center employees, which was 319 FTE at December 31, 2011. FTEs at the merger date was 712.
Our occupancy expense increased $2.1 million, or 21%, to $11.8 million for 2011 compared to $9.8 million for 2010.  This  increase is primarily the result of  the cost associated with the termination of  a lease which resulted in  a non-recurring  one-time expense of $1.5 million during the fourth quarter, as well as one month of expense related to the consummation of the merger, which  increased  the number of branches in December from 23 pre-merger to 44 post-merger.
Credit-related expense decreased $992 thousand, or 21%, to $3.8 million for 2011 compared to $4.8 million in 2010. The decrease was primarily due to a lower need for collection activities during 2011.
A breakdown of non-interest expense by category is provided below:
 
 
Year Ended December 31,
 
 
 
Increase (Decrease)
 
 
 
Increase (Decrease)
 
 
(Dollars in thousands)
2012
 
Amount
 
%
 
2011
 
Amount
 
%
 
2010
Non-interest Expense:
 
 
 
 
 
 
 
 
 
 
 
 
 
Salaries and employee benefits
$
56,491

 
$
24,862

 
79
 %
 
$
31,629

 
$
6,368

 
25
 %
 
$
25,261

Occupancy
15,631

 
3,798

 
32

 
11,833

 
2,066

 
21

 
9,767

Furniture and equipment
5,663

 
1,630

 
40

 
4,033

 
493

 
14

 
3,540

Advertising and marketing
5,076

 
2,590

 
104

 
2,486

 
466

 
23

 
2,020

Data processing and communications
6,364

 
2,451

 
63

 
3,913

 
(41
)
 
(1
)
 
3,954

Professional fees
3,882

 
911

 
31

 
2,971

 
433

 
17

 
2,538

FDIC assessment
2,442

 
(1,905
)
 
(44
)
 
4,347

 
(621
)
 
(13
)
 
4,968

Credit related expense
9,010

 
5,221

 
138

 
3,789

 
(992
)
 
(21
)
 
4,781

Merger and integration expense
3,809

 
(904
)
 
(19
)
 
4,713

 
3,712

 
371

 
1,001

Prepayment charge on retirement of debt
461

 
(5,924
)
 
100

 
6,385

 
6,385

 
100

 
—

Other
12,062

 
5,927

 
97

 
6,135

 
591

 
11

 
5,544

Total non-interest expense:
$
120,891

 
$
38,657

 
47
 %
 
$
82,234

 
$
18,860

 
30
 %
 
$
63,374



34


Income Tax Provision
The provision (benefit) for income taxes for 2012 was $54.4 million compared to $15.7 million in 2011 and $(7.9) million in 2010 . The effective income tax (benefit) rate was 40% for 2012 compared to 37%  for 2011 and (52)%  for 2010 . See Note 9 of Notes to Consolidated Financial Statements for more detailed information on Income taxes.

Financial Condition
Our total assets were $5.64 billion at December 31, 2012 compared to $5.17 billion at December 31, 2011 , an increase of $474.1 million or 9%. The increase in total assets is comprised mainly of increases in net loans receivable of $552.4 million, loans held for sale of $9.2 million, and cash and cash equivalents of $12.8 million offset by decreases in term federal funds sold of $40.0 million, securities available for sale of $36.5 million and other assets of $7.8 million.

Loan Portfolio
We offer various products designed to meet the credit needs of our borrowers. Our lending activities primarily consist of commercial real estate loans, commercial business loans and trade finance loans. Gross loan receivable rose by $557.4 million to $4.3 billion at December 31, 2012 from $3.7 billion at December 31, 2011 .
During 2012 , new loans originated were $1.1 billion compared to $476.8 million for 2011 . Loan growth remained concentrated in commercial real estate loans . The rates of interest charged on adjustable rate loans are set at specified spreads based on the prime lending rate and accordingly vary as the prime lending rate varies. Approximately 60% of our total loans were adjustable rate loans at December 31, 2012 , compared to 59% at December 31, 2011 . Approximately 46% of new loan originations were fixed rate loans for 2012 compared to 36% for 2011 .
With certain exceptions, we are permitted under applicable law to make unsecured loans to single borrowers (including certain related persons and entities) in aggregate amounts of up to 15% of the sum of our total capital and our allowance for loan losses (as defined for regulatory purposes) and certain capital notes and debentures issued by us (if any). As of December 31, 2012 , our lending limit was approximately $110 million per borrower for unsecured loans. For lending limit purposes, a secured loan is defined as a loan secured by collateral having a current fair value of at least 100% of the amount of the loan or extension of credit at all times and satisfying certain other requirements. In addition to unsecured loans, we are permitted to make such collateral-secured loans in an additional amount up to 10% (for a total of 25%) of our total capital and the allowance for loan losses for a total limit of $183.8 million to one borrower. The largest aggregate amount of loans that the Bank had outstanding to any one borrower and related entities was $39.8 million, which were performing as agreed at December 31, 2012 .

The following table shows the composition of our loan portfolio by type of loan on the dates indicated:
 
December 31,
(Dollars in thousands)
2012
 
2011
 
2010
 
2009
 
2008
 
Amount
 
%
 
Amount
 
%
 
Amount
 
%
 
Amount
 
%
 
Amount
 
%
Loan portfolio composition:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential
$
9,247

 
0
%
 
$
2,043

 
0
%
 
$
2,263

 
0
%
 
$
4,801

 
0
%
 
$
5,280

 
0
%
Commercial
3,100,466

 
72
%
 
2,631,880

 
70
%
 
1,525,687

 
71
%
 
1,597,839

 
72
%
 
1,406,068

 
67
%
Construction
65,045

 
2
%
 
44,756

 
1
%
 
46,900

 
2
%
 
54,084

 
2
%
 
61,524

 
3
%
Total real estate loans
3,174,758

 
74
%
 
2,678,679

 
71
%
 
1,574,850

 
73
%
 
1,656,724

 
75
%
 
1,472,872

 
70
%
Commercial business
921,556

 
21
%
 
849,576

 
23
%
 
504,458

 
23
%
 
497,606

 
22
%
 
552,864

 
26
%
Trade finance
152,070

 
4
%
 
146,684

 
4
%
 
57,430

 
3
%
 
51,411

 
2
%
 
66,603

 
3
%
Consumer and other
49,954

 
1
%
 
66,631

 
2
%
 
13,268

 
1
%
 
18,035

 
1
%
 
28,520

 
1
%
Total loans outstanding
4,298,338

 
100
%
 
3,741,570

 
100
%
 
2,150,006

 
100
%
 
2,223,776

 
100
%
 
2,120,859

 
100
%
Less: deferred loan fees
(2,086
)
 
 
 
(2,744
)
 
 
 
(2,261
)
 
 
 
(2,343
)
 
 
 
(1,505
)
 
 
Gross loans receivable
4,296,252

 
 
 
3,738,826

 
 
 
2,147,745

 
 
 
2,221,433

 
 
 
2,119,354

 
 
Less: allowance for loan losses
(66,941
)
 
 
 
(61,952
)
 
 
 
(62,320
)
 
 
 
(59,424
)
 
 
 
(43,419
)
 
 
Loans receivable, net
$
4,229,311

 
 
 
$
3,676,874

 
 
 
$
2,085,425

 
 
 
$
2,162,009

 
 
 
$
2,075,935

 
 

Real Estate Loans
Our real estate loans consist primarily of loans secured by deeds of trust on commercial real estate, including SBA loans secured by commercial real estate. It is our general policy to restrict commercial real estate loan amounts to 75% of the appraised value of the property at the time of loan funding. We offer both fixed and floating interest rate loans. The maturities

35


on such loans are generally up to seven years (with payments determined on the basis of principal amortization schedules of up to 25 years and a balloon payment due at maturity). Residential real estate loans comprise less than 1% of the total loan portfolio, and are currently not being offered by the Bank. This pool of residential real estate loans is made up of loans funded in prior years that are still being serviced by the Bank. Construction loans are also a small portion of the total real estate portfolio, comprising approximately 2% of total loans outstanding. Total real estate loans, consisting primarily of commercial real estate loans, increased $496.1 million or, 19%, to $3.2 billion at December 31, 2012 from $2.7 billion at December 31, 2011 primarily due to increased loan originations during the year..
Other Loans
Commercial business loans include term loans to businesses, lines of credit, trade finance facilities, and SBA loans. Business term loans are generally provided to finance business acquisitions, working capital, and/or equipment purchases. Lines of credit are generally provided to finance short-term working capital needs. Trade finance facilities are generally provided to finance import and export activities. SBA loans are provided to small businesses under the U.S. SBA guarantee program. Short-term credit facilities (payable within one year) typically provide for periodic interest payments, with principal payable at maturity. Term loans (usually 5 to 7 years) normally provide for monthly payments of both principal and interest. SBA commercial loans usually have a longer maturity (7 to 10 years). These credits are regularly reviewed on a periodic basis, and most loans are secured by business assets and/or real estate. During 2012 , commercial business loans increased by $72.0 million, or 8.5%, to $921.6 million at December 31, 2012 from $849.6 million at December 31, 2011 primarily due to new originations. Consumer loans comprise 1% of the total loan portfolio. Most of our consumer loan portfolio consists of automobile loans, home equity lines and loans, and signature (unsecured) lines of credit and loans. We ceased offering auto loans in February 2007 and ceased offering home equity loans in January 2008. However, upon the merger with Center, we resumed originating direct auto loans effective December 1, 2011.
We provide lines of credit to business customers usually on an annual renewal basis. We normally do not make loan commitments in material amounts for periods in excess of one year.
The following table shows our loan commitments and letters of credit outstanding at the dates indicated:
 
   
December 31,
(Dollars in thousands)
2012
 
2011
 
2010
 
2009
 
2008
Commitments to extend credit
$
690,917

 
$
458,096

 
$
205,752

 
$
198,807

 
$
200,170

Standby letters of credit
39,176

 
29,028

 
9,777

 
9,907

 
9,354

Other commercial letters of credit.
51,257

 
49,457

 
30,180

 
23,575

 
17,183

 
$
781,350

 
$
536,581

 
$
245,709

 
$
232,289

 
$
226,707


Non-performing Assets
Non-performing assets consist of non-accrual loans, accruing loans that are 90 days or more past due, accruing restructured loans and OREO.
Loans are placed on non-accrual status when they become 90 days or more past due, unless the loan is both well-secured and in the process of collection. Loans may be placed on non-accrual status earlier if the full and timely collection of principal or interest becomes uncertain. When a loan is placed on non-accrual status, unpaid accrued interest is charged against interest income. Loans are charged off when the collection is determined unlikely. Loans are restructured when, for economic or legal reasons related to the borrower’s financial difficulties, the bank grants a concession to the borrower that it would not otherwise consider. OREO consists of real estate acquired by the Bank through foreclosure or similar means, including by deed from the owner in lieu of foreclosure, and is held for sale.
Non-performing assets were $79.9 million at December 31, 2012 , compared to $82.6 million at December 31, 2011 . The decrease in non-performing assets in 2012 was primarily due to a decrease of $4.9 million in other real estate owned offset by an increase of $2.3 million in nonperforming loans. Nonperforming loans increased due to increases in restructured loans but offset by decreases in loans past due 90 days or more, still accruing. Loans past due 90 days or more, still accruing represent acquired loans from Center that were recorded at fair value upon acquisition. These loans are considered to be accruing as we can reasonably estimate future cash flows on these acquired loans and we expect to fully collect the carrying value of these loans. Therefore, we are accreting the difference between the carrying value of these loans and their expected cash flows.
The amount of additional interest income that the Bank would have recorded in 2012 , 2011 and 2010 , if non-accrual loans had been current in accordance with their original contracted terms, was $1.5 million, $1.9 million and $2.3 million, respectively. The following table illustrates the composition of non-performing assets as of the dates indicated:
 

36


 
 
 
December 31,
(Dollars in thousands)
2012
 
2011
 
2010
 
2009
 
2008
Nonaccrual loans
$
29,653

 
$
32,291

 
$
43,803

 
$
51,674

 
$
37,580

Loans past due 90 days or more, still accruing
17,742

 
23,885

 
—

 
—

 
—

Restructured loans
29,849

 
18,776

 
35,103

 
64,341

 
3,256

Total non-performing loans
$
77,244

 
$
74,952

 
$
78,906

 
$
116,015

 
$
40,836

Other real estate owned
2,698

 
7,624

 
1,581

 
2,044

 
2,969

Total non-performing assets
$
79,942

 
$
82,576

 
$
80,487

 
$
118,059

 
$
43,805

We did not have any commitments to extend additional credit on restructured loans as of December 31, 2012 or 2010 .

 
Maturity and Repricing of Loans
The following table illustrates the maturity distribution and repricing intervals of loans outstanding as of December 31, 2012 . The table also shows the distribution of such loans between those with variable or floating interest rates and those with fixed or predetermined interest rates.
 
 
December 31, 2012
 
Loans Maturing and repricing
(Dollars in thousands)
 
 
 
 
 
 
 
 
Within One
Year
 
Between One and
Five Years
 
After Five
Years
 
Total Loans
Outstanding
Real estate loans:
 
 
 
 
 
 
 
Residential
$
5,510

 
$
3,737

 
$
0

 
$
9,247

Commercial
340,257

 
1,771,476

 
988,733

 
3,100,466

Construction
58,097

 
6,948

 
0

 
65,045

Total real estate loans
403,864

 
1,782,161

 
988,733

 
3,174,758

Commercial business loans
357,128

 
393,904

 
170,524

 
921,556

Trade finance loans
152,070

 
0

 
0

 
152,070

Consumer loans
14,954

 
30,293

 
4,707

 
49,954

Total
$
928,016

 
$
2,206,358

 
$
1,163,964

 
$
4,298,338

 
 
 
 
 
 
 
 
Loans with fixed interest rates
$
211,330

 
$
1,013,476

 
$
505,675

 
$
1,730,481

Loans with variable interest rates without interest rate floors
389,762

 
518,857

 
362,153

 
1,270,772

Loans with variable interest rates with interest rate floors
326,926

 
674,025

 
296,134

 
1,297,085

Total
$
928,018

 
$
2,206,358

 
$
1,163,962

 
$
4,298,338


Concentrations
Our lending activities are predominately in California, the New York City metropolitan area, and New Jersey. At December 31, 2012 , California represented 71.7% of the total loans outstanding and New York and New Jersey represented 16.6% . The remaining 11.7% of total loans outstanding represented other states. Although we have a diversified loan portfolio, a substantial portion of the loan portfolio and credit performance depends on the economic stability of Southern California. Within the Southern California market, most of our business activity is with customers located within Los Angeles County ( 60.4% ). Therefore, the Company’s exposure to credit risk is significantly affected by changes in the economy in the Los Angeles County area. Within our CRE loan portfolio, the largest industry concentrations are retail building ( 27.0% ), hotel/motel ( 18.9% ), gas stations ( 13.3% ), and industrial & warehouse ( 10.6% ). Within our commercial and industrial loan portfolio, the largest industry concentrations are wholesalers ( 31.0% ), retail trade ( 19.2% ), and manufacturing ( 12.6% ).


37


Allowance for Loan Losses
The Bank has implemented a multi-faceted process to identify, manage, and mitigate the credit risks that are inherent in the loan portfolio. For new loans, we fully analyze each loan application package, with experienced reviewers and approvers. In accordance with current lending approval authority guidelines, a majority of loans are approved by the Management Loan Committee (“MLC”) and Directors Loan Committee. MLC is comprised of the Chief Executive Officer, Chief Credit Officer, Chief Operating Officer, Chief Lending Officer, and Eastern Regional Manager. For existing loans, the Bank maintains a systematic loan review program, which includes internally conducted reviews and periodic reviews by external loan review consultants. Based on these reviews, loans are graded as to their overall credit quality, which is measured based on: the sufficiency of credit and collateral documentation; proper lien perfection; proper approval by loan committee(s); adherence to any loan agreement covenants; compliance with internal policies and procedures, and with laws and regulations; adequacy and strength of repayment sources including borrower or collateral generated cash flow; payment performance; and liquidation value of the collateral. We closely monitor loans that management has determined require further supervision because of the loan size, loan structure, and/or specific circumstances of the borrower.
When principal or interest on a loan is 90 days or more past due, a loan is normally placed on non-accrual status unless it is considered to be both well-secured and in the process of collection. Further, a loan is considered a loss in whole or in part when (1) it appears that loss exposure on the loan exceeds the collateral value for the loan, (2) servicing of the unsecured portion has been discontinued, or (3) collection is not anticipated due to the borrower’s financial condition and general economic conditions in the borrower’s industry. Any loan or portion of a loan judged by management to be uncollectible is charged against the allowance for loan losses, while any recoveries are credited to such allowance.
The allowance for loan losses was $66.9 million at December 31, 2012 , compared to $62.0 million at December 31, 2011 . We recorded provisions for loan losses of $19.1 million in 2012 , compared to $27.9 million in 2011 and $84.6 million in 2010 . During 2012 , we charged off $18.8 million in loans outstanding, and recovered $4.7 million in loans previously charged off. Total Criticized loans at December 31, 2012 were $288.7 million compared to $313.6 million at December 31, 2011 . The allowance for loan losses was 1.56% of gross loans at December 31, 2012 , compared to 1.66% at December 31, 2011 . The decrease in this ratio was primarily due to an increase in loans receivable due to loan originations along with decreases in the specific allowance related to impaired loans.
For loans not classified as impaired loans, general loan loss allowances are provided to cover probable and inherent losses. The allowance is determined based first on a quantitative analysis using a loss migration methodology. The loans are classified by type and loan grade, and the historical loss migration is tracked for the various stratifications. We further segregate these stratifications between loans accounted for under the amortized cost method (referred to as "Legacy Loans" and loans acquired from Center Financial (referred to as "Acquired Loans), as acquired loans were originally recorded at fair value with no carryover of the related allowance for loan losses. See “Financial Condition—Allowance for Loan Losses Methodology” for a detailed description of our loan loss methodology.
Impaired loans as defined by FASB ASC 310-10-35, “Accounting by Creditors for Impairment of a Loan” totaled $90.2 million and $94.3 million , respectively, as of December 31, 2012 and December 31, 2011 , with specific allowances of $9.2 million and $18.0 million , respectively. None of the acquired Center loans were deemed to be impaired as of December 31, 2011 as a result of the fair value accounting. Management and the Directors' Loan Committee of the Bank review the adequacy of the allowance for loan losses at least quarterly. Based upon these evaluations, and internal and external reviews of the overall quality of our loan portfolio, we believe that the allowance for loan losses was adequate to absorb estimated probable incurred losses inherent in the loan portfolio as of December 31, 2012 . However, no assurances can be given that the Bank will not experience further losses in excess of the allowance, which may require additional future provisions for loan losses.
The following table illustrates total delinquent loans as of the dates indicated:
 

38


DELINQUENT LOANS BY TYPE
12/31/2012
 
12/31/2011
 
12/31/2010
 
12/31/2009
 
12/31/2008
 
(In thousands)
Real estate—Residential
$
—

 
$
36

 
$
46

 
$
784

 
$
—

Real estate—Commercial
52,742

 
44,855

 
21,016

 
51,876

 
22,230

Real estate—Construction
5,972

 
4,627

 
8,547

 
—

 
6,179

Commercial business
11,685

 
29,302

 
17,530

 
15,303

 
20,937

Trade finance
869

 
419

 
469

 
0

 
93

Consumer and other
1,690

 
1,923

 
491

 
1,514

 
1,776

Total Delinquent Loans
$
72,958

 
$
81,162

 
$
48,099

 
$
69,477

 
$
51,215

Non-accrual loans included above
$
29,653

 
$
32,291

 
$
43,803

 
$
51,674

 
$
37,580




 
As of December 31, 2012
 
30-59
Days Past
Due
 
60-89 Days
Past Due
 
90 or More Days Past Due
 
Total Past
Due
 
Non-accrual loans
 
Total Delinquent loans
 
90 or More Days Past Due and Accruing
Legacy Loans
(In Thousands)
Real estate—Residential
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Real estate—Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
Retail
87

 
—

 
—

 
87

 
3,316

 
3,403

 
—

Hotel & Motel
—

 
—

 
—

 
—

 
437

 
437

 
—

Gas Station & Car Wash
359

 
—

 
—

 
359

 
2,848

 
3,207

 
—

Mixed Use
34

 
—

 
—

 
34

 
1,799

 
1,833

 
—

Industrial & Warehouse
—

 
—

 
—

 
—

 
1,950

 
1,950

 
—

Other
—

 
115

 
—

 
115

 
2,379

 
2,494

 
—

Real estate—Construction
—

 
—

 
—

 
—

 
—

 
—

 
—

Commercial business
298

 
234

 
—

 
532

 
4,942

 
5,474

 
—

Trade finance
—

 
—

 
—

 
—

 
869

 
869

 
—

Consumer and other
190

 
—

 
—

 
190

 
—

 
190

 
—

     Subtotal
$
968

 
$
349

 
$
—

 
$
1,317

 
$
18,540

 
$
19,857

 
$
—

Acquired Loans
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate—Residential
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Real estate—Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
Retail
1,126

 
6,604

 
1,190

 
8,920

 
—

 
8,920

 
1,190

Hotel & Motel
1,522

 
2,668

 
944

 
5,134

 
5,990

 
11,124

 
944

Gas Station & Car Wash
2,218

 
1,109

 
875

 
4,202

 
774

 
4,976

 
875

Mixed Use
985

 
1,918

 
1,507

 
4,410

 
—

 
4,410

 
1,507

Industrial & Warehouse
53

 
3,320

 
61

 
3,434

 
—

 
3,434

 
61

Other
50

 
25

 
5,542

 
5,617

 
937

 
6,554

 
5,542

Real estate—Construction
—

 
—

 
5,972

 
5,972

 
—

 
5,972

 
5,972

Commercial business
1,359

 
1,174

 
1,236

 
3,769

 
2,442

 
6,211

 
1,236

Trade finance
—

 
—

 
—

 
—

 
—

 
—

 
—

Consumer and other
98

 
17

 
415

 
530

 
970

 
1,500

 
415

     Subtotal
$
7,411

 
$
16,835

 
$
17,742

 
$
41,988

 
$
11,113

 
$
53,101

 
$
17,742

TOTAL
$
8,379

 
$
17,184

 
$
17,742

 
$
43,305

 
$
29,653

 
$
72,958

 
$
17,742


We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt including but not limited to: current financial information, historical payment experience, credit documentation, public

39


information, and current economic trends. We analyze loans individually by classifying the loans as to credit risk. This analysis includes all non-homogeneous loans. This analysis is performed at least on a quarterly basis. We use the following definitions for risk ratings:
•
Pass: Loans that meet a preponderance or more of the Company's underwriting criteria and evidence an acceptable level of risk.
•
Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
•
Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
•
Doubtful/Loss: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or repayment in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loans assigned a risk rating of Special Mention or worse are referred to as Criticized Loans and loans assigned a risk rating of Substandard or worse are referred to as Classified Loans. The following table provides the detail of Criticized Loans by risk rating as of the dates indicated:
 
 
12/31/2012
 
12/31/2011
 
12/31/2010
 
12/31/2009
 
12/31/2008
 
(In thousands)
Special Mention
$
79,589

 
$
97,785

 
$
29,573

 
$
42,671

 
$
71,169

Substandard
207,945

 
208,555

 
135,774

 
153,535

 
55,622

Doubtful
1,134

 
7,282

 
260

 
3,655

 
9,883

Loss
—

 
—

 
—

 
—

 
—

Total Criticized Loans
$
288,668

 
$
313,622

 
$
165,607

 
$
199,861

 
$
136,674


The following table shows the provision made for loan losses, the amount of loans charged off, the recoveries on loans previously charged off together with the balance in the allowance for loan losses at the beginning and end of each year, the amount of average and total loans outstanding, and other pertinent ratios as of the dates and for the years indicated:
 

40


(Dollars in thousands)
December 31,
 
2012
 
2011
 
2010
 
2009
 
2008
LOANS:
 
 
 
 
 
 
 
 
 
Average gross loans receivable, including loans held for sale (net of deferred fees)
$
3,974,626

 
$
2,352,253

 
$
2,173,840

 
$
2,124,615

 
$
2,089,803

Total gross loans receivables, excluding loans held for sale at end of year (net of deferred fees)
4,296,252

 
3,738,826

 
2,134,061

 
2,208,943

 
2,098,443

ALLOWANCE:
 
 
 
 
 
 
 
 
 
Balance—beginning of year
$
61,952

 
$
62,320

 
$
59,424

 
$
43,419

 
$
20,035

Loans charged off:
 
 
 
 
 
 
 
 
 
Residential real estate
—

 
—

 
23

 
—

 
—

Commercial and industrial real estate
7,182

 
18,698

 
58,818

 
18,218

 
4,763

Construction
—

 
3,489

 
848

 
6,116

 
2,614

Commercial business loans and Trade Finance
10,650

 
9,756

 
23,607

 
19,775

 
17,801

Consumer and other loans
948

 
256

 
1,356

 
1,577

 
515

Total loans charged off
18,780

 
32,199

 
84,652

 
45,686

 
25,693

Less: recoveries:
 
 
 
 
 
 
 
 
 
Commercial and industrial real estate
2,442

 
1,328

 
770

 
166

 
49

Commercial business loans and Trade Finance
1,832

 
2,320

 
1,951

 
445

 
100

Consumer and other loans
391

 
244

 
197

 
57

 
103

Total loan recoveries
4,665

 
3,892

 
2,918

 
668

 
252

Net loans charged off
14,115

 
28,307

 
81,734

 
45,018

 
25,441

Provision for loan losses
19,104

 
27,939

 
84,630

 
61,023

 
48,825

Balance—end of year
$
66,941

 
$
61,952

 
$
62,320

 
$
59,424

 
$
43,419


(Dollars in thousands)
December 31,
 
2012
 
2011
 
2010
 
2009
 
2008
RATIOS:
 
 
 
 
 
 
 
 
 
Net loan charge-offs to average gross loans
0.36
%
 
1.20
%
 
3.76
%
 
2.12
%
 
1.22
%
Allowance for loan losses to gross loans at end of year
1.56
%
 
1.66
%
 
2.90
%
 
2.68
%
 
2.05
%
Net loan charge-offs to beginning allowance
21.09
%
 
45.42
%
 
137.54
%
 
103.68
%
 
126.98
%
Net loan charge-offs to provision for loan losses
50.52
%
 
101.32
%
 
96.58
%
 
73.77
%
 
52.11
%
Allowance for loan losses to nonperforming loans
86.66
%
 
82.66
%
 
78.98
%
 
51.22
%
 
106.33
%

Allowance for Loan Losses Methodology
We maintain an allowance for loan losses to provide for estimated probable losses that are inherent in our loan portfolio. The allowance is based on our regular quarterly assessments. Our methodologies for measuring the appropriate level of the

41


allowance include the combination of: (1) a quantitative historical loss migration Analysis (“Migration Analysis”) for pools of loans, and a qualitative analysis of subjective factors and (2) a specific allowance method for impaired loans.
The following table reflects our allocation of the allowance for loan losses by loan category and the ratio of each loan category to total loans as of the dates indicated:
 
 
Allocation of Allowance for Loan Losses
 
12/31/2012
 
12/31/2011
 
12/31/2010
 
12/31/2009
 
12/31/2008
 
Amount of allowance for loan losses
 
Percent of loans to total loans
 
Amount of allowance for loan losses
 
Percent of loans to total loans
 
Amount of allowance for loan losses
 
Percent of loans to total loans
 
Amount of allowance for loan losses
 
Percent of loans to total loans
 
Amount of allowance for loan losses
 
Percent of loans to total loans
 
(Dollars in thousands)
Loan Type
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate—Residential
$
74

 
—
%
 
$
9

 
—
%
 
$
14

 
—
%
 
$
18

 
—
%
 
$
27

 
—
%
Real estate—Commercial
45,163

 
72
%
 
38,307

 
70
%
 
32,885

 
71
%
 
40,841

 
73
%
 
24,144

 
67
%
Real estate—Construction
986

 
2
%
 
724

 
1
%
 
3,396

 
2
%
 
913

 
2
%
 
—

 
3
%
Commercial business
17,606

 
21
%
 
20,681

 
23
%
 
24,930

 
23
%
 
15,655

 
22
%
 
18,060

 
26
%
Trade finance
2,352

 
4
%
 
1,786

 
4
%
 
192

 
3
%
 
410

 
2
%
 
—

 
4
%
Consumer and other
760

 
1
%
 
445

 
2
%
 
634

 
1
%
 
1,144

 
1
%
 
869

 
2
%
Unallocated
—

 
—
%
 
—

 
—
%
 
269

 
—
%
 
443

 
—
%
 
319

 
—
%
Total
$
66,941

 
100
%
 
$
61,952

 
100
%
 
$
62,320

 
100
%
 
$
59,424

 
100
%
 
$
43,419

 
100
%

The adequacy of the allowance for loan losses is determined by management based upon an evaluation and review of the credit quality of the loan portfolio, consideration of historical loan loss experience, relevant internal and external factors that affect the collection of a loan, and other pertinent factors.
The Migration Analysis is a formula methodology based on the Bank’s actual historical net charge-off experience for each loan pool and loan risk grade (Pass, Special Mention, Substandard and Doubtful). The migration analysis is centered on the Bank’s internal credit risk rating system. Our internal loan review and external contracted credit review examinations are used to determine and validate loan risk grades. This credit review system takes into consideration factors such as: borrower’s background and experience; historical and current financial condition; credit history and payment performance; economic conditions and their impact on various industries; type, fair value and volatility of the fair value of collateral; lien position; and the financial strength of any guarantors.
A general loan loss allowance is provided on loans not specifically identified as impaired (“non-impaired loans”). For the acquired loans, the allowance is determined first based on a quantitative analysis using a loss migration methodology. The loans are classified by type and loan grade, and the historical loss migration is tracked for the various stratifications. Loss experience is quantified for a specified period determined by management and then weighted to give more weight to the most recent losses. That loss experience is then applied to the stratified portfolio at each quarter end. During 2009, the non-impaired commercial real estate loan portfolio was stratified into ten different loan pools based on property types and the non-impaired commercial and industrial loan portfolio was stratified into five different loan pools based on loan type, to allocate historic loss experience to more granular loan pools. Effective June 30, 2010 four additional pools, primarily in the commercial real estate portfolio, were further stratified. In addition, a new software program was implemented effective June 30, 2010 and is used to track and allocate charge-offs to the various loan grades by loan pools. The quantitative general loan loss allowance was $20.6 million at December 31, 2012 , compared to $20.4 million at December 31, 2011 .
Additionally, in order to systematically quantify the credit risk impact of other trends and changes within the loan portfolio, the Bank utilizes qualitative adjustments to the Migration Analysis within established parameters. The parameters for making adjustments are established under a Credit Risk Matrix that provides seven possible scenarios for each of the factors below. The matrix allows for up to three positive (major, moderate, and minor), three negative (Major, Moderate, and Minor), and one neutral credit risk scenarios within each factor for each loan type pool. Generally, the factors are considered to have no significant impact (neutral) to our historical migration ratios. However, if information exists to warrant adjustment to the

42


Migration Analysis, changes are made in accordance with the established parameters supported by narrative and/or statistical analysis. The Credit Risk Matrix and the nine possible scenarios enable the Bank to qualitatively adjust the Loss Migration Ratio or individual specific reserve allocations by as much as 50 basis points in either direction (positive or negative) for each loan type pool. This matrix considers the following nine factors, which are patterned after the guidelines provided under the FFIEC Interagency Policy Statement on the Allowance for Loan and Lease Losses:
•
Changes in lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices.
•
Changes in national and local economic and business conditions and developments, including the condition of various market segments.
•
Changes in the nature and volume of the loan portfolio.
•
Changes in the experience, ability, and depth of lending management and staff.
•
Changes in the trends of the volume and severity of past due and classified loans; and changes in trends in the volume of non-accrual loans and troubled debt restructurings, and other loan modifications.
•
Changes in the quality of our loan review system and the degree of oversight by the Directors.
•
Changes in the value of underlying collateral for collateral-dependent loans.
•
The existence and effect of any concentrations of credit, and changes in the level of such concentrations.
•
The effect of external factors such as competition and legal and regulatory requirements on the level of estimated losses in our loan portfolio.
The qualitative loan loss allowance on the loan portfolio was $32.6 million at December 31, 2012 compared to compared to $23.5 million at December 31, 2011 .
We also establish specific loss allowances for loans where we have identified potential credit risk conditions or circumstances related to a specific individual credit. The specific allowance amounts are determined by a method prescribed by FASB ASC 310-10-35-22, Measurement of Impairment . The loans identified as impaired are accounted for in accordance with one of the three acceptable valuation methods: 1) the present value of future cash flows discounted at the loan’s effective interest rate; 2) the loan’s observable market price; or 3) the fair value of the collateral, if the loan is collateral dependent. For the collateral dependent impaired loans, we obtain an appraisal to determine the amount of impairment as of the date that the loan become impaired. The appraisals are based on an “as is” valuation. To ensure that appraised values remain current, we generally obtain an updated appraisal every twelve months from a qualified independent appraiser. Furthermore, if the most current appraisal is dated more than six months prior to the effective date of the impairment test, we validate the most current value with third party market data appropriate to the location and property type of the collateral. If the third party market data indicates that the value of our collateral property has declined since the most recent valuation date, we adjust the value of the property downward to reflect current market conditions. If the fair value of the collateral, less cost to sell, is less than the recorded amount of the loan, we then recognize impairment by creating or adjusting an existing valuation allowance with a corresponding charge to the provision for loan losses. If an impaired loan is expected to be collected through liquidation of the collateral, the loan is deemed to be collateral dependent and the amount of impairment is charged off against the allowance for loan losses.
We consider a loan to be impaired when it is probable that not all amounts due (principal and interest) will be collectible in accordance with the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. The significance of payment delays and payment shortfalls is determined on a case-by-case basis by taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed.
For commercial business loans, real estate loans and certain consumer loans, we base the measurement of loan impairment on the present value of the expected future cash flows, discounted at the loan’s effective interest rate or on the fair value of the loan’s collateral if the loan is collateral dependent. We evaluate most consumer loans for impairment on a collective basis, because these loans have generally smaller balances and are homogeneous in the underwriting terms and conditions, and in the type of collateral. If a loan is deemed to be impaired, the amount of the impairment is supported by a specific allowance amount which is included in the allowance for loan losses through a charge to the provision for loan losses.
In the third quarter, 2010, based on current market conditions, we expanded the criteria for evaluating loans for potential impairment, which resulted in an increase in impaired loans from the prior quarter. Prior to the third quarter of 2010, loans graded Substandard were not individually evaluated for impairment and only considered impaired if they were 60+ days past due, unless other events existed that qualified the loan for impairment review. Therefore, a Substandard credit that was current

43


in its contractual payments, but was classified due to other risk issues would not necessarily be subject to individual review for impairment analysis. Effective September 30, 2010, we expanded the scope of the loans reviewed for individual impairment by including all loans of $2.0 million or more that were risk-graded as Substandard, even though such loans were less than 60 days delinquent and were performing under their contractual terms. Effective December 31, 2010, we expanded the scope to include all loans of $1 million or more. This enhancement to our impairment analysis provided more coverage in terms of current fair values on classified loans as updated market values are required as part of the impairment analysis process. Effective March 31, 2011, we implemented a higher-level, preliminary non-impairment test, that is applied to loans for $1.0 million or more that are graded Substandard, are less than 60 days past due and accruing, and are not TDRs. We use a five-step test with the following criteria: (1) the loan is current with no 30-day late payments in the past six months; (2) the loan payments are the contractual, non-modified amount; (3) the financial information that supports payment capacity is not aged over one year; (4) the global cash flow supports the current payment amount at a ratio of 1:1 or better; and (5) for CRE loans secured by a first lien on real estate collateral, the most current LTV is below 100%.
If the loan meets all of these criteria, it is not considered impaired and is subject to the general loan loss allowance for non-impaired loans. Impaired loans at December 31, 2012 , were $90.2 million , a net decrease of $4.1 million from $94.3 million at December 31, 2011 . This net decrease in impaired loans is due primarily to the return of loans back to non-impaired status. The return to non-impaired status was based on a review of the current financial information and payment performance.
Covered Loans
On April 16, 2010, the DFI closed Innovative Bank, California, and appointed the FDIC as its receiver. On the same date, Center Bank assumed the banking operations of Innovative Bank from the FDIC under a purchase and assumption agreement and two related loss sharing agreements with the FDIC. Upon the merger between Nara Bancorp and Center Financial, we assumed the loss sharing agreements with the FDIC.
Covered nonperforming assets totaled $882 thousand at December 31, 2012 . These covered nonperforming assets are subject to the loss sharing agreements with the FDIC. The covered nonperforming assets at December 31, 2012 were as follows:
(in thousands)
December 31, 2012
Covered loans on non-accrual status
$
489

Covered other real estate owned
393

     Total covered nonperforming assets
$
882

 
 
Acquired covered loans
$
72,528

Covered nonperforming assets to net covered loans
1.22
%
Loans accounted for under ASC 310-30 are generally considered accruing and performing loans as the loans accrete the accretable discount to interest income over the estimate life of the loan when cash flows are reasonably estimable. Accordingly, acquired impaired loans that are contractually past due are still considered to be accruing and performing loans. The loans may be classified as nonaccrual if the timing and amount of future cash flows is not reasonably estimable.
Investment Security Portfolio
The main objectives of our investment strategy are to provide a source of liquidity while managing our interest rate risk and to generate an adequate level of interest income without taking undue risks. Our investment policy permits investments in various types of securities, certificates of deposits and federal funds sold in compliance with various restrictions in the policy. Securities are classified as held to maturity or available for sale. We do not maintain a trading portfolio. The securities for which we have the ability and intent to hold to maturity are classified as held to maturity securities. All other securities are classified as available for sale.
Our available-for-sale securities totaled $704.4 million at December 31, 2012 , compared to $740.9 million at December 31, 2011 . We had no securities in the held to maturity category at December 31, 2012 or 2011 . The decrease of $36.5 million in available-for-sale securities was caused mainly by pay-downs of $185.4 million, sales of $28.5 million and called/matured securities of $1.1 million which was partially offset by purchases totaling $184.2 million. All of the securities involved in these transactions were classified as available for sale. Securities with a carrying value of $423 thousand were pledged to the FRB at December 31, 2012 . We also pledged securities with a carrying value of $338.1 million to the California State Treasurer's Office as collateral for time certificates deposit. Our investment portfolio consists of U.S. Treasury bills, government sponsored enterprise (“GSE”) bonds, mortgage backed securities (“MBS”), collateralized mortgage obligations (“CMOs”), mutual funds, a corporate note and municipal bonds.

44


Our available-for-sale securities portfolio is primarily invested in CMOs and residential MBS, which comprised 97% of our total available-for-sale portfolio as of December 31, 2012 and 2011 , respectively.  At December 31, 2012 and 2011 , all of our CMOs and MBS were issued by GNMA, FNMA or FHLMC, which guarantee the contractual cash flows of these investments. 
The following table summarizes the amortized cost, estimated fair value and maturity distribution of our investment securities portfolio as of dates indicated:
Investment Portfolio Balance and Fair Value
 
 
December 31,
 
2012
 
2011
 
Amortized
Cost
 
Estimated
Fair
Value
 
Unrealized/
Unrecognized
Gain (Loss)
 
Amortized
Cost
 
Estimated
Fair
Value
 
Unrealized/
Unrecognized
Gain (Loss)
 
(Dollars in thousands)
 
 
 
 
 
(Dollars in thousands)
 
 
 
 
Available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
Debt securities*:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury
$
—

 
$
—

 
$
—

 
$
300

 
$
300

 
$
—

GSE CMOs
249,373

 
254,912

 
5,539

 
222,400

 
227,836

 
5,436

GSE MBS
415,925

 
425,540

 
9,615

 
477,555

 
487,754

 
10,199

Trust Preferred Security
4,502

 
3,837

 
(665
)
 
5,532

 
4,348

 
(1,184
)
Municipal Bonds
4,506

 
5,118

 
612

 
5,257

 
5,764

 
507

Total debt securities
674,306

 
689,407

 
15,101

 
711,044

 
726,002

 
14,958

Mutual funds
14,710

 
14,996

 
286

 
14,710

 
14,918

 
208

Total available-for-sale
$
689,016

 
$
704,403

 
$
15,387

 
$
725,754

 
$
740,920

 
$
15,166


* GSE bonds were issued by GNMA,, FNMA, and FHLMC and are all mortgage-backed securities.

The following table summarizes the maturity of securities based on carrying value and their related weighted average yield at December 31, 2012 .
Investment Portfolio Maturities and Weighted Average Yields
 
Within One Year
 
After One But
Within Five Years
 
After Five But
Within Ten Years
 
After Ten Years
 
Total
 
Amount
 
Yield
 
Amount
 
Yield
 
Amount
 
Yield
 
Amount
 
Yield
 
Amount
 
Yield
 
(Dollars in thousands)
Available-for-sale
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GSE CMOs
$
—

 
—
%
 
$
677

 
0.48
%
 
$
15,583

 
1.43
%
 
$
238,652

 
2.04
%
 
$
254,912

 
2.00
%
GSE MBS
—

 
—

 
2,172

 
3.38

 
37,628

 
2.04

 
385,740

 
2.41

 
425,540

 
2.38
%
Trust Preferred Security
—

 
—

 
—

 
—

 
—

 
—

 
3,837

 
1.69

 
3,837

 
1.69
%
Municipal Bonds
—

 
—

 
357

 
4.78

 
4,434

 
6.79

 
327

 
7.71

 
5,118

 
6.70
%
Mutual funds
—

 
—

 
—

 
—

 
—

 
—

 
14,996

 
2.07

 
14,996

 
2.07
%
Total available-for-sale
$
—

 
—
%
 
$
3,206

 
2.90
%
 
$
57,645

 
2.20
%
 
$
643,552

 
2.26
%
 
$
704,403

 
2.66
%

The following table shows our investments with gross unrealized losses and their estimated fair values, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2012 .

45


 
 
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
 
 
 
(Dollars in thousands)
GSE CMOs
3

 
$
18,009

 
$
(110
)
 
—

 
$
—

 
$
—

 
3

 
$
18,009

 
$
(110
)
GSE MBS
7

 
32,406

 
(597
)
 
3

 
8,251

 
(64
)
 
10

 
40,657

 
(661
)
Trust preferred security
—

 
—

 
—

 
1

 
3,837

 
(665
)
 
1

 
3,837

 
(665
)
 
10

 
$
50,415

 
$
(707
)
 
4

 
$
12,088

 
$
(729
)
 
14

 
$
62,503

 
$
(1,436
)

ASC Topic 320 requires an entity to assess whether the entity has the intent to sell a debt security or more likely than not will be required to sell the debt security before its anticipated recovery. If either of these conditions is met, an entity must recognize an other-than-temporary impairment (“OTTI”). If an entity does not intend to sell the debt security and will not be required to sell the debt security, the entity must consider whether it will recover the amortized cost basis of the security. If the present value of expected cash flows is less than the amortized cost basis of the security, OTTI shall be considered to have occurred. OTTI is then separated into the amount of the total impairment related to credit losses and the amount of the total impairment related to all other factors. An entity determines the impairment related to credit losses by comparing the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. OTTI related to the credit loss is then recognized in earnings. OTTI related to all other factors is recognized in other comprehensive income.
We evaluate securities for OTTI on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the financial condition and near-term prospects of the issuer, the length of time and the extent to which the fair value of the securities has been less than our cost for the securities, and our intention to sell, or whether it is more likely than not that we will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. In analyzing an issuer’s financial condition, we consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition.
We consider the losses on our investments in an unrealized loss position at December 31, 2012 to be temporary based on: 1) the likelihood of recovery; 2) the information available to us relative to the extent and duration of the decline in market value; and 3) our intention not to sell, and our determination that it is more likely than not that we will not be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis.
Deposits
Deposits are our primary source of funds for loans and investments. We offer a wide variety of deposit account products to commercial and consumer customers. Total deposits increased to $4.4 billion at December 31, 2012 from $3.9 billion at December 31, 2011 .
The increase in deposits during 2012 was primarily due to an addition in wholesale deposits to help fund loan growth and the completion of a marketing campaign during the fourth quarter celebrating our first anniversary. The increases reflect higher balances of non-interest bearing demand deposits, money accounts and jumbo time deposits. At December 31, 2012 , we had $307.2 million in brokered deposits and $300.0 million in California State Treasurer deposits, compared to $80.7 million and $300.0 million, respectively, at December 31, 2011 . The brokered deposits represented approximately 7.0% of our total deposits as of December 31, 2012 compared to 2% as of December 31, 2011 . The California State Treasurer deposits have three months maturities with a weighted average interest rate of 0.12% at December 31, 2012 compared to 0.05% at December 31, 2011 .
Although our deposits may vary with local and national economic conditions, we do not believe that our deposits are seasonal in nature. The following table sets forth the balances of our deposits by category for the periods indicated.
 

46


 
December 31,
 
2012
 
2011
 
2010
 
Amount
 
Percent
 
Amount
 
Percent
 
Amount
 
Percent
 
(Dollars in thousands)
Demand, non-interest bearing
$
1,184,285

 
27
%
 
$
984,350

 
25
%
 
$
388,731

 
18
%
Demand, interest bearing
1,248,304

 
28
%
 
1,237,378

 
32
%
 
688,593

 
31
%
Savings
180,686

 
4
%
 
198,063

 
5
%
 
126,255

 
6
%
Time deposit of $100,000 or more
1,088,611

 
25
%
 
759,923

 
19
%
 
321,542

 
15
%
Other time deposits
682,149

 
16
%
 
761,178

 
19
%
 
650,993

 
30
%
Total Deposits
$
4,384,035

 
100
%
 
$
3,940,892

 
100
%
 
$
2,176,114

 
100
%

The following table indicates the maturity schedules of our time deposits, for the years indicated.
 
 
December 31,
 
2012
 
2011
 
2010
 
Amount
 
Percentage
 
Amount
 
Percentage
 
Amount
 
Percentage
 
(Dollars in thousands)
Three months or less
$
717,438

 
41
%
 
$
570,292

 
37
%
 
$
339,857

 
35
%
Over three months through six months
325,812

 
18
%
 
271,743

 
18
%
 
152,838

 
16
%
Over six months through twelve months
612,723

 
35
%
 
434,687

 
29
%
 
311,210

 
32
%
Over twelve months
114,787

 
6
%
 
244,379

 
16
%
 
168,630

 
17
%
Total time deposits
$
1,770,760

 
100
%
 
$
1,521,101

 
100
%
 
$
972,535

 
100
%

The following table indicates the maturity schedules of our time deposits in amounts of $100,000 or more as of December 31, 2012 .
 
 
December 31, 2012
 
(Dollars in thousands)
 
Amount
 
Percentage
Three months or less
$
515,565

 
47
%
Over three months through six months
147,182

 
14
%
Over six months through twelve months
360,281

 
33
%
Over Twelve months
65,583

 
6
%
Total time deposits
$
1,088,611

 
100
%

There can be no assurance that we will be able to continue to replace maturing CDs at competitive rates. However, if we are unable to replace these maturing CDs with new deposits, we believe that we have adequate liquidity resources to fund these obligations through secured credit lines with the FHLB and FRB, as well as with liquid assets.
Borrowings
We utilize a combination of short-term and long-term borrowings to help manage our liquidity position.
Federal Funds Purchased
Federal funds purchased generally mature within one to three business days from the transaction date. At December 31, 2012 and 2011 , we did not have any federal funds purchased.
FHLB Advances
We may borrow from the FHLB on a longer term basis to provide funding for certain loan or investment securities strategies, as well as for asset liability management strategies. As of December 31, 2012 and 2011 , FHLB advances totaled $420.7 million and $344.4 million with average remaining maturities of 2.6 years and 1.3 years, respectively. The weighted

47


average rate for FHLB advances was 1.24% at year-end 2012 , compared to 1.93% at year-end 2011 . As of December 31, 2012 , our FHLB borrowing capacity based on pledged collateral and the remaining available borrowing capacity were $1.3 billion and $929.7 million, respectively. See Note 7 of Notes to Consolidated Financial Statements for more detailed information on FHLB advances.
Subordinated Debentures
At December 31, 2012 , five wholly owned subsidiary grantor trusts ("Trusts") established by us had issued $46.0 million of pooled trust preferred securities (“Trust Preferred Securities”). The Trust Preferred Securities accrue and pay distributions periodically at specified annual rates as provided in the related indentures for the securities. The trusts used the net proceeds from the offering 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 a redemption price specified in the indentures plus any accrued but unpaid interest to the redemption date.
As of December 31, 2012 and 2011 , Trusts are not reported on a consolidated basis pursuant to ASC 810, Consolidation . Therefore, the capital securities of $46.0 million are not presented on the consolidated statements of financial condition. Instead, the long-term subordinated debentures of $41.8 million as of December 31, 2012 , issued by us to the Trust and the investment in Trusts' common stock of $1.6 million (included in other assets) are separately reported.
The following table summarizes our outstanding Debentures related to the trust preferred securities at December 31, 2012 .

 
TRUST NAME
ISSUANCE
DATE
 
AMOUNT
 
PRINCIPAL
BALANCE OF
DEBENTURES
 
STATED
MATURITY
 
ANNUALIZED
COUPON  RATE
 
RATE AT
12/31/2012
 
INTEREST
DISTRIBUTION
DATES
(Dollars in thousands)
Nara Capital Trust III
6/5/2003
 
$
5,000

 
$
5,155

 
6/15/2033
 
3 month LIBOR
+ 3.15%
 
3.70
%
 
Every 15 th  of March, June, September, and December
Nara Statutory Trust IV
12/22/2003
 
$
5,000

 
$
5,155

 
1/7/2034
 
3 month LIBOR
+ 2.85%
 
3.25
%
 
Every 7 th  of January, April, July and October
Nara Statutory Trust V
12/17/2003
 
$
10,000

 
$
10,310

 
12/17/2033
 
3 month LIBOR
+ 2.95%
 
3.51
%
 
Every 17 th  of March, June, September and December
Nara Statutory Trust VI
3/22/2007
 
$
8,000

 
$
8,248

 
6/15/2037
 
3 month LIBOR
+1.65%
 
2.20
%
 
Every 15 th  of March, June, September and December
Center Capital Trust I
12/29/2003
 
$
18,000

 
$
12,978

 
1/7/2034
 
3 month LIBOR
+2.85%
 
3.25
%
 
Every 7 th  of January, April, July and October
Total Trust
 
 
$
46,000

 
$
41,846

 
 
 
 
 
 
 
 

Capital Resources
Historically, our primary source of capital has been the retention of earnings, net of dividend payments to shareholders. We seek to maintain capital at a level sufficient to assure our stockholders, our customers, and our regulators that our company and our bank subsidiary are financially sound. For this purpose, we perform ongoing assessments of our components of capital as well as projected sources and uses of capital in conjunction with projected increases in assets and levels of risk.
On November 21, 2008, we issued 67,000 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “Series A Preferred Stock”), having a liquidation preference of $1,000 per share, together with a ten-year warrant to purchase 1,042,531 shares of Nara Bancorp common stock at an exercise price of $9.64 per share, to the United States Department of the Treasury for gross proceeds of $67 million. The sale of the Series A Preferred Stock was made pursuant to the United States Treasury Department’s TARP Capital Purchase Program. The warrant was reduced to 521,266 shares upon our completion of a qualified common stock offering in November 2009.

48


Upon the merger with Center, we issued 55,000 shares of a new series of our preferred stock having substantially the same rights, preferences, privileges and voting powers as our Series A Preferred Stock in exchange for the shares of similar preferred issued by Center under the Treasury Department's TARP Capital Purchase Program. The new series of preferred stock is designated as our Fixed Rate Cumulative Perpetual Preferred Stock, Series B. The ten-year warrant to purchase Center Financial common stock that was in connection with Center Financial's sale of its Series A Preferred Stock to the Treasury Department was converted into a warrant to purchase BBCN Bancorp common stock upon our merger with Center. Reflecting the merger exchange ratio of 0.7805, the warrant now entitles the holder of the warrant to purchase, in one or more exercises of the warrant, up to 337,480 shares of BBCN Bancorp common stock at a price of $12.22 per share.
On October 31, 2011, we raised additional capital of approximately $59.9 million, net proceeds after underwriting fees and estimated offering expenses, through a public offering of 8.7 million shares of our common stock at a price of $7.25 per share. In June 2012, we redeemed $67 million and $55 million of the aforementioned Series A and B Preferred Stock, respectively, that was issued under the U.S. Treasury's TARP Capital Purchase Program. In August 8, 2012, we purchased from the Treasury Department, the outstanding warrant relating to 521,666 shares of the Company's common stock, at a purchase price of $2.2 million. We have not reached agreement with the Treasury Department regarding repurchase of the warrant for the purchase of 337,480 shares of our common stock that we issued in connection with our merger with Center Financial.
Our total stockholders’ equity decreased $44.8 million, or 6%, to $751.1 million at December 31, 2012 from $795.9 million at December 31, 2011 primarily primarily due to the redemption of $122 million of Series A and Series B Preferred Stock and partially offset by net income of $83.2 million during the year. At December 31, 2012, our ratio of common equity to total assets was 13.32% compared to 13.04% at December 31, 2011, and our tangible common equity represented 11.86% of tangible assets at December 31, 2012, compared with 11.42% of tangible assets at December 31, 2011. Tangible common equity per share was $8.43 at December 31, 2012, compared with $7.43 at December 31, 2011. Tangible common equity to tangible assets is a non-GAAP financial measure that represents common equity less goodwill and net other intangible assets divided by total assets less goodwill and net other intangible assets. We review tangible common equity to tangible assets in evaluating the capital levels.

The following tables compare BBCN Bancorp’s and the Bank’s actual capital at December 31, 2012 to those required by our regulatory agencies to be deemed "adequately capitalized" for capital adequacy classification purposes:
 
 
As of December 31, 2012 (Dollars in thousands)
 
Actual
 
Required
 
Excess
 
Amount
 
Ratio
 
Amount
 
Ratio
 
Amount
 
Ratio
BBCN Bancorp, Inc
 
 
 
 
 
 
 
 
 
 
 
Total capital (to risk-weighted assets
$
746,396

 
16.16
%
 
$
369,417

 
8.00
%
 
$
376,979

 
8.16
%
Tier 1 capital (to risk weighted assets)
$
688,422

 
14.91
%
 
$
184,708

 
4.00
%
 
$
503,714

 
10.91
%
Tier 1 capital (to average assets)
$
688,422

 
12.76
%
 
$
215,861

 
4.00
%
 
$
472,561

 
8.76
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2012 (Dollars in thousands)
 
Actual
 
Required
 
Excess
 
Amount
 
Ratio
 
Amount
 
Ratio
 
Amount
 
Ratio
BBCN Bank
 
 
 
 
 
 
 
 
 
 
 
Total capital (to risk-weighted assets
$
725,655

 
15.73
%
 
$
369,134

 
8.00
%
 
$
356,521

 
7.73
%
Tier 1 capital (to risk weighted assets)
$
667,725

 
14.47
%
 
$
184,567

 
4.00
%
 
$
483,158

 
10.47
%
Tier 1 capital (to average assets)
$
667,725

 
12.38
%
 
$
215,813

 
4.00
%
 
$
451,912

 
8.38
%

Liquidity Management

Liquidity risk is the risk of reduction in our earnings or capital that would result if we were not able to meet our obligations when they come due without incurring unacceptable losses. Liquidity risk includes the risk of unplanned decreases or changes

49


in funding sources and changes in market conditions that affect our ability to liquidate assets quickly and with minimum loss of value. Factors considered in liquidity risk management are the stability of the deposit base; the marketability, maturity, and pledging of our investments; the availability of alternative sources of funds; and our demand for credit.

The objective of our liquidity management is to have funds available to meet cash flow requirements arising from fluctuations in deposit levels and the demands of daily operations, which include funding of securities purchases, providing for customers' credit needs, and ongoing repayment of borrowings.

We manage our liquidity actively on a daily basis and it is reviewed periodically by our management-level Asset/Liability Management Committee (“ALM”) and the Board Asset Liability Committee (“ALCO”). This process is intended to ensure the maintenance of sufficient funds to meet our liquidity needs, including adequate cash flow for off-balance-sheet commitments. In general, our liquidity is managed daily by controlling the level of federal funds and the funds provided by cash flow from operations. To meet unexpected demands, lines of credit are maintained with the Federal Home Loan Bank of San Francisco, the Federal Reserve Bank of San Francisco and other correspondent banks. The sale of investment securities also serves as a source of funds.

Our primary sources of liquidity are derived from financing activities, which include customer and broker deposits, federal funds facilities, and borrowings from the Federal Home Loan Bank of San Francisco and the Federal Reserve Bank Discount Window. These funding sources are augmented by payments of principal and interest on loans, 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.
Net cash inflows from operating activities totaled $104.5 million , $96.6 million and $135.8 million during 2012 , 2011 and 2010 , respectively. Net cash inflows from operating activities for 2012 were primarily attributable to proceeds from sales of loans and net income.
Net cash (outflows) inflows from investing activities totaled ($474.9) million , $190.3 million and $159.5 million during 2012 , 2011 and 2010 , respectively. Net cash inflows for investing activities during 2012 were primarily due to the net cash received from the merger with Center.
Net cash inflows (outflows) from financing activities totaled $383.3 million , ($159.1) million and ($248.5) million during 2012 , 2011 and 2010 , respectively. Net cash outflows from financing activities for 2012 were primarily attributable to repayments of FHLB borrowings.
When we have more funds than required for our reserve requirements or short-term liquidity needs, we sell federal funds to other financial institutions. Conversely, when we have less funds than required, we may borrow funds from the FHLB or the FRB’s Discount Window. The maximum amount that we are currently available to borrow on an overnight basis from the FHLB and the FRB is $1.3 billion , and currently we have $420.7 million in borrowings from the FHLB The Federal Home Loan Bank System functions as a line of credit facility for qualifying financial institutions. As a member, we are required to own capital stock in the Federal Home Loan Bank of San Francisco and may apply for advances from the FHLB utilizing as collateral, qualifying mortgage loans and certain securities as collateral for these advances. The Federal Home Loan Bank of San Francisco has suspended its regular stock dividend beginning with the fourth quarter of 2008 to preserve capital and recently reinstated partial redemptions of excess capital stock in May of 2010.
At times we maintain a portion of our liquid assets in interest-bearing cash deposits with other banks, in overnight federal funds sold to other banks, and in investment securities available-for-sale that are not pledged. Our liquid assets, consisted of cash and cash equivalent, interest-bearing cash deposits with other banks, overnight federal funds sold to other banks, liquid investment securities available for sale, and loan repayments within 30 days. Cash and cash equivalents, including federal funds sold were $312.9 million at December 31, 2012 compared to $300.1 million at December 31, 2011 .
Because our primary sources and uses of funds are deposits and loans, the relationship between gross loans and total deposits provides one measure of our liquidity. Typically, the closer the ratio of loans to deposits is to, or the more it exceeds, 100%, the more we rely on borrowings and other sources to provide liquidity. Alternative sources of funds such as FHLB advances, brokered deposits and other collateralized borrowings, that provide liquidity as needed from diverse liability sources are an important part of our asset/liability management strategy. For 2012 , our gross loan to deposit ratio averaged 98%, compared to an average ratio of 100% and 98% for 2011 and 2010 .
We believe our liquidity sources to be stable and adequate to meet our day-to-day cash flow requirements. At December 31, 2012 , we are not aware of any trends, events or uncertainties that had or were reasonably likely to have a material effect on our liquidity position. As of December 31, 2012 , we are not aware of any material commitments for capital expenditures in the foreseeable future.


50


Off-Balance- Sheet Activities and Contractual Obligations
The Bank routinely engages 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 may require us to make cash payments to third parties in the event 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.
The Bank also has entered into interest rate swap and cap contracts where we are required to either receive cash from or pay cash to counterparties depending on changes in interest rates. We utilize interest rate swap and cap contracts to help manage the risk of changing interest rates. Our accounting for interest rate swap and cap contracts is discussed below under Item 7A. “Quantitative and Qualitative Disclosures about Market Risk.”
We do not anticipate that our current off-balance-sheet activities will have a material impact on our future results of operations or financial condition. Further information regarding risks from our off-balance-sheet financial instruments can be found in Note 12 of the Notes to Consolidated Financial Statements and in Item 7A. — “Quantitative and Qualitative Disclosures about Market Risk.”
We lease our banking facilities and equipment under non-cancelable operating leases, which have remaining terms of up to 15 years. Our facility lease obligations are discussed in Note 12 of the Notes to Consolidated Financial Statements.
The following table summarizes BBCN Bancorp’s contractual obligations and commitments to make future payments as of December 31, 2012 . Payments shown for time deposits and borrowings do not include interest.
 
 
Payments due by period
 
Total
 
Less than 1 year
 
1-3 years
 
3-5 years
 
Over 5 years
 
(Dollars in thousands)
Contractual Obligations and Commitments
 
 
 
 
 
 
 
 
 
Time Deposits
$
1,770,760

 
$
1,655,973

 
$
113,470

 
$
1,315

 
$
2

Subordinated Debentures
41,846

 
—

 
—

 
—

 
41,846

Federal Home Loan Bank Borrowings
420,722

 
129,000

 
80,000

 
211,722

 
—

Operating Lease Obligations
56,345

 
8,922

 
15,919

 
11,769

 
19,735

Unused commitments to extend credit
690,917

 
464,120

 
185,847

 
7,685

 
33,265

Standby letters of credit
39,176

 
28,764

 
10,412

 
—

 
—

Other commercial letters of credit
51,257

 
51,257

 
—

 
—

 
—

Total
$
1,647,134

 
$
1,074,689

 
$
405,099

 
$
107,864

 
$
59,482



Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The objective of our asset and liability management activities is to improve our earnings by adjusting the type and mix of assets and liabilities to effectively address changing conditions and risks. Through overall management of our balance sheet and by controlling various risks, we seek to optimize our financial returns within safe and sound parameters. Our operating strategies for attaining this objective include managing our net interest margin through appropriate risk/return pricing of assets and liabilities and emphasizing growth in retail deposits, as a percentage of interest-bearing liabilities, to reduce our cost of funds. We also seek to improve earnings by controlling non-interest expense, and enhancing non-interest income. We use risk management instruments to modify interest rate characteristics of certain assets and liabilities to hedge against our exposure to interest rate fluctuations, reducing the effects these fluctuations might have on associated cash flows or values. We also perform periodic internal analyses to measure, evaluate and monitor market risk.
Interest Rate Risk

51
Table of Contents


Market risk is the risk of loss to future earnings, to the fair value of our assets and liabilities, or to future cash flows that may result from changes in the price of a financial instrument. 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 or at the same rate of interest or in equal volume. A key objective of our asset and liability management is to manage interest rate risk associated with changing asset and liability cash flows, values of our assets and liabilities, and market interest rate movements. The management of our interest rate risk is governed by policies reviewed and approved annually by the Board of Directors of the Bank. The Board delegates responsibility for interest rate risk management to the Asset/Liability Committee ("ALCO") of the board and the Asset and Liability Management Committee (“ALM”), which is composed of the Bank’s senior executives and other designated officers.
The fundamental objective of our ALM is to manage our exposure to interest rate fluctuations while maintaining adequate levels of liquidity and capital. The ALM meets regularly to monitor the interest rate risk, the sensitivity of our assets and liabilities to interest rate changes, the book and fair values of assets and liabilities, and our investment activities and directs changes in the composition of our interest earning assets and interest bearing liabilities. The ALM reports at least quarterly to the ALCO. 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. Further, 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.
Swaps and Caps
As part of our asset and liability management strategy, we may enter into derivative financial instruments, such as interest rate swaps, caps and floors, with the overall goal of minimizing the impact of interest rate fluctuations on our net interest margin. Interest rate swaps and caps involve the exchange of fixed-rate and variable-rate interest payment obligations without the exchange of the underlying notional amounts.
During the first quarter of 2010, we entered into a three-year interest rate cap agreement with an aggregate notional amount of $50 million. Under this cap agreement, we receive quarterly payments from the counterparty when the quarterly resetting 3 Month London-Interbank Offered Rate exceeds the strike level of 2.00%. The upfront fee paid to the counterparty in entering into this interest rate cap agreement was $890 thousand. The interest rate cap agreement is considered “free-standing” due to non-designation of a hedge relationship to any of its financial assets or liabilities. Under FASB ASC 815, valuation gains or losses on interest rate caps not designated as hedging instruments are recognized in earnings. At December 31, 2012 , the aggregate fair value of the outstanding interest rate caps was $0 and we recognized mark-to-market losses on valuation of $9 thousand in 2012 . See Note 16 of Notes to Consolidated Financial Statements for more detailed information on swaps and caps. As of December 31, 2012 , we did not have any outstanding interest rate swap agreements at December 31, 2012 .
Interest Rate Sensitivity
Our monitoring activities related to managing interest rate risk include both interest rate sensitivity “gap” analysis and the use of a simulation model. While traditional gap analysis provides a simple picture of the interest rate risk embedded in the statement of financial condition, it provides only a static view of interest rate sensitivity at a specific point in time and does not measure the potential volatility in forecasted results relating to changes in market interest rates over time. Accordingly, we combine the use of gap analysis with the use of a simulation model, which provides a dynamic assessment of interest rate sensitivity.
The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets anticipated to reprice within a specific time period and the amount of interest-bearing liabilities anticipated to reprice within that same time period. A gap is considered positive when the amount of interest rate sensitive assets repricing within a specific time period exceeds the amount of interest-bearing liabilities repricing within that same time period. A positive cumulative gap suggests that earnings will increase when interest rates rise and decrease when interest rates fall. A negative cumulative gap suggests that earnings will increase when interest rates fall and decrease when interest rates rise.

The following table illustrates our combined asset and liability repricing as of December 31, 2012 :
 

52
Table of Contents


 
0 - 90 days
or Less
 
Over 90
Days to 365
days
 
1 - 5 years
Amount
 
Over 5
years
Amount
 
Total
 
(Dollars in thousands)
Total Investments (1)
$
311,462

 
$
128,746

 
$
333,497

 
$
178,610

 
$
952,315

Loan Total Loans (2)
1,215,547

 
636,739

 
1,503,895

 
993,792

 
4,349,973

Rate Sensitive Assets
1,527,009

 
765,485

 
1,837,392

 
1,172,402

 
5,302,288

TCD $100,000 or more
515,564

 
507,463

 
65,584

 
—

 
1,088,611

TCD under $100,000
201,874

 
431,071

 
49,202

 
2

 
682,149

Money Market accounts and other
1,248,304

 
—

 
—

 
—

 
1,248,304

Savings accounts
106,294

 
30,864

 
43,528

 
—

 
180,686

Borrowings from FHLB
89,000

 
40,000

 
291,722

 
—

 
420,722

Subordinated Debentures
41,846

 
—

 
—

 
—

 
41,846

Rate Sensitive Liabilities
2,202,882

 
1,009,398

 
450,036

 
2

 
3,662,318

Interest Rate Cap
50,000

 
0

 
(50,000
)
 
0

 
 
Net Gap Position
$
(625,873
)
 
$
(243,913
)
 
$
1,337,356

 
$
1,172,400

 
 
Cumulative Gap Position
$
(625,873
)
 
$
(869,786
)
 
$
467,570

 
$
1,639,970

 
 
 ___________________
(1)
Includes investment securities, term federal funds sold and FHLB stocks, and interest bearing deposits with other financial institutions.
(2)
Includes loans held for sale of $51.6 million.
The simulation model discussed above provides our ALM with the ability to simulate our net interest income. In order to measure, at December 31, 2012 , the sensitivity of our forecasted net interest income to changing interest rates, both in 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 an instantaneous and sustained increase in market interest rates.
Our net interest income and market value of equity exposure related to these hypothetical changes in market interest rates are illustrated in the following table.
 
 
December 31, 2012
 
December 31, 2011
Simulated Rate Changes
Estimated Net
Interest Income
Sensitivity
 
Market Value
Of Equity
Volatility
 
Estimated Net
Interest Income
Sensitivity
 
Market Value
Of Equity
Volatility
+ 200 basis points
5.31
 %
 
(2.24
)%
 
5.46
%
 
(4.61
)%
+ 100 basis points
2.51
 %
 
(1.01
)%
 
2.91
%
 
(1.84
)%
- 100 basis points
(3.78
)%
 
3.06
 %
 
0.77
%
 
4.57
 %
- 200 basis points
(4.52
)%
 
4.68
 %
 
0.83
%
 
8.58
 %

The estimated sensitivity does not necessarily represent our forecast of future results and the estimated results may not be indicative of actual changes to our net interest income. These estimates are based upon a number of assumptions including: the nature and timing of interest rate levels including yield curve shape, prepayment on loans and securities, pricing strategies on loans and deposits, and replacement of asset and liability cash flows. While the assumptions used are based on current economic and local market conditions, there is no assurance as to the predictive nature of these conditions including how customer preferences or competitor influences may change. The ALCO, which oversees our interest rate risk management, has established the exposure limits for acceptable changes in net interest income and market value of equity related to these hypothetical changes in market interest rates. Given the limitations of the analyses, management believes that these hypothetical changes are considered tolerable and manageable as of December 31, 2012 .


53
Table of Contents


Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements of BBCN Bancorp, together with the reports thereon of KPMG LLP and Crowe Horwath LLP, begin on page F-1 of this Report and are incorporated herein by reference:
Report of Independent Registered Public Accounting Firm (KPMG LLP)
Report of Independent Registered Public Accounting Firm (Crowe Horwath LLP)
Consolidated Statements of Financial Condition as of December 31, 2012 and 2011
Consolidated Statements of Income for the Years Ended December 31, 2012, 2011 and 2010
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December  31, 2012, 2011 and 2010
Consolidated Statements of Cash Flows for the Years Ended December  31, 2012, 2011 and 2010
Notes to Consolidated Financial Statements for the Years Ended December 31, 2012, 2011 and 2010
See “Item 15. Exhibits and Financial Statement Schedules” for financial statements filed as a part of this Report.


54
Table of Contents


Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None

Item 9A.
CONTROLS AND PROCEDURES
a.
Evaluation of disclosure controls and procedures
We conducted an evaluation under the supervision and with the participation of our management, including our Acting President and Chief Operating Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of December 31, 2012 . Based upon that evaluation, our Acting President and Chief Operating Officer and Chief Financial Officer determined that our disclosure controls and procedures were effective to ensure that material 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 as and when required. The consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America and include amounts based on management’s best estimates and judgments.
b.
Management’s Annual Report on Internal Control Over Financial Reporting
The management of BBCN Bancorp, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting for the Company as defined in Rule 13a-15(f) under the Exchange Act. This system, which management has chosen to base on the framework set forth in Internal Control-Integrated Framework, published by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and which is effected by the Company’s board of directors, management and other personnel, is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
The Company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and the directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Further, because of changes in conditions, effectiveness of internal controls over financial reporting may vary over time.
With the participation of the Company’s Chief Operating Officer and Chief Financial Officer, management has conducted an evaluation of the effectiveness of the Company’s system of internal control over financial reporting. Based on this evaluation, management determined that the Company’s system of internal control over financial reporting was effective as of December 31, 2012 .
Our independent registered public accounting firm has issued an audit report on our internal control over financial reporting which is included in the section herein.

/S/ BONITA I. LEE
 
/S/ PHILIP E. GULDEMAN
Bonita I. Lee
 
Phillip E. Guldeman
Acting President and Chief
Operating Officer
 
Executive Vice President and
Chief Financial Officer
Los Angeles, California
 
Los Angeles, California
March 1, 2013
 
March 1, 2013

c.
Evaluation of Changes in Internal Control Over Financial Reporting
There were no significant changes in our internal control over financial reporting or in other factors in the fourth quarter of 2012 that have materially affected or are reasonably likely to materially affect, the Company’s internal control over financial reporting.



55
Table of Contents


Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
BBCN Bancorp, Inc.:
We have audited BBCN Bancorp, Inc.'s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). BBCN Bancorp, Inc.'s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on BBCN Bancorp, Inc.'s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, BBCN Bancorp, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statement of financial condition of BBCN Bancorp, Inc. and subsidiaries as of December 31, 2012, and the related consolidated statements of income, comprehensive income, changes in stockholders' equity, and cash flows for the year then ended, and our report dated March 1, 2013 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Los Angeles, California
March 1, 2013


56
Table of Contents


Item 9B.
OTHER INFORMATION
None.


57
Table of Contents


PART III

Item 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this Item is incorporated herein by reference to the section of BBCN Bancorp's definitive Proxy Statement for its 2013 Annual Meeting of Stockholders (the “2013 Proxy Statement”) entitled “Election of Directors” and the discussion in the 2013 Proxy Statement of the Code of Ethics and Business Conduct in the Nomination and Governance Committee Report.
Item 11.
EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the sections of the 2013 Proxy Statement entitled “Election of Directors, “Director Compensation,” “Compensation Discussion and Analysis” and “Compensation Committee Interlocks and Insider Participation.”

Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The information required by this Item is incorporated herein by reference to the sections of the 2013 Proxy Statement entitled “Security Ownership of Certain Beneficial Owners.”

Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item is incorporated herein by reference to the sections of the 2013 Proxy Statement entitled “Certain Relationships and Related Transactions.”

Item 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is incorporated herein by reference to the section of the 2013 Proxy Statement entitled “Ratification of the Selection of the Independent Registered Public Accounting Firm.”


58
Table of Contents


PART IV

Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) and (c) Financial Statements and Schedules.
The financial statements listed under Item 8. “Financial Statements and Supplementary Data” are filed as part of this Annual Report on Form 10-K. All schedules have been omitted since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule or because the information required is included in the Financial Statements and related notes.
(b) List of Exhibits
 
Number
  
Description
 
 
2.1

  
Agreement and Plan of Merger, dated as of December 9, 2010, between Nara Bancorp, Inc. and Center Financial Corporation (incorporated herein by reference to the Current Report on Form 8-K, Exhibit 2.1, filed with the SEC on December 13, 2010, SEC file number 000-50245)
 
 
 
2.2

 
Amendment No. 1, dated as of April 13, 2011, to Agreement and Plan of Merger, dated as of December 9, 2010, between Nara Bancorp, Inc. and Center Financial Corporation (incorporated herein by reference to the Current Report on Form 8-K, Exhibit 1.1, filed with the SEC on April 15, 2011, SEC file number 000-50245)
 
 
 
2.3

 
Amendment No. 2, dated as of July 6, 2011, to Agreement and Plan of Merger, dated as of December 9, 2010, between Nara Bancorp, Inc. and Center Financial Corporation (incorporated herein by reference to the Current Report on Form 8-K, Exhibit 2.1,filed with the SEC on July 7, 2011, SEC file number 000-50245)
 
 
 
2.4

 
Agreement and Plan of Merger, dated as of October 22, 2012, between BBCN Bancorp, Inc. and Pacific International Bancorp, Inc. (incorporated by reference to the Current Report on 10-Q, Exhibit 10.1, filed with SEC on November 8, 2012, SEC file number 000-50245)
 
 
 
3.1

  
Certificate of Incorporation of the Company, filed with the Delaware Secretary of State on June 5, 2000 (incorporated herein by reference to Appendix III to the prospectus included in the Registration Statement on Form S-4 filed with the SEC on November 16, 2000, SEC file number 333-50126)
 
 
3.2

  
Certificate of Amendment of Certificate of Incorporation of the Company, filed with the Delaware Secretary of State on May 31, 2002 (incorporated herein by reference to the Registration Statement on Form S-8, Exhibit 3.3, filed with the SEC on February 5, 2003, SEC file number 333-102974)
 
 
3.3

  
Certificate of Amendment of Certificate of Incorporation of the Company, filed with the Delaware Secretary of State on June 1, 2004 (incorporated herein by reference to the Quarterly Report on Form 10-Q, Exhibit 3.1.1, filed with the SEC on November 8, 2004, SEC file number 000-50245)
 
 
3.4

  
Certificate of Amendment of Certificate of Incorporation of the Company, filed with the Delaware Secretary of State on November 2, 2005 (incorporated herein by reference to the Proxy Statement on Schedule 14A, Appendix B, filed with the SEC on September 6, 2005, SEC file number 000-50245
 
 
3.5

  
Certificate of Amendment of Certificate of Incorporation of the Company, filed with the Delaware Secretary of State on July 20, 2007 (incorporated herein by reference to the Proxy Statement on Schedule 14A, Appendix C, filed with the SEC on April 19, 2007, SEC file number 000-50245)
 
 
3.6

  
Certificate of Amendment of Certificate of Incorporation of the Company, filed with the Delaware Secretary of State on November 30, 2011*
 
 
3.7

  
Amended and Restated Bylaws of BBCN Bancorp, Inc. (incorporated herein by reference to the Current Report on Form 8-K, Exhibit 3.1, filed with the SEC on September 20, 2012, SEC file number 000-50245)

59
Table of Contents


Number
  
Description
 
 
4.1

  
Amended and Restated Declaration of Trust, dated June 5, 2003, by and among The Bank of New York as Property Trustee, The Bank of New York (Delaware) as Delaware Trustee, Nara Bancorp as Depositor and the Administrative Trustees as named therein (incorporated herein by reference to the Current Report on Form 8-K/A, Exhibit 99.1, filed with the SEC on May 2, 2008, SEC file number 000-50245)
 
 
4.2

  
Junior Subordinated Indenture, dated June 5, 2003, between the Nara Bancorp as Issuer and The Bank of New York as Trustee (incorporated herein by reference to the Current Report on Form 8-K/A, Exhibit 99.2, filed with the SEC on May 2, 2008, SEC file number 000-50245)
 
 
4.3

  
Guarantee Agreement, dated June 5, 2003, by and between Nara Bancorp and The Bank of New York as Guarantee Trustee (incorporated herein by reference to the Current Report on Form 8-K/A, Exhibit 99.3, filed with the SEC on May 2, 2008, SEC file number 000-50245)
 
 
4.4

  
Amended and Restated Declaration of Trust, dated December 17, 2003, by and among U.S. Bank National Association as Institutional Trustee, Nara Bancorp as Sponsors and the Administrators as named therein (incorporated herein by reference to the Current Report on Form 8-K/A, Exhibit 99.4, filed with the SEC on May 2, 2008, SEC file number 000-50245)
 
 
4.5

  
Indenture, dated December 17, 2003 between Nara Bancorp as Issuer and U.S. Bank National Association as Trustee (incorporated herein by reference to the Current Report on Form 8-K, Exhibit 99.5, filed with the SEC on May 2, 2008, SEC file number 000-50245)
 
 
4.6

  
Guarantee Agreement, dated December 17, 2003, by and between Nara Bancorp and U.S. Bank National Association as Guarantee Trustee (incorporated herein by reference to the Current Report on Form 8-K, Exhibit 99.6, filed with the SEC on May 2, 2008, SEC file number 000-50245)
 
 
4.7

  
Amended and Restated Declaration of Trust, dated December 22, 2003, by and among Wells Fargo Delaware Trust Company as Delaware Trustee and Nara Bancorp as Sponsor (incorporated herein by reference to the Current Report on Form 8-K, Exhibit 99.7, filed with the SEC on May 2, 2008, SEC file number 000-50245)
 
 
4.8

  
Indenture, dated December 22, 2003, between Nara Bancorp, Inc. as Issuer and Wells Fargo Bank, National Association as Trustee (incorporated herein by reference to the Current Report on Form 8-K, Exhibit 99.8, filed with the SEC on May 2, 2008, SEC file number 000-50245)
 
 
4.9

  
Guarantee Agreement, dated December 22, 2003, by and between Nara Bancorp and Wells Fargo Bank, National Association as Guarantee Trustee (incorporated herein by reference to the Current Report on Form 8-K, Exhibit 99.9, filed with the SEC on May 2, 2008, SEC file number 000-50245)
 
 
4.10

  
Amended and Restated Declaration of Trust, dated March 22, 2007, by and among Wilmington Trust Company, Nara Bancorp, Inc., and the Administrators named therein (incorporated herein by reference to the Current Report on Form 8-K, Exhibit 4.1, filed with the SEC on March 29, 2007, SEC file number 000-50245)
 
 
4.11

  
Indenture, dated March 22, 2007, by and between Nara Bancorp, Inc. and Wilmington Trust Company (incorporated herein by reference to the Current Report on Form 8-K, Exhibit 4.2, filed with the SEC on March 22, 2007, SEC file number 000-50245)
 
 
4.12

  
Guarantee Agreement, dated March 22, 2007, by and between Nara Bancorp, Inc. and Wilmington Trust Company (incorporated herein by reference to the Current Report on Form 8-K, Exhibit 4.3, filed with the SEC on March 22, 2007, SEC file number 000-50245)
 
 
4.13

  
Indenture, dated as of December 30, 2003, between Center Financial Corporation and Wells Fargo Bank, National Association (incorporated herein by reference to the Annual Report on Form 10-K, Exhibit 10.4, for the year ended December 30, 2003, filed with the SEC on March 30, 2004, SEC file number 000-50050)
 
 
 

60
Table of Contents


Number
  
Description
4.14

 
Amended and Restated Declaration of Trust of Center Capital Trust I, dated December 30, 2003, by and among Wells Fargo Delaware Trust Company, Center Financial Corporation, and the Administrators named therein (incorporated herein by reference to the Annual Report on Form 10-K, Exhibit 10.5, for the year ended December 30, 2003, filed with the SEC on March 30, 2004, SEC file number 000-50050)
 
 
 
4.15

 
Guarantee Agreement, dated December 30, 2003, by and between Center Financial and Wells Fargo, National Association (incorporated herein by reference to the Annual Report on Form 10-K, Exhibit 10.6, for the year ended December 30, 2003, filed with the SEC on March 30, 2004, SEC file number 000-50050)
 
 
 
4.16

 
Warrant to Purchase Common Stock of BBCN Bancorp, Inc., dated November 30, 2011, issued to United States Treasury Department (incorporated herein by reference to the Annual Report on form 10-K, Exhibit 4.24, for the year ended December 31, 2012, filed with the SEC on March 13, 2012, SEC file number 000-50245)
 
 
 
4.17

 
Warrant to Purchase Common Stock of BBCN Bancorp, Inc., dated February 15, 2013, issued to United States Treasury Department*
 
 
 
10.1

  
Amended and Restated Nara Bancorp, Inc. 2007 Equity Incentive Plan (incorporated herein by reference to the Current Report on Form 8-K, filed with the SEC on July 26, 2007, SEC file number 000-50245)
 
 
10.2

  
Nara Bancorp, Inc. 2001 Nara Bank 2000 Continuation Long Term Incentive Plan (incorporated herein by reference to the Registration Statement on Form S-8, Exhibit 99.2, filed with the SEC on April 9, 2001, SEC file number 333-58508)
 
 
10.3

  
Nara Bank Deferred Compensation Plan (incorporated herein by reference to the Annual Report on Form 10-K, Exhibit 10.3, for the year ended December 31, 2001, filed with the SEC on April 1, 2002, SEC file number 333-50126)
 
 
10.4

  
Center Bank Deferred Compensation Plan (incorporated herein by reference to the Quarterly Report on Form 10-Q, Exhibit 10.7, for the quarter ended March 1, 2006, filed with the SEC on May 5, 2006, SEC file number 000-50050)
 
 
10.5

  
Center Financial Corporation 2006 Stock Incentive Plan, as Amended and Restated June 13, 2007 (incorporated herein by reference to the Quarterly Report on Form 10-Q, Exhibit10.2, for the quarter ended June 30, 2007, filed with the SEC on July 26, 2007, SEC file number 000-50050)
 
 
10.6

  
Tax Sharing Agreement among Nara Bancorp, Nara Bank, N.A., Nara Bancorp Capital Trust I and Nara Loan Center Corporation (incorporated herein by reference to the Annual Report on Form 10-K, Exhibit 10.11, for the year ended December 31, 2001, filed with the SEC on April 1, 2002, SEC file number 333-50126)
 
 
10.7

  
Affiliate Agreement between Nara Bancorp and Nara Bank, N.A. (incorporated herein by reference to the Annual Report on Form 10-K, Exhibit 10.12, for the year ended December 31, 2001, filed with the SEC on April 1, 2002, SEC file number 333-50126)
 
 
10.8

  
Form of Nara Bancorp, Inc. Option Agreement (entered into with directors Jesun Paik and named executive officers Alvin D. Kang, Bonita I. Lee, and Kyu Kim) (incorporated herein by reference to the Annual Report on Form 10-K, Exhibit 10.6, for the year ended December 31, 2006, filed with the SEC on March 15, 2007, SEC file number 000-50245)
 
 
10.9

  
Form of Nara Bank Long Term Incentive Agreement (entered into by named executive officers Alvin D. Kang, Kyu Kim, and Bonita I. Lee) (incorporated herein by reference to the Annual Report on Form 10-K, Exhibit 10.10, for the year ended December 31, 2008, filed with the SEC on March 4, 2009, SEC file number 000-50245)
 
 

61
Table of Contents


Number
  
Description
10.10

  
Form of Nara Bancorp, Inc. 2007 Equity Incentive Plan Notice of Performance Unit/ Share Award Grant and Agreement (entered into by directors Jesun Paik, Hyon M. (John) Park, Ki Suh Park, and Scott Whang and named executive officers Alvin D. Kang, Bonita I. Lee, Kyu Kim, and Mark H. Lee) (incorporated herein by reference to the Current Report on Form 8-K, Exhibit 10.2, filed with the SEC on December 6, 2007, SEC file number 000-50245)
 
 
 
10.11

 
Employment offer letter among Nara Bancorp, Inc., Nara Bank and Philip E. Guldeman, dated November 10, 2010 and effective December 17, 2010 (incorporated herein by reference to the Current Report on Form 8-K, Exhibit 99.1, filed with the SEC on December 20, 2010, SEC file number 000-50245)
 
 
 
10.14

 
First Amendment to Office Lease, dated November 18, 2011, between Nara Bank and Colonnade Wilshire Corp. (incorporated hereinby reference to the Annual Report on Form 10-K, Exhibit 10.14, for the year ended December 31, 2011, filed with the SEC on March 13, 2012, SEC file number 000-50245)
 
 
 
10.15

 
BBCN Bank Employee Stock Ownership Plan, as amended and restated December 1, 2011*
 
 
 
10.16

 
BBCN Employees' 401(K) & Profit Sharing Plan, as amended and restated December 1, 2011*
 
 
 
10.17

 
Separation and Release Agreement among BBCN Bancorp, Inc., BBCN Bank and Alvin D. Kang entered into on January 14, 2013*

 
 
12.1

  
Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends and Discount Accretion*
 
 
14.1

  
Director Code of Ethics and Business Conduct (incorporated hereinby reference to the Annual Report on Form 10-K, Exhibit 14.1, for the year ended December 31, 2011, filed with the SEC on March 13, 2012, SEC file number 000-50245)
 
 
14.2

  
Code of Ethics and Business Conduct (incorporated hereinby reference to the Annual Report on Form 10-K, Exhibit 14.2, for the year ended December 31, 2011, filed with the SEC on March 13, 2012, SEC file number 000-50245)
 
 
21.1

  
List of Subsidiaries*
 
 
23.1

  
Consent of Crowe Horwath LLP *
 
 
 
23.2

 
Consent of KPMG LLP*
 
 
31.1

  
Certification of Chief Executive Officer pursuant to section 302 of Sarbanes-Oxley of 2002*
 
 
31.2

  
Certification of Chief Financial Officer pursuant to section 302 of Sarbanes-Oxley 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**

62
Table of Contents


Number
  
Description
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
Except as noted above, Form 8-K, Form 10-K and proxy statements filed by the Company and identified in the Exhibit Index have SEC file number 000-50245.




63
Table of Contents


SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 B ANCORP , I NC .
 
 
By:
/s/    BONITA I. LEE
 
Bonita I. Lee
 
Acting President and Chief Operating Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
 

64
Table of Contents


By
/S/    BONITA I. LEE  
 
March 1, 2013
  
Bonita I. Lee
 
 
 
 
  
Acting President and Chief Operating Officer (Principal Executive Officer)
 
 
 
 
By
/S/    PHILIP E. GULDEMAN        
 
March 1, 2013
  
Philip E. Guldeman
 
 
 
 
  
Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
 
 
 
 
By:
/S/    STEVEN D. BROIDY
 
March 1, 2013
  
Steven D. Broidy
 
 
 
 
  
Director
 
 
 
 
By:
/S/    LOUIS M. COSSO
 
March 1, 2013
  
Louis M. Cosso
 
 
 
 
  
Director
 
 
 
 
By:
/S/    JIN CHUL JHUNG
 
March 1, 2013
  
Jin Chul Jhung
 
 
 
 
  
Director
 
 
 
 
 
 
By:
/S/    CHANG HWI KIM
 
March 1, 2013
  
Chang Hwi Kim
 
 
 
 
 
Director
 
 
 
 
 
 
By:
/S/    KEVIN S. KIM
 
March 1, 2013
  
Kevin S. Kim
 
 
 
 
 
Chairman of the Board
 
 
 
 
 
 
By:
/S/    PETER Y.S. KIM
 
March 1, 2013
  
Peter Y.S. Kim
 
 
 
 
 
Director
 
 
 
 
 
 
By:
/S/    SANG HOON KIM
 
March 1, 2013
  
Sang Hoon Kim
 
 
 
 
 
Director
 
 
 
 
 
 
By:
/S/    CHUNG HYUN LEE
 
March 1, 2013
  
Chung Hyun Lee
 
 
 
 
 
Director
 
 
 
 
 
 
By:
/S/    JESUN PAIK
 
March 1, 2013
  
Jesun Paik
 
 
 
 
 
Director
 
 
 
 
 
 
By:
/S/    JOHN H. PARK        
 
March 1, 2013
  
John H. Park
 
 
 
 
  
Director
 
 
 
 
By:
/S/    SCOTT YOON-SUK WHANG        
 
March 1, 2013
  
Scott Yoon-Suk Whang
 
 
 
 
  
Vice Chairman of the Board



65
Table of Contents


BBCN BANCORP, INC, AND SUBSIDIARIES

Consolidated Financial Statements at December 31, 2012 and 2011 and
for Each of the Three Years in the Period Ended December 31, 2012 and
Reports of Independent Registered Public Accounting Firms thereon.


F-1
Table of Contents


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors and Stockholders
BBCN Bancorp, Inc.:
We have audited the accompanying consolidated statement of financial condition of BBCN Bancorp, Inc. and subsidiaries as of December 31, 2012, and the related consolidated statements of income, comprehensive income, changes in stockholders' equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the BBCN Bancorp, Inc.'s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of BBCN Bancorp, Inc. and subsidiaries as of December 31, 2012, and the results of their operations and their cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), BBCN Bancorp, Inc.'s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 1, 2013 expressed an unqualified opinion on the effectiveness of the BBCN Bancorp, Inc.'s internal control over financial reporting.
/s/ KPMG LLP
Los Angeles, California
March 1, 2013


F-2
Table of Contents


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
BBCN Bancorp, Inc.
Los Angeles, California

We have audited the accompanying consolidated statement of financial condition of BBCN Bancorp, Inc. and Subsidiaries (the Company) as of December 31, 2011 and the related consolidated statements of income, comprehensive income, changes in stockholders' equity and cash flows for the years ended December 31, 2011 and 2010. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of BBCN Bancorp, Inc. and Subsidiaries as of December 31, 2011 and the results of their operations and their cash flows for the years ended December 31, 2011 and 2010 in conformity with accounting principles generally accepted in the United States of America.



/s/ Crowe Horwath LLP


Sherman Oaks, California
March 13, 2012

F-3
Table of Contents


BBCN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 2012 AND 2011

 
2012
 
2011
 
(In thousands, except share data)
ASSETS
 
Cash and cash equivalents:
 
 
 
Cash and due from banks
$
88,506

 
$
81,785

Interest-bearing deposit at Federal Reserve Bank
224,410

 
217,800

Federal funds sold
—

 
525

Total cash and cash equivalents
312,916

 
300,110

Term federal funds sold, original maturities more than 90 days
—

 
40,000

Securities available for sale, at fair value
704,403

 
740,920

Loans held for sale, at the lower of cost or fair value
51,635

 
42,407

Loans receivable, net of allowance for loan losses (December 31, 2012 - $ 66,941; December 31, 2011 - $61,952)
4,229,311

 
3,676,874

Other real estate owned, net
2,698

 
7,624

Federal Home Loan Bank ("FHLB") stock, at cost
22,495

 
27,373

Premises and equipment, net of accumulated depreciation and amortization (December 31, 2012 - $22,201; December 31, 2011 - $19,018)
22,609

 
20,913

Accrued interest receivable
12,117

 
13,439

Deferred tax assets, net
60,240

 
72,604

Customers’ liabilities on acceptances
10,493

 
10,515

Bank owned life insurance
43,767

 
42,514

Investments in affordable housing partnerships
13,164

 
15,367

Goodwill
89,878

 
90,473

Other intangible assets, net
3,033

 
4,276

Prepaid FDIC insurance
7,574

 
9,720

FDIC loss share receivable
5,797

 
10,819

Other assets
48,531

 
40,656

Total assets
$
5,640,661

 
$
5,166,604

 
 
 
 




F-4
Table of Contents


BBCN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (continued)
December 31, 2012 AND 2011

 
2012
 
2011
LIABILITIES AND STOCKHOLDERS’ EQUITY
(In thousands, except share data)
LIABILITIES:
 
 
 
Deposits:
 
 
 
Non-interest bearing
$
1,184,285

 
$
984,350

Interest bearing:
 
 
 
Money market and NOW accounts
1,248,304

 
1,237,378

Savings deposits
180,686

 
198,063

Time deposits of $100,000 or more
1,088,611

 
759,923

Other time deposits
682,149

 
761,178

Total deposits
4,384,035

 
3,940,892

Federal Home Loan Bank borrowings
420,722

 
344,402

Subordinated debentures
41,846

 
52,102

Accrued interest payable
4,355

 
6,519

Acceptances outstanding
10,493

 
10,515

Other liabilities
28,106

 
16,235

Total liabilities
4,889,557

 
4,370,665

STOCKHOLDERS’ EQUITY:
 
 
 
Preferred stock, $0.001 par value - authorized 10,000,000 undesignated shares; issued and outstanding 122,000 shares as of December 31, 2011
 
 
 
Series A, Fixed Rate Cumulative Perpetual Preferred Stock, issued and outstanding 67,000 shares at December 31, 2011, net, with a liquidation preference of $67,428,000 at December 31, 2011
—

 
65,158

Series B, Fixed Rate Cumulative Perpetual Preferred Stock, issued and outstanding 55,000 shares at December 31, 2011, net, with a liquidation preference of $55,229,000 at December 31, 2011
—

 
54,192

Common stock, $0.001 par value; authorized 150,000,000 shares at December 31, 2012 and December 31, 2011; issued and outstanding, 78,041,511 and 77,984,252 shares at December 31, 2012 and December 31, 2011, respectively
78

 
78

Additional paid-in capital
525,354

 
524,644

Retained earnings
216,590

 
142,909

Accumulated other comprehensive income, net
9,082

 
8,958

Total stockholders’ equity
751,104

 
795,939

Total liabilities and stockholders' equity
$
5,640,661

 
$
5,166,604


See accompanying notes to consolidated financial statements

F-5
Table of Contents


 
BBCN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
 
Year Ended December 31,
 
2012
 
2011
 
2010
 
(In thousands, except share data)
INTEREST INCOME:
 
 
 
 
 
Interest and fees on loans
$
250,583

 
$
145,554

 
$
134,390

Interest on securities
16,480

 
15,501

 
15,141

Interest on federal funds sold and other investments
822

 
840

 
905

Total interest income
267,885

 
161,895

 
150,436

INTEREST EXPENSE:
 
 
 
 
 
Interest on deposits
21,354

 
20,245

 
27,882

Interest on FHLB advances
6,229

 
9,774

 
12,099

Interest on other borrowings
2,064

 
2,058

 
2,071

Total interest expense
29,647

 
32,077

 
42,052

NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES
238,238

 
129,818

 
108,384

PROVISION FOR LOAN LOSSES
19,104

 
27,939

 
84,630

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
219,134

 
101,879

 
23,754

NON-INTEREST INCOME:
 
 
 
 
 
Service fees on deposit accounts
12,466

 
6,370

 
6,464

International service fees
5,038

 
2,625

 
2,369

Loan servicing fees, net
4,112

 
1,533

 
1,836

Wire transfer fees
3,250

 
1,555

 
1,192

Other income and fees
5,459

 
2,292

 
1,918

Net gains on sales of SBA loans
8,180

 
7,354

 
1,400

Net gains on sales of other loans
152

 
33

 
4,368

Net gains on sales and calls of securities available for sale
949

 
1,289

 
6,396

Net valuation gains (losses) on interest rate swaps and caps
35

 
(114)

 
(857
)
Net gains (losses) on sales of OREO
(251)

 
193

 
(605
)
Total non-interest income
39,390

 
23,130

 
24,481

NON-INTEREST EXPENSE:
 
 
 
 
 
Salaries and employee benefits
56,491

 
31,629

 
25,261

Occupancy
15,631

 
11,833

 
9,767

Furniture and equipment
5,663

 
4,033

 
3,540

Advertising and marketing
5,076

 
2,486

 
2,020

Data processing and communications
6,364

 
3,913

 
3,954

Professional fees
3,882

 
2,971

 
2,538

FDIC assessments
2,442

 
4,347

 
4,968

Credit related expenses
9,010

 
3,789


4,781

Merger and integration expense
3,809

 
4,713

 
1,001

Prepayment charge on retirement of debt
461

 
6,385

 
—

Other
12,062

 
6,135

 
5,544

Total non-interest expense
120,891

 
82,234

 
63,374

INCOME BEFORE INCOME TAX PROVISION
137,633

 
42,775
 
(15,139
)
INCOME TAX PROVISION
54,410

 
15,660

 
(7,900
)
NET INCOME
$
83,223

 
$
27,115

 
$
(7,239
)
DIVIDENDS AND DISCOUNT ACCRETION ON PREFERRED STOCK
$
(5,640
)
 
$
(4,568
)
 
$
(4,291
)
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
$
77,583

 
$
22,547

 
$
(11,530
)
EARNINGS PER COMMON SHARE
 
 
 
 
 
Basic
$
0.99

 
$
0.53

 
$
(0.30
)
Diluted
$
0.99

 
$
0.53

 
$
(0.30
)

See accompanying notes to consolidated financial statements

F-6
Table of Contents



BBCN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2012, 2011, AND 2010
 
 
 
 
 
 
 
For Year Ended December 31,
 
2012
 
2011
 
2010
 
(In thousands)
Net income (loss)
$
83,223

 
$
27,115

 
$
(7,239
)
Other comprehensive income (loss):
 
 
 
 
 
Unrealized gain on securities available for sale and interest only strips
1,212

 
12,337

 
5,773

Reclassification adjustments for gains realized in income
(949
)
 
(1,289
)
 
(6,396
)
Tax expense (benefit)
113

 
4,661

 
(269
)
Change in unrealized gain on securities available for sale and interest only strips
150

 
6,387

 
(354
)
 
 
 
 
 
 
Reclassification adjustment for the deferred gain on early settlement of interest-rate caps
(44
)
 
(44
)
 
(44
)
Tax benefit
(18
)
 
(18
)
 
(18
)
Change in unrealized gain on interest-rate caps
(26
)
 
(26
)
 
(26
)
 
 
 
 
 
 
Total other comprehensive gain (loss)
124

 
6,361

 
(380
)
Total comprehensive income
$
83,347

 
$
33,476

 
$
(7,619
)


See accompanying notes to consolidated financial statements


F-7
Table of Contents


BBCN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

 
 
 
Common stock
 
 
 
 
 
 
 
Preferred
stock
 
Shares
 
Amount
 
Additional paid-in capital
 
Retained
earnings
 
Accumulated
other
comprehensive
income (loss), net
 
(In thousands, except share data)
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, JANUARY 1, 2010
$
63,263

 
37,824,007


$
38


$
169,806


$
131,891


$
2,977

Issuance of additional shares pursuant to various stock plans

 
159,020




1,150





Tax effects of stock plans

 




32





Stock-based compensation

 




376





Preferred stock cash dividends accrued (5%)

 






(3,351
)


Accretion of preferred stock discount
940

 






(940
)


Comprehensive income:

 









Net loss

 






(7,239
)


Other comprehensive income (loss):

 









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

 








(355
)
Change in unrealized gain on interest-only strips, net of tax

 








1

Change in unrealized gain on interest rate swaps, net of tax

 








(26
)
BALANCE, DECEMBER 31, 2010
$
64,203

 
37,983,027

 
$
38

 
$
171,364

 
$
120,361

 
$
2,597

Acquisition of Center Financial Corp
54,158

 
31,160,884

 
$
31

 
292,646

 
 
 
 
Issuance of additional stock under public offering, net of offering costs


8,724,475


$
9


59,869







Issuance of additional shares pursuant to various stock plans
 
 
115,866

 
 
 
524

 
 
 
 
Tax effects of stock plans








138







Stock-based compensation








103







Redemption of common stock warrant
 
 
 
 
 
 
—

 
 
 
 
Preferred stock cash dividends accrued (5%)











(3,578
)



Accretion of preferred stock discount
989











(989
)



Comprehensive income:
















Net income











27,115




Other comprehensive income (loss):
















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














6,382

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














5

Change in unrealized gain on interest rate swaps, net of tax














(26
)
BALANCE, DECEMBER 31, 2011
$
119,350


77,984,252


$
78


$
524,644


$
142,909


$
8,958


F-8
Table of Contents


BBCN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

 
 
 
Common stock
 
 
 
 
 
 
 
Preferred
stock
 
Shares
 
Amount
 
Additional paid-in capital
 
Retained
earnings
 
Accumulated
other
comprehensive
income (loss), net
 
(In thousands, except share data)
Redemption of 122,000 shares of TARP preferred stock
(122,000
)
 
 
 
 
 
 
 
 
 
 
Issuance of additional shares pursuant to various stock plans
 
 
57,259

 
 
 
318

 
 
 
 
Tax effects of stock plans
 
 
 
 
 
 
20

 
 
 
 
Stock-based compensation
 
 
 
 
 
 
2,561

 
 
 
 
Redemption of common stock warrant
 
 
 
 
 
 
(2,189
)
 
 
 
 
Preferred stock cash dividends accrued (5%)
 
 
 
 
 
 
 
 
(2,991
)
 
 
Accretion of preferred stock discount
2,650

 
 
 
 
 
 
 
(2,650
)
 
 
Cash dividend declared on common stock ($0.05 per share)
 
 
 
 
 
 
 
 
(3,901
)
 
 
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
Net income
 
 
 
 
 
 
 
 
83,223

 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Change in unrealized gain on securities available for sale, net of tax
 
 
 
 
 
 
 
 
 
 
125

Change in unrealized gain on interest-only strips, net of tax
 
 
 
 
 
 
 
 
 
 
25

Change in unrealized gain on interest rate swaps, net of tax
 
 
 
 
 
 
 
 
 
 
(26
)
BALANCE, DECEMBER 31, 2012
$
—

 
78,041,511

 
$
78

 
$
525,354

 
$
216,590

 
$
9,082


See accompanying notes to consolidated financial statements


F-9
Table of Contents


BBCN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

 
2012
 
2011
 
2010
 
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES

 

 
 
Net income (loss)
$
83,223

 
$
27,115

 
$
(7,239
)
Adjustments to reconcile net income to net cash from operating activities:


 


 
 
      Depreciation, amortization, net of discount accretion
(21,363
)
 
8,687

 
10,977

Stock-based compensation expense
2,561

 
103

 
376

Provision for loan losses
19,104

 
27,939

 
84,630

Valuation adjustment of loans held for sale
703

 
35

 
—

Valuation adjustment of OREO
2,970

 
1022

 
2155

Proceeds from sales of loans
127,434

 
105,602

 
110,885

Originations of loans held for sale
(125,972
)
 
(64,752
)
 
(46,045
)
Deferred gain on transfer of asset
—

 
—

 
(1,166
)
Net gains on sales of SBA and other loans
(8,332
)
 
(7,387
)
 
(5,768
)
Net change in bank owned life insurance
(1,253
)
 
(788
)
 
(546
)
Net gains on sales and calls of securities available for sale
(949
)
 
(1,289
)
 
(6,396
)
Net (gains) loss on sales of OREO
251

 
(193
)
 
605

Net valuation (gains) losses on interest rate swaps and caps
(35
)
 
114

 
857

Change in accrued interest receivable
1,322

 
457

 
2,613

Change in deferred income taxes
11,834

 
8,696

 
(7,910
)
Change in prepaid FDIC insurance
2,146

 
4,219

 
5,509

Change in investments in affordable housing partnership
2,203

 
1,068

 
1,008

            Change in FDIC loss share receivable
5,271

 
33

 
—

            Change in other assets
(7,792
)
 
(6,664
)
 
2,142

Change in accrued interest payable
(2,164
)
 
(2,122
)
 
(7,844
)
Change in other liabilities
13,308

 
(5,313
)
 
(3,072
)
            Net cash provided by operating activities
104,470

 
96,582

 
135,771

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
 
            Net change in loans receivable
(549,510
)
 
(245,979
)
 
(100,783
)
Proceeds from sales of securities available for sale
28,446

 
139,458

 
208,142

Proceeds from sales of OREO
5,929

 
4,847

 
10,363

Proceeds from matured term federal funds
100,000

 
10,000

 
—

Proceeds from sales of equipment
3

 
—

 
—

Purchase of premises and equipment
(6,835
)
 
(1,168
)
 
(2,971
)
Purchase of securities available for sale
(184,279
)
 
(236,033
)
 
(190,577
)
            Purchase of Federal Reserve Bank stock
—

 
—

 
(1,968
)
Redemption of Federal Home Loan Bank Stock
4,878

 
2,875

 
2,218

Purchase of term federal funds
—

 
—

 
—

Proceeds from matured, called, or paid-down securities available for sale
186,419

 
183,945

 
235,063

Redemption of FRB stocks
—

 
6,367

 
—

Purchase of term federal funds
(60,000
)
 
—

 
—

Net cash received from merger
—

 
325,993

 
—

          Net cash (used in) provided by investing activities
(474,949
)
 
190,305

 
159,487


F-10
Table of Contents


BBCN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

 
2012
 
2011
 
2010
 
(In thousands)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
 
            Net change in deposits
446,230

 
(62,628
)
 
(258,076
)
Net change in secured borrowings
—

 
(12,541
)
 
11,758

Redemption of subordinated debenture
(10,400
)
 
—

 
—

            Redemption of preferred stock
(122,000
)
 
—

 
—

Payment of cash dividends on Preferred and Common Stock
(7,549
)
 
(3,350
)
 
(3,351
)
Proceeds from FHLB borrowings
825,000

 
—

 
35,000

Repayment of FHLB borrowings
(746,145
)
 
(140,982
)
 
(35,000
)
Issuance of additional common stock
—

 
59,869

 
0

Issuance of additional stock pursuant to various stock plans
338

 
524

 
1,150

Redemption of common stock warrant
(2,189
)
 
—

 
—

            Net cash provided by (used in) financing activities
383,285

 
(159,108
)
 
(248,519
)
NET CHANGE IN CASH AND CASH EQUIVALENTS
12,806

 
127,779

 
46,739

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
300,110

 
172,331

 
125,592

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
312,916

 
$
300,110

 
$
172,331

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION


 


 


      Interest paid
$
31,811

 
$
30,388

 
$
49,896

      Income taxes paid
$
31,289

 
$
17,876

 
$
(1,458
)
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES
 
 
 
 

      Transfer from loans receivable to other real estate owned
$
4,224

 
$
8,078

 
$
12,660

Transfer from loan receivables to loans held for sale
$
3,061

 
$
31,471

 
$
80,077

Non-cash goodwill adjustment, net
$
595

 
$
—

 
$
—

Center Merger
 
 
 
 
 
      Assets acquired
$
—

 
$
2,251,884


$
—

      Liabilities assumed
$
—

 
$
(1,993.014
)

$
—

      Assumption of 55,000 shares of new series of preferred stock to the
Treasury Department's TARP Capital Purchase Program
$
—

 
$
(54,158
)

$
—


See accompanying notes to consolidated financial statements

F-11
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010




1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BBCN Bancorp, Inc., formerly named Nara Bancorp, Inc., is a bank holding company headquartered in Los Angeles, California. BBCN Bank, formerly named Nara Bank, opened for business in June 1989 under the name “United Citizens National Bank” as a national banking association, was renamed “Nara Bank, National Association” in January 1994 and, in January 2005, became “Nara Bank” upon converting to a California state-chartered bank in connection with its holding company reorganization transaction. On November 30, 2011, we merged with Center Financial Corporation ("Center Financial" or "Center") in a merger equals transaction. Concurrently with the merger, Nara Bancorp changed its name to "BBCN Bancorp, Inc." At the bank level, Nara Bank merged into Center Bank, and concurrently with the merger, Center Bank changed its name to "BBCN Bank."
Principles of Consolidation— The accounting and reporting policies of BBCN Bancorp, Inc. and Subsidiaries (the “Company”) are in accordance with accounting principles generally accepted in the United States of America and conform to practices within the banking industry. The consolidated financial statements include the accounts of BBCN Bancorp, Inc. (“BBCN Bancorp”) and its wholly-owned subsidiaries, principally BBCN Bank (the “Bank”).
Cash Flows —Cash and cash equivalents include cash and due from banks, interest-earning deposits, federal funds sold and term federal funds sold, which have original maturities less than 90 days. The Company is required to maintain reserve and clearing balances with the Federal Reserve Bank under the Federal Reserve Act. The reserve and clearing requirement balance was approximately $ 12.7 million at December 31, 2012 and $ 400 thousand at December 31, 2011 . Net cash flows are reported for customer loan and deposit transactions, deferred income taxes and other assets and liabilities.
Securities— Securities are classified and accounted for as follows:
(i)
Securities that the Company has the positive intent and ability to hold to maturity are classified as “held to maturity” and reported at amortized cost. At December 31, 2012 and 2011 , we did not own securities in this category;
(ii)
Securities are classified as “available for sale” when they might be sold before maturity and are reported at fair value. Unrealized holding gains and losses are reported as a separate component of stockholders’ equity in accumulated other comprehensive income (loss), net of taxes.
Accreted discounts and amortized premiums on securities are included in interest income using the interest method, and realized gains or losses related to sales of securities are calculated using the specific identification method, without anticipating prepayments, except for mortgage-backed securities where prepayments are expected.
Management evaluates securities for other than temporary impairment (“OTTI”) at least on a quarterly basis and more frequently when economic conditions warrant such evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) other-than-temporary impairment (OTTI) related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings.
Derivative Financial Instruments and Hedging Transactions —As part of our asset and liability management strategy, we may enter into derivative financial instruments, such as interest rate swaps, caps and floors, with the overall goal of minimizing the impact of interest rate fluctuations on our net interest margin. The Company’s interest rate swaps and caps involve the exchange of fixed-rate and variable-rate interest payment obligations without the exchange of the underlying notional amounts and are therefore accounted for as “stand-alone” derivatives. Changes in the fair value of the stand-alone derivatives are reported in earnings as non-interest income. As part of the Company’s overall risk management, the Company’s Asset Liability Committee, which meets monthly, monitors and measures interest rate risk and the sensitivity of assets and liabilities to interest rate changes, including the impact of derivative transactions.
Loans— Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of any unearned interest, deferred loan fees and costs, and an allowance for

F-12
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

loan losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments. Interest on loans is credited to income as earned and is accrued only if deemed collectible. Generally, loans for all loan segments are placed on non-accrual 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. Loans for all loan segments to a customer whose financial condition has deteriorated are considered for non-accrual status whether or not the loan is 90 days or more past due. Generally, payments received on non-accrual loans are recorded as principal reductions. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Nonrefundable fees, net of certain direct costs, associated with the origination or acquisition of loans are deferred and recognized as an adjustment of the loan yield over the life of the loan. Other loan fees and charges, representing service costs for the prepayment of loans, for delinquent payments or for miscellaneous loan services, are recorded as income when collected.
SBA Loans —Certain Small Business Administration (“SBA”) loans that the Company has the intent to sell prior to maturity have been designated as held for sale at origination and are recorded at the lower of cost or fair value, on an aggregate basis. A valuation allowance is established if the aggregate fair value of such loans is lower than their cost, and charged to earnings. Gains or losses recognized upon the sale of loans are determined on a specific identification basis. SBA loan transfers are accounted for as sales when control over the loan has been surrendered. Control over such loans is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain control over the transferred assets through an agreement to repurchase them before their maturity.
Acquired Loans —Loans that the Company acquires are recorded at fair value with no carryover of the related allowance for loan losses. The Company considered all classified and criticized loans as credit impaired loans ("Credit Impaired Loans") under the provisions of Accounting Standards Codification ("ASC") 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality resulting from the Center Financial merger. Excluding Credit Impaired Loans, Pass graded loans from Center Financial ("Performing Loans") were not accounted for under ASC 310-30. These Performing Loans were placed in pools with similar risk characteristics and were recorded at fair value at the merger date.
The cash flows expected to be received over the life of the pool were estimated by management with the assistance of a third party valuation specialist. These cash flows were utilized in calculating the carrying values of the pools and underlying loans, book yields, effective interest income and impairment, if any, based on actual and projected events. Default rates, loss severity, and prepayment speed assumptions will be periodically reassessed and updated within the accounting model to update the expectation of future cash flows. The excess of the cash expected to be collected over the pool's carrying value is considered to be the accretable yield and is recognized as interest income over the estimated life of the loan or pool using the effective interest yield method. The accretable yield will change due to changes in the timing and amounts of expected cash flows. Changes in the accretable yield will be disclosed quarterly.
The excess of the contractual balances due over the cash flows expected to be collected is considered to be nonaccretable difference. The nonaccretable difference represents our estimate of the credit losses expected to occur and was considered in determining the fair value of the loans as of the merger date. Subsequent to the merger date, any increases in expected cash flows over those expected at purchase date in excess of fair value are adjusted through the accretable difference on a prospective basis. Any subsequent decreases in expected cash flows over those expected at the merger date are recognized by recording a provision for loan losses.
Credit Impaired Loans that met the criteria for nonaccrual of interest prior to the merger may be considered performing upon merger, regardless of whether the customer is contractually delinquent, if we can reasonably estimate the timing and amount of the expected cash flows on such loans and if we expect to fully collect the new carrying value of the loans. As such, we may no longer consider the loan to be nonaccrual or nonperforming and may accrue interest on these loans, including the impact of any accretable discount. We have determined that we can reasonably estimate future cash flows on any such acquired loans that are past due 90 days or more and on which we are accruing interest and we expect to fully collect the carrying value of the loans.
Loan Servicing Assets— The Company typically sells the guaranteed portion of SBA loans and retains the unguaranteed portion (“retained interest”). A portion of the premium on sale of SBA loans is recognized as gain on sale of loans at the time of the sale by allocating the carrying amount between the asset sold and the retained interest, based on their relative fair values. During 2010, in accordance with newly issued accounting literature, this gain was deferred until the 90 day recourse period expired. This resulted in $1.2 million of gains being deferred at December 31, 2010 and secured borrowings of $11.8

F-13
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

million . In February 2011, the SBA amended their agreements and effective for all loans submitted for secondary market sales on or after February 15, 2011, the gain recognized at the time of sale. The remaining portion of the premium is recorded as a discount on the retained interest and is amortized over the remaining life of the loan as an adjustment to yield. The retained interest, net of any discount, are included in loans receivable—net of allowance for loan losses in the accompanying consolidated statements of financial condition.
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 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 non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. The Company has capitalized $ 2.0 million , $ 1.3 million and $ 283 thousand of servicing assets during 2012 , 2011 and 2010 , respectively, and amortized $ 1.3 million , $ 706 thousand and $ 868 thousand during the years ended December 31, 2012 , 2011 and 2010 , respectively. The acquired servicing assets from Center was $2.5 million at the acquisition date. The carrying amount of servicing assets was $ 6.3 million and $ 5.6 million at December 31, 2012 and 2011 , respectively. and is included in other assets in the accompanying consolidated statements of financial condition. No impairment charges were required in 2012 , 2011 , or 2010 .
Management periodically evaluates servicing assets for impairment based upon the fair value of the rights as compared to carrying amount. Impairment is determined by stratifying rights into groupings based on predominant risk characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance for an individual grouping, to the extent that fair value is less than the carrying amount. If the Company later determines that all or a portion of the impairment no longer exists for a particular grouping, a reduction of the allowance may be recorded as an increase to income. No impairment charges were required in 2012 , 2011 , or 2010 .
Allowance for Loan Losses —The allowance for loan losses is a valuation allowance for probable incurred credit losses that are inherent in the loan portfolio. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged-off.
The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-impaired loans and is based on historical loss experience adjusted for qualitative factors.
For all loan classes, a loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans, for which the terms have been modified, and for which the borrower is experiencing financial difficulties, may be considered troubled debt restructurings and classified as impaired. Factors considered by management in determining whether a loan is impaired include payment status, collateral values, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not deemed to be impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, 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. Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, or the fair value of the collateral if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer for impairment disclosures.
The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment. The Company further segregates these segments between loans accounted for under the amortized cost method (referred to as "Legacy Loans") and acquired loans (referred to as "Acquired Loans), as Acquired Loans were originally recorded at fair value with no carryover of the related allowance for loan losses. For the Legacy Loans, the historical loss experience is based on the actual loss history experienced by the Company. The loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and

F-14
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. The following major portfolio segments have been identified: real estate loans (residential, commercial, and construction), commercial business loans, trade finance loans, and consumer/other loans. Due to the overall high level of real estate loans within the loan portfolio as a whole, as compared to other portfolio segments, for risk assessment and allowance purposes this segment was segregated into more granular pools by collateral property type. Construction and land loans have the highest qualitative adjustments for economic and other credit risk factors, such as the incomplete status of the collateral and deleterious effect of the recent economic downturn on these types of properties during, but total balances in these portfolio segments are not a concentration in the overall portfolio. The commercial real estate loan portfolio segment as a whole had the next highest level of qualitative adjustments due to the effects of local markets and economies on the underlying collateral property values, as well as for industry concentrations and risks related to the commercial business tenants. Commercial real estate loans secured by hotels, golf courses, and gas station/car washes pose an industry concentration risk within this portfolio segment, have historically shown higher credit risk than in other collateral property types, and were negatively impacted by the effect of the recent poor economy on the hospitality and recreation industries as well as increasing fuel and travel costs. These factors resulted in higher qualitative adjustments made to these sub-portfolio segments. Within the commercial business and trade finance portfolio segments, risk analysis is performed based on concentrations within industries, as well as by individual loan type. Commercial business loans granted under various SBA-guaranteed programs show higher historical risks as these loans are made to small businesses which were more negatively impacted by the economic issues of the past few years. This impact resulted in increased qualitative adjustments for this sub-portfolio segment during the year. Trade finance loans show minimal historical losses and have the lowest level of inherent risk as they are generally structured for transaction based funding and businesses within this portfolio segment were less impacted by local market downturns. Qualitative adjustments made to this portfolio segment are generally minor as a result.
Impairment losses are included in the allowance for loan losses through a charge to the provision for loan losses. Upon disposition of an impaired loan, any unpaid balance is charged off to the allowance for loan losses.
Federal Home Loan Bank (FHLB) Stock —The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.
Premises and Equipment —Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization of premises and equipment are computed on the straight-line method over the following estimated useful lives:

Buildings                 15 - 30 years
Furniture, fixture, and equipment     3 - 7 years
Computer equipment             5 years
Computer software             3 years
Leasehold improvement        life of lease or improvements, whichever is shorter
Other Real Estate Owned —Other real estate owned, which represents real estate acquired through foreclosure in satisfaction of commercial and real estate loans, is stated at fair value less estimated selling costs of the real estate. Loan balances in excess of the fair value of the real estate acquired at the date of acquisition are charged to the allowance for loan losses. Any subsequent operating expenses or income, reduction in estimated fair values, and gains or losses on disposition of such properties are charged or credited to current operations.
FDIC Loss Share Receivable —In conjunction with the FDIC-assisted acquisition of Innovative Bank by Center Financial in 2011, Center Bank entered into shared-loss agreements with the FDIC for amounts receivable covered by the shared-loss agreements. At the date of merger with Center Financial, consistent with Center Financial's accounting treatment, we elected to account for amounts receivable under the loss sharing agreement with the FDIC as FDIC loss share receivable in accordance with ASC 805. The FDIC loss share receivable was recorded at fair value, based on the discounted value of expected future cash flows under the loss sharing agreement. The cash flows expected to be received under the loss agreement were estimated by management with the assistance of a third party valuation specialist. The difference between the present value and the undiscounted cash flows we expect to collect from the FDIC will be accreted into non-interest income over the life of the FDIC loss share receivable.

F-15
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The FDIC loss share receivable is reviewed quarterly and adjusted for any changes in expected cash flows based on recent performance and expectations for future performance of the covered portfolio. These adjustments are measured on the same basis as the related covered loans and covered other real estate owned. Any increases in the cash flows of the covered assets over those expected will reduce the FDIC loss share receivable and any decreases in cash flows of the covered assets under those expected will increase the FDIC loss share receivable. Increase and decrease to the FDIC loss share receivable are recorded as adjustments to non-interest income.
Goodwill and Intangible Assets— Goodwill is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually.
In accordance with ASU 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment, the Company makes a qualitative assessment of whether it is more likely than not that a reporting unit's fair value is less than its carrying amount before applying the two-step goodwill impairment test. If we conclude that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, we do not perform the two-step impairment test. Goodwill is also tested for impairment on an interim basis if circumstances change or an event occurs between annual tests that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Significant judgment is applied when goodwill is assessed for impairment. This judgment includes developing cash flow projections, selecting appropriate discount rates, identifying relevant market comparables, incorporating general economic and market conditions and selecting an appropriate control premium. The selection and weighting of the various fair value techniques may result in a higher or lower fair value. Judgment is applied in determining the weighting that is most representative of fair value.
Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on our balance sheet.
The Company acquired Center Financial on November 30, 2011, which resulted in goodwill of $88.0 million being recorded. The Company tested goodwill and other intangibles for impairment noting no impairment of recorded goodwill and other intangibles in 2012 and 2011.
Stock-Based Compensation— Compensation cost is recognized for stock options and restricted stock awards issued to employees and directors, based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used for restricted stock awards. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.
Income Taxes —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 income tax assets and liabilities represent the tax effects, based on current tax law, of future deductible or taxable amounts attributable to events that have been recognized in the financial statements. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, the projected future taxable income and tax planning strategies in making this assessment. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.
A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company recognizes interest and / or penalties related to income tax matters in income tax expense.

Section 382 of the Internal Revenue Code imposes limitations on a corporation's ability to use any net unrealized built in losses and other tax attributes, such as net operating loss and tax credit carryforwards, when it undergoes a 50% “ownership change” over a designated testing period (not to exceed three years).  As a result of the merger on November 30, 2011, both Nara Bancorp and Center Financial underwent a greater than 50% ownership change.  There is expected to be no limitation on the use of either company's tax attributes, because as of November 30, 2011 both companies had net unrealized built in gains, rather than net unrealized built in losses.  However, future transactions, such as issuances of common stock or sales of shares of our stock by certain holders of our shares, including persons who have held, currently hold or may accumulate in the future 5%

F-16
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

or more of our outstanding common stock for their own account, could trigger future Section 382 limitations on the Company's use of tax attributes.
Employee Stock Ownership Plan (ESOP)— Compensation expense is based on the market price of shares as they are committed to be released to participant accounts. Dividends on allocated ESOP shares reduce retained earnings.
Earnings per Common Share —Basic Earnings per Common Share is computed by dividing net income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. Allocated ESOP shares are considered outstanding for this calculation. Diluted Earnings per Common Share reflects the potential dilution of securities that could share in the earnings of the Company. Earnings and dividends per share are restated for all stock splits and stock dividends through the date of issuance of the financial statements.
Equity —The Company accrues for preferred stock dividends as earned and for common stock dividends as declared. Preferred stock dividends of $ 3.6 million and $ 3.4 million were paid in 2012 and 2011 and there were $ 0 and $ 657 thousand of preferred stock dividends accrued but unpaid at December 31, 2012 and 2011 , respectively. Common stock dividends of $ 3.9 million and $ 0 were paid in 2012 and 2011 . There were no common stock dividends declared but unpaid at December 31, 2012 and 2011 . Accrued preferred and common stock dividends are included in other liabilities.
Bank Owned Life Insurance —The Company has purchased life insurance policies on certain key executives and directors. Bank owned life insurance (“BOLI”) is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.
Investments in Affordable Housing Partnerships —The Company owns limited partnerships interest in projects of affordable housing for lower income tenants. The investments in which the Company has significant influence are recorded using the equity method of accounting. For those investments in limited partnerships for which the Company does not have a significant influence, such investments are accounted for using the cost method of accounting and the annual amortization is based on the proportion of tax credits received in the current year to the total estimated tax credits to be allocated to the Company.
Comprehensive Income —Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on securities available for sale, cash flow hedges, and interest-only strips which are also recognized as separate components of stockholders’ equity, net of tax.
Loss Contingencies —Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management believes there are no such matters that would have a material effect on the consolidated financial statements as of December 31, 2012 or 2011 .
Loan Commitments and Related Financial Instruments— Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded. See Note 12, Commitments and Contingencies, to these Consolidated Financial Statements for further discussion.
Fair Values of Financial Instruments —Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Impairment of Long-Lived Assets— The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If the estimated future cash flows (undiscounted) over the remaining useful life of the asset are less than the carrying value, an impairment loss would be recorded to reduce the related asset to its estimated fair value.
Transfer of Financial Assets —Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

F-17
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Use of Estimates in the Preparation of Consolidated Financial Statements —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, determining the carrying value for cash surrender value of life insurance, 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, determination of the fair values of other real estate owned, accounting for Credit Impaired Loans, accounting for FDIC receivable, accounting for lease arrangements, accounting for incentive compensation, profit sharing and bonus payments and the valuation of servicing assets.
Reclassifications —Some items in the prior year financial statements were reclassified to conform to the current presentation.
Recent Accounting Pronouncements
ASB ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (Topic 820)” - This ASU provides guidance on fair value measurement and disclosure requirements that the FASB deemed largely identical across U.S. GAAP and IFRS. The requirements do not extend the use of fair value accounting, but provide guidance on how it should be applied where its use is already required or allowed. ASU 2011-04 supersedes most of the guidance in ASC topic 820, but many of the changes are clarifications of existing guidance or wording changes to reflect IFRS 13. Amendments in ASU 2011-04 change the wording used to describe U.S. GAAP requirements for fair value and disclosing information about fair value measurements. ASU 2011-04 is effective for interim and annual reporting periods beginning after December 15, 2011, and early application is not permitted. Adoption of ASU 2011-04 did not have a significant impact on our financial condition or result of operations.
FASB ASU 2011-05, “Presentation of Comprehensive Income (Topic 220)” - This ASU is intended to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. To increase the prominence of items reported in other comprehensive income and to facilitate convergence of U.S. GAAP and IFRS, the FASB decided to eliminate the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity, among other amendments in this Update. These amendments apply to all entities that report items of other comprehensive income, in any period presented. Under the amendments to Topic 220, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The FASB issued FASB ASU 2011-12, "Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05" that deferred the effective date of ASU 2011-05. ASU 2011-05 and ASU 2011-12 became effective for interim and annual reporting periods beginning after December 31, 2011. The reporting requirements under ASU 2011-05 and ASU 2011-02 are included in our consolidated financial statements.
Newly Issued But Not Yet Effective Accounting Pronouncements
FASB ASU 2012-02, “Intangibles - Goodwill and Other (Topic 350); Testing Indefinite-Lived Intangible Assets for Impairment” - This ASU permits an entity to make a qualitative assessment of whether it is more likely than not that an indefinite-lived intangible asset is impaired. If an entity can support the conclusion that is is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. If an entity concludes otherwise, it would be necessary to perform a quantitative impairment assessment by comparing the fair value of the indefinite-lived intangible asset with its carrying value. The ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Adoption of ASU 2012-02 is not expected to have a significant impact on our financial condition or result of operations.
FASB ASU 2012-06, “ Business Combinations (Topic 805) : Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution ” This ASU clarifies the applicable guidance on the subsequent measurement of an indemnification asset recognized as a result of a government-assisted acquisition of a financial institution. The provisions of the ASU state that when there is a subsequent change in the cash flows expected to be collected on the indemnification asset, the reporting entity should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to

F-18
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

indemnification. Any amortization of changes in value should be limited to the contractual term of the indemnification agreement. The ASU is effective for interim and annual periods beginning on or after December 15, 2012. Adoption of ASU 2012-02 is not expected to have a significant impact on our financial condition or results of operations.
        
2.
CENTER MERGER

On November 30, 2011, the merger of Center and Nara was completed. Pursuant to the merger agreement, holders of Center common stock received 0.7805 of a share of common stock of BBCN for each share of Center common stock held immediately prior to the effective time of the merger, rounded to the nearest whole share, plus cash in lieu of the issuance of fractional shares. Outstanding Center stock options and restricted stock awards were converted into stock options with respect to shares of BBCN common stock or shares of BBCN common stock, respectively, with appropriate adjustments to reflect the exchange ratio. The merger was accounted for by BBCN using the acquisition method of accounting. Accordingly, the assets and liabilities of Center were recorded at their respective fair values and represents management's estimates based on available information.

The results of Center's operations are included in the Consolidated Statements of Income from the date of acquisition. In connection with the merger, the consideration paid, the assets acquired, and the liabilities assumed were recorded at fair value on the date of acquisition, as summarized in the following table:

 
(in thousands)

Consideration paid:
 
 
BBCN common stock issued
$
291,977

 
Cash in lieu of fractional shares paid to Center Financial stockholders
1

 
Fair value of Center Financial employee stock options
1,347

 
Fair value of Center Financial common stock warrant
(648
)
 
     Total consideration paid
292,677

 
 
 
Assets Acquired:
 
 
Cash and cash equivalents
325,993

 
Investment securities available for sale
293,065

 
Term federal funds sold, original maturities more than 90 days
50,000

 
Loans, net
1,430,465

 
FRB and FHLB stock
12,591

 
Premises and equipment
12,463

 
FDIC loss share receivable
10,852

 
Deferred tax assets, net
48,870

 
Core deposit intangible
4,100

 
Other assets
63,485

Liabilities Assumed:
 
 
Certificates of deposits
(1,827,406
)
 
Borrowings
(148,760
)
 
Other liabilities
(16,848
)
 
Preferred stock
(54,158
)
Total identifiable net assets
204,712

Excess of consideration paid over fair value of net assets acquired (goodwill)
$
87,965

  

F-19
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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

Acquired Center Financial loans for which at the acquisition date, it was probable that all contractually required payments would not have received as of November 30, 2011 are as follows:

 
(in thousands)

Contractually required principal and interest at acquisition
$
245,246

Contractual cash flows not expected to be collected (nonaccretable discount)
28,095

Expected cash flows at acquisition
217,151

Interest component of expected cash flows (accretable discount)
32,872

Fair value of acquired loans
$
184,279


The core deposit intangible asset recognized as part of the Center merger is being amortized over its estimated useful life of approximately seven years utilizing an accelerated method. The goodwill of approximately $88.0 million was recorded in conjunction with the transaction. The goodwill arising from the merger is largely the result of the benefit to the Company of acquiring Center Financial, thereby creating a platform for future operations, strengthening the Company's presence in the primary existing markets in Southern California, expanding the national presence through the addition of Center's offices in Chicago and Seattle, as well as Center's offices in Northern California location, and realizing annual cost synergies. The goodwill is not amortized for book purposes and is not deductible for tax purposes.

The fair value of savings and transactional deposit accounts acquired from Center was assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. Certificates of deposit were valued by comparing the contractual cost of the the portfolio to an identical portfolio bearing current market rates. The projected cash flows from maturing certificates were calculated based on contractual rates. The fair value of the certificates of deposit was calculated by discounting their contractual cash flows at a market rate for a certificate of deposit with a corresponding maturity.

The fair value of borrowings assumed was determined by estimating projected future cash outflows and discounting them at a market rate of interest.

The fair value of FDIC loss share receivable was determined based on the discounted value of expected future cash flows under the loss sharing agreement.

Direct costs related to the Center merger were expensed as incurred. We incurred $3.8 million , $4.7 million , $1.0 million in merger related expenses related to the Center merger during years ended December 31, 2012, 2011, and 2010, respectively. These expenses were comprised of salaries and benefits, occupancy expenses, professional services, and other non-interest expense.

  

The following table presents financial information regarding the Center Financial operations included in our Consolidated Statement of Income from the date of acquisition through December 31, 2011. The following table also presents unaudited pro forma information as if the merger had occurred on January 1, 2010. This pro forma information gives effect to certain adjustments, including purchase accounting fair value adjustments, amortization of core deposit and related income tax effects.

F-20
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Merger and integration expenses incurred by the Company and Center of $7.8 million and $1.7 million for the year ended December 31, 2011, respectively, were excluded. The pro forma information does not necessarily reflect the results of operations that would have occurred had the Company merged with Center at the beginning of 2010. We assumed no adjustments to the historical deferred tax asset valuations in the amount of $6.4 million and $6.0 million , respectively, recorded by Center during the eleven months ended November 30, 2011 and the year ended December 31, 2010. Had Nara acquired Center as of January 1, 2010, the reversal of all or a portion of the deferred tax asset valuation allowance of the combined entity could have differed materially from the amount presented in the unaudited pro forma combined condensed consolidated income statements. In addition, the pro forma combined condensed consolidated financial statements do not take into account the impact, if any, of an ownership change under Section 382 of the Code that would have occurred with respect to BBCN as of January 1, 2010. The merger is expected to result in annual cost savings to be achieved following the consummation of the merger. These expected savings have not been included in the pro forma combined amounts. In addition, the pro forma results for the year ended December 31, 2010 does not reflect any adjustment to eliminate Center's historical preferred stock dividend of $29 million for the beneficial conversion feature of its Series B Preferred Stock issued in December 2009.
 
Actual from acquisition date through December 31, 2011
 
Pro forma Year ended December 31,
 
 
2011
 
2010
 
(In Thousands)
Net interest income
$
7,727

 
$
170,401

 
$
89,599

Non-interest income
1,268

 
45,082

 
50,569

Non-interest expense
(1,705
)
 
(123,885
)
 
(109,667
)
Income tax provision
(1
)
 
(26,769
)
 
(2,326
)
Net income
$
7,289

 
$
64,829

 
$
28,175

Preferred stock dividends and accretion of preferred stock discount
 
 
(7,838
)
 
(36,287
)
Net income (loss) available to common stockholders
 
 
$
56,991

 
$
(8,112
)
 
 
 
 
 
 
Pro forma earnings (loss) per share:
 
 
 
 
 
     Basic
 
 
$
0.73

 
$
(0.10
)
     Diluted
 
 
0.73

 
(0.10
)


F-21
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


3.
SECURITIES AVAILABLE FOR SALE
The following is a summary of securities available for sale at December 31, 2012 and 2011:
 
At December 31, 2012
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
(In thousands)
Debt securities:
 
 
 
 
 
 
 
U.S. Treasury
$
—

 
$
—

 
$
—

 
$
—

GSE collateralized mortgage obligations*
249,373

 
5,649

 
(110
)
 
254,912

GSE mortgage-backed securities*
415,925

 
10,277

 
(662
)
 
425,540

Trust preferred security
4,502

 
—

 
(665
)
 
3,837

Municipal bonds
4,506

 
612

 
—

 
5,118

Total debt securities
674,306

 
16,538

 
(1,437
)
 
689,407

Mutual funds - GSE mortgage related securities
14,710

 
286

 
—

 
14,996

 
$
689,016

 
$
16,824

 
$
(1,437
)
 
$
704,403

 
At December 31, 2011
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
(In thousands)
Debt securities:
 
 
 
 
 
 
 
U.S. Treasury
$
300

 
$
—

 
$
—

 
$
300

GSE collateralized mortgage obligations*
222,400

 
5,480

 
(44
)
 
227,836

GSE mortgage-backed securities*
477,555

 
10,322

 
(123
)
 
487,754

Trust preferred securities
5,532

 
—

 
(1,184
)
 
4,348

Municipal bonds
5,257

 
507

 
—

 
5,764

Total debt securities
711,044

 
16,309

 
(1,351
)
 
726,002

Mutual funds - GSE mortgage related securities
14,710

 
227

 
(19
)
 
14,918

 
$
725,754

 
$
16,536

 
$
(1,370
)
 
$
740,920

  *
Government Sponsored Enterprises (GSE) investments were issued by GNMA, FNMA and FHLMC and are all residential mortgage-backed investments.
As of December 31, 2012 and December 31, 2011 , there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders' equity.
The proceeds from sales of securities and the associated gains are listed below:
 
 
2012
 
2011
 
2010
 
(in thousands)
Proceeds
$
28,446

 
$
139,458

 
$
208,142

Gross gains
949

 
1,219

 
6,296

Gross losses
—

 
—

 
—


The amortized cost and estimated fair value of debt securities at December 31, 2012 , by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.
 

F-22
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

 
Amortized
Cost
 
Estimated
Fair Value
 
(In thousands)
Available for sale:
 
 
 
Due within one year
$
—

 
$
—

Due after one year through five years
340

 
357

Due after five years through ten years
3,884

 
4,434

Due after ten years
4,784

 
4,164

GSE collaterized mortgage obligations
249,373

 
254,912

GSE mortgage-backed securities
415,925

 
425,540

Mutual funds - GSE mortgage related securities
14,710

 
14,996

 
$
689,016

 
$
704,403


Securities with carrying values of approximately $ 338.6 million and $ 425.5 million at December 31, 2012 and December 31, 2011 , respectively, were pledged to secure public deposits, various borrowings and for other purposes as required or permitted by law.
The following table shows our investments’ gross unrealized losses and estimated fair value, aggregated by investment category and the length of time that the individual securities have been in a continuous unrealized loss position as of the dates indicated.
 
 
At December 31, 2012
 
Less than 12 months
 
12 months or longer
 
Total
Description of
Securities
Number of
Securities
 
Fair Value
 
Gross
Unrealized
Losses
 
Number of
Securities
 
Fair Value
 
Gross
Unrealized
Losses
 
Number of
Securities
 
Fair Value
 
Gross
Unrealized
Losses
 
 (In thousands)
GSE collaterized mortgage obligations
3

 
$
18,009

 
$
(110
)
 
—

 
$
—

 
$
—

 
3

 
$
18,009

 
$
(110
)
GSE mortgage-backed securities
7

 
32,406

 
(597
)
 
3

 
8,251

 
(64
)
 
10

 
40,657

 
(661
)
Trust preferred security
—

 
—

 
—

 
1

 
3,837

 
(665
)
 
1

 
3,837

 
(665
)
 
10

 
$
50,415

 
$
(707
)
 
4

 
$
12,088

 
$
(729
)
 
14

 
$
62,503

 
$
(1,436
)


F-23
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

 
At December 31, 2011
 
Less than 12 months
 
12 months or longer
 
Total
Description of
Securities
Number of
Securities
 
Fair Value
 
Gross
Unrealized
Losses
 
Number of
Securities
 
Fair Value
 
Gross
Unrealized
Losses
 
Number of
Securities
 
Fair Value
 
Gross
Unrealized
Losses
 
 (In thousands)
GSE collaterized mortgage obligations
2

 
$
3,305

 
$
(28
)
 
1

 
$
14,007

 
$
(16
)
 
3

 
$
17,312

 
$
(44
)
GSE mortgage-backed securities
5

 
38,082

 
(123
)
 
—

 
—

 
—

 
5

 
38,082

 
(123
)
Trust preferred securities
—

 
—

 
—

 
1

 
3,303

 
(1,184
)
 
1

 
3,303

 
(1,184
)
Mutual funds - GSE mortgage related security
1

 
5,229

 
(19
)
 
—

 
—

 
—

 
1

 
5,229

 
(19
)
 
8

 
$
46,616

 
$
(170
)
 
2

 
$
17,310

 
$
(1,200
)
 
10

 
$
63,926

 
$
(1,370
)
We evaluate securities for other-than-temporary-impairment ("OTTI") on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the financial condition and near-term prospects of the issuer, the length of time and the extent to which the fair value of the securities has been less than our cost for the securities, and our intention to sell, or whether it is more likely than not that we will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. In analyzing an issuer’s financial condition, we consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition.
The trust preferred security at December 31, 2012 has an amortized cost of $ 4.5 million and an unrealized loss of $ 0.7 million at December 31, 2012 . The trust preferred security is scheduled to mature in May 2047, and had a first call date option in May 2012. Management determined this unrealized loss did not represent OTTI at December 31, 2012 as the investment is rated investment grade and there are no credit quality concerns with the obligor. The market value decline is deemed to be due to the current market volatility and is not reflective of management’s expectations of our ability to fully recover this investment, which may be at maturity. Interest on the trust preferred security been paid as agreed and management believes this will continue in the future and the trust preferred security will be repaid in full as scheduled. For these reasons, no OTTI was recognized on the trust preferred security at December 31, 2012 .
We consider the losses on our investments in unrealized loss positions at December 31, 2012 to be temporary based on: 1) the likelihood of recovery; 2) the information relative to the extent and duration of the decline in market value; and 3) the Company’s intention not to sell, and our determination that it is more likely than not that we will not be required to sell a security in an unrealized loss position before recovery of its amortized cost basis.



F-24
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


4.
LOANS RECEIVABLE AND THE ALLOWANCE FOR LOAN LOSSES
The following is a summary of loans by major category at December 31, 2012 and 2011:

 
December 31, 2012
 
December 31, 2011
 
(In thousands)
Loan portfolio composition
 
 
 
Real estate loans:
 
 
 
Residential
$
9,247

 
$
2,043

Commercial & industrial
3,100,466

 
2,631,880

Construction
65,045

 
44,756

Total real estate loans
3,174,758

 
2,678,679

Commercial business
921,556

 
849,576

Trade finance
152,070

 
146,684

Consumer and other
49,954

 
66,631

Total loans outstanding
4,298,338

 
3,741,570

Less: deferred loan fees
(2,086
)
 
(2,744
)
Gross loans receivable
4,296,252

 
3,738,826

Less: allowance for loan losses
(66,941
)
 
(61,952
)
Loans receivable, net
$
4,229,311

 
$
3,676,874


Our loan portfolio is made up of four segments: real estate loans, commercial business, trade finance and consumer and other. These segments are further segregated between loans accounted for under the amortized cost method ( "Legacy Loans") and acquired loans that were originally recorded at fair value with no carryover of the related pre-acquisition allowance for loan losses ("Acquired Loans"). The Acquired Loans are further segregated between Credit Impaired Loans (loans with credit deterioration at the time of the merger and accounted for under the expected cash flow model of ASC 310-30) and Performing Loans (loans that were pass graded at the time of the merger and the fair value adjustment is amortized over the contractual life under ASC 310-20).

The following table presents changes in the accretable discount on the acquired Credit Impaired Loans for the years ended December 31, 2012 and 2011 :
 
Year Ended December 31,
 
2012
 
2011
Balance at beginning of period
$
31,999

 
$
—

Additions due to mergers and acquisitions
—

 
32,872

Accretion
(14,135
)
 
(873
)
Changes in expected cash flows
788

 
—

Balance at end of period
$
18,652

 
$
31,999


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


F-25
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2012 and 2011 was follows:
 
 
Legacy
 
Acquired
 
Total
 
Real Estate
 
Commercial Business
 
Trade Finance
 
Consumer and Other
 
Real Estate
 
Commercial Business
 
Trade Finance
 
Consumer and Other
 
 
(In thousands)
December 31, 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
36,295

 
$
24,930

 
$
192

 
$
903

 
$
—

 
$
—

 
$
—

 
$
—

 
$
62,320

Provision (credit) for loan losses
23,604

 
2,067

 
2,714

 
(446
)
 
—

 
—

 
—

 
—

 
27,939

Loans charged off
(22,187
)
 
(8,603
)
 
(1,153
)
 
(256
)
 
—

 
—

 
—

 
—

 
(32,199
)
Recoveries of charged offs
1,328

 
2,287

 
33

 
244

 
—

 
—

 
—

 
—

 
3,892

Balance, end of period
$
39,040

 
$
20,681

 
$
1,786

 
$
445

 
$
—

 
$
—

 
$
—

 
$
—

 
$
61,952

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
39,040

 
20,681

 
1,786

 
445

 
—

 
—

 
—

 
—

 
61,952

Provision for loan losses
7,098

 
3,700

 
403

 
673

 
4,824

 
1,903

 
303

 
200

 
19,104

Loans charged off
(6,770
)
 
(9,406
)
 
—

 
(568
)
 
(411
)
 
(945
)
 
(300
)
 
(380
)
 
(18,780
)
Recoveries of charged offs
2,137

 
1,515

 
160

 
108

 
305

 
157

 
—

 
283

 
4,665

Balance, end of period
$
41,505

 
$
16,490

 
$
2,349

 
$
658

 
$
4,718

 
$
1,115

 
$
3

 
$
103

 
$
66,941


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

 
December 31, 2012
 
Legacy
 
Acquired
 
Total
 
Real Estate
 
Commercial Business
 
Trade Finance
 
Consumer and Other
 
Real Estate
 
Commercial Business
 
Trade Finance
 
Consumer and Other
 
 
(In thousands)
Allowance for loan losses:
Individually evaluated for impairment
$
4,723

 
$
3,084

 
$
96

 
$
—

 
$
183

 
$
1,074

 
$
—

 
$
—

 
$
9,160

Collectively evaluated for impairment
36,782

 
13,406

 
2,253

 
658

 
—

 
41

 
3

 
103

 
53,246

Loans acquired with credit deterioration
—

 
—

 
—

 
—

 
4,535

 
—

 
—

 
—

 
4,535

Total
$
41,505

 
$
16,490

 
$
2,349

 
$
658

 
$
4,718

 
$
1,115

 
$
3

 
$
103

 
$
66,941

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
37,394

 
$
23,951

 
$
6,199

 
$
536

 
$
17,951

 
$
3,323

 
$
—

 
$
802

 
$
90,156

Collectively evaluated for impairment
2,387,080

 
729,904

 
144,173

 
27,284

 
628,449

 
114,621

 
242

 
18,257

 
4,050,010

Loans acquired with credit deterioration
—

 
—

 
—

 
—

 
103,884

 
49,757

 
1,456

 
3,075

 
158,172

Total
$
2,424,474

 
$
753,855

 
$
150,372

 
$
27,820

 
$
750,284

 
$
167,701

 
$
1,698

 
$
22,134

 
$
4,298,338



F-26
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

 
December 31, 2011
 
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
$
10,525

 
$
7,168

 
$
342

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
18,035

Collectively evaluated for impairment
28,515

 
13,513

 
1,444

 
445

 
—

 
—

 
—

 
—

 
43,917

Loans acquired with credit deterioration
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total
$
39,040

 
$
20,681

 
$
1,786

 
$
445

 
$
—

 
$
—

 
$
—

 
$
—

 
$
61,952

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
53,845

 
$
35,348

 
$
4,963

 
$
150

 
$
—

 
$
—

 
$
—

 
$
—

 
$
94,306

Collectively evaluated for impairment
1,692,390

 
497,643

 
97,047

 
12,660

 
827,605

 
248,833

 
40,965

 
48,700

 
3,465,843

Loans acquired with credit deterioration
—

 
—

 
—

 
—

 
104,839

 
67,752

 
3,709

 
5,121

 
181,421

Total
$
1,746,235

 
$
532,991

 
$
102,010

 
$
12,810

 
$
932,444

 
$
316,585

 
$
44,674

 
$
53,821

 
$
3,741,570

As of December 31, 2012 and December 31, 2011 , we had a liability for unfunded commitments of $ 802 thousand and $ 686 thousand , respectively. For the year ended December 31, 2012 and 2011 , we recognized provision for credit losses related to our unfunded commitments of $ 116 thousand and $ 149 thousand .
The recorded investment in individually impaired loans was as follows:
 
 
December 31, 2012
 
December 31, 2011
 
(In thousands)
With Allocated Allowance
 
 
 
Without charge-off
$
65,526

 
$
67,518

With charge-off
2,599

 
341

With No Allocated Allowance
 
 
 
Without charge-off
17,536

 
19,234

With charge-off
4,495

 
7,213

Allowance on Impaired Loans
(9,160
)
 
(18,035
)
Impaired Loans, net of allowance
$
80,996

 
$
76,271



F-27
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following tables detail impaired loans (Legacy and Acquired) by portfolio segment as of December 31, 2012 and December 31, 2011 and for the year ended months ended December 31, 2012 and for the year ended December 31, 2011 . Loans with no related allowance for loan losses are believed by management to have adequate collateral securing their carrying value.
 
 
 
As of December 31, 2012
 
For the year ended December 31, 2012
Total Impaired Loans**
 
Recorded Investment*
 
Unpaid Contractual Principal Balance
 
Related
Allowance
 
Average
Recorded Investment*
 
Interest Income Recognized during Impairment
 
 
(In thousands)
With Related Allowance:
 
 
 
 
 
 
 
 
 
 
Real Estate—Residential
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Real Estate—Commercial
 
 
 
 
 
 
 
 
 
 
Retail
 
5,477

 
5,610

 
(1,167
)
 
3,512

 
255

Hotel & Motel
 
8,990

 
8,995

 
(1,860
)
 
17,536

 
426

Gas Station & Car Wash
 
1,892

 
2,440

 
(73
)
 
2,908

 
—

Mixed Use
 
900

 
976

 
(250
)
 
3,182

 
—

Industrial & Warehouse
 
2,074

 
2,153

 
(567
)
 
3,052

 
66

Other
 
16,184

 
16,389

 
(989
)
 
14,322

 
805

Real Estate—Construction
 
—

 
—

 
—

 
26

 
—

Commercial Business
 
26,354

 
29,073

 
(4,158
)
 
25,227

 
1,252

Trade Finance
 
6,199

 
7,173

 
(96
)
 
3,510

 
248

Consumer and Other
 
55

 
56

 
—

 
119

 
4

 
 
$
68,125

 
$
72,865

 
$
(9,160
)
 
$
73,394

 
$
3,056

With No Related Allowance
 
 
 
 
 
 
 
 
 
 
Real Estate—Residential
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Real Estate—Commercial
 
 
 
 
 
 
 
 
 
 
Retail
 
2,516

 
5,404

 
—

 
1,602

 
48

Hotel & Motel
 
6,212

 
8,202

 
—

 
1,365

 
—

Gas Station & Car Wash
 
1,731

 
4,359

 
—

 
1,775

 
—

Mixed Use
 
899

 
923

 
—

 
180

 
—

Industrial & Warehouse
 
4,392

 
6,450

 
—

 
4,408

 
160

Other
 
2,371

 
6,283

 
—

 
2,598

 
—

Real Estate—Construction
 
1,710

 
1,710

 
—

 
1,710

 
111

Commercial Business
 
920

 
1,368

 
—

 
8,028

 
18

Trade Finance
 
—

 
—

 
—

 
946

 
—

Consumer and Other
 
1,280

 
1,316

 
—

 
357

 
20

 
 
$
22,031

 
$
36,015

 
$
—

 
$
22,969

 
$
357

Total
 
$
90,156

 
$
108,880

 
$
(9,160
)
 
$
96,363

 
$
3,413


*
Unpaid contractual principal balance less charge-offs, interest applied to principal and purchase discounts.
** The Impaired Loans balances as of December 31, 2012 include $9.0 million in Troubled Debt Restructurings that were modified at a market rate and were performing in accordance with their modified terms through the year subsequent to the modification.

F-28
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

 
 
As of December 31, 2012
 
For the year ended December 31, 2012
Acquired 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
 
1,286

 
1,286

 
(9
)
 
920

 
64

Hotel & Motel
 
—

 
—

 
—

 
3,676

 
—

Gas Station & Car Wash
 
—

 
—

 
—

 
57

 
—

Mixed Use
 
—

 
—

 
—

 
—

 
—

Industrial & Warehouse
 
832

 
887

 
(2
)
 
331

 
36

Other
 
4,272

 
4,461

 
(172
)
 
1,711

 
288

Real Estate—Construction
 
—

 
—

 
—

 
—

 
—

Commercial Business
 
2,974

 
3,072

 
(1,074
)
 
1,625

 
26

Trade Finance
 
—

 
—

 
—

 
—

 
—

Consumer and Other
 
—

 
—

 
—

 
—

 
—

 
 
$
9,364

 
$
9,706

 
$
(1,257
)
 
$
8,320

 
$
414

With No Related Allowance
 
 
 
 
 
 
 
 
 
 
Real Estate—Residential
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Real Estate—Commercial
 
 
 
 
 
 
 
 
 
 
Retail
 
800

 
840

 
—

 
161

 
48

Hotel & Motel
 
5,990

 
7,375

 
—

 
1,198

 
—

Gas Station & Car Wash
 
774

 
1,865

 
—

 
608

 
—

Mixed Use
 
—

 
—

 
—

 
—

 
—

Industrial & Warehouse
 
3,190

 
3,302

 
—

 
2,005

 
160

Other
 
807

 
3,156

 
—

 
993

 
—

Real Estate—Construction
 
—

 
—

 
—

 
—

 
—

Commercial Business
 
349

 
681

 
—

 
680

 
15

Trade Finance
 
—

 
—

 
—

 
—

 
—

Consumer and Other
 
802

 
836

 
—

 
160

 
—

 
 
$
12,712

 
$
18,055

 
$
—

 
$
5,805

 
$
223

Total
 
$
22,076

 
$
27,761

 
$
(1,257
)
 
$
14,125

 
$
637


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

The table above includes only Acquired Loans that became impaired.


F-29
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

 
 
As of December 31, 2011
 
For the year ended December 31, 2011
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
 
1,810

 
2,686

 
(668
)
 
3,476

 
34

Hotel & Motel
 
17,441

 
17,459

 
(4,093
)
 
14,581

 
1,013

Gas Station & Car Wash
 
2,265

 
2,669

 
(550
)
 
2,825

 
95

Mixed Use
 
2,822

 
2,840

 
(128
)
 
1,561

 
158

Industrial & Warehouse
 
4,242

 
4,246

 
(407
)
 
4,819

 
310

Other
 
14,982

 
14,994

 
(4,630
)
 
6,195

 
298

Real Estate—Construction
 
128

 
128

 
(49
)
 
2,504

 
—

Commercial Business
 
19,672

 
20,248

 
(7,168
)
 
23,133

 
538

Trade Finance
 
4,497

 
4,497

 
(342
)
 
899

 
71

Consumer and Other
 
—

 
—

 
—

 
—

 
—

 
 
$
67,859

 
$
69,767

 
$
(18,035
)
 
$
59,993

 
$
2,517

With No Related Allowance
 
 
 
 
 
 
 
 
 
 
Real Estate—Residential
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Real Estate—Commercial
 
 
 
 
 
 
 
 
 
 
Retail
 
2,067

 
4,789

 
—

 
6,199

 
—

Hotel & Motel
 
—

 
—

 
—

 
4,722

 
—

Gas Station & Car Wash
 
288

 
2,851

 
—

 
2,584

 
—

Mixed Use
 
—

 
—

 
—

 
2,157

 
—

Industrial & Warehouse
 
3,485

 
8,346

 
—

 
3,150

 
—

Other
 
2,605

 
4,252

 
—

 
10,596

 
—

Real Estate—Construction
 
1,710

 
1,710

 
—

 
3,280

 
113

Commercial Business
 
15,676

 
16,905

 
—

 
12,432

 
203

Trade Finance
 
466

 
467

 
—

 
758

 
30

Consumer and Other
 
150

 
180

 
—

 
145

 
—

 
 
$
26,447

 
$
39,500

 
$
—

 
$
46,023

 
$
346

Total
 
$
94,306

 
$
109,267

 
$
(18,035
)
 
$
106,016

 
$
2,863


*
Unpaid contractual principal balance less charge-offs, interest applied to principal and purchase discounts.
**
The table has been revised to present unpaid contractual principal balances, whereas the Company had previously disclosed unpaid contractual principal balances that were net of charge-offs, interest applied to principal and purchase discounts.
***The Impaired Loans balances as of December 31, 2011 include $11.1 million in Troubled Debt Restructurings that were modified at a market rate and were performing in accordance with their modified terms through the year subsequent to the modification.




F-30
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Generally, loans are placed on nonaccrual status if principal or interest payments become 90 days past due and/or management deems the collectibility of the principal and/or interest to be in question, as well as when required by regulatory requirements. Loans to a customer whose financial condition has deteriorated are considered for non-accrual status whether or not the loan is 90 days or more past due. Generally, payments received on non-accrual loans are recorded as principal reductions. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
The following tables present the aging of past due loans as of December 31, 2012 and December 31, 2011 by class of loans:
 
As of December 31, 2012
 
30-59
Days Past
Due
 
60-89 Days
Past Due
 
90 or More
Days Past
Due
 
Total Past
Due
 
Non-accrual loans
 
Total Delinquent loans
 
90 or More Days Past Due and Accruing
 
(In thousands)
Legacy Loans
 
Real estate—Residential
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Real estate—Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
Retail
87

 
—

 
—

 
87

 
3,316

 
3,403

 
—

Hotel & Motel
—

 
—

 
—

 
—

 
437

 
437

 
—

Gas Station & Car Wash
359

 
—

 
—

 
359

 
2,848

 
3,207

 
—

Mixed Use
34

 
—

 
—

 
34

 
1,799

 
1,833

 
—

Industrial & Warehouse
—

 
—

 
—

 
—

 
1,950

 
1,950

 
—

Other
—

 
115

 
—

 
115

 
2,379

 
2,494

 
—

Real estate—Construction
—

 
—

 
—

 
—

 
—

 
—

 
—

Commercial business
298

 
234

 
—

 
532

 
4,942

 
5,474

 
—

Trade finance
—

 
—

 
—

 
—

 
869

 
869

 
—

Consumer and other
190

 
—

 
—

 
190

 
—

 
190

 
—

     Subtotal
$
968

 
$
349

 
$
—

 
$
1,317

 
$
18,540

 
$
19,857

 
$
—

Acquired Loans (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate—Residential
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Real estate—Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
Retail
1,126

 
6,604

 
1,190

 
8,920

 
—

 
8,920

 
1,190

Hotel & Motel
1,522

 
2,668

 
944

 
5,134

 
5,990

 
11,124

 
944

Gas Station & Car Wash
2,218

 
1,109

 
875

 
4,202

 
774

 
4,976

 
875

Mixed Use
985

 
1,918

 
1,507

 
4,410

 
—

 
4,410

 
1,507

Industrial & Warehouse
53

 
3,320

 
61

 
3,434

 
—

 
3,434

 
61

Other
50

 
25

 
5,542

 
5,617

 
937

 
6,554

 
5,542

Real estate—Construction
—

 
—

 
5,972

 
5,972

 
—

 
5,972

 
5,972

Commercial business
1,359

 
1,174

 
1,236

 
3,769

 
2,442

 
6,211

 
1,236

Trade finance
—

 
—

 
—

 
—

 
—

 
—

 
—

Consumer and other
98

 
17

 
415

 
530

 
970

 
1,500

 
415

     Subtotal
$
7,411

 
$
16,835

 
$
17,742

 
$
41,988

 
$
11,113

 
$
53,101

 
$
17,742

TOTAL
$
8,379

 
$
17,184

 
$
17,742

 
$
43,305

 
$
29,653

 
$
72,958

 
$
17,742

 (1)
The acquired loans include Credit Impaired Loans (ASC 310-30 loans) and Performing Loans (loans that were pass graded at the time of the Merger).

F-31
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

 
As of December 31, 2011
 
30-59
Days Past
Due
 
60-89 Days
Past Due
 
90 or More
Days Past
Due
 
Total Past
Due
 
Non-accrual loans
 
Total Delinquent loans
 
90 or More Days Past Due and Accruing
 
(In Thousands)
Legacy Loans
 
Real estate—Residential
$
36

 
$
—

 
$
—

 
$
36

 
$
—

 
$
36

 
$
—

Real estate—Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
Retail
428

 
—

 
—

 
428

 
2,615

 
3,043

 
—

Hotel & Motel
—

 
—

 
—

 
—

 
481

 
481

 
—

Gas Station & Car Wash
627

 
—

 
—

 
627

 
1,367

 
1,994

 
—

Mixed Use
—

 
—

 
—

 
—

 
820

 
820

 
—

Industrial & Warehouse
360

 
—

 
—

 
360

 
3,889

 
4,249

 
—

Other
—

 
119

 
—

 
119

 
10,992

 
11,111

 
—

Real estate—Construction
—

 
—

 
—

 
—

 
128

 
128

 
—

Commercial business
1,388

 
388

 
—

 
1,776

 
11,732

 
13,508

 
—

Trade finance
—

 
—

 
—

 
—

 
117

 
117

 
—

Consumer and other
3

 
—

 
—

 
3

 
150

 
153

 
—

     Subtotal
2,842

 
507

 
—

 
3,349

 
32,291

 
35,640

 
—

Acquired Loans (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate—Residential
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Real estate—Commercial
 
 
 
 
 
 


 
 
 


 
 
Retail
145

 
776

 
3,723

 
4,644

 
—

 
4,644

 
3,723

Hotel & Motel
—

 
45

 
—

 
45

 
—

 
45

 
—

Gas Station & Car Wash
3,408

 
175

 
820

 
4,403

 
—

 
4,403

 
820

Mixed Use
1,178

 
1,677

 
389

 
3,244

 
—

 
3,244

 
389

Industrial & Warehouse
3,372

 
—

 
110

 
3,482

 
—

 
3,482

 
110

Other
1,467

 
226

 
5,646

 
7,339

 
—

 
7,339

 
5,646

Real estate—Construction
—

 
4,499

 
—

 
4,499

 
—

 
4,499

 
—

Commercial business
2,097

 
1,502

 
12,195

 
15,794

 
—

 
15,794

 
12,195

Trade finance
—

 
—

 
302

 
302

 
—

 
302

 
302

Consumer and other
701

 
369

 
700

 
1,770

 
—

 
1,770

 
700

     Subtotal
$
12,368

 
$
9,269

 
$
23,885

 
$
45,522

 
$
—

 
$
45,522

 
$
23,885

TOTAL
$
15,210

 
$
9,776

 
$
23,885

 
$
48,871

 
$
32,291

 
$
81,162

 
$
23,885

 (1)
The acquired loans include Credit Impaired Loans (ASC 310-30 loans) and Performing Loans (loans that were pass graded at the time of the Merger).
Loans accounted for under ASC 310-30 are generally considered accruing and performing loans and the accretable discount is accreted to interest income over the estimate life of the loan when cash flows are reasonably estimable. Accordingly, acquired impaired loans that are contractually past due are still considered to be accruing and performing loans. The loans may be classified as nonaccrual if the timing and amount of future cash flows is not reasonably estimable.
We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt, including, but not limited to, current financial information, historical payment experience, credit documentation, public information, and current economic trends. We analyze loans individually by classifying the loans as to credit risk. This analysis includes all non-homogeneous loans. This analysis is performed at least on a quarterly basis. We use the following definitions for risk ratings:
•
Pass: Loans that meet a preponderance or more of the Company's underwriting criteria and evidence an acceptable level of risk.

F-32
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

•
Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
•
Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
•
Doubtful/Loss: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or repayment in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
The following tables present the risk rating for Legacy Loans and Acquired Loans as of December 31, 2012 and December 31, 2011 by class of loans:
 
As of December 31, 2012
 
Pass
 
Special
Mention
 
Substandard
 
Doubtful/Loss
 
Total
 
(In thousands)
Legacy Loans:
 
 
 
Real estate—Residential
$
9,223

 
$
—

 
$
24

 
$
—

 
$
9,247

Real estate—Commercial
 
 
 
 
 
 
 
 

Retail
589,720

 
3,584

 
12,303

 
—

 
605,607

Hotel & Motel
453,908

 
1,894

 
16,795

 
—

 
472,597

Gas Station & Car Wash
370,803

 
1,288

 
9,982

 
—

 
382,073

Mixed Use
233,687

 
2,131

 
3,423

 
—

 
239,241

Industrial & Warehouse
202,066

 
1,010

 
4,295

 
370

 
207,741

Other
431,686

 
1,219

 
17,084

 
—

 
449,989

Real estate—Construction
56,270

 
—

 
1,710

 
—

 
57,980

Commercial business
726,072

 
6,164

 
21,514

 
104

 
753,854

Trade finance
136,198

 
7,976

 
6,199

 
—

 
150,373

Consumer and other
26,801

 
13

 
1,006

 
—

 
27,820

Subtotal
$
3,236,434

 
$
25,279

 
$
94,335

 
$
474

 
$
3,356,522

Acquired Loans:
 
 
 
 
 
 
 
 
 
Real estate—Residential
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Real estate—Commercial
 
 
 
 
 
 
 
 
 
Retail
225,982

 
6,469

 
17,331

 
—

 
249,782

Hotel & Motel
105,032

 
16,150

 
13,215

 
—

 
134,397

Gas Station & Car Wash
33,360

 
7,192

 
4,119

 
—

 
44,671

Mixed Use
34,927

 
3,826

 
6,526

 
—

 
45,279

Industrial & Warehouse
114,616

 
1,385

 
9,470

 
—

 
125,471

Other
121,666

 
4,473

 
17,479

 
—

 
143,618

Real estate—Construction
1,093

 
—

 
5,972

 
—

 
7,065

Commercial business
119,026

 
14,057

 
34,047

 
571

 
167,701

Trade finance
242

 
334

 
1,122

 
—

 
1,698

Consumer and other
17,292

 
424

 
4,329

 
89

 
22,134

Subtotal
$
773,236

 
$
54,310

 
$
113,610

 
$
660

 
$
941,816

Total
$
4,009,670

 
$
79,589

 
$
207,945

 
$
1,134

 
$
4,298,338


F-33
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 
 
As of December 31, 2011
 
Pass
 
Special
Mention
 
Substandard
 
Doubtful/Loss
 
Total
 
 
 
(In thousands)
Legacy Loans:
 
 
 
Real estate—Residential
$
2,007

 
$
—

 
$
36

 
$
—

 
$
2,043

Real estate—Commercial
 
 
 
 
 
 
 
 
 
Retail
431,695

 
3,434

 
13,468

 
—

 
448,597

Hotel & Motel
257,468

 
5,005

 
17,876

 
—

 
280,349

Gas Station & Car Wash
340,343

 
3,491

 
2,552

 
—

 
346,386

Mixed Use
139,969

 
2,281

 
3,019

 
—

 
145,269

Industrial & Warehouse
108,493

 
3,992

 
8,049

 
404

 
120,938

Other
341,977

 
5,904

 
15,500

 
—

 
363,381

Real estate—Construction
37,434

 
—

 
1,838

 
—

 
39,272

Commercial business
485,053

 
11,360

 
30,571

 
6,007

 
532,991

Trade finance
96,774

 
273

 
4,963

 
—

 
102,010

Consumer and other
11,731

 
—

 
1,079

 
—

 
12,810

Subtotal
$
2,252,944

 
$
35,740

 
$
98,951

 
$
6,411

 
$
2,394,046

Acquired Loans:
 
 
 
Real estate—Residential
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Real estate—Commercial
 
 
 
 
 
 
 
 
 
Retail
313,242

 
11,562

 
14,045

 
—

 
338,849

Hotel & Motel
123,047

 
13,081

 
16,677

 
—

 
152,805

Gas Station & Car Wash
47,695

 
6,517

 
5,755

 
—

 
59,967

Mixed Use
34,676

 
3,500

 
2,823

 
—

 
40,999

Industrial & Warehouse
134,430

 
2,659

 
3,750

 
—

 
140,839

Other
172,839

 
6,673

 
13,988

 
—

 
193,500

Real estate—Construction
—

 
—

 
5,485

 
—

 
5,485

Commercial business
255,809

 
16,269

 
43,636

 
871

 
316,585

Trade finance
43,621

 
126

 
927

 
—

 
44,674

Consumer and other
49,645

 
1,658

 
2,518

 
—

 
53,821

Subtotal
$
1,175,004

 
$
62,045

 
$
109,604

 
$
871

 
$
1,347,524

Total
$
3,427,948

 
$
97,785

 
$
208,555

 
$
7,282

 
$
3,741,570


The following table presents loans sold from loans held for investment or transfered from held for investment to held for sale during the year ended months ended December 31, 2012 and 2011 by portfolio segment:
 

F-34
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

 
Year Ended December 31,
 
2012
 
2011
Sales or reclassification to held for sale
 
Real estate - Commercial
$
3,061

 
$
25,358

Real estate - Construction
—

 
5,920

Commercial Business
—

 
193

     Total
$
3,061

 
$
31,471

 
The adequacy of the allowance for loan losses is determined by management based upon an evaluation and review of the credit quality of the loan portfolio, consideration of historical loan loss experience, relevant internal and external factors that affect the collection of a loan, and other pertinent factors.
The Migration Analysis is a formula methodology based on the Bank's actual historical net charge-off experience for each loan class (type) pool and risk grade. The migration analysis is centered on the Bank's internal credit risk rating system. Our internal loan review and external contracted credit review examinations are used to determine and validate loan risk grades. This credit review system takes into consideration factors such as: borrower's background and experience; historical and current financial condition; credit history and payment performance; economic conditions and their impact on various industries; type, fair value and volatility of the fair value of collateral; lien position; and the financial strength of any guarantors.
A general loan loss allowance is provided on loans not specifically identified as impaired (“non-impaired loans”). The Bank's general loan loss allowance has two components: quantitative and qualitative risk factors. The quantitative risk factors are based on a historical loss migration methodology. The loans are classified by class and risk grade and the historical loss migration is tracked for the various classes. Loss experience is quantified for a specified period and then weighted to place more significance to the most recent loss history. That loss experience is then applied to the stratified portfolio at each quarter end. For the Acquired Performing Loans, a general loan loss allowance is provided to the extent that there has been credit deterioration since the Merger. 
The quantitative general loan loss allowance was $20.6 million ($ 20.5 million for legacy loans and $ 147 thousand for acquired loans) at December 31, 2012 , compared to $ 20.4 million at December 31, 2011 .
Additionally, in order to systematically quantify the credit risk impact of other trends and changes within the loan portfolio, the Bank utilizes qualitative adjustments to the Migration Analysis within established parameters. The parameters for making adjustments are established under a Credit Risk Matrix that provides seven possible scenarios for each of the factors below. The matrix allows for up to three positive (Major, Moderate, and Minor), three negative (Major, Moderate, and Minor), and one neutral credit risk scenarios within each factor for each loan type pool. Generally, the factors are considered to have no significant impact (neutral) to our historical migration ratios. However, if information exists to warrant adjustment to the Migration Analysis, changes are made in accordance with the established parameters supported by narrative and/or statistical analysis. The Credit Risk Matrix and the nine possible scenarios enable the Bank to qualitatively adjust the Loss Migration Ratio 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, non-accrual 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.

F-35
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

•
The effect of external factors, such as competition and legal and regulatory requirements, on the level of estimated losses in our loan portfolio.
The qualitative loan loss allowance on the loan portfolio was $ 32.6 million at December 31, 2012 , compared to $ 23.5 million at December 31, 2011 .
We also establish specific loss allowances for loans where we have identified potential credit risk conditions or circumstances related to a specific individual credit. The specific allowance amounts are determined by a method prescribed by FASB ASC 310-10-35-22, Measurement of Impairment . The loans identified as impaired will be accounted for in accordance with one of the three acceptable valuation methods: 1) the present value of future cash flows discounted at the loan's effective interest rate; 2) the loan's observable market price; or 3) the fair value of the collateral, if the loan is collateral dependent. For the collateral dependent impaired loans, we obtain a new appraisal to determine the amount of impairment as of the date that the loan became impaired. The appraisals are based on an “as is” valuation. To ensure that appraised values remain current, we either obtain updated appraisals every twelve months from a qualified independent appraiser or an internal re-valuation of the collateral is performed by qualified personnel. If the third party market data indicates that the value of our collateral property has declined since the most recent valuation date, we adjust the value of the property downward to reflect current market conditions. If the fair value of the collateral, less cost to sell, is less than the recorded amount of the loan, we then recognize impairment by creating or adjusting an existing valuation allowance with a corresponding charge to the provision for loan losses. If an impaired loan is expected to be collected through liquidation of the underlying collateral, the loan is deemed to be collateral dependent and the amount of impairment is charged off against the allowance for loan losses.
The Bank considers a loan to be impaired when it is probable that not all amounts due (principal and interest) will be collectible in accordance with the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. The significance of payment delays and payment shortfalls is determined on a case-by-case basis by taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record and the amount of the shortfall in relation to the principal and interest owed.
For commercial business loans, real estate loans and certain consumer loans, we base the measurement of loan impairment on the present value of the expected future cash flows, discounted at the loan's effective interest rate or on the fair value of the loan's collateral, less estimated costs to sell, if the loan is collateral dependent. We evaluate most consumer loans for impairment on a collective basis because these loans generally have smaller balances and are homogeneous in the underwriting of terms and conditions and in the type of collateral.
For our Credit Impaired Loans, the allowance for loan losses is based upon expected cash flows for these loans. To the extent that a deterioration in borrower credit quality results in a decrease in expected cash flows subsequent to the acquisition of the loans, an allowance for loan losses would be established based on our estimate of future credit losses over the remaining life of the loans.
The following table presents loans by portfolio segment and impairment method at December 31, 2012 and December 31, 2011 :
 

F-36
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

 
As of December 31, 2012
 
Real estate -
Residential
 
Real estate -
Commercial
 
Real estate -
Construction
 
Commercial
business
 
Trade
finance
 
Consumer
and other
 
Total
 
(In thousands)
Impaired loans (Gross carrying value)
$
—

 
$
53,634

 
$
1,710

 
$
27,274

 
$
6,199

 
$
1,338

 
$
90,155

Specific allowance
$
—

 
$
4,906

 
$
—

 
$
4,158

 
$
96

 
$
—

 
$
9,160

Loss coverage ratio
0.0
%
 
9.1
%
 
0.0
%
 
15.2
%
 
1.5
%
 
0.0
%
 
10.2
%
Non-impaired loans
$
9,247

 
$
3,046,832

 
$
63,335

 
$
894,282

 
$
145,871

 
$
48,616

 
$
4,208,183

General allowance
$
74

 
$
40,256

 
$
986

 
$
13,448

 
$
2,256

 
$
761

 
$
57,781

Loss coverage ratio
0.8
%
 
1.3
%
 
1.6
%
 
1.5
%
 
1.5
%
 
1.6
%
 
1.4
%
Total loans
$
9,247

 
$
3,100,466

 
$
65,045

 
$
921,556

 
$
152,070

 
$
49,954

 
$
4,298,338

Total allowance for loan losses
$
74

 
$
45,162

 
$
986

 
$
17,606

 
$
2,352

 
$
761

 
$
66,941

Loss coverage ratio
0.8
%
 
1.5
%
 
1.5
%
 
1.9
%
 
1.5
%
 
1.5
%
 
1.6
%

 
As of December 31, 2011
 
Real estate -
Residential
 
Real estate -
Commercial
 
Real estate -
Construction
 
Commercial
business
 
Trade
finance
 
Consumer
and other
 
Total
 
(In thousands)
Impaired loans (Gross carrying value)
$
—

 
$
52,007

 
$
1,838

 
$
35,348

 
$
4,963

 
$
150

 
$
94,306

Specific allowance
$
—

 
$
10,476

 
$
49

 
$
7,168

 
$
342

 
$
—

 
$
18,035

Loss coverage ratio
0.0
%
 
20.1
%
 
2.7
%
 
20.3
%
 
6.9
%
 
0.0
%
 
19.1
%
Non-impaired loans
$
2,043

 
$
2,579,873

 
$
42,918

 
$
814,228

 
$
141,721

 
$
66,481

 
$
3,647,264

General allowance
$
9

 
$
27,831

 
$
675

 
$
13,513

 
$
1,444

 
$
445

 
$
43,917

Loss coverage ratio
0.4
%
 
1.1
%
 
1.6
%
 
1.7
%
 
1.0
%
 
0.7
%
 
1.2
%
Total loans
$
2,043

 
$
2,631,880

 
$
44,756

 
$
849,576

 
$
146,684

 
$
66,631

 
$
3,741,570

Total allowance for loan losses
$
9

 
$
38,307

 
$
724

 
$
20,681

 
$
1,786

 
$
445

 
$
61,952

Loss coverage ratio
0.4
%
 
1.5
%
 
1.6
%
 
2.4
%
 
1.2
%
 
0.7
%
 
1.7
%
Under certain circumstances, we provide borrowers relief through loan modifications. These modifications are either temporary in nature (“temporary modifications”) or are more substantive. At December 31, 2012 , total modified loans were $51.5 million , compared to $ 33.9 million at December 31, 2011 . 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 Substandard or Special Mention. At the end of the modification period, the loan either 1) returns to the original contractual terms; 2) is further modified and accounted for as a troubled debt restructuring in accordance with ASC 310-10-35; or 3) is disposed of through foreclosure or liquidation.
 
Troubled Debt 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

F-37
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

310-10-35. The concessions may be granted in various forms, including reduction in the stated interest rate, reduction in the amount of principal amortization, forgiveness of a portion of a loan balance or accrued interest, or extension of the maturity date. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under our internal underwriting policy.
A summary of TDRs on accrual and non-accrual by type of concession as of December 31, 2012 and December 31, 2011 is presented below:
 
As of December 31, 2012
 
TDR on accrual
 
TDR on non-accrual
 
TOTAL
 
Real estate -
Commercial
 
Commercial
Business
 
Other
 
Total
 
Real estate -
Commercial
 
Commercial
Business
 
Other
 
Total
 
 
(In thousands)
Payment concession
$
9,608

 
$
687

 
$
—

 
$
10,295

 
$
4,735

 
$
4,618

 
$
802

 
$
10,155

 
$
20,450

Maturity / Amortization concession
348

 
3,847

 
536

 
4,731

 
652

 
1,941

 
869

 
3,462

 
8,193

Rate concession
13,594

 
1,229

 
—

 
14,823

 
7,923

 
—

 
—

 
7,923

 
22,746

Principal forgiveness
—

 
—

 
—

 
—

 
—

 
62

 
—

 
62

 
62

 
$
23,550

 
$
5,763

 
$
536

 
$
29,849

 
$
13,310

 
$
6,621

 
$
1,671

 
$
21,602

 
$
51,451


 
As of December 31, 2011
 
TDR on accrual
 
TDR on non-accrual
 
TOTAL
 
Real estate -
Commercial
 
Commercial
Business
 
Other
 
Total
 
Real estate -
Commercial
 
Commercial
Business
 
Other
 
Total
 
 
(In thousands)
Payment concession
$
947

 
$
1,364

 
$
—

 
$
2,311

 
$
4,663

 
$
3,694

 
$
—

 
$
8,357

 
$
10,668

Maturity / Amortization concession
—

 
888

 
467

 
1,355

 
1,181

 
1,588

 
150

 
2,919

 
4,274

Rate concession
12,375

 
2,735

 
—

 
15,110

 
3,344

 
397

 
—

 
3,741

 
18,851

Principal forgiveness
—

 
—

 
—

 
—

 
—

 
78

 
—

 
78

 
78

 
$
13,322

 
$
4,987

 
$
467

 
$
18,776

 
$
9,188

 
$
5,757

 
$
150

 
$
15,095

 
$
33,871

TDRs on accrual status are comprised of loans that were accruing at the time of restructuring and for which the Bank anticipates full repayment of both principal and interest under the restructured terms. TDRs that are on non-accrual can be returned to accrual status after a period of sustained performance, generally determined to be six months of timely payments as modified. Sustained performance includes the periods prior to the modification if the prior performance met or exceeded the modified terms. TDRs on accrual status at December 31, 2012 were comprised of 12 commercial real estate loans totaling $23.6 million and 20 commercial business loans totaling $5.8 million . TDRs on accrual status at December 31, 2011 were comprised of 6 commercial real estate loans totaling $ 13.3 million and 19 commercial business loans totaling $ 5.0 million . We expect that the TDRs on accrual status as of December 31, 2012 , which were all performing in accordance with their restructured terms, to continue to comply with the restructured terms because of the reduced principal or interest payments on these loans. TDRs that were restructured at market interest rates and had sustained performance as agreed under the modified loan terms may be reclassified as non-TDRs after each year end but are still monitored for potential impairment.
 
The following table presents loans by class modified as TDRs that occurred during the year ended December 31, 2012 and 2011 :

F-38
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

 
For the year ended
 
For the year ended
 
December 31, 2012
 
December 31, 2011
 
Number of
Loans 
Pre-
Modification
Post-
Modification 
 
Number of
Loans 
Pre-
Modification
Post-
Modification 
 
(Dollars in thousand)
 
 
 
 
Legacy Loans:
 
 
 
 
 
 
 
Real estate - Residential
—
$
—

$
—

 
—
$
—

$
—

Real estate - Commercial
 
 
 
 
 
 
 
Retail
5
2,456

2,321

 
2
2,125

1,213

Hotel & Motel
1
1,479

1,444

 
3
8,909

8,707

Gas Station & Car Wash
1
216

50

 
—
—

—

Mixed Use
—
—

—

 
2
1,807

1,767

Industrial & Warehouse
1
502

494

 
5
1,269

1,278

Other
4
12,391

9,234

 
4
979

952

Real estate - Construction
—
—

—

 
—
—

—

Commercial business
14
4,075

4,838

 
24
2,468

2,061

Trade Finance
1
1,493

401

 
1
499

467

Consumer and Other
1
480

480

 
1
87

69

Subtotal
28
$
23,092

$
19,262

 
42
$
18,143

$
16,514

Acquired Loans:
 
 
 
 
 
 
 
Real estate - Residential
—
$
—

$
—

 
—
$
—

$
—

Real estate - Commercial
 
 
 
 
 
 
 
Retail
2
1,458

1,286

 
 
 
 
Hotel & Motel
1
6,165

5,990

 
—
—

—

Gas Station & Car Wash
—
—

—

 
—
—

—

Mixed Use
—
—

—

 
—
—

—

Industrial & Warehouse
—
—

—

 
—
—

—

Other
1
670

631

 
—
—

—

Real estate - Construction
—
—

—

 
—
—

—

Commercial business
6
2,476

2,384

 
—
—

—

Trade Finance
—
—

—

 
—
—

—

Consumer and Other
4
808

802

 
—
—

—

Subtotal
14
$
11,577

$
11,093

 
—
$
—

$
—

Total
42
$
34,669

$
30,355

 
42
$
18,143

$
16,514

 
 
 
 
 
 
 
 

F-39
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The specific reserves for the TDRs described above as of December 31, 2012 and 2011 were $ 2.5 million and $4.2 million , respectively, and the charge offs for the years ended December 31, 2012 and 2011 were $158 thousand and $3.2 million , respectively.
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 years ended December 31, 2012 and 2011 :


 
December 31, 2012
 
December 31, 2011
 
Number of
Loans
 
Balance
 
 
Number of
Loans
 
Balance
 
 
(Dollars In thousands)
 
 
 
Legacy Loans:
 
 
 
 
 
Real estate - Commercial
 
 
 
 
 
Retail
1
$
268

 
1
$
771

Hotel & Motel
—
—

 
2
—

Gas Station & Car Wash
1
50

 
—
—

Industrial & Warehouse
—
—

 
3
961

Other
1
562

 
1
294

Commercial Business
3
76

 
8
422

Subtotal
6
$
956

 
15
$
2,448

Acquired Loans:
 
 
 
 
 
Real estate - Commercial
 
 
 
 
 
Retail
—
$
—

 
—
$
—

Hotel & Motel
1
5,990

 
—
—

Industrial & Warehouse
—
—

 
—
—

Other
—
—

 
—
—

Commercial Business
2
143

 
—
—

Subtotal
3
$
6,133

 
—
$
—

 
9
$
7,089

 
15
$
2,448

A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms. The specific reserves for the TDRs described above as of December 31, 2012 and 2011 were $ 89 thousand and $300 thousand , respectively, and the charge offs for the years ended December 31, 2012 and 2011 were $158 thousand and $2.0 million , respectively. Included in the table noted above were two loans and seven loans that subsequently defaulted under their modified terms that were fully charged off during 2012 and 2011, respectively, and the charge off amounts were $130 thousand and $2.6 million for 2012 and 2011, respectively.
The six Legacy Loans that subsequently defaulted in 2012 were modified through payment concession, maturity / amortization concession, or rate concession. The payment concessions were comprised of one Real Estate Commercial - Gas Station & Car Wash loan totaling $50 thousand and one Commercial Business loan. The maturity / amortization concessions were comprised of one Real Estate Commercial - Retail loan totaling $268 thousand and two Commercial Business loans totaling $76 thousand . The rate concession was comprised of one Real Estate Commercial - Other loan totaling $562 thousand .

F-40
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The three Acquired Loans that subsequently defaulted in 2012 were modified as follows: one Real Estate Commercial - Hotel & Motel loan totaling $6.0 million was modified through a rate concession and two Commercial Business loan totaling $143 thousand were modified through a payment concession and rate concession, respectively.
The fifteen Legacy Loans that subsequently defaulted during 2011 were modified through payment concessions and maturity date / amortization concessions. The payment concessions were comprised of: three Real Estate Commercial - Industrial & Warehouse loans totaling $961 thousand , five Commercial Business loans totaling $397 thousand , one Real Estate Commercial - Other loan totaling $294 thousand , and two Real Estate Commercial - Hotel & Motel loans. The maturity date / amortization concessions were comprised of one Real Estate Commercial - Retail loan totaling $771 thousand and three Commercial Business loan totaling $25 thousand .
We have allocated $ 6.3 million and $ 6.4 million of specific reserves to TDRs as of December 31, 2012 and December 31, 2011 , respectively. As of December 31, 2012 and December 31, 2011 , we did not have any outstanding commitments to extend additional funds to these borrowers.

Covered Loans
On April 16, 2010, the Department of Financial Institutions closed Innovative Bank, California, and appointed the FDIC as its receiver. On the same date, Center Bank assumed the banking operations of Innovative Bank from the FDIC under a purchase and assumption agreement and two related loss sharing agreements with the FDIC. Upon the merger between Nara Bancorp and Center Financial, the Company assumed the loss sharing agreements with the FDIC.
Covered nonperforming assets totaled $ 0.9 million and $ 3.6 million at December 31, 2012 and December 31, 2011 , respectively. These covered nonperforming assets are subject to the loss sharing agreements with the FDIC. The covered nonperforming assets at December 31, 2012 and December 31, 2011 were as follows:
 
December 31, 2012
 
December 31, 2011
 
(In thousands)
Covered loans on non-accrual status
$
489

 
$
—

Covered other real estate owned
393

 
3,575

     Total covered nonperforming assets
$
882

 
$
3,575

 
 
 
 
Acquired covered loans
$
72,528

 
$
89,959

Loans accounted for under ASC 310-30 are generally considered accruing and performing loans and the accretable discount is accreted to interest income over the estimate life of the loan when cash flows are reasonably estimable. Accordingly, acquired impaired loans that are contractually past due are still considered to be accruing and performing loans. The loans may be classified as nonaccrual if the timing and amount of future cash flows is not reasonably estimable.

5.
GOODWILL AND OTHER INTANGIBLE ASSETS
The change in goodwill during the year is as follows:
 
2012
 
2011
 
2010
 
(In thousands)
Beginning of year
$
90,473

 
$
2,509

 
$
2,509

Center acquisition
—

 
87,964

 
—

Adjustment
(595
)
 
—

 
—

Impairment
—

 
—

 
—

End of year
$
89,878

 
$
90,473

 
$
2,509


The goodwill arising from the Center merger was reduced by a net $595 thousand to $89.9 million due to adjustments of certain acquisition date fair value asset and liability estimates during first quarter 2012. There are a number of estimates made in the acquisition accounting as of the acquisition date that may be subject to revisions during the subsequent one-year measurement period. Due to the immateriality of the revision amount, the Company elected not to retrospectively adjust the

F-41
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

acquisition date accounting and instead recorded the adjustments in first quarter 2012. Goodwill is not amortized for book purposes and is not deductible for tax purposes.

 
The following table provides information regarding the amortizing intangible assets at December 31, 2012 and 2011 :
 
 
 
2012
 
2011
 
 
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Intangible assets:
Amortization
period
 
 
 
 
 
 
 
 
Core deposit—IBKNY acquisition
10 years
 
$
1,187

 
$
(1,186
)
 
$
1,187

 
$
(1,155
)
Core deposit—Asiana Bank acquistion
10 years
 
1,018

 
(1,011
)
 
1,018

 
(970
)
Core deposit—KEB, Broadway acquisition
10 years
 
2,726

 
(2,703
)
 
2,726

 
(2,581
)
Core deposit—Center Financial Corporation acquisition
7 years
 
4,100

 
(1,098
)
 
4,100

 
(49
)
Total
 
 
$
9,031

 
$
(5,998
)
 
$
9,031

 
$
(4,755
)
Total amortization expense on deposit premiums was $ 1.2 million , $ 357 thousand and $ 508 thousand for the years ended December 31, 2012 , 2011 and 2010 , respectively.   The estimated future amortization expense over the next five years for identifiable intangible assets is as follows: $ 897 thousand in 2013 , $ 720 thousand in 2014 , $ 574 thousand in 2015 , $ 427 thousand in 2016 , and $ 281 thousand in 2017 .

6.
DEPOSITS

The aggregate amount of time deposits in denominations of $100,000 or more at December 31, 2012 and 2011 was $ 1.1 billion and $ 759.9 million million, respectively. Included in time deposits of $100,000 or more were $ 300.0 million in California State Treasurer’s deposits at December 31, 2012 and 2011 . The California State Treasurer’s deposits are subject to withdrawal based on the State’s periodic evaluations. The Company is required to pledge eligible collateral of at least 110% of outstanding deposits. At December 31, 2012 and 2011 , securities with carrying values of approximately $ 338.1 million and $ 368.6 million , respectively, were pledged as collateral for the California State Treasurer’s deposits.
At December 31, 2012 , the scheduled maturities for time deposits were as follows:
 
 
 
Year Ended
December 31
 
 
 
(In thousands)
 
2013
$
1,656,589

 
2014
107,236

 
2015
5,714

 
2016
1,061

 
2017 and thereafter
160

 
 
$
1,770,760



F-42
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Interest expense on deposits is summarized as follows:
 
2012
2011
2010
 
(In thousands)
Money market and other
$
7,566

$
6,322

$
6,374

Savings deposits
3,364

2,945

3,274

Time deposits
10,424

10,978

18,234

 
$
21,354

$
20,245

$
27,882



7.
BORROWINGS

We maintain a secured credit facility with the Federal Home Loan Bank of San Francisco (“FHLB”) against which the Bank may take advances. The borrowing capacity is limited to the lower of 25% of the Bank’s total assets or the Bank’s collateral capacity, which was $1.3 billion at December 31, 2012 and December 31, 2011 . 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 December 31, 2012 and December 31, 2011 , real estate secured loans with a carrying amount of approximately $2.0 billion were pledged as collateral for borrowings from the FHLB. At December 31, 2012 and December 31, 2011 , other than FHLB stock, securities totaling $0 and $3.0 million , respectively, were pledged as collateral for borrowings from the FHLB.
At December 31, 2012 and December 31, 2011 , FHLB borrowings were $420.7 million and $344.4 million , had a weighted average interest rate of 1.24% and 1.93% , respectively, and had various maturities through December 2017 . At December 31, 2012 and December 31, 2011 , $66.7 million and $205.0 million , respectively, of the advances were putable advances with various putable dates and strike prices. The cost of FHLB borrowings as of December 31, 2012 ranged between 0.34% and 3.89% . At December 31, 2012 , the Company had a remaining borrowing capacity of $929.7 million .
At December 31, 2012 , the contractual maturities for FHLB borrowings were as follows:
 

Contractual
Maturities

Maturity/
Put Date
 
(In thousands)
Due within one year
$
129,000

 
$
180,722

Due after one year through five years
291,722

 
240,000

Due after five years through ten years
—

 
—


$
420,722

 
$
420,722


In addition, as a member of the Federal Reserve Bank system, we may also borrow from the Federal Reserve Bank of San Francisco. The maximum amount that we may borrow from the Federal Reserve Bank’s discount window is up to 95% of the outstanding principal balance of the qualifying loans and the fair value of the securities that we pledge. At December 31, 2012 , the principal balance of the qualifying loans was $516.7 million and the collateral value of investment securities were $0.4 million , and no borrowings were outstanding against this line.


8.
SUBORDINATED DEBENTURES

At December 31, 2012 , 4 wholly-owned subsidiary grantor trusts established by former Nara Bancorp had issued $28 million of pooled Trust Preferred Securities (“trust preferred securities”) and 1 wholly-owned subsidiary grantor trust established by former Center Financial Corporation had issued $18 million of trust preferred securities. Trust preferred securities accrue and pay distributions periodically at specified annual rates as provided in the indentures. The trusts used the net proceeds from the offering to purchase a like amount of subordinated debentures (the “Debentures”) of BBCN Bancorp. The Debentures are the sole assets of the trusts. BBCN Bancorp’s obligations under the subordinated debentures and related documents, taken together, constitute a full and unconditional guarantee by BBCN Bancorp of the obligations of the trusts. The

F-43
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

trust preferred securities are mandatorily redeemable upon the maturity of the Debentures, or upon earlier redemption as provided in the indentures. BBCN Bancorp has the right to redeem the Debentures in whole (but not in part) on or after specific dates, at a redemption price specified in the indentures plus any accrued but unpaid interest to the redemption date. BBCN Bancorp also has a right to defer consecutive payments of interest on the debentures for up to five years.
The following table is a summary of trust preferred securities and debentures at December 31, 2012 :
 
Issuance Trust

Issuance
Date

Trust
Preferred
Security
Amount

Subordinated
Debentures
Amount

Rate
Type

Initial
Rate

Coupon Rate at
December 31, 2012

Maturity
Date
 
 
 
 
(Dollars in thousands)
 
 
 
 
 
 
 
 
Nara Capital Trust III

6/5/2003

$
5,000


$
5,155


Variable

4.44
%

3.46
%

6/15/2033
Nara Statutory Trust IV

12/22/2003

5,000


5,155


Variable

4.02
%

3.19
%

1/7/2034
Nara Statutory Trust V

12/17/2003

10,000


10,310


Variable

4.12
%

3.33
%

12/17/2033
Nara Statutory Trust VI

3/22/2007

8,000


8,248


Variable

7.00
%

1.96
%

6/15/2037
Center Capital Trust I

12/30/2003

18,000


12,978


Variable

4.01
%

3.19
%
*
1/7/2034
TOTAL ISSUANCE



$
46,000


$
41,846










*
The Center Capital Trust I trust preferred security was assumed in the merger. The remaining discount was $ 5.6 million at December 31, 2012 and the effective rate of the security, including the effect of the discount accretion, was 5.84% at December 31, 2012 .
The Company’s investment in the common trust securities of the issuer trusts of $1.4 million and $2.0 million at December 31, 2012 and December 31, 2011 , respectively, is included in other assets. Although the subordinated debt issued by the trusts are not included as a component of stockholders' equity in the consolidated balance sheets, the debt is treated as capital for regulatory purposes. The trust preferred security debt issuances are includable in Tier I capital up to a maximum of 25% of capital on an aggregate basis. Any amount that exceeds 25% qualifies as Tier 2 capital. At December 31, 2012 , all of the $46 million of the trusts’ securities qualified as Tier 1 capital. In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was signed into law which, among other things, limits the ability of bank holding companies with total assets of more than $ 15 billion to treat trust preferred security debt issuances as Tier 1 capital. Since the Company had less than $ 15 billion in assets at December 31, 2012 , we will be able to continue to include its existing trust preferred securities in Tier 1 capital under the Dodd-Frank Act.


9.
INCOME TAXES
A summary of income tax provision (benefit) follows for the years ended December 31:
 

F-44
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

 
Current
 
Deferred
 
Total
 
(In thousands)
2012
 
 
 
 
 
Federal
$
35,286

 
$
5,579

 
$
40,865

State
7,256

 
6,289

 
13,545

 
$
42,542

 
$
11,868

 
$
54,410

2011
 
 
 
 
 
Federal
$
4,154

 
$
7,614

 
$
11,768

State
2,810

 
1,082

 
3,892

 
$
6,964

 
$
8,696

 
$
15,660

2010
 
 
 
 
 
Federal
$
(463
)
 
$
(4,906
)
 
$
(5,369
)
State
473

 
(3,004
)
 
(2,531
)
 
$
10

 
$
(7,910
)
 
$
(7,900
)

A reconciliation of the difference between the federal statutory income tax rate and the effective tax rate is shown in the following table for the years ended December 31:
 
 
2012
 
2011
 
2010
Statutory tax rate (benefit)
35
 %
 
35
 %
 
(35
)%
State taxes (benefit)-net of federal tax effect
6
 %
 
6

 
(11
)%
CRA investment tax credit
(2
)
 
(3
)
 
(4
)
Other
1

 
(1
)
 
(2
)
 
40
 %
 
37
 %
 
(52
)%

Deferred tax assets and liabilities at December 31, 2012 and 2011 are comprised of the following:
 

F-45
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

 
2012
 
2011
 
(In thousands)
Deferred tax assets:
 
 
 
Purchase accounting fair value adjustment
$
34,977

 
$
46,957

Statutory bad debt deduction less than financial statement provision
26,579

 
28,881

Net operating loss carryforward
3,901

 
6,901

Capital loss carryforward
—

 
53

Investment security provision
1,657

 
1,657

Lease expense
1,321

 
1,653

State tax deductions
1,771

 
799

Accrued compensation
116

 
106

Deferred compensation
600

 
625

Mark to market on loans held for sale
2,891

 
2,158

Depreciation
1,362

 
1,180

Nonaccrual loan interest
782

 
53

Other real estate owned
463

 
475

Tax credits
—

 
—

Non-qualified stock option and restricted unit expense
2,691

 
1,486

Goodwill
1,053

 
1,126

Other
1,562

 
2,072

 
81,726

 
96,182

Deferred tax liabilities:
 
 
 
FHLB stock dividends
(1,095
)
 
(1,428
)
Deferred loan costs
(2,724
)
 
(1,439
)
State taxes deferred and other
(7,012
)
 
(8,409
)
Prepaid expenses
(1,123
)
 
(955
)
FDIC loss share receivable
(1,684
)
 
(3,081
)
Amortization of intangibles
(529
)
 
(953
)
Unrealized gain on securities available for sale
(7,269
)
 
(7,210
)
Unrealized gain on interest rate swaps
—

 
(17
)
Unrealized gain on interest only strips
(50
)
 
(33
)
 
(21,486
)
 
(23,525
)
Valuation allowance on capital loss carryforward
—

 
(53
)
Net deferred tax assets:
$
60,240

 
$
72,604


At December 31, 2012 and 2011 , the Company had capital loss carryforwards of $ 0 and $ 53 thousand , respectively. The Company has evaluated the available evidence supporting the realization of its deferred tax assets and determined that it is not more likely than not that the Company would generate future capital gains to offset the capital loss carryforwards, and accordingly, the Company has recorded a valuation allowance against the capital loss carryforwards of $ 53 thousand in 2011 . 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,

F-46
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

management evaluates both positive and negative evidence, including the existence of any cumulative losses in the current year and the prior two years, the amount of taxes paid in available carry-back years, the forecasts of future income, applicable tax planning strategies, and assessments of current and future economic and business conditions. This analysis is updated quarterly and adjusted as necessary.
Based on the analysis, the Company has determined that except for the valuation allowance against the capital loss carryforwards of $ 53 thousand in 2011 , a valuation allowance for deferred tax assets was not required as of December 31, 2012 and 2011 .
A summary of the Company’s net operating loss carry-forwards is as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FEDERAL
 
STATE
 
 
Remaining
Amount
 
Expires
 
Annual
Limitation
 
Remaining
Amount
 
Expires
 
Annual
Limitation
 
 
 
(In thousands)
 
2012
 
 
 
 
 
 
 
 
 
 
 
 
Nara Ownership Change
$
—

 
N/A
 
$
—

 
$
124

 
2016
 
$
83

 
Korea First Bank of New York
3,476

 
2019
 
497

 
—

 
N/A
 
—

 
Asiana
798

 
2015
 
348

 
723

 
2014
 
348

 
Center Bank Net Operating Loss
—

 
N/A
 
N/A

 
26,817

 
2031
 
13,356

 
Total
$
4,274

 
 
 
$
845

 
$
27,664

 
 
 
$
13,787

 
 
 
 
 
 
 
 
 
 
 
 
 
 
2011
 
 
 
 
 
 
 
 
 
 
 
 
Nara Ownership Change
$
—

 
N/A
 
$
—

 
$
124

 
2016
 
$
83

 
Korea First Bank of New York
3,973

 
2019
 
497

 
—

 
N/A
 
—

 
Asiana
1,146

 
2015
 
348

 
723

 
2014
 
348

 
Nara Bank Net Operating Loss
—

 
N/A
 
N/A

 
12,539

 
2031
 
$
12,539

 
Center Bank Net Operating Loss
—

 
N/A
 
N/A

 
37,394

 
2031
 
$
13,356

 
Total
$
5,119

 
 
 
$
845

 
$
50,780

 
 
 
$
26,326


For the 2010 and 2011 tax years, the state of California suspended the utilization of Net Operating Losses (“NOLs”). Suspended NOLs are allowed additional carryover period of one year. The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of the state of California and various other state income taxes. The statute of limitations related to the consolidated Federal income tax return is closed for all tax years up to and including 2008. The expiration of the statute of limitations related to the various state income tax returns that the Company and subsidiaries file, varies by state. The Company is currently under examination by Federal Internal Revenue Service for the 2009 and 2010 tax years. While the outcome of the examination is unknown, the Company expects no material adjustments. New York City 2007, 2008, and 2009 examinations and California 2007 and 2008 examinations were concluded with no material adjustments.
A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2012 and 2011 is as follows:

 
2012
 
2011
 
(In thousands)
Balance at January 1,
$
569

 
$
276

Additions based on tax positions related to the current year
219

 
101

Additions based on tax positions related to the prior year
(40
)
 
192

Balance at December 31,
$
748

 
$
569



F-47
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The total amount of unrecognized tax benefits was $748 thousand at December 31, 2012 and $569 thousand at December 31, 2011 and is primarily for uncertainties related to California enterprise zone loan interest deductions taken in prior years. The total amount of tax benefits that, if recognized, would favorably impact the effective tax rate was $ 520 thousand and $ 420 thousand at December 31, 2012 and 2011 , respectively. The amount of unrecognized tax benefits increased due to the current year accrual of $ 219 thousand offset by a reduction in accrual of $ 40 thousand for prior years in connection with the outcome of the California 2007 and 2008 examinations. The Company does not expect the total amount of unrecognized tax benefits to significantly change in the next twelve months.

The Company recognizes interest and penalties related to income tax matters in income tax expense. The Company had approximately $ 52 thousand and $ 77 thousand for interest and penalties accrued at December 31, 2012 and 2011 , respectively.

10.
STOCK-BASED COMPENSATION

The Company has a stock-based incentive plan, the 2007 BBCN Bancorp Equity Incentive Plan (“2007 Plan”). The 2007 Plan, approved by our stockholders on May 31, 2007, was amended and restated on July 25, 2007 and again on December 1, 2011. The 2007 Plan provides for grants of stock options, stock appreciation rights (“SARs”), restricted stock, performance shares and performance units (sometimes referred to individually or collectively as “awards”) to non-employee directors, officers, employees and consultants of the Company. Stock options may be either “incentive stock options” (“ISOs”), as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), or nonqualified stock options (“NQSOs”).
The 2007 Plan gives the Company flexibility to (i) attract and retain qualified non-employee directors, executives and other key employees and consultants with appropriate equity-based awards, (ii) motivate high levels of performance, (iii) recognize employee contributions to the Company’s success, and (iv) align the interests of Plan participants with those of the Company’s stockholders. The exercise price for shares under an ISO may not be less than 100% of fair market value (“FMV”) on the date the award is granted under Code Section 422. Similarly, under the terms of the 2007 Plan the exercise price for SARs and NQSOs may not be less than 100% of FMV on the date of grant. Performance units are awarded to a participant at the market price of the Company’s common stock on the date of award (after the lapse of the restriction period and the attainment of the performance criteria). No minimum exercise price is prescribed for performance shares and restricted stock awarded under the 2007 Plan.
ISOs, SARs and NQSOs have vesting periods of three to five years and have 10 -year contractual terms. Restricted stock, performance shares, and performance units will be granted with a restriction period of not less than one year from the grant date for performance-based awards and not more than three years from the grant date for time-based vesting of grants. Compensation expense for awards is recorded over the vesting period.  
Concurrently with the merger, Center's stock-based incentive plan, the Center Financial Corporation 2006 Stock Incentive Plan, adopted April 12, 2006, as amended and restated June 13, 2007 ("2006 Plan"), was assumed by BBCN, with the outstanding share awards of 585,860 shares and the 2,443,513 shares available for future grants at November 30, 2011 being converted at an exchange ratio of 0.7805 .
The 2006 Plan provides for the granting of incentive stock options to officers and employees, and non-qualified stock options and restricted stock awards to employees (including officers) and non-employee directors. The option prices of all options granted under the 2006 Plan must be not less than 100% of the fair market value at the date of grant. All options granted generally vest at the rate of 20% per year except that the options granted to the non-employee directors vest at the rate of 33% per year. All options not exercised generally expire ten years after the date of grant.
Under the 2007 and 2006 plans 2,638,549 shares were available for future grants as of December 31, 2012 .
The total shares reserved for issuance will serve as the underlying value for all equity awards under the 2007 Plan and the 2006 Plan. With the exception of the shares underlying stock options and restricted stock awards, the board of directors may choose to settle the awards by paying the equivalent cash value or by delivering the appropriate number of shares.For the year ended December 31, 2012 , 497,942 shares of performance unit awards were granted under the 2007 and 2006 Plans. The fair value of performance unit awards granted is the fair market value of the Company’s common stock on the date of grant. In 2012 , 2011 and 2010 ,no options were granted, respectively.
The following is a summary of stock option activity under the 2007 and 2006 Plans for the year ended 2012 :
 

F-48
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

 
Number of
Shares
 
Weighted-
Average
Exercise
Price Per
Share
 
Weighted-
Average
Remaining
Contractual
Life (Years)
 
Aggregate
Intrinsic
Value
Outstanding - January 1, 2012
850,011

 
$
16.17

 
 
 
 
Exercised
(48,149
)
 
6.69

 
 
 
 
Forfeited
(4,681)

 
23.71

 
 
 
 
Outstanding - December 31, 2012
797,181

 
$
16.70

 
2.66
 
$
697,000

Options exercisable - December 31, 2012
783,513

 
$
16.84

 
2.53
 
$
657,000

Unvested options expected to vest after December 31, 2012
13,668

 
$
8.64

 
9.75
 
$
40,000


    

The following is a summary of restricted and performance unit activity under the 2007 and 2006 Plans for the year ended 2012 :
 
 
Number of
Shares
 
Weighted-
Average
Grant
Date Fair
Value
 
Weighted-
Average
Remaining
Contractual
Life (Years)
Outstanding - January 1, 2012
52,480

 
$
7.42

 
8.98

Granted
497,942

 
10.42

 
 
Vested
(15,140
)
 
4.16

 
 
Forfeited
(23,649
)
 
9.87

 
 
Outstanding - December 31, 2012
511,633

 
$
10.18

 
9.03


The total fair value of performance units vested for the year ended December 31, 2012 , 2011 , and 2010 was $ 160 thousand and $96 thousand , and $100 thousand respectively.
The amount charged against income, before income tax benefit of $ 1.1 million , $ 16 thousand , and $124 thousand , in relation to the stock-based payment arrangements, was $ 2.6 million , $ 103 thousand and $ 376 thousand for the years ended December 31, 2012 , 2011 and 2010 , respectively. At December 31, 2012 , unrecognized compensation expense related to non-vested stock option grants and restricted and performance units aggregated $ 2.7 million , and is expected to be recognized over a remaining weighted average vesting period of 1.79 years.
The estimated annual stock-based compensation expense as of December 31, 2012 for each of the succeeding years is indicated in the table below:
 
 
Stock Based
Compensation Expense
 
(In thousands)
 
 
For the year ended December 31:
 
2013
$
1,361

2014
610

2015
589

2016
96

2017
7

Total
$
2,663




F-49
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

11.
EMPLOYEE BENEFIT PLANS
Deferred Compensation Plan — In 1996, the Company established a deferred compensation plan that permits eligible officers and directors to defer a portion of their compensation. In 2001, the Board of Directors approved and the Company established a deferred compensation plan that allows key executives of the Company additional deferment of their compensation. The deferred compensation plan is still in effect and was amended in 2007 to be in compliance with the new IRC §409(A) regulations. In May 2004, Center Bank approved Center Bank Executive Deferred Compensation Plan and BBCN has assumed and renamed the plan as the BBCN Bank Executive Deferred Compensation Plan. The deferred compensation, together with accrued accumulated interest, is distributable in cash after retirement or termination of service. The deferred compensation liabilities at December 31, 2012 and 2011 amounted to $ 1.5 million , which are included in other liabilities in the accompanying consolidated statement of financial condition. Interest expense recognized under the deferred compensation plan totaled $ 37 thousand , $ 54 thousand and $ 42 thousand for 2012 , 2011 and 2010 , respectively.  
In 2008, the Company established and the Board approved a Long Term Incentive Plan (“LTIP”) that rewards the named executive officers (“NEO”) with deferred compensation if the Company meets certain performance goals, the NEOs meet individual performance goals, and the NEOs remain employed for a pre-determined period (between five and ten years, depending on the officer). Only three NEOs are currently participating in the LTIP. The Company accrued $ 90 thousand and $ 70 thousand in 2012 and 2011 , respectively. There was no accrued expense in 2010 as the Company did not meet the required performance goals in 2010.
The Company has insured the lives of certain officers and directors who participate in the deferred compensation plan. The Company has also purchased life insurance policies and entered into split dollar life insurance agreements with certain directors and officers. Under the terms of the split dollar life insurance agreements, a portion of the death benefits received by the Bank will be paid to beneficiaries named by the directors and officers.
401(k) Savings Plan— In 1996, the Company established a 401(k) savings plan, which is open to all eligible employees who are 21 years old or over and have completed three months of service. The plan requires the Bank to match 100% up to 3% of employee deferrals and 75% of the next 2% of employee deferrals for an additional contribution of up to 1.5% during the plan year. Employer matching is immediately vested in full regardless of the service term. Total employer contributions to the plan and expense amounted to approximately $ 1.3 million , $ 591 thousand and $ 0 for 2012 , 2011 and 2010 , respectively. Effective September 7, 2009, the Company had amended the Plan to discontinue the safe harbor employer matching contributions. The safe harbor election and employer matching contributions were reinstated effective January 1, 2011. Pursuant to the merger, the 401(k) plans of Nara Bank and Center Bank were merged and the matching was increased to the current rate of 100% up to 3% of employee deferred and 75% of the next 2% of the employee deferral effective January 1, 2012.
Employees Stock Ownership Plan (“ESOP”) —In 1996, the Company established an ESOP, which is open to all eligible employees who have completed one year of service working at least 1,000 hours. The Company’s contributions to the ESOP represent an annual profit-sharing bonus paid to employees. Such contributions and available forfeitures are allocated to active employees based on the percentage that their compensation represents of the total compensation of eligible employees. The Company purchased 0 , 11,638 and 10,259 shares of its common stock for the ESOP in 2012 , 2011 and 2010 , respectively. The Company’s contribution and expense to the ESOP was approximately $ 250 thousand , $ 100 thousand and $ 100 thousand for 2012 , 2011 and 2010 , respectively. The 2012 ESOP contribution of $ 250 thousand was used to purchase shares of its company stock in January 2013. The ESOP trustee inadvertently delayed executing the Company's instructions to purchase shares before the end of the year. As of December 31, 2012 and 2011 , the ESOP held 150,455 and 152,358 shares, and there were no unallocated shares. On an annual basis, the Board determines the amount to contribute to the ESOP as a profit sharing bonus.
Upon termination, plan participants are paid in cash or retain their vested balance in the ESOP. During 2012 , 2011 and 2010 , shares withdrawn from the ESOP by participants who terminated their employment with the Company amounted to 1,903 , 22,053 and 5,843 shares, respectively. During 2012 , 2011 and 2010 , no shares were added to the ESOP plan from dividend reinvestments.


F-50
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

12.
COMMITMENTS AND CONTINGENCIES
The Company leases its premises under non-cancelable operating leases, and at December 31, 2012 , the future minimum rental commitments under these leases are as follows:
 
 
(In thousands)
2013
$
8,922

2014
8,302

2015
7,617

2016
6,352

2017
5,417

Thereafter
19,735

 
$
56,345


 
Operating lease expense recorded under such leases in 2012 , 2011 and 2010 amounted to approximately $ 9.0 million , $ 8.6 million and $ 6.6 million , respectively.
In the normal course of business, the Company is involved in various legal claims. Management has reviewed all legal claims against the Company with counsel for the fiscal year ended December 31, 2012 , and has taken into consideration the views of such counsel as to the outcome of the claims. In management’s opinion, the final disposition of all such claims will not have a material adverse effect on the consolidated financial condition, results of operations or cash flows of the Company. As of December 31, 2012 and 2011 , the Company recorded an accrued liability of $ 220 thousand and $ 400 thousand , for litigation settlements.
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and other commercial letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition. The Company’s exposure to credit loss in the event of nonperformance by the other party to commitments to extend credit and standby letters of credit and other commercial letters of credit is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for extending loan facilities to customers. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable; inventory; property, plant and equipment; and income-producing properties.
Commitments at December 31, 2012 and 2011 are summarized as follows:
 
 
2012
 
2011
 
(In thousands)
Commitments to extend credit
$
690,917

 
$
458,096

Standby letters of credit
39,176

 
29,028

Other commercial letters of credit
51,257

 
49,457

 
$
781,350

 
$
536,581


Commitments and letters of credit generally have variable rates that are tied to the prime rate. The amount of fixed rate commitments is not considered material to this presentation. From time to time, the Company enters into certain types of contracts that contingently require the Company to indemnify parties against third party claims and other obligations customarily indemnified in the ordinary course of the Company’s business. The terms of such obligations vary, and, generally, a maximum obligation is not explicitly stated. Therefore, the overall maximum amount of the obligations cannot be reasonably estimated. The most significant of these contracts relate to certain agreements with the Company’s officers and directors under which the Company may be required to indemnify such persons for liabilities arising out of their employment relationship.

F-51
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Historically, the Company has not been obligated to make significant payments for these obligations, and no liabilities have been recorded for these obligations on its consolidated statements of financial condition as of December 31, 2012 and 2011 .
The Company has received communications from the Small Business Administration ("SBA") asserting that the SBA is entitled to receive from BBCN a portion of the amounts to be paid to BBCN by the FDIC in respect of SBA loans that are covered by the FDIC loss share agreements. The amounts claimed by the SBA with respect to covered SBA loans are based on the SBA's guarantee percentage of the individual covered loans referred to in the communications. An aggregate of $55 million of SBA loans were subject to the loss share agreements at inception; however, to date the SBA has only requested monies related to two loans BBCN disagrees with the SBA's position. The discussions with the SBA regarding this matter are at an early stage and BBCN is not presently able to determine the probable outcome.


13.
FAIR VALUE MEASURMENTS

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).
Impaired Loans
The fair values of impaired loans are generally measured for impairment using the practical expedients permitted by FASB ASC 310-10-35 including impaired loans measured at an observable market price (if available), or at the fair value of the loan’s collateral (if the loan is collateral dependent). Fair value of the loan’s collateral, when the loan is dependent on collateral, is determined by appraisals or independent valuation, less costs to sell and result in a Level 2.
Derivatives
The fair value of our derivative financial instruments, including interest rate swaps and caps, is based on derivative valuation models using market data inputs as of the valuation date that can generally be verified and do not typically involve significant management judgments. (Level 2 inputs).
Other Real Estate Owned
Other real estate owned is fair valued at the time the loan is foreclosed upon and the asset is transferred to other real estate owned. The value is based primarily on third party appraisals, less costs to sell and result in a Level 2 classification of the inputs for determining fair value. Other real estate owned is reviewed and evaluated on at least an annual basis for additional impairment and adjusted to lower of cost or market accordingly, based on the same factors identified above.
Loans held for sale
Loans held for sale are carried at the lower of cost or fair value, as determined by outstanding commitments from investors, or based on recent comparable sales (Level 2 inputs), if available, and if not available, are based on discounted cash flows using current market rates applied to the estimated life and credit risk (Level 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

F-52
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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.

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
 
December 31, 2012

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

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







Securities available for sale:







GSE collateralized mortgage obligations
$
249,373


$
—


$
249,373


$
—

GSE mortgage-backed securities
415,925


—


415,925


—

Trust preferred security
4,502


—


4,502


—

Municipal bonds
4,506


—


4,056


—

Mutual funds
14,710


14,710


—


—

 
 
 
 
 
 
 
 

There were no transfers between Level 1, 2 and 3 during the period ended December 31, 2012 .
 
 
 
 
Fair Value Measurements at the End of the Reporting Period Using
 
December 31, 2011
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
(In thousands)
Assets:
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
U.S. Treasury
$
300

 
$
—

 
$
300

 
$
—

GSE collateralized mortgage obligations
227,836

 
—

 
227,836

 
—

GSE mortgage-backed securities
487,754

 
—

 
487,754

 
—

Trust preferred security
4,348

 
—

 
4,348

 
—

Municipal bonds
5,764

 
—

 
5,764

 
—

Mutual funds
14,918

 
14,918

 
—

 
—

Derivatives - Interest rate caps
9

 
—

 
9

 
—


Fair value adjustments for interest rate caps resulted in a net expense of $9 thousand for the year ended December 31, 2012 and $157 thousand for the year ended December 31, 2011 .



F-53
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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

Fair Value Measurements at the End of the Reporting Period Using
 
December 31, 2012

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

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







Impaired loans at fair value:







Real estate loans
$
4,443


$
—


$
4,443


$
—

Commercial business
1,164


—


1,164


—

Loans held for sale, net
803


—


803


—

Other real estate owned
2,636


—


2,636


—


 
 
 
Fair Value Measurements at the End of the Reporting Period Using
 
December 31, 2011
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
(In thousands)
Assets:
 
 
 
 
 
 
 
Impaired loans at fair value:

 

 

 

Real estate loans
$
15,485

 
$
—

 
$
—

 
$
15,485

Commercial business
6,360

 
—

 
—

 
6,360

Loans held for sale, net
6,901

 
—

 
6,901

 
—

Other real estate owned
3,471

 
—

 
—

 
3,471


For assets measured at fair value on a non-recurring basis, the total net (losses) gains, which include charge offs, recoveries, specific reserves, and gains and losses on sales recognized in 2012 and 2011 are summarized below:
 
For the year ended December 31,
 
2012
 
2011
 
(In thousands)
Assets:
 
 
 
Impaired loans at fair value:
 
 
 
Real estate loans
$
1,169

 
$
(19,430
)
Commercial business
(3,809
)
 
(213
)
Loans held for sale, net
(2,004
)
 
(16,093
)
Other real estate owned
(2,786
)
 
(3,239
)



F-54
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Carrying amounts and estimated fair values of financial instruments, not previously presented, at December 31, 2012 and December 31, 2011 were as follows:
 
 
December 31, 2012
 
Carrying
Amount

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



 

Cash and cash equivalents
$
312,916


$
312,916

 
Level 1
Term federal funds sold
—


—

 
Level 1
Loans held for sale
51,635


57,856

 
Level 2
Loans receivable—net
4,229,311


4,591,685

 
Level 3
Federal Home Loan Bank stock
22,495


N/A

 
N/A
Accrued interest receivable
12,117


12,117

 
Level 2
FDIC loss share receivable
5,797


5,797

 
Level 3
Customers’ liabilities on acceptances
10,493


10,493

 
Level 2
Financial Liabilities:



 

Noninterest-bearing deposits
$
1,184,285


$
1,184,285

 
Level 2
Saving and other interest bearing demand deposits
1,428,990


1,428,990

 
Level 2
Time deposits
1,770,760


1,772,778

 
Level 2
Borrowings from Federal Home Loan Bank
420,722


425,107

 
Level 2
Subordinated debentures
41,846


32,218

 
Level 2
Accrued interest payable
4,355


4,355

 
Level 2
Bank’s liabilities on acceptances outstanding
10,493


10,493

 
Level 2
 
December 31, 2011
 
 
 
Carrying
Amount

Estimated
Fair Value
 
 
 
(In thousands)
 
 
Financial Assets:



 
 
Cash and cash equivalents
$
300,110


$
300,110

 
 
Term federal funds sold
40,000


40,000

 
 
Loans held for sale
42,407


43,782

 
 
Loans receivable—net
3,676,874


3,933,710

 
 
Federal Home Loan Bank stock
27,373


N/A

 
 
Accrued interest receivable
13,439


13,439

 
 
FDIC loss share receivable
10,819


10,819

 
 
Customers’ liabilities on acceptances
10,515


10,515

 
 
Financial Liabilities:





 
 
Noninterest-bearing deposits
984,350


984,350

 
 
Saving and other interest bearing demand deposits
1,435,441


1,435,441

 
 
Time deposits
1,521,101


1,532,152

 
 
Borrowings from Federal Home Loan Bank
344,402


349,311

 
 
Subordinated debentures
52,102


53,757

 
 
Accrued interest payable
6,519


6,519

 
 
Bank’s liabilities on acceptances outstanding
10,515


10,515

 
 


F-55
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


The methods and assumptions used to estimate fair value are described as follows.
The carrying amount is the estimated fair value for cash and cash equivalents, savings and other interest bearing demand deposits, accrued interest receivable and payable, customer’s and Bank’s liabilities on acceptances, non-interest-bearing deposits, short-term debt, secured borrowings, and variable rate loans or deposits that reprice frequently and fully. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. The allowance for loan losses is considered to be a reasonable estimate of discount for credit quality concerns. Fair value of SBA loans held for sale is based on market quotes. For fair value of non-SBA loans held for sale, see the measurement method discussed previously. Fair value of time deposits and debt is based on current rates for similar financing. It was not practicable to determine the fair value of Federal Reserve Bank stock or Federal Home Loan Bank stock due to restrictions placed on their transferability. The fair value of commitments to fund loans represents fees currently charged to enter into similar agreements with similar remaining maturities and is not presented herein. The fair value of these financial instruments is not material to the consolidated financial statements.


14.
STOCKHOLDERS’ EQUITY AND REGULATORY MATTERS

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

F-56
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

the merger exchange ratio of 0.7805 , the warrant now entitles the holder of the warrant to purchase, in one or more exercises of the warrant, up to 337,480 shares of BBCN Bancorp common stock at a price of $ 12.22 per share.
In June 2012, the Company redeemed $67 million and $55 million of the aforementioned Series A and Series B Preferred Stock, respectively.
On August 8, 2012, we purchased from the Treasury Department, the outstanding warrant dated November 21, 2008 relating to 521,266 shares of the Company's common stock, at a purchase price of $2.2 million . We have not reached agreement with the Treasury Department regarding repurchase of the warrant for the purchase of 337,480 shares of the Company's common stock that we issued in connection with our merger with Center Financial.
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 December 31, 2012
 

 

 

 

 

 
Total capital (to risk-weighted assets):











Company
$
746,396

 
16.2
%

$
369,417


8.0
%

N/A


N/A

Bank
$
725,655

 
15.7
%

$
369,134


8.0
%

$
461,417


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

 









Company
$
688,422

 
14.9
%

$
184,708


4.0
%

N/A


N/A

Bank
$
667,725

 
14.5
%

$
184,567


4.0
%

$
276,850


6.0
%
Tier I capital (to average assets):

 









Company
$
688,422

 
12.8
%

$
215,861


4.0
%

N/A


N/A

Bank
$
667,725

 
12.4
%

$
215,813


4.0
%

$
269,767


5.0
%
 
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, 2011
 

 

 

 

 

 
Total capital (to risk-weighted assets):











Company
$
784,054


19.4
%

$
323,144


8.0
%

N/A


N/A

Bank
$
721,551


17.9
%

$
322,891


8.0
%

$
403,613


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











Company
$
733,319


18.2
%

$
161,572


4.0
%

N/A


N/A

Bank
$
670,855


16.6
%

$
161,445


4.0
%

$
242,168


6.0
%
Tier I capital (to average assets):











Company
$
733,319


19.8
%

$
148,044


4.0
%

N/A


N/A

Bank
$
670,855


18.1
%

$
148,038


4.0
%

$
185,048


5.0
%




F-57
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


15.
EARNINGS PER SHARE ("EPS")
Basic EPS does not reflect the possibility of dilution that could result from the issuance of additional shares of common stock upon exercise or conversion of outstanding securities, and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if stock options or other contracts to issue common stock were exercised or converted to common stock that would then share in our earnings. For the years ended December 31, 2012 , 2011 and 2010 , stock options and restricted shares awards for approximately 559,000 , 414,000 and 533,000 shares of common stock, respectively, were excluded in computing diluted earnings per common share because they were antidilutive. Additionally, warrants to purchase 338,000 , 859,000 and 521,000 shares of common stock (related to the TARP Capital Purchase Plan) were antidilutive and excluded for the year ended ended December 31, 2012 , 2011 and 2010 , respectively.
The following table shows the computation of basic and diluted EPS for the years ended December 31, 2012 , 2011 and 2010 :
 

F-58
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

 
Net income
available to
common
stockholders
(Numerator)
 
Shares
(Denominator)
 
Per
Share
(Amount)
 
(In thousands, except share and per share data)
2012
 
 
 
 
 
Net income as reported
$
83,223

 
 
 
 
Less: preferred stock dividends and accretion of preferred stock discount
(5,640
)
 
 
 
 
Basic EPS - common stock
$
77,583

 
78,012,253

 
$
0.99

Effect of Dilutive Securities:
 
 
 
 
 
Stock Options and Performance Units
 
 
78,863

 
 
Common stock warrants
 
 
—

 
 
Diluted EPS - common stock
$
77,583

 
78,091,116

 
$
0.99

2011
 
 
 
 
 
Net income as reported
$
27,115

 
 
 
 
Less: preferred stock dividends and accretion of preferred stock discount
(4,568
)
 
 
 
 
Basic EPS - common stock
$
22,547

 
42,187,110

 
$
0.53

Effect of Dilutive Securities:
 
 
 
 
 
Stock Options and Performance Units
 
 
23,490

 
 
Common stock warrants
 
 
—

 
 
Diluted EPS - common stock
$
22,547

 
42,210,600

 
$
0.53

2010
 
 
 
 
 
Net income as reported
$
(7,239
)
 
 
 
 
Less: preferred stock dividends and accretion of preferred stock discount
(4,291
)
 
 
 
 
Basic EPS - common stock
$
(11,530
)
 
37,919,340

 
$
(0.30
)
Effect of Dilutive Securities:
 
 
—

 
 
Stock Options and Performance Units
 
 
—

 
 
Common stock warrants
 
 
—

 
 
Diluted EPS - common stock
$
(11,530
)
 
37,919,340

 
$
(0.30
)


16. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

As part of our asset and liability management strategy, the Company may enter into derivative financial instruments, such as interest rate swaps, caps and floors, with the overall goal of minimizing the impact of interest rate fluctuations on our net interest margin. Interest rate swaps and caps involve the exchange of fixed-rate and variable-rate interest payment obligations without the exchange of the underlying notional amounts.
During the first quarter of 2010, the Company entered into a three-year interest rate cap agreement with an aggregate notional amount of $50.0 million . Under this cap agreement, the Company receives quarterly payments from the counterparty when the quarterly resetting 3 Month London-Interbank Offered Rate exceeds the strike level of 2.00% . The upfront fee paid to the counterparty in entering into this interest rate cap agreement was $ 890 thousand .

F-59
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

These interest rate cap agreements are considered “free-standing” due to non-designation of a hedge relationship to any of its financial assets or liabilities. Under FASB ASC 815, valuation gains or losses on interest rate caps not designated as hedging instruments are recognized in earnings. At December 31, 2012 , the aggregate fair value of the outstanding interest rate caps was $0 , and we recognized mark-to-market losses on valuation of $9 thousand for the year ended December 31, 2012 .
At December 31, 2012 and December 31, 2011 , summary information about these interest-rate caps is as follows:
 

December 31, 2012
 
December 31, 2011
Notional amounts
$
50
 million
 
$
50
 million
Weighted average pay rates
N/A

 
N/A

Weighted average receive rates
N/A

 
N/A

Weighted average maturity
0.16 years

 
1.16 years

Fair value of combined interest rate caps
$
—

 
$
9
 thousand

The effect of derivative instruments on the Consolidated Statement of Income for the year ended December 31, 2012 and 2011 are as follows:
 



Year Ended December 31,



2012

2011

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

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





Interest rate contracts (1)
Other income

$
(9
)

$
(157
)
 
(1)
Includes amounts representing the net interest payments as stated in the contractual agreements and the valuation gains or (losses) on interest rate contracts not designated as hedging instruments.


17.
QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized unaudited quarterly financial data follows for the three months ended:
 

F-60
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

 
March 31
 
June 30
 
September 30
 
December 31
 
(In thousands, except per share amounts)
2012
 
 
 
 
 
 
 
Interest income
$
68,555

 
$
66,943

 
$
65,455

 
$
66,932

Interest expense
7,696

 
7,441

 
7,224

 
7,286

Net interest income before provision for loan losses
60,859

 
59,502

 
58,231

 
59,646

Provision for loan losses
2,600

 
7,182

 
6,900

 
2,422

Net interest income after provision for loan losses
58,259

 
52,320

 
51,331

 
57,224

Non-interest income
11,645

 
10,222

 
7,664

 
9,859

Non-interest expense
30,435

 
31,077

 
28,770

 
30,609

Income before income tax provision
39,469

 
31,465

 
30,225

 
36,474

Income tax provision
15,535

 
12,101

 
11,827

 
14,947

Net income
$
23,934

 
$
19,364

 
$
18,398

 
$
21,527

Dividends and discount accretion on preferred stock
$
(1,869
)
 
$
(3,771
)
 
$
—

 
$
—

Net income available to common stockholders
$
22,065

 
$
15,593

 
$
18,398

 
$
21,527

 
 
 


 


 


Basic earnings per common share
$
0.28

 
$
0.20

 
$
0.24

 
$
0.28

Diluted earnings per common share
$
0.28

 
$
0.20

 
$
0.24

 
$
0.28



 
March 31
 
June 30
 
September 30
 
December 31
 
(In thousands, except per share amounts)
2011
 
 
 
 
 
 
 
Interest income
$
37,194

 
$
37,294

 
$
38,927

 
$
48,480

Interest expense
8,311

 
7,963

 
7,874

 
7,929

Net interest income before provision for loan losses
28,883

 
29,331

 
31,053

 
40,551

Provision for loan losses
5,262

 
10,047

 
3,483

 
9,147

Net interest income after provision for loan losses
23,621

 
19,284

 
27,570

 
31,404

Non-interest income
4,510

 
7,684

 
4,258

 
6,678

Non-interest expense
16,695

 
16,886

 
16,817

 
31,836

Income before income tax provision
11,436

 
10,082

 
15,011

 
6,246

Income tax provision
4,690

 
3,764

 
5,196

 
2,010

Net income
$
6,746

 
$
6,318

 
$
9,815

 
$
4,236

Dividends and discount accretion on preferred stock
$
(1,075
)
 
$
(1,075
)
 
$
(1,077
)
 
$
(1,341
)
Net income available to common stockholders
$
5,671

 
$
5,243

 
$
8,738

 
$
2,895

 


 


 


 


Basic earnings per common share
$
0.15

 
$
0.14

 
$
0.23

 
$
0.05

Diluted earnings per common share
$
0.15

 
$
0.14

 
$
0.23

 
$
0.05





F-61
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


18.
CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY
The following presents the unconsolidated financial statements of only the parent company, BBCN Bancorp, Inc., as of December 31, 2012 and 2011:
STATEMENTS OF FINANCIAL CONDITION
 
 
December 31,
 
2012
 
2011
 
(In thousands)
ASSETS:
 
 
 
Cash and cash equivalents
$
19,142

 
$
66,491

Other assets
5,477

 
5,553

Investment in bank subsidiary
769,718

 
778,234

TOTAL ASSETS
$
794,337

 
$
850,278

LIABILITIES:
 
 
 
Other borrowings
$
41,846

 
$
52,102

Accounts payable and other liabilities
1,387

 
2,236

Total liabilities
43,233

 
54,338

STOCKHOLDERS’ EQUITY
751,104

 
795,940

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
794,337

 
$
850,278


STATEMENTS OF INCOME
 
 
Years Ended December 31,
 
2012
 
2011
 
2010
 
(In thousands)
Interest income
$
—

 
$
—

 
$
13

Interest expense
2,064

 
1,906

 
1,851

Dividends from bank subsidiary
—

 
—

 
—

Other operating expense
7,147

 
5,024

 
2,263

Equity in earnings (losses) of bank subsidiary
88,793

 
31,508

 
(5,574
)
Income (loss) before income tax benefit
79,582

 
24,578

 
(9,675
)
Income tax benefit
(3,641
)
 
(2,537
)
 
(2,436
)
Net income (loss)
$
83,223

 
$
27,115

 
$
(7,239
)
 

F-62
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


STATEMENTS OF CASH FLOWS
 
 
Years Ended December 31,
 
2012
 
2011
 
2010
 
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
Net income (loss)
$
83,223

 
$
27,115

 
$
(7,239
)
Adjustments to reconcile net income to net cash from operating activities:
 
 
 
 
 
Amortization
163

 
20

 
20

Stock-based compensation expense
1,009

 
8

 
52

Change in other assets
(342
)
 
(1,276
)
 
(730
)
Change in accounts payable and other liabilities
207

 
(238
)
 
479

Equity in undistributed loss (earnings) of bank subsidiary
10,207

 
(31,508
)
 
5,574

Net cash from operating activities
94,467

 
(5,879
)
 
(1,844
)
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
Cash and cash equivalents acquired through the merger
—

 
3,438

 
—

Investment in bank subsidiary
—

 
—

 
—

Net cash from investing activities
—

 
3,438

 
—

CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
Issuance of additional common stock
—

 
59,869

 
—

Issuance of additional stock pursuant to various stock plans
322

 
524

 
1,150

Tax effect on issuance of shares from stock plan
—

 
139

 
35

Redemption of subordinated debenture
(10,400
)
 
 
 
 
Redemption of preferred stock
(122,000
)
 
 
 
 
Redemption of common stock warrant
(2,189
)
 
 
 
 
Payments of cash dividends
(7,549
)
 
(3,350
)
 
(3,351
)
Net cash from financing activities
(141,816
)
 
57,182

 
(2,166
)
NET CHANGE IN CASH AND CASH EQUIVALENTS
(47,349
)
 
54,741

 
(4,010
)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
66,491

 
11,750

 
15,760

CASH AND CASH EQUIVALENTS, END OF YEAR
$
19,142

 
$
66,491

 
$
11,750




F-63
Table of Contents



19.
SUBSEQUENT EVENTS
Effective January 14, 2013, the Company and Alvin D. Kang, the Chief Executive Officer of the Company and the Bank, agreed to a separation of Mr. Kang from the Company and the Bank with a separation date of January 31, 2013. In connection with his departure, Mr. Kang and the Company entered into a Separation and Release Agreement (the “Separation Agreement”). Pursuant to the Separation Agreement, Mr. Kang has received his salary and accrued vacation through January 31, 2013 and a $675,000 separation payment in February 2013. Mr. Kang will also receive, among other things, a cash bonus under the Company’s Performance Incentive Plan of $119,500 for the portion of 2012 following the repayment to the United States Treasury by the Company of TARP capital; a $40,000 credit in respect of 2012 to Mr. Kang’s deferral account under the Company’s Long Term Cash Incentive Program; and an extension until July 29, 2015 of Mr. Kang’s right to exercise 80,000 vested options of the Company’s stock at $15.54 per share.
In consideration of these benefits, Mr. Kang provided a general release of claims against the Company and its affiliates arising out of his employment and agreed not to solicit employees of the Company for an eighteen -month period following his separation from the Company.
On February 15, 2013, the Company acquired Pacific International Bancorp ("PIB"), a Seattle-based company, pursuant to an Agreement and Plan of Merger, dated October 22, 2012. Pacific International had total assets of approximately $185 million , including $146 million of gross loans and $144 million in deposits. We assumed $4.1 million in trust preferred securities which we plan to redeem on June 30, 2013, the first available redemption date. Concurrent with the acquisition, we redeemed $6.5 million of PIB's senior preferred stock and accrued dividends of $975,000 . PIB's primary subsidiary, Pacific International Bank, a Washington state-chartered bank, had four bank locations in the Seattle metropolitan area. With the completion of the transaction, the Company has six branches in the Seattle area.


F-64

Delaware     PAGE     1

The First State




I, JEFFREY W. BULLOCK, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF OWNERSHIP, WHICH MERGES:
"NARA MERGER SUB CORP. ", A DELAWARE CORPORATION,

WITH AND INTO "NARA BANCORP, INC." UNDER THE NAME OF "BBCN BANCORP, INC. ", A CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, AS RECEIVED AND FILED IN THIS OFFICE THE THIRTIETH DAY OF NOVEMBER, A.D. 2011, AT 12:48
O' CLOCK P.M.

AND I DO HEREBY FURTHER CERTIFY THAT THE EFFECTIVE DATE OF THE AFORESAID CERTIFICATE OF OWNERSHIP IS THE THIRTIETH DAY OF NOVEMBER, A.D. 2011, AT 11:59 O' CLOCK P.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE

NEW CASTLE AND KENT COUNTY RECORDER OF DEEDS.























3239893      8lOOM     AUT HEN



111240073
You may verify this certificate online
at corp.delaware.gov/authver.shtml
 

DATE: 11-30-11





State of Delaware Secretary of State Division of Corporations
Delivered 12:54 PM 11/30/2011
(    FILED 12:48 PM 11/30/2011
'     SRV 111240073 - 3239893 FILE




CERTIFICATE OF OWNERSHIP AND MERGER MERGING
NARA MERGER SUB CORP.

WITH AND INTO NARA BANCORP, INC.


Pursuant to Section 253 of the Delaware General Corporation Law




November 30, 2011


Nara Bancorp, Inc., a Delaware corporation (the '' Corporation "), which desires to merge Nara Merger Sub Corp., a Delaware corporation and a wholly owned subsidiary of the Corporation (" Merger Sub" ), with and into the Corporation (the " Merger" ) pursuant to the provisions of Section 253 of the Delaware General Corporation Law, as amended (the " DGCL "), docs hereby certify as follows:

1.
The Corporation owns all of the issued and outstanding shares of each class of outstanding capital stock of Merger Sub.

2.
The Corporation's board of directors, by the resolutions attached hereto as Annex I , which were adopted on November 16, 2011, determined to effect the Merger set forth herein.

3.
The Corporation does hereby merge Merger Sub with and into the Corporation, with the Corporation being the surviving corporation of the Merger (the " Surviving Corporation" ), and the separate corporate existence of Merger Sub shall terminate.

4.
The name of the Surviving Corporation is Nara Bancorp, Inc.; provided , however , that upon the effectiveness of the Merger, the Surviving Corporation shall change its corporate name to "BBCN Bancorp, Inc." pursuant to Section 253(b) of the DGCL by amending and restating Article I of the Certificate of Incorporation of the Surviving Corporation, as the same has been amended to date, in its entirety to read as follows:

I.

The name of this corporation is BBCN BANCORP, INC.










5.      The Merger shall be effective at 11:59 p.m. (Eastern time) on November 30,
2011.


* * * * *




















































'·

7()(171 1357 10427884









IN WITNESS WHEREOF, the Corporation has caused this Certificate of Ownership and Merger to be executed by its duly authorized officer as of the date first written above.




NARA BANCORP, INC.











ANNEX I
Authorizing Resolutions
RESOLUTIONS OF THE BOARD OF DIRECTORS OF
NARA BANCORP, INC.

November 16, 2011

WHEREAS, Nara Bancorp, Inc. (the " Corporation ") and Center Financial Corporation
("Center") are parties to that certain Agreement and Plan of Merger, dated as of December 9,
20 I 0, as amended pursuant to Amendment No.1 to Agreement and Plan of Merger, dated as of
April 13, 2011, and Amendment No.2 to Agreement and Plan of Merger, dated as of July 6,
2011 (as amended, the " Merger Agreement "), providing, among other things, for the merger of Center with and into the Corporation (the " Center Merger ") and the merger of Nara Bank with and into Center Bank concurrently therewith or as soon as reasonably practicable thereafter;

WHEREAS, pursuant to the terms and conditions of the Merger Agreement, the Corporation and Center have agreed to change the name of the surviving corporation of the Center Merger to "BBCN Bancorp, Inc.", such name change to be effective, if at all, as of the Effective Time (as defined in the Merger Agreement); and

WHEREAS, the Board of Directors of the Corporation (the " Board" ) deems it desirable and in the best interests of the Corporation and its stockholders to form a wholly owned subsidiary (" Merger Sub "), to exist as a corporation under the laws of the State of Delaware, for the purpose of effecting a merger of Merger Sub with and into the Corporation, with the Corporation being the surviving corporation of the Merger under the corporate name "BBCN Bancorp, Inc.", such merger to be effective, if at all, as of the Effective Time.

NOW THEREFORE, BE IT RESOLVED, that the Board hereby approves and declares advisable in all respects the formation of Merger Sub as a corporation existing under the laws of the State of Delaware and the purchase by the Corporation of one (1) share of common stock to be issued by Merger Sub at the purchase price of $1 0.00;

FURTHER RESOLVED, that the Board hereby approves and declares advisable in all respects the merger of Merger Sub with and into the Corporation pursuant to the provisions of Section 253 of the DGCL, such merger to be effective as of the Effective Time, with the Corporation continuing as the surviving corporation under the new corporate name "BBCN Bancorp, Inc.", and the separate corporate existence of Merger Sub terminating at the Effective Time;

FURTHER RESOLVED, that the officers of the Corporation (each, an " Authorized Officer ") are each hereby authorized, in the name and on behalf of the Corporation, to execute and deliver any certificates, instruments or documents as any of such Authorized Officers may deem necessary or appropriate to form Merger Sub under the laws of the State of Delaware, to carry out the purchase of common stock of Merger Sub as authorized by these resolutions and to consummate the merger of Merger Sub with and into the Corporation;










FURTHER RESOLVED, that the Authorized Officers of the Corporation are each hereby authorized to take from time to time, in the name and on behalf of the Corporation, such actions
and pay any fees, expenses, taxes and other costs and expenses and to execute and deliver from
time to time, in the name and on behalf of the Corporation, such certificates, instruments, notices
and documents as may be required or as such officer may deem necessary, advisable or proper in
order to carry out the purposes and intent of the foregoing resolutions; all such acts and things
done or caused to be done, and all such certificates, instruments, notices and documents, to be performed, executed and delivered in such form as the Authorized Officer performing or
executing the same may approve, the performance by the Corporation or execution thereof by
such Authorized Officer to be conclusive evidence of the approval thereof by such Authorized Officer and by this Board; and

FURTHER RESOLVED, that any and all action heretofore or hereafter taken by each Authorized Officer of the Corporation in accordance with the foregoing resolutions is hereby approved, ratified and confirmed as the act and deed of the Corporation.



WARRANT TO PURCHASE COMMON STOCK

THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION STATEMENT RELATING THERETO IS IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCH LAWS. THIS INSTRUMENT IS ISSUED SUBJECT TO THE RESTRICTIONS ON TRANSFER AND OTHER PROVISIONS OF A SECURITIES PURCHASE AGREEMENT BETWEEN THE ISSUER OF THESE SECURITIES AND THE INVESTOR REFERRED TO THEREIN, A COPY OF WHICH IS ON FILE WITH THE ISSUER. THE SECURITIES REPRESENTED BY THIS INSTRUMENT MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE WITH SAID AGREEMENT. ANY SALE OR OTHER TRANSFER NOT IN COMPLIANCE WITH SAID AGREEMENT WILL BE VOID.

WARRANT
to purchase
18,044.52
Shares of Common Stock of BBCN Bancorp, Inc.
(which represents the number of shares of common stock previously issued to Investor by
Acquired Company) Effective Date: February 15, 2013
1.      Definitions . Unless the context otherwise requires, when used herein the following terms shall have the meanings indicated.

"Affiliate" has the meaning ascribed to it in the Purchase Agreement.

"Appraisal Procedure" means a procedure whereby two independent appraisers, one chosen by the Company and one by the Original Warrantholder, shall mutually agree upon the determinations then the subject of appraisal. Each party shall deliver a notice to the other appointing its appraiser within 15 days after the Appraisal Procedure is invoked. If within 30 days after appointment of the two appraisers they are unable to agree upon the amount in question, a third independent appraiser shall be chosen within 10 days thereafter by the mutual consent of such first two appraisers. The decision of the third appraiser so appointed and chosen shall be given within 30 days after the selection of such third appraiser. If three appraisers shall be appointed and the determination of one appraiser is disparate from the middle determination by more than twice the amount by which the other determination is disparate from the middle determination, then the determination of such appraiser shall be excluded, the remaining two determinations shall be averaged and such average shall be binding and conclusive upon the Company and the Original Warrantholder; otherwise, the average of all three determinations



shall be binding upon the Company and the Original Warrantholder. The costs of conducting any Appraisal Procedure shall be borne by the Company.

"Board of Directors" means the board of directors of the Company, including any duly authorized committee thereof.

"Business Combination" means a merger, consolidation, statutory share exchange or similar transaction that requires the approval of the Company's stockholders.

"business day" means any day except Saturday, Sunday and any day on which banking institutions in the State of New York generally are authorized or required by law or other governmental actions to close.

"Capital Stock:' means (A) with respect to any Person that is a corporation or company, any and all shares, interests, participations or other equivalents (however designated) of capital or capital stock of such Person and (B) with respect to any Person that is not a corporation or company, any and all partnership or other equity interests of such Person.

"Charter" means, with respect to any Person, its certificate or articles of incorporation, articles of association, or similar organizational document.

"Common Stock" has the meaning ascribed to it in the Purchase Agreement.

"Company" means the Person whose name, corporate or other organizational form and jurisdiction of organization is set forth in Item 1 of Schedule A hereto.

"conversion" has the meaning set forth in Section 13(B). "convertible securities" has the meaning set forth in Section 13(B). "CPP" has the meaning ascribed to it in the Purchase Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations promulgated thereunder.

"Exercise Price" means the amount set forth in Item 2 of Schedule A hereto.

"Expiration Time" has the meaning set forth in Section 3.

"Fair Market Value" means, with respect to any security or other property, the fair market value of such security or other property as determined by the Board of Directors, acting in good faith or, with respect to Section 14, as determined by the Original Warrantholder acting in good faith. For so long as the Original Warrantholder holds this Warrant or any portion
thereof, it may object in writing to the Board of Director's calculation of fair market value within
10 days of receipt of written notice thereof. If the Original Warrantholder and the Company are unable to agree on fair market value during the 10-day period following the delivery of the Original Warrantholder's objection, the Appraisal Procedure may be invoked by either party to




determine Fair Market Value by delivering written notification thereof not later than the 30th day after delivery of the Original Warrantholder's objection.

"Governmental Entities" has the meaning ascribed to it in the Purchase Agreement.

"Initial Number" has the meaning set forth in Section 13(B).

"Issue Date" means the date set forth in Item 3 of Schedule A hereto.

"Market Price" means, with respect to a particular security, on any given day, the last reported sale price regular way or, in case no such reported sale takes place on such day, the average of the last closing bid and ask prices regular way, in either case on the principal national securities exchange on which the applicable securities are listed or admitted to trading, or if not listed or admitted to trading on any national securities exchange, the average of the closing bid and ask prices as furnished by two members of the Financial Industry Regulatory Authority, Inc. selected from time to time by the Company for that purpose. "Market Price" shall be determined without reference to after hours or extended hours trading. If such security is not listed and
traded in a manner that the quotations referred to above are available for the period required hereunder, the Market Price per share of Common Stock shall be deemed to be (i) in the event that any portion of the Warrant is held by the Original Warrantholder, the fair market value per share of such security as determined in good faith by the Original Warrantholder or (ii) in all other circumstances, the fair market value per share of such security as determined in good faith by the Board of Directors in reliance on an opinion of a nationally recognized independent investment banking corporation retained by the Company for this purpose and certified in a resolution to the Warrantholder. For the purposes of determining the Market Price of the Common Stock on the "trading day" preceding, on or following the occurrence of an event, (i) that trading day shall be deemed to commence immediately after the regular scheduled closing time of trading on the New York Stock Exchange or, if trading is closed at an earlier time, such earlier time and (ii) that trading day shall end at the next regular scheduled closing time, or if trading is closed at an earlier time, such earlier time (for the avoidance of doubt, and as an example, if the Market Price is to be determined as of the last trading day preceding a specified event and the closing time of trading on a particular day is 4:00p.m. and the specified event occurs at 5:00p.m. on that day, the Market Price would be determined by reference to such 4:00 p.m. closing price).

"Ordinary Cash Dividends" means a regular quarterly cash dividend on shares of Common Stock out of surplus or net profits legally available therefor (determined in accordance with generally accepted accounting principles in effect from time to time), provided that Ordinary Cash Dividends shall not include any cash dividends paid subsequent to the Issue Date to the extent the aggregate per share dividends paid on the outstanding Common Stock in any quarter exceed the amount set forth in Item 4 of Schedule A hereto, as adjusted for any stock split, stock dividend, reverse stock split, reclassification or similar transaction.

"Original Warrantholder" means the United States Department of the Treasury. Any actions specified to be taken by the Original Warrantholder hereunder may only be taken by such Person and not by any other Warrantholder.




"Permitted Transactions" has the meaning set forth in Section 13(B).

"Person" has the meaning given to it in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d)(3) and 14(d)(2) ofthe Exchange Act.

"Per Share Fair Market Value" has the meaning set forth in Section 13(C).

"Preferred Shares" means the perpetual preferred stock issued to the Original Warrantholder on the Issue Date pursuant to the Purchase Agreement and Post-Merger Side Letter.

"Pro Rata Repurchases" means any purchase of shares of Common Stock by the Company or any Affiliate thereof pursuant to (A) any tender offer or exchange offer subject to Section 13(e) or 14(e) of the Exchange Act or Regulation 14E promulgated thereunder or (B)
any other offer available to substantially all holders of Common Stock, in the case of both (A) or
(B), whether for cash, shares of Capital Stock ofthe Company, other securities ofthe Company, evidences of indebtedness of the Company or any other Person or any other property (including, without limitation, shares of Capital Stock, other securities or evidences of indebtedness of a subsidiary), or any combination thereof, effected while this Warrant is outstanding. The "Effective Date" of a Pro Rata Repurchase shall mean the date of acceptance of shares for purchase or exchange by the Company under any tender or exchange offer which is a Pro Rata Repurchase or the date of purchase with respect to any Pro Rata Repurchase that is not a tender or exchange offer.

"Purchase Agreement" means the Securities Purchase Agreement- Standard Terms incorporated into the Letter Agreement, dated as of the date set forth in Item 5 of Schedule A hereto, as amended from time to time, between the Company and the United States Department ofthe Treasury (the "Letter Agreement"), including all annexes and schedules thereto.

"Qualified Equity Offering" has the meaning ascribed to it in the Purchase Agreement.

"Regulatory Approvals" with respect to the Warrantholder, means, to the extent applicable and required to permit the Warrantholder to exercise this Warrant for shares of Common Stock and to own such Common Stock without the Warrantholder being in violation of applicable law, rule or regulation, the receipt of any necessary approvals and authorizations of, filings and registrations with, notifications to, or expiration or termination of any applicable waiting period under, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder.

"SEC" means the U.S. Securities and Exchange Commission.

"Securities Act" means the Securities Act of 1933, as amended, or any successor statute, and the rules and regulations promulgated thereunder.

"Shares" has the meaning set forth in Section 2.

"trading day" means (A) if the shares of Common Stock are not traded on any national or regional securities exchange or association or over-the-counter market, a business day or (B) if




the shares of Common Stock are traded on any national or regional securities exchange or association or over-the-counter market, a business day on which such relevant exchange or quotation system is scheduled to be open for business and on which the shares of Common Stock (i) are not suspended from trading on any national or regional securities exchange or association or over-the-counter market for any period or periods aggregating one half hour or longer; and (ii) have traded at least once on the national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of the shares of Common Stock.

"US. GAAP" means United States generally accepted accounting principles.

"Warrantholder" has the meaning set forth in Section 2.

"Warrant" means this Warrant, issued pursuant to the Purchase Agreement and the Post­ Merger Side Letter.

2.     Number of Shares; Exercise Price. This certifies that, for value received, the United States Department of the Treasury or its permitted assigns (the "Warrantholder") is entitled, upon the terms and subject to the conditions hereinafter set forth, to acquire from the Company, in whole or in part, after the receipt of all applicable Regulatory Approvals, if any, up to an aggregate of the number of fully paid and nonassessable shares of Common Stock set forth in Item 6 of Schedule A hereto, at a purchase price per share of Common Stock equal to the Exercise Price. The number of shares of Common Stock (the "Shares") and the Exercise Price are subject to adjustment as provided herein, and all references to "Common Stock," "Shares" and "Exercise Price" herein shall be deemed to include any such adjustment or series of adjustments.

3.     Exercise of Warrant; Term. Subject to Section 2, to the extent permitted by applicable laws and regulations, the right to purchase the Shares represented by this Warrant is exercisable, in whole or in part by the Warrantholder, at any time or from time to time after the execution and delivery of this Warrant by the Company on the date hereof, but in no event later than 5:00p.m., New York City time on the tenth anniversary of the Issue Date, as provided in Schedule A attached hereto (the "Expiration Time"), by (A) the surrender of this Warrant and Notice of Exercise annexed hereto, duly completed and executed on behalf of the Warrantholder, at the principal executive office of the Company located at the address set forth in Item 7 of Schedule A hereto (or such other office or agency of the Company in the United States as it may designate by notice in writing to the Warrantholder at the address of the Warrantholder appearing on the books of the Company), and payment of the Exercise Price for the Shares thereby purchased:

i. by having the Company withhold, from the shares of Common Stock that would otherwise be delivered to the Warrantholder upon such exercise, shares of Common Stock issuable upon exercise of the Warrant equal in value to the aggregate Exercise Price as to which this Warrant is so exercised based on the Market Price of the Common Stock on the trading day on which this Warrant is exercised and the Notice of Exercise is delivered to the Company pursuant to this Section 3, or




ii. with the consent of both the Company and the Warrantholder, by tendering in cash, by certified or cashier's check payable to the order of the Company, or by wire transfer of immediately available funds to an account designated by the Company.

If the Warrantholder does not exercise this Warrant in its entirety, the Warrantholder will be entitled to receive from the Company within a reasonable time, and in any event not exceeding three business days, a new warrant in substantially identical form for the purchase of that number of Shares equal to the difference between the number of Shares subject to this Warrant and the number of Shares as to which this Warrant is so exercised. Notwithstanding anything in this Warrant to the contrary, the Warrantholder hereby acknowledges and agrees that its exercise of this Warrant for Shares is subject to the condition that the Warrantholder will have first received any applicable Regulatory Approvals.

4.      Issuance of Shares; Authorization; Listing . Certificates for Shares issued upon exercise of this Warrant will be issued in such name or names as the Warrantholder may designate and will be delivered to such named Person or Persons within a reasonable time, not to exceed three business days after the date on which this Warrant has been duly exercised in accordance with the terms of this Warrant. The Company hereby represents and warrants that any Shares issued upon the exercise of this Warrant in accordance with the provisions of Section
3 will be duly and validly authorized and issued, fully paid and nonassessable and free from all
taxes, liens and charges (other than liens or charges created by the Warrantholder, income and franchise taxes incurred in connection with the exercise of the Warrant or taxes in respect of any transfer occurring contemporaneously therewith). The Company agrees that the Shares so issued will be deemed to have been issued to the Warrantholder as of the close of business on the date on which this Warrant and payment of the Exercise Price are delivered to the Company in accordance with the terms of this Warrant, notwithstanding that the stock transfer books of the Company may then be closed or certificates representing such Shares may not be actually delivered on such date. The Company will at all times reserve and keep available, out of its authorized but unissued Common Stock, solely for the purpose of providing for the exercise of this Warrant, the aggregate number of shares of Common Stock then issuable upon exercise of this Warrant at any time. The Company will (A) procure, at its sole expense, the listing of the Shares issuable upon exercise of this Warrant at any time, subject to issuance or notice of issuance, on all principal stock exchanges on which the Common Stock is then listed or traded and (B) maintain such listings of such Shares at all times after issuance. The Company will use reasonable best effmis to ensure that the Shares may be issued without violation of any applicable law or regulation or of any requirement of any securities exchange on which the Shares are listed or traded.

5.      No Fractional Shares or Scrip . No fractional Shares or scrip representing fractional Shares shall be issued upon any exercise of this Warrant. In lieu of any fractional Share to which the Warrantholder would otherwise be entitled, the Warrantholder shall be entitled to receive a cash payment equal to the Market Price of the Common Stock on the last trading day preceding the date of exercise less the pro-rated Exercise Price for such fractional share.

6.      No Rights as Stockholders; Transfer Books . This Warrant does not entitle the
Warrantholder to any voting rights or other rights as a stockholder of the Company prior to the




date of exercise hereof. The Company will at no time close its transfer books against transfer of this Warrant in any manner which interferes with the timely exercise of this Warrant.

7.     Charges, Taxes and Expenses. Issuance of certificates for Shares to the Warrantholder upon the exercise of this Warrant shall be made without charge to the Warrantholder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company.

8.      Transfer/Assignment.

(A)     Subject to compliance with clause (B) of this Section 8, this Warrant and all rights hereunder are transferable, in whole or in part, upon the books of the Company by the registered holder hereof in person or by duly authorized attorney, and a new warrant shall be made and delivered by the Company, of the same tenor and date as this Warrant but registered in the name of one or more transferees, upon surrender of this Warrant, duly endorsed, to the office or agency of the Company described in Section 3. All expenses (other than stock transfer taxes) and other charges payable in connection with the preparation, execution and delivery of the new warrants pursuant to this Section 8 shall be paid by the Company.

(B)     The transfer of the Warrant and the Shares issued upon exercise ofthe Warrant are subject to the restrictions set forth in Section 4.4 of the Purchase Agreement. If and for so long as required by the Purchase Agreement, this Warrant shall contain the legends as set forth in Sections 4.2(a) and 4.2(b) of the Purchase Agreement.

9.     Exchange and Registry of Warrant. This Warrant is exchangeable, upon the surrender hereof by the Warrantholder to the Company, for a new warrant or warrants oflike tenor and representing the right to purchase the same aggregate number of Shares. The Company shall maintain a registry showing the name and address of the Warrantholder as the registered holder of this Warrant. This Warrant may be surrendered for exchange or exercise in accordance with its terms, at the office of the Company, and the Company shall be entitled to rely in all respects, prior to written notice to the contrary, upon such registry.

10.     Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and in the case of any such loss, theft or destruction, upon receipt of a bond, indemnity or security reasonably satisfactory to the Company, or, in the case of any such mutilation, upon surrender and cancellation of this Warrant, the Company shall make and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and representing the right to purchase the same aggregate number of Shares as provided for in such lost, stolen, destroyed or mutilated Warrant.

11.      Saturdays, Sundays, Holidays, etc . If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a business day, then such action may be taken or such right may be exercised on the next succeeding day that is a business day.




12.     Rule 144 Information. The Company covenants that it will use its reasonable best efforts to timely file all reports and other documents required to be filed by it under the




Securities Act and the Exchange Act and the rules and regulations promulgated by the SEC thereunder (or, if the Company is not required to file such reports, it will, upon the request of any Warrantholder, make publicly available such information as necessary to permit sales pursuant to Rule 144 under the Securities Act), and it will use reasonable best efforts to take such further action as any Warrantholder may reasonably request, in each case to the extent required from
time to time to enable such holder to, if permitted by the terms of this Warrant and the Purchase Agreement, sell this Warrant without registration under the Securities Act within the limitation of the exemptions provided by (A) Rule 144 under the Securities Act, as such rule may be amended from time to time, or (B) any successor rule or regulation hereafter adopted by the SEC. Upon the written request of any Warrantholder, the Company will deliver to such Warrantholder a written statement that it has complied with such requirements.

13.      Adjustments and Other Rights . The Exercise Price and the number of Shares issuable upon exercise of this Warrant shall be subject to adjustment from time to time as follows; provided, that if more than one subsection of this Section 13 is applicable to a single event, the subsection shall be applied that produces the largest adjustment and no single event shall cause an adjustment under more than one subsection of this Section 13 so as to result in duplication:

(A)      Stock Splits, Subdivisions, Reclassifications or Combinations . Ifthe Company shall (i) declare and pay a dividend or make a distribution on its Common Stock in shares of Common Stock, (ii) subdivide or reclassify the outstanding shares of Common Stock into a greater number of shares, or (iii) combine or reclassify the outstanding shares of Common Stock into a smaller number of shares, the number of Shares issuable upon exercise of this Warrant at the time of the record date for such dividend or distribution or the effective date of such subdivision, combination or reclassification shall be proportionately adjusted so that the Warrantholder after such date shall be entitled to purchase the number of shares of Common Stock which such holder would have owned or been entitled to receive in respect of the shares of Common Stock subject to this Warrant after such date had this Warrant been exercised immediately prior to such date. In such event, the Exercise Price in effect at the time of the record date for such dividend or distribution or the effective date of such subdivision, combination or reclassification shall be adjusted to the number obtained by dividing (x) the product of (1) the number of Shares issuable upon the exercise of this Warrant before such adjustment and (2) the Exercise Price in effect immediately prior to the record or effective date, as the case may be, for the dividend, distribution, subdivision, combination or reclassification giving rise to this adjustment by (y) the new number of Shares issuable upon exercise of the Warrant determined pursuant to the immediately preceding sentence.

(B)      Certain Issuances of Common Shares or Convertible Securities . Until the earlier of (i) the date on which the Original Warrantholder no longer holds this Warrant or any portion thereof and (ii) the third anniversary of the Issue Date, if the Company shall issue shares of Common Stock (or rights or warrants or other securities exercisable or convertible into or exchangeable (collectively, a "conversion") for shares of Common Stock) (collectively, "convertible securities") (other than in Permitted Transactions (as defined below) or a
transaction to which subsection (A) of this Section 13 is applicable) without consideration or at a consideration per share (or having a conversion price per share) that is less than 90% of the




Market Price on the last trading day preceding the date of the agreement on pricing such shares
(or such convertible securities) then, in such event:

(A)     the number of Shares issuable upon the exercise of this Warrant immediately prior to the date of the agreement on pricing of such shares (or of such convertible securities) (the "Initial Number") shall be increased to the number obtained by multiplying the Initial Number by a fraction (A) the numerator of which shall be the sum of (x) the number of shares of Common Stock of the Company outstanding on such date and (y) the number of additional shares of Common Stock issued (or into which convertible securities may be exercised or convert) and (B) the denominator of which shall be the sum of (I) the number of shares of Common Stock outstanding on such date and (II) the number of shares of Common Stock which the aggregate consideration receivable by the Company for the total number of shares of Common Stock so issued (or into which convertible securities may be exercised or convert) would purchase at the Market Price on the last trading day preceding the date of the agreement on
pricing such shares (or such convertible securities); and

(B)     the Exercise Price payable upon exercise of the Warrant shall be adjusted by multiplying such Exercise Price in effect immediately prior to the date of the agreement on pricing of such shares (or of such convertible securities) by a fraction, the numerator of which shall be the number of shares of Common Stock issuable upon exercise of this Warrant prior to such date and the denominator of which shall be the number of shares of Common Stock issuable upon exercise of this Warrant immediately after the adjustment described in clause (A) above.

For purposes of the foregoing, the aggregate consideration receivable by the Company in connection with the issuance of such shares of Common Stock or convertible securities shall be deemed to be equal to the sum of the net offering price (including the Fair Market Value of any non-cash consideration and after deduction of any related expenses payable to third parties) of all such securities plus the minimum aggregate amount, if any, payable upon exercise or conversion of any such convertible securities into shares of Common Stock; and "Permitted Transactions" shall mean issuances (i) as consideration for or to fund the acquisition of businesses and/or
related assets, (ii) in connection with employee benefit plans and compensation related arrangements in the ordinary course and consistent with past practice approved by the Board of Directors, (iii) in connection with a public or broadly marketed offering and sale of Common Stock or convertible securities for cash conducted by the Company or its affiliates pursuant to registration under the Securities Act or Rule 144A thereunder on a basis consistent with capital raising transactions by comparable financial institutions and (iv) in connection with the exercise of preemptive rights on terms existing as ofthe Issue Date. Any adjustment made pursuant to this Section 13(B) shall become effective immediately upon the date of such issuance.

(C)      Other Distributions . In case the Company shall fix a record date for the making of a distribution to all holders of shares of its Common Stock of securities, evidences of indebtedness, assets, cash, rights or warrants (excluding Ordinary Cash Dividends, dividends of its Common Stock and other dividends or distributions referred to in Section 13(A)), in each
such case, the Exercise Price in effect prior to such record date shall be reduced immediately







thereafter to the price determined by multiplying the Exercise Price in effect immediately prior to the reduction by the quotient of (x) the Market Price of the Common Stock on the last trading
day preceding the first date on which the Common Stock trades regular way on the principal national securities exchange on which the Common Stock is listed or admitted to trading without the right to receive such distribution, minus the amount of cash and/or the Fair Market Value of the securities, evidences of indebtedness, assets, rights or warrants to be so distributed in respect of one share of Common Stock (such amount and/or Fair Market Value, the "Per Share Fair Market Value") divided by (y) such Market Price on such date specified in clause (x); such adjustment shall be made successively whenever such a record date is fixed. In such event, the number of Shares issuable upon the exercise of this Warrant shall be increased to the number obtained by dividing (x) the product of(l) the number of Shares issuable upon the exercise of this Warrant before such adjustment, and (2) the Exercise Price in effect immediately prior to the distribution giving rise to this adjustment by (y) the new Exercise Price determined in
accordance with the immediately preceding sentence. In the case of adjustment for a cash
dividend that is, or is coincident with, a regular quarterly cash dividend, the Per Share Fair Market Value would be reduced by the per share amount of the portion of the cash dividend that would constitute an Ordinary Cash Dividend. In the event that such distribution is not so made, the Exercise Price and the number of Shares issuable upon exercise of this Warrant then in effect shall be readjusted, effective as ofthe date when the Board of Directors determines not to distribute such shares, evidences of indebtedness, assets, rights, cash or warrants, as the case may be, to the Exercise Price that would then be in effect and the number of Shares that would then
be issuable upon exercise of this Warrant if such record date had not been fixed.

(D)      Certain Repurchases of Common Stock . In case the Company effects a Pro Rata Repurchase of Common Stock, then the Exercise Price shall be reduced to the price determined by multiplying the Exercise Price in effect immediately prior to the Effective Date of such Pro Rata Repurchase by a fraction of which the numerator shall be (i) the product of (x) the number of shares of Common Stock outstanding immediately before such Pro Rata Repurchase and (y) the Market Price of a share of Common Stock on the trading day immediately preceding the first
public announcement by the Company or any of its Affiliates of the intent to effect such Pro Rata
Repurchase, minus (ii) the aggregate purchase price ofthe Pro Rata Repurchase, and of which the denominator shall be the product of (i) the number of shares of Common Stock outstanding immediately prior to such Pro Rata Repurchase minus the number of shares of Common Stock so repurchased and (ii) the Market Price per share of Common Stock on the trading day
immediately preceding the first public announcement by the Company or any of its Affiliates of
the intent to effect such Pro Rata Repurchase. In such event, the number of shares of Common Stock issuable upon the exercise ofthis Warrant shall be increased to the number obtained by dividing (x) the product of (1) the number of Shares issuable upon the exercise of this Warrant before such adjustment, and (2) the Exercise Price in effect immediately prior to the Pro Rata Repurchase giving rise to this adjustment by (y) the new Exercise Price determined in
accordance with the immediately preceding sentence. For the avoidance of doubt, no increase to
the Exercise Price or decrease in the number of Shares issuable upon exercise of this Warrant shall be made pursuant to this Section 13(D).




(E) Business Combinations . In case of any Business Combination or reclassification of Common Stock (other than a reclassification of Common Stock referred to in Section 13(A)), the Warrantholder's right to receive Shares upon exercise of this Warrant shall be converted into




the right to exercise this Warrant to acquire the number of shares of stock or other securities or property (including cash) which the Common Stock issuable (at the time of such Business Combination or reclassification) upon exercise of this Warrant immediately prior to such Business Combination or reclassification would have been entitled to receive upon consummation of such Business Combination or reclassification; and in any such case, if necessary, the provisions set forth herein with respect to the rights and interests thereafter of the Warrantholder shall be appropriately adjusted so as to be applicable, as nearly as may reasonably be, to the Warrantholder's right to exercise this Warrant in exchange for any shares of stock or other securities or property pursuant to this paragraph. In determining the kind and amount of stock, securities or the property receivable upon exercise of this Warrant following the consummation of such Business Combination, if the holders of Common Stock have the right to elect the kind or amount of consideration receivable upon consummation of such Business Combination, then the consideration that the Warrantholder shall be entitled to receive upon exercise shall be deemed to be the types and amounts of consideration received by the majority
of all holders of the shares of common stock that affirmatively make an election (or of all such
holders if none make an election).

(F)      Rounding of Calculations; Minimum Adjustments . All calculations under this Section 13 shall be made to the nearest one-tenth (1/1Oth) of a cent or to the nearest one­ hundredth (1/1OOth) of a share, as the case may be. Any provision of this Section 13 to the contrary notwithstanding, no adjustment in the Exercise Price or the number of Shares into which this Warrant is exercisable shall be made if the amount of such adjustment would be less than $0.01 or one-tenth (111Oth) of a share of Common Stock, but any such amount shall be carried forward and an adjustment with respect thereto shall be made at the time of and together with any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate $0.01 or Ill Oth of a share of Common Stock, or more.

(G)      Timing oflssuance of Additional Common Stock Upon Certain Adjustments . In any case in which the provisions of this Section 13 shall require that an adjustment shall become effective immediately after a record date for an event, the Company may defer until the occurrence of such event (i) issuing to the Warrantholder of this Warrant exercised after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such exercise by reason of the adjustment required by such event over and above the shares of Common Stock issuable upon such exercise before giving effect to such adjustment and (ii) paying to such Warrantholder any amount of cash in lieu of a fractional share of Common Stock; provided, however, that the Company upon request shall deliver to such Warrantholder a due bill or other appropriate instrument evidencing such Warrantholder's right
to receive such additional shares, and such cash, upon the occurrence of the event requiring such
adjustment.

(H)     Completion of Qualified Equity Offering. In the event the Company (or any successor by Business Combination) completes one or more Qualified Equity Offerings on or prior to December 31, 2009 that result in the Company (or any such successor ) receiving aggregate gross proceeds of not less than 100% of the aggregate liquidation preference of the Preferred Shares (and any preferred stock issued by any such successor to the Original Warrantholder under the CPP), the number of shares of Common Stock underlying the portion of




this Warrant then held by the Original Warrantholder shall be thereafter reduced by a number of shares of Common Stock equal to the product of (i) 0.5 and (ii) the number of shares underlying the Warrant on the Issue Date (adjusted to take into account all other theretofore made adjustments pursuant to this Section 13).

(I)      Other Events. For so long as the Original Warrantholder holds this Warrant or any portion thereof, if any event occurs as to which the provisions of this Section 13 are not strictly applicable or, if strictly applicable, would not, in the good faith judgment of the Board of Directors of the Company, fairly and adequately protect the purchase rights of the Warrants in accordance with the essential intent and principles of such provisions, then the Board of
Directors shall make such adjustments in the application of such provisions, in accordance with
such essential intent and principles, as shall be reasonably necessary, in the good faith opinion of the Board of Directors, to protect such purchase rights as aforesaid. The Exercise Price or the number of Shares into which this Warrant is exercisable shall not be adjusted in the event of a change in the par value of the Common Stock or a change in the jurisdiction of incorporation of the Company.

(J)      Statement Regarding Adjustments . Whenever the Exercise Price or the number of Shares into which this Warrant is exercisable shall be adjusted as provided in Section 13, the Company shall forthwith file at the principal office of the Company a statement showing in reasonable detail the facts requiring such adjustment and the Exercise Price that shall be in effect and the number of Shares into which this Warrant shall be exercisable after such adjustment, and the Company shall also cause a copy of such statement to be sent by mail, first class postage prepaid, to each Warrantholder at the address appearing in the Company's records.

(K)      Notice of Adjustment Event . In the event that the Company shall propose to take any action of the type described in this Section 13 (but only if the action of the type described in this Section 13 would result in an adjustment in the Exercise Price or the number of Shares into which this Warrant is exercisable or a change in the type of securities or property to be delivered upon exercise of this Warrant), the Company shall give notice to the Warrantholder, in the manner set forth in Section 13(J), which notice shall specify the record date, if any, with respect to any such action and the approximate date on which such action is to take place. Such notice shall also set forth the facts with respect thereto as shall be reasonably necessary to indicate the
effect on the Exercise Price and the number, kind or class of shares or other securities or property which shall be deliverable upon exercise of this Warrant. In the case of any action which would require the fixing of a record date, such notice shall be given at least 10 days prior to the date so fixed, and in case of all other action, such notice shall be given at least 15 days prior to the taking of such proposed action. Failure to give such notice, or any defect therein, shall not affect the legality or validity of any such action.

(L)      Proceedings Prior to Any Action Requiring Adjustment . As a condition precedent to the taking of any action which would require an adjustment pursuant to this Section 13, the Company shall take any action which may be necessary, including obtaining regulatory, New York Stock Exchange, NASDAQ Stock Market or other applicable national securities exchange or stockholder approvals or exemptions, in order that the Company may thereafter validly and legally issue as fully paid and nonassessable all shares of Common Stock that the Warrantholder is entitled to receive upon exercise of this Warrant pursuant to this Section 13.




(M)     Adjustment Rules. Any adjustments pursuant to this Section 13 shall be made successively whenever an event referred to herein shall occur. If an adjustment in Exercise Price made hereunder would reduce the Exercise Price to an amount below par value of the Common Stock, then such adjustment in Exercise Price made hereunder shall reduce the Exercise Price to the par value of the Common Stock.

14.     Exchange. At any time following the date on which the shares of Common Stock of the Company are no longer listed or admitted to trading on a national securities exchange (other than in connection with any Business Combination), the Original Warrantholder may cause the Company to exchange all or a portion of this Warrant for an economic interest (to be determined by the Original Warrantholder after consultation with the Company) of the Company classified as permanent equity under U.S. GAAP having a value equal to the Fair Market Value of the portion of the Warrant so exchanged. The Original Warrantholder shall calculate any Fair Market Value required to be calculated pursuant to this Section 14, which shall not be subject to the Appraisal Procedure.

15.      No Impairment . The Company will not, by amendment of its Charter or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in taking of all such action as may be necessary or appropriate in order to protect the rights of the Warrantholder.

16.      Governing Law . This Warrant will be governed by and construed in accordance with the federal law of the United States if and to the extent such law is applicable, and otherwise in accordance with the laws of the State of New York applicable to contracts made and to be performed entirely within such State. Each of the Company and the Warrantholder agrees (a) to submit to the exclusive jurisdiction and venue of the United States District Court for the District of Columbia for any civil action, suit or proceeding arising out of or relating to this Warrant or the transactions contemplated hereby, and (b) that notice may be served upon the Company at the address in Section 20 below and upon the Warrantholder at the address for the Warrantholder set forth in the registry maintained by the Company pursuant to Section 9 hereof. To the extent permitted by applicable law, each ofthe Company and the Warrantholder hereby unconditionally
waives trial by jury in any civil legal action or proceeding relating to the Warrant or the
transactions contemplated hereby or thereby.

17.      Binding Effect . This Warrant shall be binding upon any successors or assigns of the Company.

18.      Amendments . This Warrant may be amended and the observance of any term of this Warrant may be waived only with the written consent of the Company and the Warrantholder.

19.      Prohibited Actions . The Company agrees that it will not take any action which would entitle the Warrantholder to an adjustment of the Exercise Price if the total number of shares of Common Stock issuable after such action upon exercise of this Warrant, together with




all shares of Common Stock then outstanding and all shares of Common Stock then issuable upon the exercise of all outstanding options, warrants, conversion and other rights, would exceed the total number of shares of Common Stock then authorized by its Charter.

20.      Notices . Any notice, request, instruction or other document to be given hereunder by any party to the other will be in writing and will be deemed to have been duly given (a) on the date of delivery if delivered personally, or by facsimile, upon confirmation of receipt, or (b) on the second business day following the date of dispatch if delivered by a recognized next day courier service. All notices hereunder shall be delivered as set forth in Item 8 of Schedule A hereto, or pursuant to such other instructions as may be designated in writing by the party to receive such notice.

21.      Entire Agreement . This Warrant, the forms attached hereto and Schedule A hereto
(the terms of which are incorporated by reference herein), and the Letter Agreement (including all documents incorporated therein), contain the entire agreement between the parties with respect to the subject matter hereof and supersede all prior and contemporaneous arrangements or undertakings with respect thereto.

[Remainder of page intentionally left blank]




[Form of Notice of Exercise]

Date: -----


TO:     BBCN Bancorp, Inc.

RE:     Election to Purchase Common Stock

The undersigned, pursuant to the provisions set forth in the attached Warrant, hereby agrees to subscribe for and purchase the number of shares of the Common Stock set forth below covered by such Warrant. The undersigned, in accordance with Section 3 ofthe Warrant, hereby agrees to pay the aggregate Exercise Price for such shares of Common Stock in the manner set forth below. A new warrant evidencing the remaining shares of Common Stock covered by such Warrant, but not yet subscribed for and purchased, if any, should be issued in the name set forth below.

Number of Shares of Common Stock--------------------

Method of Payment of Exercise Price (note if cashless exercise pursuant to Section 3(i) of the Warrant or cash exercise pursuant to Section 3(ii) of the Warrant, with consent of the Company and the Warrantholder)         

Aggregate Exercise Price:



Holder:-------------------

Name:---------------------
Title: -----------------------








IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by a duly authorized officer.

Dated: February 15, 2013

COMPANY:

BBCN BANCORP, INC.




By    am
Title:      At.- :>'6 '0-eS:cll<"'-\ Ceo

Attest




By:
-' Name.      Jv\({:k
Title:      :sv "4 Jbc) Gc



[Signature Page to Warrant]




SCHEDULE A



Item 1
Name: BBCN Bancorp, Inc.
Corporate or other organizational form: Corporation
Jurisdiction of organization: State of Delaware

Item 2
Exercise Price: $54.033

Item 3
Issue Date: December 12, 2008

Item 4
Amount of last dividend declared by the Company prior to the Issue Date: None.

Item 5
Date of Letter Agreement between Pacific International Bancorp and the United States
Department ofthe Treasury: December 12, 2008

Date ofPost-Merger Side Letter: February 15,2013

Item 6
Number of shares of Common Stock: 18,044.52

Item 7
Company's address:     3731 Wilshire Boulevard, Suite 1000
Los Angeles, California 90010

Item 8
Notice information:     BBCN Bancorp, Inc.
3731 Wilshire Boulevard, Suite 1000
Los Angeles, California 90010
Attention: Legal Department
Telephone: (213) 639-1700
Email: legal@BBCNbank.com




AGREEMENT AND PLAN OF MERGER
by and among
BBCN BANCORP, INC.
and
PACIFIC INTERNATIONAL BANCORP, INC.
_______________
Dated as of October 22, 2012




TABLE OF CONTENTS
 
Page

 
 
 
 
 
ARTICLE I
 
THE MERGER
 
1

Section 1.01
 
The Merger
 
1

Section 1.02
 
Closing
 
1

Section 1.03
 
Effective Time
 
2

Section 1.04
 
Certificate of Incorporation; Bylaws
 
2

Section 1.05
 
Directors and Officers
 
2

Section 1.06
 
Bank Merger
 
2

ARTICLE II
 
EFFECT OF MERGER ON CAPITAL STOCK; EXCHANGE OF CERTIFICATES
 
2

Section 2.01
 
Effect on Capital Stock
 
2

Section 2.02
 
Exchange of Certificates
 
4

Section 2.03
 
Stock Options
 
6

Section 2.04
 
Series A Preferred Stock; Treasury Warrant
 
6

ARTICLE III
 
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
 
6

Section 3.01
 
Disclosure
 
7

Section 3.02
 
Representations and Warranties of the Company
 
7

ARTICLE IV
 
REPRESENTATIONS AND WARRANTIES OF ACQUIRER
 
28

Section 4.01
 
Representations and Warranties of Acquirer
 
28

ARTICLE V
 
COVENANTS RELATING TO CONDUCT OF BUSINESS
 
31

Section 5.01
 
Conduct of Businesses Prior to the Effective Time
 
31

Section 5.02
 
Company Forbearances
 
31

ARTICLE VI
 
ADDITIONAL AGREEMENTS
 
34

Section 6.01
 
Cooperation; Regulatory Matters
 
34

Section 6.02
 
Access to Information
 
35

Section 6.03
 
Employee Matters
 
36

Section 6.04
 
Indemnification; Directors' and Officers' Insurance
 
37

Section 6.05
 
Acquisition Proposals
 
38

Section 6.06
 
Takeover Laws
 
39

Section 6.07
 
Financial Statements and Other Current Information
 
40

Section 6.08
 
Shareholders Meeting
 
40


i


TABLE OF CONTENTS
(continued)
 
 
 
 
 
 
 
 
 
 
 
Page

Section 6.09
 
Notification of Certain Matters
 
40

Section 6.10
 
Related Party Contracts
 
40

Section 6.11
 
Form S-4 Registration Statement
 
41

Section 6.12
 
NASDAQ Listing
 
41

Section 6.13
 
Trust Preferred Securities
 
41

Section 6.14
 
Tax Matters
 
41

ARTICLE VII
 
CONDITIONS PRECEDENT
 
42

Section 7.01
 
Conditions to Each Party's Obligation to Effect the Merger
 
42

Section 7.02
 
Conditions to Obligations of Acquirer
 
42

Section 7.03
 
Conditions to Obligations of the Company
 
43

ARTICLE VIII
 
TERMINATION AND AMENDMENT
 
44

Section 8.01
 
Termination
 
44

Section 8.02
 
Effect of Termination
 
45

Section 8.03
 
Fees and Expenses
 
46

Section 8.04
 
Extension; Waiver
 
46

ARTICLE IX
 
GENERAL PROVISIONS
 
46

Section 9.01
 
Nonsurvival of Representations, Warranties and Agreements
 
47

Section 9.02
 
Amendment
 
47

Section 9.03
 
Waiver of Conditions
 
47

Section 9.04
 
Notices
 
47

Section 9.05
 
Counterparts
 
48

Section 9.06
 
Entire Agreement
 
48

Section 9.07
 
Severability
 
48

Section 9.08
 
Governing Law; Jurisdiction
 
48

Section 9.09
 
Waiver of Jury Trial
 
49

Section 9.10
 
Publicity
 
49

Section 9.11
 
Assignment; Third-Party Beneficiaries
 
50

Section 9.12
 
Specific Performance
 
50

Section 9.13
 
Definitions
 
50

Section 9.14
 
Other Definitional Provisions
 
55



ii


INDEX OF DEFINED TERMS

Acquirer
Preamble
Acquirer Board
Section 4.01(b)(ii)
Acquirer Common Stock
Section 2.01(a)
Acquirer Disclosure Schedule
Section 3.01
Acquirer Plans
Section 6.03(a)
Acquirer SEC Reports
Section 4.01(c)(i)
Agencies
Section 3.02(u)(iv)
Agency
Section 3.02(u)(iv)
Agreement
Preamble
Anti-Money Laundering Laws
Section 3.02(n)(iii)
Articles of Merger
Section 1.03
Assumed Option
Section 2.03
Audited Financial Statements
Section 3.02(f)(i)
Bank Merger
Section 1.06
Bank Merger Agreement
Section 1.06
Bankruptcy and Equity Exception
Section 3.02(d)(i)
Benefit Plan
Section 3.02(q)(i)
BHCA
Section 3.02(a)(i)
Book Entry Notice
Section 2.02(b)
Burdensome Condition
Section 6.01(c)
CERCLA
Section 3.02(t)(ii)
Certificate
Section 2.01(a)
Certificate of Merger
Section 1.03
Change of Recommendation
Section 6.05(c)
Closing
Section 1.02
Closing Date
Section 1.02
Code
Recitals
Collar Price
Section 2.01(a)
Company
Preamble
Company Bank
Section 3.02(a)(ii)
Company Board
Recitals
Company Board Recommendation
Section 3.02(d)(iii)
Company Common Stock
Section 2.01(a)
Company Disclosure Schedule
Section 3.01
Company Insurance Policies
Section 3.02(v)
Company Intellectual Property
Section 3.02(w)
Company Proprietary Right
Section 3.02(l)(i)(15)
Company Reports
Section 3.02(g)(i)
Confidentiality Agreement
Section 6.02(b)
Covered Employees
Section 6.03(a)
D&O Insurance
Section 6.04(b)
Data Room
Section 3.01

i


Delaware Secretary
Section 1.03
DGCL
Section 1.01
DIF
Section 3.02(a)(ii)
Disclosure Schedules
Section 3.01
Dissenting Shareholders
Section 2.01(a)
Dissenting Shares
Section 2.01(a)
Effective Time
Section 1.03
Employees
Section 5.02(h)
Environmental Laws
Section 3.02(t)(i)
ERISA
Section 3.02(q)(i)
ERISA Affiliate
Section 3.02(q)(i)
Exchange Agent
Section 2.02(a)
Exchange Ratio
Section 2.01(a)
Executive Officer
Section 5.02(h)
FDIC
Section 3.02(a)(ii)
Federal Reserve
Section 3.02(e)
Financial Statements
Section 3.02(f)(i)
Hazardous Substances
Section 3.02(t)(i)
Indemnified Parties
Section 6.04(a)
Initial Premium
Section 6.04(b)
Interim Financials
Section 3.02(f)(i)
IRS
Section 3.02(q)(ii)
Leased Real Property
Section 3.02(h)
Loans
Section 3.02(u)(i)
Market Value
Section 2.01(a)
Material Contract
Section 3.02(l)(i)
Merger
Section 1.01
OFAC
Section 3.02(n)(i)
Outside Date
Section 8.01(e)
Parties
Recitals
Party
Recitals
Per Share Merger Consideration
Section 2.01(a)
Pool
Section 3.02(u)(vii)
Post-Signing Return
Section 6.14
Preferred Stock Certificate
Section 2.01(c)
RCW
Section 3.02(a)(ii)
Regulatory Agreement
Section 3.02(s)
Related Party Contract
Section 3.02(y)(i)
Representatives
Section 6.05(a)
Required Filings
Section 6.01(a)
Requisite Regulatory Consents
Section 3.02(e)
Requisite Shareholder Approval
Section 3.02(d)(i)
SBA
Section 3.02(u)(iv)
Series A Preferred Stock
Section 2.01(c)
Share
Section 2.01(a)

ii


Shareholders Meeting
Section 6.08
Shares
Section 2.01(a)
Surviving Corporation
Section 1.01
TARP
Section 2.01(c)
Treasury
Section 2.01(c)
VA
Section 3.02(u)(iv)
Voting Debt
Section 3.02(b)
Washington DFI
Section 3.02(e)
Washington Secretary
Section 1.03
WBCA
Section 1.01



iii


AGREEMENT AND PLAN OF MERGER , dated as of October 22, 2012 (this “ Agreement ”), by and among BBCN Bancorp, Inc., a Delaware corporation (“ Acquirer ”) and Pacific International Bancorp, Inc., a Washington corporation (the “ Company ”). Certain terms with initial capital letters used in this Agreement have the meanings indicated in Section 9.13 .
RECITALS
WHEREAS, the board of directors of the Company (the “ Company Board ”) has (i) approved and declared advisable this Agreement and the transactions contemplated by this Agreement, including the Merger, (ii) determined that this Agreement and such transactions are fair to and in the best interests of the Company and its shareholders and (iii) resolved to recommend that the Company’s shareholders approve this Agreement.
WHEREAS, the board of directors of Acquirer has (i) approved and declared this Agreement and the transactions contemplated hereby to be advisable upon the terms and subject to the conditions set forth herein and (ii) determined that this Agreement and such transactions are fair to, and in the best interests of, Acquirer, and the shareholders of Acquirer.
WHEREAS, the Parties intend that for federal income tax purposes the Merger and the Bank Merger shall each qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “ Code ”), and that this Agreement shall constitute a “plan of reorganization” for purposes of Sections 354 and 361 of the Code.
WHEREAS, the parties hereto (each, a “ Party ” and, collectively, the “ Parties ”) desire to make certain representations and warranties and document their agreements in connection with the Merger and to prescribe certain conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements contained in this Agreement, the Parties agree as follows:

ARTICLE I
THE MERGER
Section 1.01      The Merger . Upon the terms and subject to the conditions set forth in this Agreement, at the Effective Time, the Company shall be merged with and into Acquirer and the separate corporate existence of the Company shall thereupon cease (the “ Merger ”). Acquirer shall be the surviving corporation in the Merger (Acquirer in such capacity being sometimes hereinafter referred to as the “ Surviving Corporation ”), and the separate corporate existence of Acquirer, with all its rights, privileges, immunities, powers and franchises, shall continue unaffected by the Merger. The Merger shall have the effects specified in the Delaware General Corporation Law (the “ DGCL ”) and the Washington Business Corporation Act (the “ WBCA ”).
Section 1.02      Closing . Unless otherwise mutually agreed in writing between the Company and Acquirer, the closing for the Merger (the “ Closing ”) shall take place at the offices of Mayer Brown LLP, 350 South Grand Avenue, 25th Floor, Los Angeles, California, on a date

1


(the “ Closing Date ”) designated by Acquirer, which shall be no later than the fifth Business Day after the last to be satisfied or waived of the conditions set forth in Article VII (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of those conditions at the Closing) in accordance with this Agreement, or at such other place and time as the Parties may agree.
Section 1.03      Effective Time . In connection with the Closing, the Company and Acquirer shall cause a certificate of merger (the “ Certificate of Merger ”) to be executed, acknowledged and filed with the Secretary of State of the State of Delaware (the “ Delaware Secretary ”) as provided in Section 251 of the DGCL, and shall concurrently cause the articles of merger (the “ Articles of Merger ”) specified in the WBCA to be filed with the Secretary of State of the State of Washington (the “ Washington Secretary ”), in such form as required by, and executed in accordance with, the relevant provisions of the WBCA. The Merger shall become effective at the time (the “ Effective Time ”) (i) when the Certificate of Merger and the Articles of Merger have been duly filed with the Delaware Secretary and the Washington Secretary, respectively, or (ii) at such later time as may be agreed by the Parties in writing and specified in the Certificate of Merger and Articles of Merger.
Section 1.04      Certificate of Incorporation; Bylaws . The certificate of incorporation and bylaws of Acquirer shall be the certificate of incorporation and bylaws of the Surviving Corporation, until thereafter duly amended as provided therein or by applicable Laws.
Section 1.05      Directors and Officers . The directors of Acquirer immediately prior to the Effective Time shall, from and after the Effective Time, be the directors of the Surviving Corporation until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the certificate of incorporation and the bylaws of the Surviving Corporation. The officers of Acquirer immediately prior to the Effective Time shall be the officers of the Surviving Corporation and shall hold office until their respective successors are duly appointed and qualified, or their earlier death, resignation or removal.
Section 1.06      Bank Merger . As soon as reasonably practicable after the date hereof, Acquirer and the Company shall cause Acquirer Bank and Company Bank to enter into a bank merger agreement in substantially the form attached to this Agreement as Exhibit A (the “ Bank Merger Agreement ”), providing for the merger of Company Bank with and into Acquirer Bank, in which Acquirer Bank shall be the surviving banking corporation (the “ Bank Merger ”), in accordance with all applicable Laws and the terms of the Bank Merger Agreement concurrently with or as soon as reasonably practicable after consummation of the Merger.
ARTICLE II
EFFECT OF MERGER ON CAPITAL STOCK; EXCHANGE OF CERTIFICATES
Section 2.01      Effect on Capital Stock . At the Effective Time, as a result of the Merger and without any action on the part of the holder of any capital stock of the Company or Acquirer:
(a)      Company Common Stock . Subject to Section 2.02(e) , each share of the common stock, no par value (the “ Company Common Stock ”), of the Company (each a “ Share ” and,

2


collectively, the “ Shares ”) issued and outstanding immediately prior to the Effective Time (other than (i) any Excluded Shares and (ii) Shares that are owned by shareholders (“ Dissenting Shareholders ”) who have perfected and not effectively withdrawn a demand for appraisal rights pursuant to Chapter 23B.13 of the WBCA (“ Dissenting Shares ”)) shall be converted into the right to receive the fraction of a share of the common stock, par value $0.01 per share, of Acquirer (the “ Acquirer Common Stock ”) equal to the Exchange Ratio (the “ Per Share Merger Consideration ”). The “ Exchange Ratio ” is equal to the fraction derived by dividing $1.75 by the Collar Price, carried out to five decimal places. The “ Collar Price ” shall be an amount equal to the average of the daily weighted average prices of the Acquirer Common Stock on NASDAQ as reported on the NASDAQ website for each of the fifteen (15) trading days ending one (1) trading day prior to the Effective Time (“ Market Value ”), subject to the limitations that in the event that such weighted average price exceeds $13.00 the Collar Price shall be $13.00 and in the event such weighted average price is less than $11.50 the Collar Price shall be $11.50. At the Effective Time, each Share shall cease to be outstanding, shall be cancelled and shall cease to exist, and each certificate (a “ Certificate ”) formerly representing any of the Shares (other than Excluded Shares and Dissenting Shares) shall thereafter represent only the Merger Consideration specified herein.
(b)      Excluded Shares . Each Excluded Share shall, by virtue of the Merger and without any action on the part of the holder thereof, cease to be outstanding, be cancelled without payment of any consideration therefor and shall cease to exist.
(c)      Series A Preferred Stock . Each share of Fixed Rate Cumulative Perpetual Preferred Stock, Series A issued by the Company to the United States Department of the Treasury (the “ Treasury ”) in connection with the Company’s participation in the Treasury’s Troubled Asset Relief Program (“ TARP ”) Capital Purchase Program (the “ Series A Preferred Stock ”) shall be converted into the right to receive payment in cash of the sum of $1,000 plus all accrued and unpaid dividends on such share of Series A Preferred Stock. At the Effective Time, each share of the Series A Preferred Stock shall cease to be outstanding, shall be cancelled and shall cease to exist, and each certificate (a “ Preferred Stock Certificate ”) formerly representing any of the Series A Preferred Stock shall thereafter represent only the right to receive the cash consideration specified herein.
(d)      Dissenting Shares . Notwithstanding anything to the contrary contained herein, the holders of any Dissenting Shares shall be entitled only to such rights and payments as are provided by Chapter 23B.13 of the WBCA; provided , however , that if any such holder shall effectively waive, withdraw or lose such holder’s rights under Chapter 23B.13 of the WBCA, each of such holder’s Dissenting Shares shall thereupon be deemed to have been converted at the Effective Time into the right to receive the Per Share Merger Consideration, after giving effect to any required Tax withholdings as provided in Section 2.02(h) , and such holder shall cease to have any other rights with respect thereto.
(e)      No Effect on Acquirer Stock . The Merger shall have no effect on the shares of capital stock of Acquirer that are outstanding before the Merger, all of which shares shall remain outstanding without change after the Effective Time.

3


(f)      Adjustments . If, between the date of this Agreement and the Effective Time, the outstanding shares of Acquirer Common Stock shall have been increased, decreased, changed into or exchanged for a different number or kind of shares or securities as a result of a reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in capitalization, an appropriate and proportionate adjustment shall be made to the Exchange Ratio.
Section 2.02      Exchange of Certificates .
(a)      Exchange Agent . At the Effective Time, Acquirer shall deposit or make available to Computershare, or to a bank or trust company designated by Acquirer and reasonably acceptable to the Company (the “ Exchange Agent ”), for the benefit of the holders of Shares for exchange in accordance with this Article II , (i) evidence of shares in book entry form representing the shares of Acquirer Common Stock issuable pursuant to Section 2.01 in exchange for the Shares and (ii) to the extent then known, sufficient cash to pay cash in lieu of fractional shares in accordance with Section 2.02(e) .
(b)      Exchange Procedures . Promptly after the Effective Time, the Surviving Corporation shall cause the Exchange Agent to mail to each holder of Shares of record (other than holders of Excluded Shares or Dissenting Shares) (i) a letter of transmittal specifying that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates (or affidavits of loss in lieu of the Certificates as provided in Section 2.02(d) ) to the Exchange Agent, and (ii) instructions for use in effecting the surrender of the Certificates (or affidavits of loss in lieu of the Certificates as provided in Section 2.02(d) ) in exchange for evidence in customary form of the issuance of shares of Acquirer Common Stock in book entry form (a “ Book Entry Notice ”) representing the number of whole shares of Acquirer Common Stock into which such Shares have been converted in the Merger. Upon surrender of a Certificate (or affidavit of loss in lieu of the Certificate as provided in Section 2.02(d) ) to the Exchange Agent in accordance with the terms of such letter of transmittal, duly executed, the holder of such Certificate shall be entitled to receive in exchange therefor a Book Entry Notice evidencing that number of whole shares of Acquirer Common Stock, which such holder has the right to receive in respect of the Shares surrendered pursuant to the provisions of this Article II (after aggregation of all Shares then held by such holder) and the Certificate so surrendered shall forthwith be cancelled. In the event of a transfer of ownership of Shares that is not registered in the transfer records of the Company, the Merger Consideration to be exchanged upon due surrender of the Certificate as herein provided may be issued to the transferee if the Certificate previously representing such Shares is presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer and to evidence that any applicable stock transfer taxes have been paid or are not applicable.
(c)      No Further Transfers . From and after the Effective Time, there shall be no transfers on the stock transfer books of the Company of the Shares that were outstanding immediately prior to the Effective Time. If, after the Effective Time, any Certificate is presented to the Surviving Corporation, Acquirer or the Exchange Agent for transfer, it shall be cancelled

4


and exchanged for the Merger Consideration to which the holder of the Certificate is entitled pursuant to this Article II .
(d)      Lost, Stolen or Destroyed Certificates . In the event any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by Acquirer, the posting by such Person of a bond in customary amount and upon such terms as may be required by Acquirer as indemnity against any claim that may be made against it or the Surviving Corporation with respect to such Certificate, the Exchange Agent will issue a Book Entry Notice evidencing the amount of Acquirer Common Stock to which the holder of Company Common Stock is entitled pursuant to this Article II .
(e)      No Fractional Shares . No certificates or scrip representing fractional shares of Acquirer Common Stock shall be issued upon the surrender for exchange of Company Common Stock, and such fractional share interests will not entitle the owner thereof to vote or to any rights of a shareholder of the Surviving Corporation. In lieu thereof, upon surrender of the applicable Company Common Stock by submission of a letter of transmittal to the Exchange Agent accompanied by the applicable Certificates, the Exchange Agent shall pay each holder of such Company Common Stock an amount in cash equal to the product obtained by multiplying (i) the fractional share interest to which such holder would otherwise be entitled by (ii) the Market Value.
(f)      Termination of Exchange Fund . Any portion of the Exchange Fund which remains undistributed to the shareholders of the Company for six months after the Effective Time shall be delivered to the Surviving Corporation, upon demand, and any holders of Company Common Stock who have not theretofore complied with this Article II shall thereafter look only to the Surviving Corporation for payment of their claim for Acquirer Common Stock, any cash in lieu of fractional shares of Acquirer Common Stock and any dividends or distributions with respect to Acquirer Common Stock.
(g)      Appraisal Rights . No Person who has perfected a demand for appraisal rights pursuant to Chapter 23B.13 of the WBCA shall be entitled to receive the Per Share Merger Consideration with respect to the Shares owned by such Person unless and until such Person shall have effectively withdrawn or lost such Person’s right to appraisal under the WBCA. Each Dissenting Shareholder shall be entitled to receive only the payment provided by Chapter 23B.13 of the WBCA with respect to Shares owned by such Dissenting Shareholder. The Company shall give Acquirer (i) reasonably prompt notice of any written demands for appraisal, attempted withdrawals of such demands, and any other instruments served pursuant to applicable Law that are received by the Company relating to shareholders’ rights of appraisal and (ii) the opportunity to direct all negotiations and proceedings with respect to demand for appraisal under Chapter 23B.13 of the WBCA. The Company shall not, except with the prior written consent of Acquirer, voluntarily make any payment with respect to any demands for appraisal, offer to settle or settle any such demands or approve any withdrawal of any such demands.
(h)      Withholding Rights . Each of Acquirer and the Surviving Corporation shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this

5


Agreement to any holder of Shares such amounts as it is required to deduct and withhold with respect to the making of such payment under the Code or any other applicable state, local or foreign Tax Laws. To the extent that amounts are so withheld by Acquirer or the Surviving Corporation, as the case may be, such withheld amounts (i) shall be remitted by Acquirer or the Surviving Corporation, as applicable, to the applicable Governmental Entity, and (ii) to the extent so remitted, shall be treated for all purposes of this Agreement as having been paid to the holder of Shares in respect of which such deduction and withholding was made by the Surviving Corporation or Acquirer, as the case may be.
Section 2.03      Stock Options . The Company and Acquirer shall take all actions necessary to provide that, effective as of the Effective Time, without any action on the part of the holders thereof, each outstanding Company Stock Option shall cease to represent the right to acquire shares of Company Common Stock and shall instead be converted automatically into an option to acquire shares of Acquirer Common Stock as provided below (an “ Assumed Option ”), and such Assumed Options will be assumed by Acquirer on substantially the same terms and conditions as were applicable under the corresponding Company Stock Options immediately prior to the Effective Time; provided , however , that after the Effective Time:
(a)      each Assumed Option will be exercisable for a number of shares of Acquirer Common Stock equal to the product of (i) the number of shares of Company Common Stock that would be issuable upon exercise of the Company Stock Option outstanding immediately prior to the Effective Time multiplied by (ii) the Exchange Ratio, rounded down to the nearest whole share; and
(b)      the per share exercise price for the Acquirer Common Stock issuable upon exercise of such Assumed Option will be equal to the quotient determined by dividing (i) the per share exercise price for such Company Stock Option outstanding immediately prior to the Effective Time by (ii) the Exchange Ratio, rounded up to the nearest whole cent.
Any restriction on the exercisability of such Company Stock Option in effect as of the date hereof will continue in full force and effect, and the term, exercisability, and vesting schedule of such Company Stock Option as in effect on the date hereof will remain unchanged. As soon as reasonably practicable following the Closing Date, the Surviving Corporation will deliver to each Person who holds an Assumed Option a document evidencing the foregoing assumption of such Company Stock Option by the Surviving Corporation. The Company and Acquirer will cooperate and coordinate with respect to any materials to be submitted to the holders of Company Stock Options in connection with any notice required under this Section 2.03 .
Section 2.04      Series A Preferred Stock; Treasury Warrant . Acquirer will make appropriate arrangements with the Treasury prior to the Effective Time to pay to the Treasury the Merger Consideration to which the Treasury is entitled with respect to the Series A Preferred Stock owned by the Treasury and, at Acquirer’s sole election, to purchase the Treasury Warrant, in connection with or following the Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

6


Section 3.01      Disclosure . On or prior to the date of this Agreement, the Company has delivered to Acquirer a schedule (the “ Company Disclosure Schedule ”) and Acquirer has delivered to the Company a schedule (the “ Acquirer Disclosure Schedule ,” and, together with the Company Disclosure Schedule, the “ Disclosure Schedules ”), setting forth, among other things, items the disclosure of which is necessary or appropriate either in response to an express disclosure requirement contained in a provision hereof or as an exception to one or more representations or warranties contained in Article III and Article IV , or to one or more of the Company’s or Acquirer’s covenants contained herein. The Company Disclosure Schedule may refer to and incorporate by reference information and documents contained in the electronic data room (the “ Data Room ”) established by the Company for the purpose of providing information and documents in connection with the transactions contemplated by this Agreement; provided , that such information and documents may only be incorporated by reference to the extent they are contained in the Data Room as of the close of business on the second day preceding the date of this Agreement and only to the extent that the specific Sections or subsections of this Agreement to which it relates are stated under appropriate captions in the Company Disclosure Schedule.
Section 3.02      Representations and Warranties of the Company . The Company represents and warrants to Acquirer that, except as Previously Disclosed:
(c)      Organization, Good Standing and Qualification .
(i)      The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Washington. The Company is a bank holding company duly registered under the Bank Holding Company Act of 1956 (the “ BHCA ”) and meets the applicable requirements for qualification as such. The Company has all corporate power and authority to own or lease all the assets owned or leased by it and to conduct its business as it is now being conducted, except where any failure could not, individually or in the aggregate, reasonably be expected to be materially adverse to the Company. The Company is duly licensed or qualified to do business and in good standing as a foreign corporation in all jurisdictions (1) in which the nature of the activities conducted by the Company requires such licensure or qualification and (2) in which the Company owns or leases real property, other than any failures to be so licensed or qualified that (3) would not reasonably be expected to have or result in any material adverse impact on the Company. The articles of incorporation of the Company comply with applicable Law. A true, complete and correct copy of each of the articles of incorporation and the bylaws of the Company, as amended and currently in effect, has been delivered or made available to Acquirer.
(ii)      Pacific International Bank (“ Company Bank ”) is a wholly owned subsidiary of the Company and is a Washington state-chartered commercial bank duly organized, validly existing and in good standing under Title 30 of the Revised Code of Washington (the “ RCW ”) . The deposit accounts of Company Bank are insured up to applicable limits (or fully insured if there is no limit) by the Deposit Insurance Fund (“ DIF ”), which is administered by the Federal Deposit Insurance Corporation (the

7


“ FDIC ”), and no proceedings for the termination or revocation of such insurance are pending or, to the Knowledge of the Company, threatened. Company Bank has the corporate power and authority to own or lease all of the assets owned or leased by it and to conduct its business as it is now being conducted, except where any failure could not, individually or in the aggregate, reasonably be expected to be materially adverse to the Company. Company Bank is duly licensed or qualified to do business and in good standing in all jurisdictions (1) in which the nature of the activities conducted by Company Bank requires such qualification and (2) in which Company Bank owns or leases real property, other than, in each case, such failures that would not have any material adverse impact on Company Bank. The articles of incorporation of Company Bank comply with applicable Law. A true, complete and correct copy of each of the articles of incorporation of Company Bank and the bylaws of Company Bank, as amended and currently in effect, has been delivered or made available to Acquirer.
(iii)      Each of the Company’s Subsidiaries (other than Company Bank) is a corporation or other legal entity duly incorporated or duly organized, validly existing and in good standing under the Laws of its jurisdiction of organization. Each such Subsidiary has the corporate (or similar) power and authority to own or lease all of the assets owned or leased by it and to conduct its business in all material respects as it is now being conducted, except where any failure could not, individually or in the aggregate, reasonably be expected to be materially adverse to the Company. Each such Subsidiary is duly licensed or qualified to do business and in good standing as a foreign corporation or other legal entity in all jurisdictions (1) in which the nature of the activities conducted by such Subsidiary requires such licensing or qualification and (2) in which such Subsidiary owns or leases real property, other than, in each case, such failures that would not have any material adverse impact on the Company. The articles or certificate of incorporation, operating or limited liability company agreement, certificate of trust or other organizational document of each such Subsidiary comply with applicable Law. A true, complete and correct copy of the articles or certificate of incorporation, operating or limited liability company agreement, or certificate of trust and bylaws (or similar governing documents) of each such Subsidiary, as amended and currently in effect, has been delivered or made available to Acquirer.
(d)      Capitalization . The authorized capital stock of the Company consists of 10,000,000 shares of Company Common Stock, no par value, and 6,500 shares of Series A Preferred Stock, $0.01 par value. As of September 30, 2012, (i) 4,701,832 shares of Company Common Stock were issued and outstanding, 127,785 shares of Company Common Stock were reserved for issuance upon exercise of the Treasury Warrant, 95,000 shares of Company Common Stock were subject to outstanding stock options issued under the Company Stock Plan, 699,766 shares of Company Common Stock were reserved for future issuance upon exercise of stock options or other awards granted in the future under the Company Stock Plan and 383,716 shares of Company Common Stock were reserved for issuance under the Company Restricted Stock Plan, but no restricted stock is currently outstanding; and (ii) 6,500 shares of Series A Preferred Stock were issued and outstanding. All of the issued and outstanding shares of Company Common Stock and Series A Preferred Stock have been duly authorized and validly

8


issued and are fully paid and nonassessable and were not issued in violation of or subject to any preemptive rights or other rights to subscribe for or purchase securities. No bonds, debentures, notes or other indebtedness having the right to vote on any matters on which the shareholders of the Company may vote (“ Voting Debt ”) are issued and outstanding. As of the date of this Agreement, except (i) pursuant to any cashless exercise provisions of any Company Stock Options or pursuant to the surrender of shares to the Company or the withholding of shares by the Company to cover Tax withholding obligations under the Benefit Plans and (ii) as required to satisfy obligations in respect of outstanding Company Stock Options, the Company does not have and is not bound by any outstanding subscriptions, options, calls, commitments or Contracts of any character calling for the purchase or issuance of, or securities or rights convertible into or exchangeable for, any shares of Company Common Stock or preferred stock or any other equity securities of the Company or Voting Debt or any securities representing the right to purchase or otherwise receive any shares of capital stock of the Company (including any rights plan or agreement). Section 3.02(b) of the Company Disclosure Schedule sets forth a table listing, as of the date of this Agreement, the outstanding series of trust preferred and subordinated debt securities of the Company, Company Bank and all of the Company’s other Subsidiaries, and all such information is accurate and complete.
(e)      Subsidiaries . With respect to Company Bank and each of the Company’s other Subsidiaries, (i) all the issued and outstanding shares of such entity’s capital stock (or corresponding equity interests in the case of Subsidiaries that are not corporations) have been duly authorized and validly issued, are fully paid and nonassessable (except as provided by Section 30.12.180 of the RCW) and were not issued in violation of or subject to any preemptive rights or other rights to subscribe for or purchase securities, and (ii) such entity does not have and is not bound by any outstanding subscriptions, options, calls, commitments or Contracts of any character calling for the purchase or issuance of, or securities or rights convertible into or exchangeable for, any shares of such entity’s capital stock or any other equity securities or Voting Debt or any securities representing the right to purchase or otherwise receive any shares of capital stock of such entity (including any rights plan or agreement). Neither the Company nor Company Bank has received any notice relating to the assessment on the capital stock of Company Bank. Section 3.02(c) of the Company Disclosure Schedule sets forth as of the date of this Agreement (i) each of the Company’s Subsidiaries and the ownership interest of the Company in each such Subsidiary, as well as the ownership interest of any other Person or Persons in each such Subsidiary and (ii) the Company’s or its Subsidiaries’ capital stock, equity interest or other direct or indirect ownership interest in any other Person other than (1) securities in a publicly traded company held for investment by the Company or any of its Subsidiaries and consisting of less than one percent (1%) of the outstanding capital stock of such company and (2) securities held in a fiduciary capacity for the benefit of customers.
(f)      Authorization and Action .
(i)      The Company has all requisite corporate power and authority and has taken all corporate action necessary in order to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby, subject only, with respect to the Merger, approval of this Agreement by the

9


holders of two-thirds of the outstanding Company Common Stock and Series A Preferred Stock voting together as a single class, and the holders of two-thirds of the outstanding shares of Series A Preferred Stock voting separately as a single class (the “ Requisite Shareholder Approval ”). This Agreement has been duly and validly executed and delivered by the Company and, assuming due authorization, execution and delivery by Acquirer, is a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar Laws of general applicability relating to or affecting creditors’ rights and to general equitable principles, regardless of whether such enforceability is considered in a proceeding in equity or at law (the “ Bankruptcy and Equity Exception ”).
(ii)      The Company Board has received the opinion of its financial advisor, Keefe Bruyette & Woods, Inc. to the effect that, subject to the assumptions, qualifications and limitations set forth therein, as of the date of such opinion, the Per Share Merger Consideration is fair to the holders of the Shares from a financial point of view. It is agreed and understood that such opinion is solely for the benefit of the Company Board and may not be relied upon by Acquirer or any holders of capital stock of the Company.
(iii)      The Company Board has duly adopted resolutions (1) determining that this Agreement and the transactions hereby are advisable, and in the best interests of the Company and its shareholders, (2) approving this Agreement and the transactions contemplated hereby and (3) recommending that the Company’s shareholders approve this Agreement (such recommendation, the “ Company Board Recommendation ”).
(iv)      Neither the execution and delivery by the Company of this Agreement, nor the consummation of the transactions contemplated hereby, nor compliance by the Company with any of the provisions hereof, will (1) violate, conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or result in the loss to the Company or any of its Subsidiaries of any benefit or creation of any right on the part of any third party under, or accelerate the performance required by, or result in a right of termination or acceleration of, or result in the creation of any Encumbrances upon any of the material properties or assets of the Company or any of its Subsidiaries under any of the terms, conditions or provisions of (x) the certificate of incorporation or bylaws of the Company or the certificate of incorporation, charter, bylaws or other governing instruments of any of its Subsidiaries or (y) to Company’s Knowledge, any material Contract or license to which the Company or any of its Subsidiaries is a party or by which it may be bound, or to which the Company or any of its Subsidiaries or any of the properties or assets of the Company or any of its Subsidiaries may be subject, or (2) subject to compliance with the statutes and regulations referred to in Section 3.02(e) , violate any Law or Order applicable to the Company or any of its Subsidiaries or any of their respective properties or assets.

10


(g)      Consents and Approvals . Other than (i) applicable requirements of the Securities Act, the Exchange Act, and state securities and “blue sky” laws, as may be required in connection with this Agreement and the transactions contemplated hereby, (ii) the filing of the Certificate of Merger and the Articles of Merger with the Delaware Secretary and the Washington Secretary, respectively, (iii) the filing of applications and notices with the Board of Governors of the Federal Reserve System (the “ Federal Reserve ”), the FDIC, the Treasury, the State of Washington Department of Financial Institutions (the “ Washington DFI ”), and the State of California Department of Financial Institutions, and the receipt of approval or notice of non-objection thereto and the expiration of any related waiting periods, (iv) such approvals, indications of non-objection or agreements from applicable bank regulatory agencies and the Treasury as Acquirer shall consider necessary or advisable to enable Acquirer to make payment to the Treasury for the Series A Preferred Stock in the Merger and to purchase the Treasury Warrant, and (v) such other consents of, filings with, authorizations or approvals from and registrations with any Governmental Entity which if not obtained or made would not, individually or in the aggregate, be material to the Company and its Subsidiaries taken as a whole ( clauses (iii) through (v) , collectively the “ Requisite Regulatory Consents ”), no notice or application to or filing with, or consent or notice of non-objection of, any Governmental Entity or any other Person is necessary in connection with the Company’s execution, delivery or performance of this Agreement, and the consummation of the Merger, the Bank Merger and the other transactions contemplated hereby. A list of all Requisite Regulatory Consents and any other regulatory consents that are required by the Company, its Subsidiaries or any of their Affiliates as of the date hereof is disclosed in Section 3.02(e) of the Company Disclosure Schedule.
(h)      Financial Statements .
(i)      The Company has previously made available to Acquirer copies of (1) the audited consolidated statements of financial condition of the Company and its Subsidiaries as of December 31, 2010 and 2011, and the related consolidated statements of operations, of comprehensive income, of changes in shareholders’ equity, and of cash flows for the years ended December 31, 2010 and 2011, in each case including the related notes and accompanied by the audit report of Moss Adams LLP (the “ Audited Financial Statements ”), and (2) the unaudited consolidated statements of financial condition of the Company and its Subsidiaries as of June 30, 2012 and the related unaudited consolidated statements of operations, of comprehensive income, of changes in shareholders’ equity and of cash flows for the six-month period ended June 30, 2012, in each case including the related notes (the “ Interim Financials ” and, collectively with the Audited Financial Statements, the “ Financial Statements ”).
(ii)      Each of the Financial Statements has been prepared in accordance with GAAP consistently applied throughout the periods covered by each such statement (except for inconsistencies in the application of GAAP described in such Financial Statements or in the notes thereto), is consistent with the books and records of the Company, and fairly presents, in all material respects, the consolidated financial condition of the Company as of the respective dates and the results of operations and cash

11


flows of the Company for the respective periods indicated therein, as applicable, subject to, in the case of the Interim Financials (1) the absence of notes and schedules and (2) normal year-end adjustments (but only to the extent not material in the aggregate).
(iii)      The books and records of the Company and its Subsidiaries in all material respects have been, and are being, maintained in accordance with applicable legal and accounting requirements and reflect only actual transactions.
(iv)      Moss Adams LLP, which has expressed its opinion with respect to the consolidated financial statements of the Company for the years ended December 31, 2010 and 2011 were, to the Company’s Knowledge, as of the date of such opinion independent public accountants, within the meaning of the Code of Professional Conduct of the American Institute of Certified Public Accountants.
(i)      Reports; Books and Records .
(i)      Since January 1, 2011, each of the Company and each of its Subsidiaries has timely filed or furnished all material reports, registrations, documents, filings, statements and submissions, together with any amendments thereto, that it was required to file with or furnish to any Governmental Entity (the foregoing, collectively, the “ Company Reports ”) and has paid all material fees and assessments due and payable in connection therewith. As of their respective dates of filing or furnishing, or, if amended, as of the date of the last such amendment prior to the date of this Agreement, the Company Reports complied in all material respects with all statutes and applicable rules and regulations of the applicable Governmental Entities. As of the date of this Agreement, there are no outstanding comments from any Governmental Entity with respect to any such Company Report. With respect to all other Company Reports filed since January 1, 2009 or to be filed subsequent to the date of this Agreement and prior to the Closing, the Company Reports will be complete and accurate in all material respects as of their respective dates, or the dates of their respective amendments. Except for normal examinations conducted by a Governmental Entity in the regular course of the business of the Company and its Subsidiaries, no Governmental Entity has initiated any proceeding or, to the Knowledge of the Company, investigation into the business or operations of the Company or any of its Subsidiaries since January 1, 2009. Except as set forth in Section 3.02(g) of the Company Disclosure Schedule, there are no unresolved violations set forth in any report relating to any examinations or inspections by any Governmental Entity of any of the Company and its Subsidiaries. The Company and its Subsidiaries have fully resolved all “matters requiring attention,” “matters requiring immediate attention,” “matters requiring enhancements” and similar items as identified by any such Governmental Entity.
(ii)      Neither the Company nor any of its Subsidiaries is required to file periodic reports with the SEC pursuant to Sections 13 or 15(d) of the Exchange Act.
(iii)      The records, systems, controls, data and information of each of the Company and each of its Subsidiaries are recorded, stored, maintained and operated

12


under means (including any electronic, mechanical or photographic process, whether computerized or not) that are under the exclusive ownership and direct control of the Company or its Subsidiaries or their accountants (including all means of access thereto and therefrom), except as would not reasonably be expected to have a material adverse effect on the Company’s system of internal accounting controls.
(iv)      Each of the Company and each of its Subsidiaries maintains a system of internal accounting controls sufficient to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, and that (1) transactions are executed in accordance with management’s general or specific authorization, (2) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets, (3) access to assets is permitted only in accordance with management’s general or specific authorization and (4) the recorded amount for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
(j)      Real Property . To the Company’s Knowledge, with respect to the real property leased or subleased to the Company or its Subsidiaries (the “ Leased Real Property ”), the lease or sublease for such property is valid, legally binding, enforceable and in full force and effect, and neither the Company nor any of its Subsidiaries is in breach of or default under such lease or sublease, and no event has occurred which, with notice, lapse of time or both, would constitute a breach or default by any of the Company or its Subsidiaries or permit termination, modification or acceleration by any third party thereunder, or prevent, materially delay or materially impair the consummation of the transactions contemplated by this Agreement except in each case, for such invalidity, failure to be binding, unenforceability, ineffectiveness, breaches, defaults, terminations, modifications, accelerations or repudiations that would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect. The Company and Company Bank do not own any real property, other than real estate acquired by Company Bank or a Subsidiary of Company Bank through foreclosure or by deed in lieu of foreclosure.
(k)      Taxes . Except as set forth in Section 3.02(i) of the Company Disclosure Schedule, to the Company’s Knowledge: (1) each of the Company and each of its Subsidiaries has duly and timely filed (including, pursuant to applicable extensions) all Tax Returns required to be filed by it and all such Tax Returns are correct and complete; (2) each of the Company and each of its Subsidiaries has paid in full all Taxes due or made adequate provision in the financial statements of the Company (in accordance with GAAP) for any such Taxes, whether or not shown as due on such Tax Returns; (3) no deficiencies for any Taxes have been proposed, asserted or assessed, in each case in writing, against or with respect to any Taxes due by, or Tax Returns of, the Company or any of its Subsidiaries which deficiencies have not since been resolved; (4) there are no Encumbrances for Taxes upon the assets of either the Company or its Subsidiaries except for statutory Encumbrances for Taxes not yet due; (5) neither the Company nor any of its Subsidiaries has been a “distributing corporation” or a “controlled corporation” in any distribution occurring during the last two (2) years in which the parties to such distribution treated the distribution as one to which Code Section 355 is applicable; (6) neither the Company

13


nor any of its Subsidiaries has engaged in any “listed transaction” within the meaning of Treasury Regulations section 1.6011-4(b)(2); (7) neither the Company nor any of its Subsidiaries has engaged in a transaction of which it made disclosure to any taxing authority to avoid penalties under Section 6662(d) or any comparable provision of state, foreign or local Law; (8) neither the Company nor any of its Subsidiaries has participated in any “tax amnesty” or similar program offered by any taxing authority to avoid the assessment of penalties or other additions to Tax; (9) the Company and each of its Subsidiaries have complied in all material respects with all requirements to report information for Tax purposes to any individual or taxing authority, and have collected and maintained all material certifications and documentation in valid and complete form with respect to any such reporting obligation, including, without limitation, valid Internal Revenue Service Forms W-8 and W-9; (10) no written claim has been made within the past three (3) years by a Tax authority in a jurisdiction where the Company or any of its Subsidiaries, as the case may be, does not file Tax Returns that the Company, Bank or any of the Company’s other Subsidiaries, as the case may be, is or may be subject to Tax by that jurisdiction; (11) neither the Company nor any of its Subsidiaries has granted any currently effective waiver, extension or comparable consent regarding the application of the statute of limitations with respect to any Taxes or Tax Return that is outstanding, nor has any request for any such waiver or consent been made; (12) neither the Company nor any of its Subsidiaries has been or is in violation (or with notice or lapse of time or both, would be in violation) of any applicable Law relating to the payment or withholding of Taxes (including, without limitation, withholding of Taxes pursuant to Sections 1441 and 1442 of the Code or any similar provisions of state, local or foreign law); (13) each of the Company and each of its Subsidiaries has duly and timely withheld from employee salaries, wages and other compensation and paid over to the appropriate taxing authority all amounts required to be so withheld and paid over under all applicable Laws; (14) no audits or investigations by any taxing authority relating to any Tax Returns of any of the Company or any of its Subsidiaries is in progress, nor has the Company or any of its Subsidiaries received written notice from any taxing authority of the commencement of any audit not yet in progress; (15) there are no outstanding and currently effective powers of attorney enabling any person or entity not a party to this Agreement to represent the Company or any of its Subsidiaries with respect to Tax matters other than its accountants or attorneys; (16) neither the Company nor any of its Subsidiaries has applied for, been granted, or agreed to any accounting method change for which it will be required to take into account any adjustment under Code Section 481 after the Closing; (17) neither the Company nor any of its Subsidiaries has undergone an “ownership change” within the meaning of Code Section 382(g); (18) neither the Company nor any of its Subsidiaries is liable for Taxes of any other Person (other than the Company or any of its Subsidiaries) pursuant to a tax indemnity, tax sharing or other similar agreement (other than pursuant to lease agreements, loan agreements, financing arrangements, commercial agreements entered into in the ordinary course of business, or Benefit Plans); (19) neither the Company nor any of its Subsidiaries has any liability for any tax under Treasury Regulations section 1.1502-6 (or any similar provision of state, local or non-United States law), as a transferee or successor, by contract or otherwise; (20) neither the Company nor any of its Subsidiaries has taken or agree to take (or failed to take or agree to take) any action or knows of any facts or circumstances that would reasonably be expected to prevent the Merger or the Bank Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code; and (21) Company Bank operates at least one significant historic business line, or owns at least a

14


significant portion of its historic business assets, in each case within the meaning of Treasury Regulations section 1.368-1(d).
(l)      Absence of Certain Changes . Since December 31, 2011, and except as Previously Disclosed, (i) the Company and its Subsidiaries have conducted their respective businesses in all material respects in the ordinary course of business and consistent with past practice, (ii) the Company has not made or declared any distribution in cash or in kind to its shareholders or issued or repurchased any shares of its capital stock or other equity interests, (iii) there has been no material change in any method of accounting or accounting practice by the Company or any of its Subsidiaries (except, in each case, as indicated in the Financial Statements or in the notes thereto), (iv) no fact, event, change, condition, development, circumstance or effect has occurred that has had, or would reasonably be expected to have, a Company Material Adverse Effect, and (v) no material default (or event which, with notice or lapse of time, or both, would constitute a material default) exists on the part of the Company or any of its Subsidiaries or, to their Knowledge, on the part of any other party, in the due performance and observance of any term, covenant or condition of any Contract to which the Company or any of its Subsidiaries is a party and which is, individually or in the aggregate, material to the financial condition of the Company and its Subsidiaries, taken as a whole.
(m)      No Undisclosed Liabilities . Neither the Company nor any of its Subsidiaries has any liabilities or obligations of any nature, or is an obligor under any guarantee, keepwell or other similar Contract (absolute, accrued or contingent) or otherwise except for (i) liabilities or obligations reflected in or reserved against in the Company’s consolidated balance sheet as of December 31, 2011 and (ii) liabilities that have arisen since December 31, 2011 in the ordinary course of business and consistent with past practice and that have either been Previously Disclosed or would not have, individually or in the aggregate, a material adverse impact on the Company and its Subsidiaries, taken as a whole.
(n)      Commitments and Contracts .
(i)      The Company has provided to Acquirer or its representatives true, correct and complete copies of each Material Contract to which the Company or any of its Subsidiaries is, as of the date hereof, a party or subject. “ Material Contract ” means each of the following (whether written or oral):
(1)      any Contract with respect to the employment or service of any current or former directors, officers, employees or consultants of the Company or any of its Subsidiaries, in each case involving an annual base salary, annual fee or other form of cash compensation, as applicable, to be paid by the Company or any of its Subsidiaries in excess of $50,000, or any Contract with a current or former director, officer or employee with change-in-control or severance or other provisions resulting in or causing the acceleration of any compensation benefit upon a change in control or termination of employment following a change in control;

15


(2)      any Contract containing any standstill or similar agreement pursuant to which one Person has agreed not to acquire assets or securities of another Person;
(3)      any Related Party Contract;
(4)      any Contract (A) that restricts the ability of the Company or any of its Subsidiaries to compete in any business or geographic area or any particular medium or (B) that grants a Person other than the Company or any of its Subsidiaries “most favored nation” status or “exclusivity” or similar rights;
(5)      any Contract involving the payment or receipt of royalties or similar payments of more than $25,000 in the aggregate calculated based upon the revenues or income of the Company or its Subsidiaries or income or revenues related to any product or service of the Company or any of its Subsidiaries;
(6)      any Contract with a labor union or guild (including any collective bargaining agreement);
(7)      any Contract which grants any person a right of first refusal, right of first offer or similar right with respect to any material properties, assets or businesses of the Company or any of its Subsidiaries, other than with respect to real estate acquired by Company Bank or a Subsidiary of Company Bank through foreclosure or by deed in lieu of foreclosure;
(8)      any Contract (A) having as its principal subject matter the agreement of the Company or any of its Subsidiaries to indemnify any Person, (B) providing for indemnification by the Company or any of its Subsidiaries of any Person and that could reasonably be expected to result in an indemnification obligation of the Company or any of its Subsidiaries in excess of $25,000, or (C) providing for indemnification by the Company or any of its Subsidiaries of any current or former director, officer or employee of the Company or any of its Subsidiaries;
(9)      any Contract that contains a put, call or similar right pursuant to which the Company or any of its Subsidiaries could be required to purchase or sell, as applicable, assets that have a fair market value or purchase price of more than $25,000 or any equity interests of any Person;
(10)      any indenture, mortgage, promissory note, loan agreement, guarantee, sale and leaseback agreement, capitalized lease or other agreement or commitment for the borrowing by the Company or any of its Subsidiaries of money or the deferred purchase price of property in excess of $100,000 (in either case, whether incurred, assumed, guaranteed or secured by any asset), or any Contract including provisions whereby the Company or any of its Subsidiaries is guaranteeing the obligations of or agreeing to provide financial support to or on

16


behalf of a Person (other than to or on behalf of the Company or one of its Subsidiaries);
(11)      any lease of real property that provides for annual payments of $25,000 or more;
(12)      any license, franchise or similar Contract material to the business and operations of the Company and its Subsidiaries that provides for annual payments of $25,000 or more;
(13)      any Contract for the purchase, sale or lease of materials, supplies, goods, services, equipment or other assets (other than those specified elsewhere in this definition) that provides for either (A) annual payments or obligations of $25,000 or more, or (B) aggregate payments or obligations of $100,000 or more;
(14)      any partnership, joint venture or other similar agreement or arrangement;
(15)      any Contract pursuant to which (A) the Company or any of its Subsidiaries grants a license or other right to use any registered and/or applied for Proprietary Right that is owned or purported to be owned by the Company or any of its Subsidiaries (a “ Company Proprietary Right ”) to a third person and (B) a third person grants a license or other right to the Company or any of its Subsidiaries to any Proprietary Rights (but excluding licenses to commercially available “click-wrap” or “shrink-wrap” software);
(16)      any Contract relating to the acquisition or disposition of any material business or material assets (whether by merger, sale of stock or assets or otherwise), which acquisition or disposition is not yet complete or where such Contract contains continuing material obligations of the Company or any of its Subsidiaries;
(17)      any agreement or consent decree entered into with a Governmental Entity;
(18)      any Contract that provides for the imposition of any material Encumbrance on any assets of the Company.
(ii)      To the Knowledge of the Company, each of the Material Contracts to which the Company or any of its Subsidiaries is a party or subject is valid and binding on the Company or its Subsidiaries, as the case may be and, to the Knowledge of the Company, each other party thereto, and is in full force and effect, except for such failures to be valid and binding or to be in full force and effect as would not be, or would not reasonably be expected to be, individually or in the aggregate, materially adverse to the Company. To the Knowledge of the Company, there is no default under any such Contracts by the Company or its Subsidiaries, or to the Knowledge of the Company, by

17


the other party thereto, and no event has occurred that with the lapse of time or the giving of notice or both would constitute a default thereunder by the Company or its Subsidiaries or to the Knowledge of the Company, by the other party thereto, in each case except as would not be, or could not reasonably be expected to be, individually or in the aggregate, materially adverse to the Company.
(o)      Litigation and Other Proceedings . Except as set forth in Section 3.02(m) of the Company Disclosure Schedule, there are no pending or, to the Knowledge of the Company, threatened, legal, administrative, arbitral or other proceedings, claims, actions, or pending or, to the Knowledge of the Company, threatened governmental or regulatory investigations of any nature (i) against the Company or any of its Subsidiaries (excluding those of the type contemplated by the following clause (ii) ) which would reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect or (ii) challenging the validity or propriety of the transactions contemplated by this Agreement. To the Knowledge of the Company, there is no injunction, order, judgment, decree or regulatory restriction imposed upon the Company, any of its Subsidiaries or the assets of the Company or any of its Subsidiaries. The representations and warranties set forth in this Section 3.02(m) shall not apply to any collection litigation or proceedings in the ordinary course related to the Company Bank’s loan portfolio that involve amounts not exceeding $500,000.
(p)      Compliance with Laws .
(i)      To the Knowledge of the Company, the business of each of the Company and each of its Subsidiaries has been since January 1, 2009, and is being, conducted in accordance with all material applicable Laws and written regulatory guidelines, including the Equal Credit Opportunity Act (15 U.S.C. Section 1691 et seq. ), the Fair Housing Act (420 U.S.C. Section 3601 et seq. ), the Community Reinvestment Act of 1977, the Home Mortgage Disclosure Act (12 U.S.C. Section 2801 et seq. ), the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Bank Secrecy Act (31 U.S.C. Section 5311 et seq. ), Title III of the USA Patriot Act, the Interagency Policy Statement on Retail Sales of Nondeposit Investment Products and all other applicable bank secrecy laws, fair lending laws and other laws relating to discriminatory business practices and any Order issued with respect to anti-money laundering by the Office of Foreign Assets Control of the U.S. Treasury Department (“ OFAC ”) and any other anti-money laundering statute, rule or regulation, except for violations that, individually or in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect. Each of the Company and each of its Subsidiaries has all permits, licenses, franchises, authorizations, orders and approvals of, and have made all filings, applications and registrations with, Governmental Entities that are required in order to permit them to own or lease their properties and assets and to carry on their business as presently conducted. Each of the Company and each of its Subsidiaries has since January 1, 2009 complied in all material respects with and is not in default or violation in any material respect of, and none of them is, to the Knowledge of the Company, under investigation with respect to, or, to the Knowledge of the Company, has been threatened to be charged with or given notice of, any material violation of, any applicable Law or Order of any Governmental Entity.

18


Except for statutory or regulatory restrictions of general application, no Governmental Entity has placed any material restriction on the business or properties of the Company or any of its Subsidiaries that remains in effect. Neither the Company nor any of its Subsidiaries has received any written notification or communication from any Governmental Entity (1) asserting that the Company or any of its Subsidiaries is not in material compliance with any statutes, regulations or ordinances, (2) threatening to revoke any permit, license, franchise, authorization, order or approval or (3) threatening or contemplating revocation or limitation of, or which would have the effect of revoking or limiting, FDIC deposit insurance.
(ii)      To the Knowledge of the Company, neither the Company nor any of its Subsidiaries, nor any director, officer, employee or Affiliate of either the Company or any of its Subsidiaries, nor, to the Knowledge of the Company, any agent or other Person acting on behalf of the Company or any of its Subsidiaries is currently subject to any sanctions administered by OFAC.
(iii)      The operations of each of the Company and each of its Subsidiaries are and have been conducted at all times since December 31, 2008 in compliance with the money laundering statutes of applicable jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any applicable Governmental Entity (collectively, the “ Anti-Money Laundering Laws ”) and no action, suit or proceeding by or before any Governmental Entity involving the Company and/or any of its Subsidiaries with respect to the Anti-Money Laundering Laws is pending or, to the Knowledge of the Company, threatened.
(iv)      The Company and each of its Subsidiaries that is an insured depositary institution is in compliance in all material respects with the applicable provisions of the Community Reinvestment Act of 1977 and the regulations promulgated thereunder and has received a Community Reinvestment Act rating of “satisfactory” in its most recently completed exam, and the Company has no knowledge of the existence of any fact or circumstance or set of facts or circumstances which would reasonably be expected to result in the Company or any such Subsidiary having its current rating lowered.
(q)      Fiduciary Accounts; Trust . Each of the Company and each of its Subsidiaries has properly administered in all material respects all accounts for which it acts as a fiduciary, including accounts for which it serves as a trustee, agent, custodian, personal representative, guardian, conservator or investment advisor, in accordance with the terms of the governing documents and applicable Law. To the Knowledge of the Company, none of the Company, any of its Subsidiaries, or any director, officer or employee of the Company or of any of its Subsidiaries, has committed any material breach of trust or fiduciary duty with respect to any such fiduciary account. To the Knowledge of the Company, the accountings for each such fiduciary account are true and correct, and accurately reflect, in all material respects the assets of such fiduciary account.
(r)      Employees . No Employees of the Company or any of its Subsidiaries are represented by any labor union nor are any collective bargaining agreements otherwise in effect

19


with respect to such Employees. No labor organization or group of Employees of the Company or any of its Subsidiaries has made a demand for recognition or certification, and there are no representation or certification proceedings or petitions seeking a representation proceeding presently pending or, to the Knowledge of the Company, threatened to be brought or filed with the National Labor Relations Board or any other labor relations tribunal or authority. The Company and its Subsidiaries are in compliance with all notice and other requirements under the Worker Adjustment and Retraining Notification Act of 1988 and any other similar applicable foreign, state, or local Laws relating to facility closings and layoffs. All independent contractors of the Company are properly classified in such capacity under applicable state and federal Law.
(s)      Company Benefit Plans .
(i)      (1) Section 3.02(q)(i) of the Company Disclosure Schedule sets forth a complete list of each Benefit Plan. With respect to each Benefit Plan, the Company and its Subsidiaries have complied, and are now in compliance, in all material respects, with all provisions of the Employee Retirement Income Security Act of 1974 (“ ERISA ”), the Code and all laws and regulations applicable to such Benefit Plan; and (2) each Benefit Plan has been administered in all material respects in accordance with its terms. “ Benefit Plan ” means any employee welfare benefit plan within the meaning of Section 3(1) of ERISA, any employee pension benefit plan within the meaning of Section 3(2) of ERISA, and any bonus, incentive, deferred compensation, vacation, stock purchase, stock option, severance, employment, change of control or fringe benefit plan, program, agreement or policy sponsored, maintained or contributed to or required to be contributed to by the Company or any of its Subsidiaries or by any trade or business, whether or not incorporated, that together with the Company or any of its Subsidiaries would be deemed a “single employer” within the meaning of Section 4001(b) of ERISA (an “ ERISA Affiliate ”), or to which the Company, Company Bank, any of the Company’s other Subsidiaries or any of their respective ERISA Affiliates is party, whether written or oral, in each case for the benefit of any director, former director, employee or former employee of the Company or any of its Subsidiaries. No Benefit Plan is maintained outside the jurisdiction of the United States, or covers any employee residing or working outside of the United States.
(ii)      With respect to each material Benefit Plan and each Benefit Plan (whether or not material) that is intended to be tax-qualified under Section 401(a) or Section 501(c)(9) of the Code, the Company has heretofore delivered or made available to Acquirer true and complete copies of each of the following documents: (1) a copy of the Benefit Plan and any amendments thereto (or if the Benefit Plan is not a written plan, a description thereof); (2) a copy of the two (2) most recent annual reports and actuarial reports, if required under ERISA; (3) a copy of the most recent Summary Plan Description, if required under ERISA with respect thereto; (4) if the Benefit Plan is funded through a trust or any third party funding vehicle, a copy of the trust or other funding agreement and the latest financial statements thereof; and (5) the most recent determination letter received from the Internal Revenue Service (the “ IRS ”) with respect to each Benefit Plan intended to qualify under Section 401 of the Code.

20


(iii)      Except as set forth in Section 3.02(q)(iii) of the Company Disclosure Schedule, no claim has been made, or to the Knowledge of the Company threatened, against the Company or any of its Subsidiaries related to any Benefit Plan, including, without limitation, any claim related to the purchase of employer securities or to expenses or fees paid under any defined contribution pension plan other than ordinary course claims for benefits.
(iv)      No Benefit Plan is subject to Title IV of ERISA or described in Section 3(37) of ERISA, and none of the Company, any of its Subsidiaries or any of their ERISA Affiliates has at any time within the past six (6) years sponsored or contributed to, or has or had within the past six (6) years any liability or obligation in respect of, any plan subject to Title IV or described in Section 3(37) of ERISA. The Company has not incurred any current or projected liability in respect of post-retirement health, medical or life insurance benefits for the Employees, except as required to avoid an excise tax under Section 4980B of the Code or comparable state benefit continuation laws. The Company or its Subsidiaries may amend or terminate any Benefit Plan that provides for retiree medical or life benefits at any time without incurring any liability thereunder other than in respect of claims incurred prior to such amendment or termination.
(v)      Each Benefit Plan intended to be “qualified” within the meaning of Section 401(a) of the Code and the related trust have received a favorable determination letter from the IRS as to qualification of the Benefit Plan under Section 401(a) of the Code and exemption of the related trust from taxation under Section 501(a) of the Code that has not been revoked, and, to the Company’s Knowledge, no circumstances exist and no events have occurred that could reasonably be expected to adversely affect the qualified status of any such Benefit Plan or the tax exempt status of the related trust. To the extent any Benefit Plan is required to be funded under ERISA or the Code, it is so funded and all contributions required to be made by applicable law have been timely made.
(vi)      None of the Company, any of its Subsidiaries, any Benefit Plan, any trust created under any Benefit Plan, or any trustee or administrator of any Benefit Plan has engaged in a transaction in connection with which the Company or any of its Subsidiaries, any plan, any such trust, or any trustee or administrator thereof, or any party dealing with any plan or any such trust could reasonably be expected to be subject to either a material civil penalty assessed pursuant to Sections 409 or 502(i) of ERISA or a material tax imposed pursuant to Sections 4975 or 4976 of the Code.
(vii)      To the Company’s Knowledge, each Benefit Plan and each Material Contract described in Section 3.02(l)(i)(1) that is a “nonqualified deferred compensation plan” within the meaning of Section 409A of the Code and associated Treasury Department guidance has (1) between January 1, 2005 and December 31, 2008, been operated in all material respects in good faith compliance with Section 409A of the Code and Notice 2005-01 and (2) since January 1, 2009 (or such later date permitted under applicable guidance), been operated in compliance with, and is in documentary

21


compliance with, in all material respects, Section 409A of the Code and IRS regulations and guidance thereunder. All Company Options granted by the Company or any of its Subsidiaries to any current or former employee or director have been granted with a per share exercise price at least equal to the fair market value of the underlying stock on the date the Company Stock Option was granted, within the meaning of Section 409A of the Code and associated Treasury Department guidance.
(viii)      Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby will, either alone or in conjunction with any other event, (1) result in any payment (including severance, unemployment compensation, “excess parachute payment” (within the meaning of Section 280G of the Code), forgiveness of indebtedness or otherwise) becoming due to any current or former employee, officer or director of the Company or any of its Subsidiaries under any Benefit Plan or otherwise, (2) increase any benefits otherwise payable under any Benefit Plan or any Material Contract described in Section 3.02(l)(i)(1) , (3) result in any acceleration of the time of payment or vesting of any such benefits, (4) require the funding or increase in the funding of any such benefits or (5) result in any limitation on the right of the Company or any of its Subsidiaries to amend, merge, terminate or receive a reversion of assets from any Benefit Plan or related trust or any Material Contract described in Section 3.02(l)(i)(1) . Neither the Company nor any of its Subsidiaries has taken, or permitted to be taken, any action that required, and no circumstances exist that will require the funding, or increase in the funding, of any benefits, or will result, in any limitation on the right of the Company or any of its Subsidiaries to amend, merge or terminate any Benefit Plan or receive a reversion of assets from any Benefit Plan or related trust.
(t)      Risk Management Instruments . Since January 1, 2011, all derivative instruments, including, swaps, caps, floors and option Contracts, whether entered into for the account of the Company or any of its Subsidiaries or for the account of a customer of the Company or any of its Subsidiaries, were entered into (i) only in the ordinary course of business and consistent with past practice, (ii) in accordance with prudent banking practices and in all material respects with all applicable Laws and with the rules, regulations and policies of applicable Governmental Entities, and (iii) with counterparties believed to be financially responsible at the time; and each of them constitutes the valid and legally binding obligation of the Company or one of its Subsidiaries, enforceable in accordance with its terms, subject to the Bankruptcy and Equity Exception. Neither the Company nor any of its Subsidiaries, nor, to the Knowledge of the Company, any other party thereto, is in breach of any of its material obligations under any such Contract or arrangement. The financial position of the Company and any of its Subsidiaries, as applicable, on a consolidated basis under or with respect to each such derivative instrument has been reflected in its books and records and the books and records of such Subsidiaries in accordance with GAAP consistently applied.
(u)      Agreements with Regulatory Agencies . Except as set forth in Section 3.02(s) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries is subject to any cease-and-desist order or other enforcement action issued by, or is a party to any written

22


agreement, consent agreement or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is subject to any capital directive by, or has adopted any board resolutions at the request of, any Governmental Entity (each type of item referred to in this sentence, a “ Regulatory Agreement ”), nor has the Company or any of its Subsidiaries been advised in writing, or, to the Knowledge of the Company, orally, since January 1, 2009 by any Governmental Entity that it is considering issuing, initiating, ordering, or requesting any such Regulatory Agreement. The Company and each Subsidiary are in compliance in all material respects with each Regulatory Agreement to which it is a party or subject, and since January 1, 2009 neither the Company nor any of its Subsidiaries has received any notice from any Governmental Entity indicating that either the Company or any of its Subsidiaries is not in compliance in all material respects with any such Regulatory Agreement. Without limiting the foregoing, each of the Company and each of its Subsidiaries, to the Knowledge of the Company, is and has been in compliance in all respects with the standards of conduct set forth in the Consent Order, dated December 2, 2011, issued by the FDIC and the Washington DFI except as set forth in Section 3.02(s) of the Company Disclosure Schedule.
(v)      Environmental Liability .
(i)      The Company and its Subsidiaries have at all times, and at the Closing Date will have, complied in all material respects with all Laws, regulations, ordinances, requirements of any Governmental Entity, and orders relating to public health, safety or the environment (“ Environmental Laws ”), including all laws, regulations, ordinances and orders relating to releases, discharges, emissions or disposals to air, water, land or groundwater, to the withdrawal or use of groundwater, to the use, handling or disposal of polychlorinated biphenyls, asbestos, mold or urea formaldehyde, to the treatment, storage, disposal or management of, or to exposure to, any substance regulated pursuant to any Environmental Law, including any hazardous substances, pollutants, contaminants, toxic, hazardous or other controlled, prohibited or regulated substances (“ Hazardous Substances ”).
(ii)      In addition, and irrespective of such compliance, (and to its Knowledge with respect to any real estate acquired by Company Bank or a Subsidiary of Company Bank through foreclosure or by deed in lieu of foreclosure) neither the Company nor any of its Subsidiaries is subject to any liability for any exposure to any Hazardous Substance or any contamination, environmental remediation or clean-up obligations pursuant to any Environmental Law including any liability under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“ CERCLA ”), or the Resource Conservation and Recovery Act of 1976, in each case which liability, individually or in the aggregate, would reasonably be expected to have a material impact on the consummation of the transactions contemplated by this Agreement.
(iii)      There are no legal, administrative, arbitral or other proceedings, claims, actions or notices of any nature seeking to impose, or that would reasonably be expected to result in the imposition of, on the Company or any of its Subsidiaries, any liability or obligation of the Company or any of its Subsidiaries with respect to any Environmental

23


Law. There is no private or governmental, environmental health or safety investigation or remediation activity of any nature arising under any Environmental Law pending or, to the Knowledge of the Company, threatened against the Company or any of its Subsidiaries or any property in which the Company or any of its Subsidiaries has taken a security interest, to the Knowledge of the Company there is no reasonable basis for, or circumstances that would reasonably be expected to give rise to, any such proceeding, claim, action, investigation or remediation; and neither the Company nor any of its Subsidiaries is subject to any agreement, letter or memorandum or Order by or with any Governmental Entity or any indemnity or other Contract with any third party that would reasonably be expected to impose any such environmental obligation or liability.
(iv)      To the Company’s Knowledge, no property currently or formerly owned or operated by the Company or any of its Subsidiaries was contaminated with any Hazardous Substance during or prior to such period of ownership or operation in a manner that would result in any liability that could reasonably be expected to have, individually or in the aggregate, a material impact on the Company or any of its Subsidiaries, taken as a whole, or a material impact on the consummation of the transactions contemplated by this Agreement.
(v)      The Company has made available to Acquirer copies of all material environmental reports, studies, assessments, sampling data and other material environmental documents in its possession as of the date hereof relating to the Company, its Subsidiaries or their current or former properties and properties in which the Company or any of its Subsidiaries has taken a security interest having a book value in excess of $500,000.
(vi)      Each of the Company and each of its Subsidiaries complies with all FDIC guidelines concerning environmental due diligence and risk management in lending, loan administration, workout and foreclosure activities including FDIC Bulletin FIL-14-93, and update FIL-98-2006.
(w)      Loan Portfolio .
(i)      Except as set forth in Section 3.02(u)(i) of the Company Disclosure Schedule, as of the date hereof, neither the Company nor any of its Subsidiaries is a party to any written or oral (1) loan, loan agreement, note or borrowing arrangement (including leases, credit enhancements, commitments, guarantees and interest-bearing assets) (collectively, “ Loans ”), under the terms of which the obligor was, as of June 30, 2012, over 90 days delinquent in payment of principal or interest or, to the Knowledge of the Company, in default of any other material provision or (2) Loan with any director, executive officer or five percent or greater shareholder of the Company or any of its Subsidiaries, or to the Knowledge of the Company, any person, corporation or enterprise controlling, controlled by or under common control with any of the foregoing. Section 3.02(u)(i) of the Company Disclosure Schedule sets forth (1) all of the Loans of the Company or any of its Subsidiaries that as of June 30, 2012 were classified by the Company as “Other Loans Specially Mentioned,” “Special Mention,” “Substandard,”

24


“Doubtful,” “Loss,” “Classified,” “Criticized,” “Credit Risk Assets,” “Concerned Loans,” “Watch List” or words of similar import, together with the principal amount of and accrued and unpaid interest on each such Loan as of June 30, 2012 and the identity of the borrower thereunder (and since January 1, 2011 there have been no such classifications by any Governmental Entity that are not so classified by the Company), (2) by category of Loan (i.e., commercial, consumer, or other commonly used category designation), all the other Loans of the Company or any of its Subsidiaries that as of June 30, 2012 were classified as such, together with the aggregate principal amount of and aggregate accrued and unpaid interest on such Loans by category as of June 30, 2012, and (3) each asset of the Company that as of June 30, 2012 was classified as “Other Real Estate Owned” and the book value thereof.
(ii)      Each Loan of the Company or any of its Subsidiaries in original principal amount in excess of $5,000 (1) is evidenced by notes, Contracts or other evidences of indebtedness that are true, genuine and what they purport to be, (2) to the extent secured, has been secured by valid Encumbrances which have been perfected and (3) to the Knowledge of the Company, is the legal, valid and binding obligation of the obligor named therein, enforceable in accordance with its terms, subject to the Bankruptcy and Equity Exception.
(iii)      Except as set forth in Section 3.02(u)(iii) of the Company Disclosure Schedule, none of the Contracts pursuant to which the Company or any of its Subsidiaries has sold Loans or pools of Loans or participations in Loans or pools of Loans contains any obligation to repurchase such Loans or interests therein, or entitle the buyer of such Loans or pools of Loans or participations in Loans or pools of Loans or any other Person to pursue any other form of recourse against the Company or its Subsidiaries. Since January 1, 2009, there has not been any claim made by any such buyer or other Person for repurchase or other similar form of recourse against the Company or any of its Subsidiaries.
(iv)      Each of the Company and each of its Subsidiaries, as applicable, is approved by and is in good standing: (1) as a supervised mortgagee by the Department of Housing and Urban Development to originate and service Title I FHA mortgage Loans; (2) as a GNMA I and II Issuer by the Government National Mortgage Association; (3) by the Department of Veteran’s Affairs (“ VA ”) to originate and service VA Loans; (4) as a seller/servicer by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation to originate and service conventional residential mortgage Loans; and (5) by the Small Business Administration (“ SBA ”) to originate and service SBA Loans (each such entity being referred to herein as an “ Agency ” and, collectively, the “ Agencies ”).
(v)      Except as set forth in Section 3.02(u)(v) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries is now nor has it ever been since January 1, 2009 subject to any fine, suspension, settlement or other Contract or other administrative agreement or sanction by, or any reduction in any loan purchase

25


commitment from, any Governmental Entity or Agency relating to the origination, sale or servicing of mortgage, SBA or consumer Loans. Neither the Company nor any of its Subsidiaries has received any notice, nor does it have any reason to believe as of the date of this Agreement, that any Agency proposes to limit or terminate the underwriting authority of the Company or any of its Subsidiaries or to increase the guarantee fees payable to any such Governmental Entity or Agency.
(vi)      Each of the Company and each of its Subsidiaries is and has been in compliance in all material respects since January 1, 2008 with all applicable federal, state and local Laws, rules and regulations, including the Truth-In-Lending Act and Regulation Z, the Equal Credit Opportunity Act and Regulation B, the Real Estate Settlement Procedures Act and Regulation X, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, any regulations promulgated by the Consumer Financial Protection Bureau, SAFE Mortgage Licensing Act of 2008, the Small Business Investment Act of 1958, and all Agency and other investor and mortgage insurance company requirements, relating to the origination, sale and servicing of mortgage and consumer Loans.
(vii)      To the Knowledge of the Company, each Loan included in a pool of Loans originated, acquired or serviced by the Company or any of its Subsidiaries (a “ Pool ”) meets all eligibility requirements (including all applicable requirements for obtaining mortgage insurance certificates and loan guaranty certificates) for inclusion in such Pool. All such Pools have been finally certified or, if required, recertified in accordance with all applicable laws, rules and regulations, except where the time for certification or recertification has not yet expired. To the Knowledge of the Company, no Pools have been improperly certified, and no Loan has been bought out of a Pool without all required approvals of the applicable investors.
(x)      Insurance . To the Company’s Knowledge, each of the Company and each of its Subsidiaries maintains, and has maintained for the two years prior to the date of this Agreement, insurance underwritten by insurers that, to the Company’s Knowledge, are of recognized financial responsibility, of the types and in the amounts that the Company and its Subsidiaries reasonably believe are adequate for their respective businesses, including insurance covering all real and personal property owned or leased by the Company or any of its Subsidiaries against theft, damage, destruction, acts of vandalism and all other risks customarily insured against, with such deductibles as are customary, to the Company’s Knowledge, for companies in the same or similar business. True, correct and complete copies of all policies and binders of insurance currently maintained in respect of the assets, properties, business, operations, employees, officers or directors of the Company and its Subsidiaries, excluding such policies pursuant to which the Company, any of its Subsidiaries or an Affiliate of any of them acts as the insurer and which are identified with respective expiration dates on Section 3.02(v) of the Company Disclosure Schedule (collectively, the “ Company Insurance Policies ”), and all written correspondence relating to any material claims made since December 31, 2011 under the Company Insurance Policies, have been previously made available to Acquirer. To its Knowledge, all of the Company Insurance Policies are in full force and effect, the premiums due and payable thereon have been or will be timely paid through the Closing Date, and there is no breach or default (and

26


no condition exists or event has occurred which, with the giving of notice or lapse of time or both, would constitute such a breach or default) by the Company or any of its Subsidiaries under any of the Company Insurance Policies or, to the Knowledge of the Company, by any other party to the Company Insurance Policies, except for any such breach or default that would not reasonably be expected to have, individually or in the aggregate, a material impact on the Company and its Subsidiaries, taken as a whole. Neither the Company nor any of its Subsidiaries has received any written notice of cancellation or non-renewal of any such Company Insurance Policy nor, to the Knowledge of the Company, is the termination of any such policies threatened.
(y)      Intellectual Property . To the Company’s Knowledge, the Company and its Subsidiaries own or otherwise have a valid license to use all trademarks, service marks and trade names (including any registrations or applications for registration of any of the foregoing) (collectively, the “ Company Intellectual Property ”) necessary to carry on their business substantially as currently conducted, except where such failures to own or validly license such Company Intellectual Property would not, individually or in the aggregate, reasonably be materially adverse to the Company. Neither the Company nor any such Subsidiary has received any notice of infringement of or conflict with, and to the Knowledge of the Company, there are no infringements of or conflicts with, the rights of others with respect to the use of any Company Intellectual Property which would, individually or in the aggregate, reasonably be materially adverse to the Company.
(z)      Brokers and Finders . None of the Company, any of its Subsidiaries or any of their respective officers, directors, employees or agents has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions or finder’s fees, and no broker or finder has acted directly or indirectly for the Company or any of its Subsidiaries, in connection with this Agreement or the transactions contemplated hereby, except that the Company has employed Keefe Bruyette & Woods, Inc. as its financial advisor in connection therewith.
(aa)      Related Party Transactions .
(i)      Except as set forth in Section 3.02(y)(i) of the Company Disclosure Schedule or as part of the normal and customary terms of an individual’s employment or service as a director, neither the Company nor any of its Subsidiaries is party to any extension of credit (as debtor, creditor, guarantor or otherwise), Contract for goods or services, lease or other Contract with any (1) Affiliate, (2) insider or related interest of an insider, (3) shareholder owning five percent (5%) or more of the outstanding Common Stock or related interest of such a shareholder or (4) employee who is not an executive officer (other than credit and consumer banking transactions in the ordinary course of business) (each, a “ Related Party Contract ”). For purposes of the preceding sentence, the terms “insider,” “related interest,” and “executive officer” shall have the meanings assigned in the Federal Reserve’s Regulation O.
(ii)      Each of the Company, Bank and each of the Company’s other Subsidiaries is in compliance with, and has since December 31, 2006, complied with, Sections 23A

27


and 23B of the Federal Reserve Act, its implementing regulations, and Federal Reserve Board Regulation O.
(bb)      Information Supplied . None of the information supplied or to be supplied by or on behalf of the Company for inclusion or incorporation by reference in the Form S-4 Registration Statement will, at the time the Form S-4 Registration Statement is filed with the SEC or at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. None of the information supplied or to be supplied by or on behalf of the Company for inclusion or incorporation by reference in the Proxy Statement or otherwise used in the solicitation of shareholders of the Company to approve this Agreement and the transactions contemplated hereby will, at the time the Proxy Statement is mailed to the shareholders of the Company or otherwise used or at the time of the Shareholders Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUIRER
Section 4.01      Representations and Warranties of Acquirer . Acquirer hereby represents and warrants to the Company, that, except as Previously Disclosed:
(cc)      Organization, Good Standing and Qualification .
(i)      Acquirer is duly organized, validly existing and in good standing under the laws of State of Delaware. Acquirer is a bank holding company duly registered under the BHCA and meets the applicable requirements for qualification as such. Acquirer has all corporate power and authority to own or lease all the assets owned or leased by it and to conduct its business as it is now being conducted. Acquirer is duly licensed or qualified to do business and in good standing as a foreign corporation in all jurisdictions (i) in which the nature of the activities conducted by Acquirer requires such licensure or qualification and (ii) in which Acquirer owns or leases real property, other than any failures to be so licensed or qualified that (iii) would not reasonably be expected to have or result in any material adverse impact on Acquirer. The articles of incorporation of Acquirer comply with applicable Law. A true, complete and correct copy of each of the certificate of incorporation and the bylaws of Acquirer, as amended and currently in effect, has been delivered or made available to the Company.
(ii)      Acquirer Bank is a commercial bank, duly organized, validly existing and in good standing under the Laws of the State of California and engages only in activities permitted by Law. Acquirer Bank (1) has all requisite corporate power and authority to own, operate and lease its properties and to carry on its business as it is currently being conducted (including all requisite authority to operate outside California where applicable) and (2) is in good standing and is duly qualified to do business in each

28


jurisdiction in which the character of its properties owned or held under lease or the nature of its business makes such qualification necessary. Acquirer Bank’s deposit accounts are insured by the FDIC to the fullest extent permitted under applicable Law.
(dd)      Authorization .
(i)      No vote of holders of capital stock of Acquirer is necessary to approve this Agreement and the Merger and the other transactions contemplated hereby, including under any applicable Law or the requirements of any stock exchange. Acquirer has all requisite corporate power and authority and has taken all corporate action necessary to execute, deliver and perform its obligations under this Agreement, and to consummate the Merger and the other transactions contemplated hereby. This Agreement has been duly executed and delivered by Acquirer and, assuming due authorization, execution and delivery by the Company, is a valid and binding agreement of Acquirer, enforceable against Acquirer in accordance with its terms, subject to the Bankruptcy and Equity Exception. No other corporate proceedings are necessary for the execution and delivery by Acquirer of this Agreement, the performance by it of its obligations hereunder or the consummation by it of the transactions contemplated hereby.
(ii)      Acquirer’s board of directors (the “ Acquirer Board ”) has received the opinion of its financial advisor, Raymond James Financial, Inc. to the effect that, subject to the assumptions, qualifications and limitations set forth therein, as of the date of such opinion, the Per Share Merger Consideration is fair to the holders of Acquirer Common Stock from a financial point of view. It is agreed and understood that such opinion is for the benefit of the Acquirer Board only and may not be relied upon by the Company or its shareholders or by any holders of capital stock of Acquirer.
(iii)      The Acquirer Board has adopted resolutions (1) determining that this Agreement and the transactions hereby are advisable, and in the best interests of Acquirer and its shareholders and (2) approving this Agreement and the transactions contemplated hereby.
(iv)      Neither the execution and delivery by Acquirer of this Agreement, nor the consummation of the transactions contemplated hereby, nor compliance by Acquirer with any of the provisions hereof, will (1) violate, conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or result in the loss to Acquirer or any of its Subsidiaries of any benefit or creation of any right on the part of any third party under, or accelerate the performance required by, or result in a right of termination or acceleration of, or result in the creation of any Encumbrances upon any of the material properties or assets of Acquirer or any of its Subsidiaries under any of the terms, conditions or provisions of (x) the certificate of incorporation or bylaws of Acquirer or the articles of incorporation, charter, bylaws or other governing instruments of any of its Subsidiaries or (y) any material Contract or license to which Acquirer or any of its Subsidiaries is a party or by which it may be bound, or to which Acquirer or any of its Subsidiaries or any of the properties or assets of Acquirer or any of its Subsidiaries

29


may be subject, or (2) violate any Law or Order applicable to Acquirer or any of its Subsidiaries or any of their respective properties or assets.
(ee)      Acquirer SEC Reports .
(i)      Acquirer has filed all forms, reports, and documents required to be filed by it with the SEC since December 31, 2011. Except to the extent available in full without redaction on the SEC’s website through EDGAR two days prior to the date of this Agreement, Acquirer has delivered to the Company copies in the form filed with the SEC (including the full text of any document filed subject to a request for confidential treatment) of all forms, reports, registration statements and other documents (other than preliminary materials if the corresponding definitive materials have been provided to the Company) filed by the Acquirer with the SEC since December 31, 2011 (such forms, reports, registration statements, and other documents, whether or not available through EDGAR, are collectively referred to herein as the “ Acquirer SEC Reports ”).
(ii)      Each of the Acquirer SEC Reports (1) as of the date of the filing of such report, complied as to form with the requirements of the Securities Act and the Exchange Act, and the rules and regulations thereunder, and (2) as of its filing date (or, if amended or superseded by a subsequent filing prior to the date hereof, on the date of such filing) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading.
(ff)      NASDAQ Listing and Compliance . The outstanding shares of Acquirer Common Stock are listed for trading on the NASDAQ. Acquirer is, and since December 31, 2011 has been, in compliance with the applicable listing rules and corporate governance rules and regulations of NASDAQ.
(gg)      Acquirer Financial Statements . Each of the financial statements (including, in each case, the notes thereto) of Acquirer contained or incorporated by reference in the Acquirer SEC Reports complied with the rules and regulations of the SEC as of the date of the filing of such reports, was prepared in accordance with GAAP and fairly presents the financial condition and the results of operations, changes in shareholders’ equity, and cash flows of Acquirer and its Subsidiaries as of the dates of and for the periods referred to in such financial statements, subject in the case of interim financial statements to (i) the omission of notes to the extent permitted by Regulation S-X and (ii) normal, recurring year-end adjustments. The financial statements of Acquirer referred to in this Section 4.01(e) reflect the consistent application of such accounting principles throughout the periods involved, except as disclosed in the notes to such financial statements.
(hh)      Brokers and Finders . Except that Acquirer has employed Raymond James Financial, Inc. to provide its opinion to the Acquirer Board regarding the fairness of the Merger to Acquirer from a financial point of view, none of Acquirer, its Affiliates or any of their respective officers, directors, employees or agents has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions or finder’s fees, and no

30


broker or finder has acted directly or indirectly for Acquirer, in connection with this Agreement or the transactions contemplated hereby that will require any payment by the Company.
(ii)      Certain Information . None of the information provided in writing by, and relating to Acquirer or Acquirer Bank or any of their respective Subsidiaries included in any registration statement or proxy statement contemplated under this Agreement will contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided , that information provided as of a later date shall be deemed to modify information provided as of an earlier date.
(jj)      Stock Validity . At the Effective Time, the Acquirer Stock issued in connection with the Merger will be duly authorized and validly issued and fully paid and nonassessable, subject to an effective registration statement with the SEC, freely tradeable without any restrictions, and not subject to any preemptive rights to subscribe for or purchase securities.

ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 5.01      Conduct of Businesses Prior to the Effective Time . Except as required by applicable Law, or with the prior written consent of Acquirer, during the period from the date of this Agreement to the Effective Time, the Company shall, and shall cause each of its Subsidiaries to, (a) conduct its business only in the ordinary course, consistent with past practice, (b) use commercially reasonable best efforts to maintain and preserve its business organizations intact and maintain existing relations and goodwill with Governmental Entities, customers, suppliers, distributors, creditors, lessors, landlords, Employees and business associates, to keep available the services of its and its Subsidiaries’ Employees and to maintain its branch network, (c) not take any action that could reasonably be expected to delay the receipt by the Company or Acquirer of any necessary approvals of any Governmental Entity required for the transactions contemplated hereby or to perform its covenants and agreements under this Agreement or to consummate the transactions contemplated hereby and (d) pay investment banking fees, legal fees, data processing termination penalty and other normal transaction fees prior to or concurrent with the Effective Date, and not pay any other fees or costs in excess of $150,000 that are outside the Company’s normal business prior to the Effective Date.
Section 5.02      Company Forbearances . During the period from the date of this Agreement to the Effective Time, except as Previously Disclosed, as expressly permitted by this Agreement or as required by applicable Law, the Company shall not, and shall not permit any of its Subsidiaries to, without the prior written consent of Acquirer:
(a)      (i) Issue, sell or otherwise permit to become outstanding, or dispose of or encumber or pledge, or authorize or propose the creation of, any additional shares of its stock other than in connection with the exercise of Company Stock Options that are outstanding as of the date of this Agreement, or (ii) authorize or cause any additional shares of its stock to become subject to new grants under the Company Stock Plan or otherwise.

31


(b)      (i) Make, declare, pay or set aside for payment any dividend on or in respect of, or declare or make any distribution on any shares of its stock (other than dividends from its wholly owned Subsidiaries to it or another of its wholly owned Subsidiaries) or (ii) directly or indirectly adjust, split, combine, redeem, reclassify, purchase or otherwise acquire, any shares of its stock (other than repurchases in the ordinary course of business to satisfy obligations under Benefit Plans).
(c)      Amend the terms of, waive any material rights under, fail to use reasonable best efforts to enforce, terminate, knowingly violate the terms of or enter into any Material Contracts.
(d)      Sell, transfer, mortgage, encumber, license, let lapse, cancel, abandon or otherwise dispose of or discontinue any of its assets, deposits, business or properties, except for sales, transfers, mortgages, encumbrances, licenses, lapses, cancellations, abandonments or other dispositions or discontinuances in the ordinary course of business and consistent with past practice.
(e)      Acquire (other than by way of foreclosures, deeds in lieu of foreclosure, or acquisitions of control in a fiduciary or similar capacity or in satisfaction of debts previously contracted in good faith, in each case in the ordinary course of business consistent with past practice) all or any portion of the assets, business, deposits or properties of any other entity.
(f)      Amend the articles of incorporation or bylaws of the Company, or similar governing documents of any of its Subsidiaries.
(g)      Implement or adopt any change in its financial or regulatory accounting principles, practices or methods, other than as required by GAAP or applicable regulatory accounting requirements.
(h)      Except for any retention plan to which the Parties mutually agree or as required by the terms of any Benefit Plan existing as of the date hereof (i) increase in any manner the compensation or benefits of any of the current or former directors, officers, employees, consultants, independent contractors or other service providers of the Company or any of its Subsidiaries (collectively, “ Employees ”), other than increases to Employees who are not directors or executive officers of the Company or any of its Subsidiaries that are in the ordinary course of business consistent with past practice, (ii) become a party to, establish, amend, commence participation in, terminate or commit itself to the adoption of any stock option plan or other stock-based compensation plan, compensation, severance, pension, retirement, profit-sharing, welfare benefit, or other employee benefit plan or Contract or employment agreement with or for the benefit of any Employee (or prospective Employees), (iii) accelerate the vesting of or lapsing of restrictions with respect to any stock-based compensation or other long-term incentive compensation, other compensation or benefits under any Benefit Plans, (iv) cause the funding of any rabbi trust or similar arrangement or take any action to fund or in any other way secure the payment of compensation or benefits under any Benefit Plan or (v) change any actuarial assumptions used to calculate funding obligations with respect to any Benefit Plan that is required by applicable Law to be funded or change the manner in which contributions to such plans are made or the basis on which such contributions are determined, except as may be

32


required by GAAP. For the purposes of this Section 5.02(h) , “ executive officer ” shall mean any officer who is in charge of a principal business unit, division or function and any other Person who performs a policy-making function for the Company or Company Bank.
(i)      Hire or engage the services of any individual except for the hiring or engagement of any individual with an annual rate of pay (which for purposes hereof shall include base salary or wages and target annual bonus, if any) less than $100,000.
(j)      Incur or guarantee any indebtedness for borrowed money other than in the ordinary course of business consistent with past practice and not in excess of $500,000 in the aggregate, except for Federal Home Loan Bank advances obtained in the ordinary course of business.
(k)      (i) Enter into any new line of business or (ii) materially change its lending, investment, underwriting, risk, compliance and asset/liability management and other banking and operating policies, except as required by a Governmental Entity.
(l)      Make any material change to (i) its investment securities portfolio, derivatives portfolio or its interest rate exposure, through purchases, sales or otherwise, or (ii) the manner in which such portfolio is classified or reported, except as required by a Governmental Entity.
(m)      Settle any action, suit, claim or proceeding against it or any of its Subsidiaries, except for an action, suit, claim or proceeding that is settled in an amount and for consideration not in excess of $50,000 and that would not (i) impose any restriction on it or its Subsidiaries or on Acquirer or any of its Affiliates or (ii) create precedent for claims that is reasonably likely to be material to it or its Subsidiaries.
(n)      Make application for the opening, relocation or closing of any, or open, relocate or close any, branch office, loan production office or other significant office or operations facility other than such applications that have been submitted and announced as of the date of this Agreement.
(o)      Make or change any material Tax election, change or consent to any change in its or its Subsidiaries’ material method of accounting for Tax purposes, settle or compromise any material Tax liability, claim or assessment, enter into any closing agreement, waive or extend any statute of limitations with respect to a material amount of Taxes, surrender any right to claim a refund for a material amount of Taxes, or file any material amended Tax Return.
(p)      (i) Merge or consolidate the Company or any of its Subsidiaries with any other Person or restructure, reorganize or completely or partially liquidate or (ii) otherwise enter into any Contracts or arrangements imposing material changes or restrictions on its assets, operations or businesses.
(q)      Create or incur any Encumbrance material to the Company and its Subsidiaries, taken as a whole, not incurred in the ordinary and usual course of business consistent with past practice.

33


(r)      Acquire any Loans through bulk purchases that are not in the process as of the date of this Agreement.
(s)      Make any capital contributions to or investments (other than to be held in a fiduciary or agency capacity to be beneficially owned by third Parties) in any Person (other than to or in any direct or indirect wholly owned Subsidiary of the Company).
(t)      Except as set forth in the capital budgets set forth in Section 5.02(t) of the Company Disclosure Schedule and consistent therewith, make or authorize any capital expenditure in excess of $50,000.
(u)      Take any action that would reasonably be expected to result in any of the conditions to the Merger set forth in Article VII not being satisfied.
(v)      Agree to take, make any commitment to take, or adopt any resolutions of the Company Board in support of, any of the actions prohibited by this Section 5.02 .
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.01      Cooperation; Regulatory Matters .
(w)      Each of the Parties shall cooperate with the other Party and use its commercially reasonable best efforts to take or cause to be taken all actions, and do or cause to be done all things, reasonably necessary, proper or advisable on its part under this Agreement and applicable Law to consummate the Merger, the Bank Merger and other transactions contemplated by this Agreement as soon as practicable, including promptly preparing and filing (or causing any required Affiliate to promptly prepare and file) all necessary documentation (the “ Required Filings ”) to make all applications, notices, petitions and filings, to obtain as promptly as practicable all permits, consents, approvals, agreements, authorizations and indications of non-objection (including all Requisite Regulatory Consents) of all Governmental Entities and other third parties that are necessary or advisable to consummate the transactions contemplated by this Agreement (including the Merger and the Bank Merger), and to comply with the terms and conditions of all such Requisite Regulatory Consents, permits, consents, approvals, agreements, authorizations and indications of non-objection of all Governmental Entities and other third parties. Without limiting the generality of the foregoing, the Parties agree to use their commercially reasonable best efforts to cause all Required Filings with respect to any Requisite Regulatory Consent to be completed and filed no later than twenty (20) Business Days after the date of this Agreement. The Company and Acquirer shall have the right to review in advance, and, to the extent practicable, each will consult the other on, in each case subject to applicable Laws, all the information relating to the Company or Acquirer, as the case may be, or any of their respective Affiliates, that appear in any Required Filings. In exercising the foregoing rights set forth in this Section 6.01(a) , Acquirer will take the lead in preparing required applications and notices, but each of the Parties shall act reasonably and as promptly as practicable. The Parties shall consult with each other with respect to the obtaining of all permits, consents, approvals and authorizations of all third parties and Governmental Entities necessary or advisable to

34


consummate the transactions contemplated by this Agreement and each Party will keep the other apprised on a current basis of the status of matters, and any material communication to, with or from a Governmental Entity, relating to, or reasonably likely to affect the timely completion of, the transactions contemplated by this Agreement.
(x)      Each of Acquirer and the Company shall, upon request, furnish to the other all information concerning itself, its Affiliates, Subsidiaries, directors, officers and shareholders and such other matters as may be reasonably necessary or advisable in connection with the Proxy Statement, as applicable, or any other statement, filing, notice or application made by or on behalf of Acquirer or any of its Affiliates, or the Company or any of its Subsidiaries, to any Governmental Entity in connection with the Merger, the Bank Merger or any of the other transactions contemplated by this Agreement.
(y)      In furtherance and not in limitation of the foregoing, each of Acquirer (and Acquirer shall cause its Subsidiaries to) and the Company (and the Company shall cause its Subsidiaries to) shall use its reasonable best efforts to (i) avoid the entry of, or to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order, whether temporary, preliminary or permanent, that would restrain, prevent or delay the Closing, and (ii) avoid or eliminate each and every impediment under any applicable Law so as to enable the Closing to occur as soon as possible; provided , however , that nothing in this Agreement, including this Section 6.01 , shall require, or be construed to require, Acquirer or any of its Affiliates to (x) proffer to, or agree to, sell, divest, or otherwise dispose of before or after the Effective Time, any assets, licenses, operations, rights, product lines, businesses or interest therein of Acquirer, the Company or any of their respective Affiliates, (y) agree to any conditions or make any commitments that are not comparable to those imposed in connection with comparable transactions and that would not be reasonably foreseeable based upon publicly available information, or (z) agree to any material changes or restriction on, or other impairment of Acquirer’s ability to own or operate, any of any such assets, licenses, operations, rights, product lines, businesses or interests therein or Acquirer’s or any of its Affiliates’ ability to vote, transfer, receive dividends or otherwise exercise full ownership rights with respect to the stock of the Surviving Corporation, in each case measured on a scale relative to the Company and its Subsidiaries, taken as a whole (each, a “ Burdensome Condition ”).
(z)      Each of Acquirer and the Company shall promptly advise the other upon receiving (including through their respective Affiliates) any communication from a Governmental Entity the consent or approval of which is required for consummation of the transactions contemplated by this Agreement that causes such Party to believe that there is a reasonable likelihood that any Requisite Regulatory Consent will not be obtained without the imposition of a Burdensome Condition or that the receipt of any such approval may be delayed.
Section 6.02      Access to Information .
(a)      Upon reasonable notice and subject to applicable Laws and with an effort to minimize business disruption, the Company shall, and shall cause each of its Subsidiaries to, afford to the officers, directors, employees, agents and the Representatives of Acquirer, reasonable access, during normal business hours during the period prior to the Effective Time, to

35


all its properties, books, Contracts, commitments and records, and, during such period, the Company shall, and shall cause its Subsidiaries to, make available to Acquirer (i) a copy of each report, schedule, registration statement and other document filed or received by it during such period pursuant to the requirements of federal or state banking Laws (other than reports or documents that the Company is not permitted to disclose under applicable Law) and (ii) all such other information concerning its business, properties and personnel as Acquirer may reasonably request. Neither the Company nor any of its Affiliates shall be required to provide access to or to disclose information where such access or disclosure would jeopardize the attorney-client privilege of such party or contravene any Law, fiduciary duty or Order or binding Contract entered into prior to the date of this Agreement. The Parties shall make appropriate substitute disclosure arrangements under circumstances in which the restrictions of the preceding sentence apply.
(b)      All nonpublic information and materials provided prior to or after the date of this Agreement shall be subject to the provisions of the confidentiality agreement entered into between the Parties as of March 1, 2012 (the “ Confidentiality Agreement ”).
(c)      No investigation by a party hereto or its representatives shall affect or be deemed to modify or waive any representations, warranties or covenants of the other Party set forth in this Agreement.
Section 6.03      Employee Matters .
(a)      Acquirer shall have the sole right and discretion to determine which Persons shall remain as Employees after the Closing Date. Following the Closing Date, Acquirer shall maintain or cause to be maintained employee benefit plans and compensation opportunities for the benefit of Employees who remain actively employed by the Company or its Subsidiaries after the Closing Date (“ Covered Employees ”) that provide employee benefits and compensation opportunities that, in the aggregate, are no less favorable than the employee benefits and compensation opportunities that are generally made available to similarly situated employees of Acquirer or its Subsidiaries (other than the Surviving Corporation and its Subsidiaries) (collectively, the “ Acquirer Plans ”), as applicable; provided , that (i) with respect to retirement benefits, satisfaction of the foregoing standard shall not require that any Covered Employee be eligible to participate in any specific retirement plan of Acquirer or a closed or frozen Acquirer Plan; and (ii) until such time as Acquirer shall cause Covered Employees to participate in the Acquirer Plans, a Covered Employee’s continued participation in the employee benefit plans and compensation opportunities of the Company and its Subsidiaries as in effect immediately prior to the Closing Date shall be deemed to satisfy the foregoing provisions of this sentence (it being understood that participation in the Acquirer Plans may commence at different times with respect to each Acquirer Plan).
(b)      Nothing in this Section 6.03 shall be construed to limit the right of Acquirer or any of its Affiliates (including, following the Closing Date, the Surviving Corporation and its Subsidiaries) to amend or terminate any Benefit Plan or other employee benefit plan, to the extent such amendment or termination is permitted by the terms of the applicable plan, nor shall anything in this Section 6.03 be construed to require Acquirer or any of its Affiliates (including,

36


following the Closing Date, the Surviving Corporation and its Subsidiaries) to maintain any Acquirer Plan or retain the employment of any particular Covered Employee for any fixed period of time following the Closing Date. This Agreement shall inure exclusively to the benefit of, and be binding upon the Parties hereto and their respective successors, assigns, executors and legal representatives. Nothing in this Agreement, express or implied, including without limitation this Section 6.03 , is intended to confer on any person other than the Parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement.
Section 6.04      Indemnification; Directors’ and Officers’ Insurance .
(a)      From and after the Effective Time, the Surviving Corporation shall indemnify, defend and hold harmless, to the extent permitted under applicable Law (and shall also advance expenses as incurred to the extent permitted under applicable Law and the certificate of incorporation and bylaws of the Surviving Corporation), each present and former director and officer of the Company or its Subsidiaries (in each case, to the extent acting in such capacity), determined as of the Effective Time (collectively, the “ Indemnified Parties ”) against any costs or expenses (including reasonable attorneys’ fees), judgments, fines, losses, claims, damages or liabilities incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, actual or threatened, arising out of facts or matters existing or occurring at or prior to the Effective Time, including the transactions contemplated by this Agreement; provided , that the Indemnified Party to whom expenses are advanced provides an undertaking to repay such advances if it is ultimately determined that such Indemnified Party is not entitled to indemnification by the Surviving Corporation.
(b)      The Surviving Corporation shall provide the directors and officers liability insurance (the “ D&O Insurance ”) to the Indemnified Parties for a period of six years from and after the Effective Time with $3,000,000 of coverage; provided , however , that in no event shall the Surviving Corporation be required to expend for such D&O Insurance a premium amount in excess of 200% of the annual premium paid by the Company for such insurance during its last renewal (“ Initial Premium ”); provided , further , that if the premium amount of such insurance coverage would exceed 200% of Initial Premium amount, the Surviving Corporation shall obtain a policy or policies of D&O Insurance for such Persons with the greatest coverage available for a cost not exceeding 200% of Initial Premium amount.
(c)      Any Indemnified Party wishing to claim indemnification under Section 6.04(a) , upon learning of any claim, action, suit, proceeding or investigation described above, will promptly notify the Surviving Corporation; provided , that failure to so notify will not affect the obligations of Acquirer under Section 6.04(a) unless and to the extent that the Surviving Corporation is actually and materially prejudiced as a consequence.
(d)      The provisions of this Section 6.04 are intended to be for the benefit of, and shall be enforceable by, each Indemnified Party.

37


Section 6.05      Acquisition Proposals .
(a)      The Company agrees that it shall not, and shall cause the officers, directors, employees, agents and representatives, including any investment banker, financial advisor, attorney, accountant or other advisor, agent, representative or Affiliate (collectively as to each Party, the “ Representatives ”) of the Company or any of its Subsidiaries not to, directly or indirectly:
(i)      initiate, solicit or encourage any inquiries or the making of any proposal or offer that constitutes, or could reasonably be expected to lead to, any Acquisition Proposal;
(ii)      engage in, continue or otherwise participate in any discussions or negotiations regarding, or provide any information or data to any Person relating to, any Acquisition Proposal; or
(iii)      otherwise knowingly facilitate any effort or attempt to make an Acquisition Proposal.
(b)      Notwithstanding anything in Section 6.05(a) to the contrary, prior to the time, but not after, the Requisite Shareholder Approval is obtained, the Company may (i) provide information in response to a request therefor by a Person who has made an unsolicited bona fide written Acquisition Proposal providing for the acquisition of more than 50% of the assets (on a consolidated basis) or total voting power of the equity securities of the Company if the Company receives from the Person so requesting such information an executed confidentiality agreement on terms not less restrictive to the other party than those contained in the Confidentiality Agreement and substantially concurrently (and in any event within two (2) Business Days) discloses (and, if applicable, provides copies of) any such information to Acquirer to the extent not previously provided to Acquirer; (ii) engage or participate in any discussions or negotiations with any Person who has made such an unsolicited bona fide written Acquisition Proposal; or (iii) after having complied with all requirements of Section 6.05(c) and Section 6.05(d) , approve, recommend, or otherwise declare advisable or propose to approve, recommend or declare advisable (publicly or otherwise) such an Acquisition Proposal, if, but only to the extent that , (x) prior to taking any action described in clause (i) , (ii) or (iii) above, the Company Board determines in good faith after consultation with outside legal counsel that failure to take such action, in light of the Acquisition Proposal and the terms of this Agreement, would be inconsistent with the directors’ fiduciary duties under applicable Law, (y) in each such case referred to in clause (i) or (ii) above, the Company Board has determined in good faith after consultation with its financial advisor and outside legal counsel that such Acquisition Proposal constitutes a Superior Proposal, and (z) in the case referred to in clause (iii) above, the Company Board determines in good faith after consultation with its financial advisor and outside legal counsel that such Acquisition Proposal is a Superior Proposal.
(c)      The Company Board shall not withhold, withdraw, qualify or modify (or publicly propose or resolve to withhold, withdraw, qualify or modify), in a manner adverse to Acquirer, the Company Board Recommendation with respect to the Merger. Notwithstanding the

38


preceding sentence, prior to the time, but not after, the Requisite Shareholder Approval is obtained, the Company Board may withhold, withdraw, qualify or modify the Company Board Recommendation or approve, recommend or otherwise declare advisable any Superior Proposal made after the date of this Agreement that was not solicited, initiated, encouraged or facilitated in breach of this Agreement, if the Company Board determines in good faith, after consultation with outside counsel, that failure to do so would be in violation of the directors’ fiduciary duties under applicable Law (a “ Change of Recommendation ”); provided , however , that no Change of Recommendation may be made, and, for the avoidance of doubt, no action referred to in Section 6.05(b)(iii) shall be taken, until after at least 72 hours following Acquirer’s receipt of notice from the Company advising that the Company currently intends to take such action and the basis therefor, including all necessary information under Section 6.05(e) . In determining whether to make a Change of Recommendation or, for the avoidance of doubt, whether to take any action referred to in Section 6.05(b)(iii) , in response to a Superior Proposal or otherwise, the Company Board shall take into account any changes to the terms of this Agreement proposed by Acquirer and any other information provided by Acquirer in response to such notice. Any material amendment to any Acquisition Proposal will be deemed to be a new Acquisition Proposal for purposes of this Section 6.05 , including with respect to the notice periods referred to in this Section 6.05(c) and Section 6.05(e) .
(d)      The Company agrees that it will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted prior to the date hereof with respect to any Acquisition Proposal. The Company agrees that it will take the necessary steps to promptly inform the individuals or entities referred to in the first sentence hereof of the obligations undertaken in this Section 6.05 and in the Confidentiality Agreement. The Company also agrees that it will promptly request each Person that has heretofore executed a confidentiality agreement in connection with such Person’s consideration of acquiring the Company or any of its Subsidiaries to return or destroy all confidential information heretofore furnished to such Person by or on behalf of it or any of its Subsidiaries.
(e)      The Company agrees that it will promptly (and, in any event, within two (2) Business Days) notify Acquirer if any inquiries, proposals or offers with respect to an Acquisition Proposal are received by, any such information is requested from, or any such discussions or negotiation are sought to be initiated or continued with, it or any of its Representatives indicating, in connection with such notice, the name of such Person and the material terms and conditions of any proposals or offers (including, if applicable, copies of any written requests, proposals or offers, including proposed Contracts) and thereafter shall keep Acquirer informed, on a current basis, of any material changes in the status and terms of any such proposals or offers (including any amendments thereto) and any material changes in the status of any such discussions or negotiations, including any change in the Company’s intentions as previously notified.
Section 6.06      Takeover Laws . No Party will take any action that would cause the transactions contemplated by this Agreement to be subject to requirements imposed by any Takeover Law and each Party will take all necessary steps within its control to exempt (or ensure

39


the continued exemption of) those transactions from, or if necessary challenge the validity or applicability of, any applicable Takeover Law, as now or hereafter in effect.
Section 6.07      Financial Statements and Other Current Information . As soon as reasonably practicable after they become available, but in no event more than thirty (30) days after the end of each calendar month ending after the date hereof, the Company will put in the Data Room or, at the Company’s election, furnish to such Person as may be specified by Acquirer, pursuant to notice requirements set forth in Section 9.04 , (a) consolidated financial statements (including balance sheets, statements of operations and shareholders’ equity) of the Company or any of its Subsidiaries (to the extent available) as of and for such month then ended, (b) to the extent available, internal management reports showing actual financial performance against plan and previous period and (c) to the extent permitted by applicable Law, any reports provided to the Company Board or any committee thereof relating to the financial performance and risk management of the Company or any of its Subsidiaries.
Section 6.08      Shareholders Meeting . The Company will take, in accordance with applicable Law and its certificate of incorporation and bylaws, all action necessary to convene a meeting of holders of Shares (the “ Shareholders Meeting ”) as promptly as practicable after the date hereof, to consider and vote upon the adoption of this Agreement, and shall not postpone or adjourn such meeting except to the extent required by Law. Subject to Section 6.05(c) hereof, the Company Board shall recommend the adoption of this Agreement by the Requisite Shareholder Approval and shall take all lawful action to solicit such adoption of this Agreement. The obligation of the Company to hold the Shareholders Meeting shall not be affected by any Acquisition Proposal or other event or circumstance and the Company agrees that it will not submit any Acquisition Proposal to its shareholders for a vote at the Shareholder Meeting convened to consider and vote upon the adoption of this Agreement.
Section 6.09      Notification of Certain Matters . The Company and Acquirer will give prompt notice to the other of any fact, event or circumstance known to it that (a) is reasonably likely, individually or taken together with all other facts, events and circumstances known to it, to result in any Company Material Adverse Effect or Acquirer Material Adverse Effect, respectively, or (b) would cause or constitute a material breach of any of its representations, warranties, covenants or agreements contained herein that reasonably could be expected to give rise, individually or in the aggregate, to the failure of a condition in Article VII ; provided , however , that failure to give such notice shall not separately constitute a failure of any condition in Article VII or a basis to terminate this Agreement unless the underlying fact, event or circumstance would independently result in such failure or provide such basis. The Company shall give prompt notice to Acquirer of any legal, administrative, arbitral or other proceeding, claim or action, or governmental or regulatory investigation of any nature arising after the date hereof, but prior to the Effective Time.
Section 6.10      Related Party Contracts . To the extent requested in writing by the Acquirer with respect to any specific identified contract prior to the Effective Time, the Company shall take all actions necessary to terminate, and shall cause to be terminated, each Related Party Contract, in each case without any further liability or obligation of the Company,

40


the Surviving Corporation, Acquirer or any of their respective Subsidiaries or Affiliates and, in connection therewith, the Company (or its applicable Subsidiary) shall have received from the other party to such Related Party Contract a release in favor of the Company, the Surviving Corporation, Acquirer and their respective Subsidiaries and Affiliates from any and all liabilities or obligations arising out of such Related Party Contract.
Section 6.11      Form S-4 Registration Statement . Acquirer shall use its commercially reasonable best efforts to cause the Form S-4 Registration Statement, in which the Company’s Proxy Statement for the Shareholders Meeting will be included, to be filed with the SEC no later than forty-five (45) Business Days after the date of this Agreement. Each of Acquirer and the Company shall use its commercially reasonable best efforts to have the Form S-4 Registration Statement declared effective under the Securities Act as promptly as practicable after such filing, and the Company shall thereafter mail or deliver the proxy statement contained therein to its shareholders. Acquirer shall also use its reasonable best efforts to obtain all necessary state securities law or “blue sky” permits and approvals required to carry out the transactions contemplated by this Agreement, and the Company shall furnish all information concerning the Company and the holders of the Company Common Stock that may be reasonably requested in connection with such action. Within 60 days after the Effective Time, the Acquirer shall cause the shares underlying the Assumed Options to be registered with the SEC under a registration statement on Form S-8, including, at Acquirer’s election, an amendment on Form S-8 of the Form S-4 Registration Statement.
Section 6.12      NASDAQ Listing . Acquirer shall use its commercially reasonable best efforts to cause the shares of Acquirer Common Stock to be issued in the Merger to have been authorized for listing on the NASDAQ, subject to official notice of issuance, prior to the effective time.
Section 6.13      Trust Preferred Securities . At the Effective Time, Acquirer shall assume the Company’s obligations under Company’s outstanding Unsecured Junior Subordinated Deferrable Interest Notes.
Section 6.14      Tax Matters . During the period from the date of this Agreement to the Effective Time, (a) the Company and each of its Subsidiaries shall timely file all Tax Returns required to be filed by each such entity during such period (after taking into account any extensions) (each, a “ Post-Signing Return ”), which Post-Signing Returns shall be complete and correct in all respects and, except as otherwise required by Law, shall be prepared on a basis consistent with the past practice of the Company; provided , however , that no material Post-Signing Returns shall be filed with any Governmental Entity without Acquirer’s prior written consent, which consent shall not be unreasonably withheld or delayed; (b) the Company and each of its Subsidiaries shall timely pay all Taxes due and payable with respect to the Tax periods covered by such Post-Signing Returns; (c) the Company shall accrue a liability in its books and records and financial statements in accordance with GAAP and past practice for all Taxes payable by the Company or any of its Subsidiaries for which no Post-Signing Return is due prior to the Effective Time; (d) the Company and each of its Subsidiaries shall promptly notify Acquirer of any suit, claim, action, investigation, proceeding or audit pending against or with

41


respect to the Company or any of its Subsidiaries in respect of any material amount of Tax and will not settle or compromise any such suit, claim, action, investigation, proceeding or audit without Acquirer’s prior written consent, which consent shall not be unreasonably withheld or delayed; and (e) the Company and each of its Subsidiaries shall retain all books, documents and records necessary for the preparation of Tax Returns and reports and Tax audits consistent with its standard policy.

ARTICLE VII
CONDITIONS PRECEDENT
Section 7.01      Conditions to Each Party’s Obligation to Effect the Merger . The respective obligations of the Parties to effect the Merger shall be subject to the satisfaction or waiver at or prior to the Effective Time of each of the following conditions:
(d)      Shareholder Approval . The Requisite Shareholder Approval shall have been obtained.
(e)      No Injunctions or Restraints; Illegality . No order, injunction or decree issued by any Governmental Entity or other Law preventing or making illegal the consummation of the Merger or any of the other transactions contemplated by this Agreement shall be in effect.
(f)      Regulatory Approvals . The Requisite Regulatory Consents shall have been obtained and shall remain in full force and effect and all statutory waiting periods in respect thereof shall have expired, without the imposition of any Burdensome Condition in connection therewith.
(g)      Effectiveness of Form S-4 Registration Statement . The Form S-4 Registration Statement shall have been declared effective by the SEC in accordance with the provisions of the Securities Act, no stop order suspending the effectiveness of Form S-4 Registration Statement shall have been issued by the SEC, and no proceeding for that purpose shall have been initiated or threatened by the SEC.
(h)      NASDAQ Listing . The shares of Acquirer Common Stock to be issued in the Merger pursuant to this Agreement shall have been approved for listing on the NASDAQ.
Section 7.02      Conditions to Obligations of Acquirer . The obligations of Acquirer to effect the Merger are also subject to the satisfaction, or waiver by Acquirer, at or prior to the Effective Time, of the following conditions:
(c)      Representations and Warranties . The representations and warranties of the Company set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Effective Time as though made on and as of the Effective Time (except that representations and warranties that by their terms speak specifically as of the date of this Agreement or another date shall be true and correct as of such date); provided , however , that no representation or warranty of the Company (other than the representations and

42


warranties set forth in the first two sentences of Section 3.02(a)(i) and the first sentence of Section 3.02(a)(ii) , Section 3.02(b) , Section 3.02(d)(i) , Section 3.02(d)(iii) and Section 3.02(d)(iv)(1)(x) , which shall be true and correct in all respects) shall be deemed untrue or incorrect for the purposes hereof as a consequence of the existence of any fact, event or circumstance inconsistent with such representation or warranty, unless such fact, event or circumstance, individually or taken together with all other facts, events or circumstances inconsistent with any representation or warranty of the Company, has had or would reasonably be expected to result in a Company Material Adverse Effect; provided , that for purposes of determining whether a representation or warranty is true and correct for purposes of this Section 7.02(a) , any qualification or exception for, or reference to, materiality (including the terms “material,” “materially,” “in all material respects,” “Company Material Adverse Effect” or similar terms or phrases) in any such representation or warranty (other than in Section 3.02(j)(iv) ) shall be disregarded; and Acquirer shall have received a certificate signed on behalf of the Company by the Chief Executive Officer and the Chief Financial Officer of the Company to their best Knowledge to the foregoing effect.
(d)      Performance of Obligations of the Company . The Company shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Effective Time; and Acquirer shall have received a certificate signed on behalf of the Company by the Chief Executive Officer and the Chief Financial Officer of the Company to such effect.
(e)      Termination of Regulatory Agreements . Acquirer shall have obtained assurance satisfactory to Acquirer, that neither the Company’s Regulatory Agreements nor any other regulatory restrictions will apply to the Surviving Corporation or the Surviving Bank as a result of the Merger.
(f)      Treasury Regulations Certificate . The Company shall have delivered to Acquirer a certificate described in Treasury Regulations section 1.897-2(h) in a form reasonably satisfactory to Acquirer.
(g)      Absence of Material Adverse Effect . Since the date of this Agreement no Company Material Adverse Effect shall have occurred. Without limitation of changes that may constitute or be deemed to have had a Company Material Adverse Effect, deficiencies in the documentation of SBA Loans shall not constitute a Company Material Adverse Effect unless actual losses are incurred as a result thereof that constitute a Company Material Adverse Effect.
(h)      Dissenters Rights . The holders of not more than 15% of the outstanding Company Common Stock shall have given timely notice of an intention to exercise dissenters’ rights under the applicable provisions of the WBCA.
Section 7.03      Conditions to Obligations of the Company . The obligation of the Company to effect the Merger is also subject to the satisfaction or waiver by the Company at or prior to the Effective Time of the following conditions:

43


(e)      Representations and Warranties . The representations and warranties of Acquirer set forth in this Agreement shall be true and correct as of the date of this Agreement and as of the Effective Time as though made on and as of the Effective Time (except that representations and warranties that by their terms speak specifically as of the date of this Agreement or another date shall be true and correct as of such date); provided , however , that no representation or warranty of Acquirer shall be deemed untrue or incorrect for the purposes hereunder as a consequence of the existence of any fact, event or circumstance inconsistent with such representation or warranty, unless such fact, event or circumstance, individually or taken together with all other facts, events or circumstances inconsistent with any representation or warranty of Acquirer, has had or would reasonably be expected to result in an Acquirer Material Adverse Effect; provided , further , that for purposes of determining whether a representation or warranty is true and correct for purposes of this Section 7.03(a) , any qualification or exception for, or reference to, materiality (including the terms “material,” “materially,” “in all material respects,” “Acquirer Material Adverse Effect” or similar terms or phrases) in any such representation or warranty shall be disregarded; and the Company shall have received a certificate signed on behalf of Acquirer by the Chief Executive Officer or the Chief Financial Officer of Acquirer to the foregoing effect.
(f)      Performance of Obligations of Acquirer . Acquirer shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Effective Time; and the Company shall have received a certificate signed on behalf of Acquirer by the Chief Executive Officer or the Chief Financial Officer of Acquirer to such effect.
(g)      Absence of Acquirer Material Adverse Effect . Since the date of this Agreement no Acquirer Material Adverse Effect shall have occurred.

ARTICLE VIII
TERMINATION AND AMENDMENT
Section 8.01      Termination . This Agreement may be terminated and the Merger may be abandoned (whether before or after receipt of the Requisite Shareholder Approval), at any time prior to the Effective Time:
(i)      by mutual consent of the Company and Acquirer in a written instrument authorized by the Company Board and the Acquirer Board;
(j)      by Acquirer, if, since the date of this Agreement, the Company shall have suffered a Company Material Adverse Effect;
(k)      by the Company, if, since the date of this Agreement, Acquirer shall have suffered an Acquirer Material Adverse Effect;
(l)      by either the Company or Acquirer, if any Governmental Entity that must grant a Requisite Regulatory Consent has denied such Requisite Regulatory Consent or any Governmental Entity of competent jurisdiction shall have initiated legal or administrative action

44


seeking an order, injunction or decree permanently enjoining or otherwise prohibiting or making illegal the consummation of the transactions contemplated by this Agreement and such action shall not have been finally terminated;
(m)      by either the Company or Acquirer, if the Merger shall not have been consummated on or before June 1, 2013 (the “ Outside Date ”) unless the failure of the Closing to occur by such date shall be due to the failure of the Party seeking to terminate this Agreement to perform or observe the covenants and agreements of such Party set forth in this Agreement; provided , however that the Outside Date shall be extended by a period of 90 days if the only outstanding contingency is receipt of a Requisite Regulatory Approval;
(n)      by either the Company or Acquirer ( provided , that the terminating Party is not then in material breach of any representation, warranty, covenant or other agreement contained herein), if there shall have been a breach of any of the covenants or agreements or any of the representations or warranties set forth in this Agreement on the part of the Company, in the case of a termination by Acquirer, or on the part of Acquirer, in the case of a termination by the Company, which breach, either individually or in the aggregate with other breaches by such Party, would result in, if occurring or continuing on the Closing Date, the failure of the conditions set forth in Section 7.02 or 7.03 , as the case may be, and which is not cured within the earlier of (i) thirty (30) days following written notice to the Party committing such breach and (ii) the Outside Date or by its nature or timing cannot be cured within such time period;
(o)      by either the Company or Acquirer, if the approval of this Agreement by holders of Shares constituting the Requisite Shareholder Approval shall not have been obtained at the Shareholders Meeting or at any adjournment or postponement of the Shareholders Meeting taken in accordance with this Agreement;
(p)      by Acquirer, at any time prior to the time the Requisite Shareholder Approval is obtained, if (i) the Company Board shall have made a Change of Recommendation; (ii) the Company shall have materially violated Section 6.06 , Section 6.07 , Section 6.09 or Section 6.10 ; or (iii) at any time following receipt of an Acquisition Proposal, the Company Board shall have failed to reaffirm its approval or recommendation of this Agreement and the Merger as promptly as practicable (but in any event prior to the earlier of (x) within three Business Days after receipt of any written request to do so from Acquirer and (y) the date of the Shareholders Meeting).
The Party desiring to terminate this Agreement pursuant to this Section 8.01 shall give written notice of such termination to the other Party in accordance with Section 9.04 , specifying the provision or provisions hereof pursuant to which such termination is effected.
Section 8.02      Effect of Termination .
(h)      In the event of termination of this Agreement by either the Company or Acquirer as provided in Section 8.01 , this Agreement shall forthwith become void and of no effect, and none of the Company, Acquirer, any of their respective Subsidiaries or any of the officers, directors, employees, agents, attorneys or investment bankers of any of them shall have any liability of any nature whatsoever under this Agreement, or in connection with the transactions

45


contemplated by this Agreement, except that (i) Sections 6.02(b) , 8.02 , 8.03 , 9.03 , 9.04 , 9.05 , 9.06 , 9.08 , 9.09 , 9.13 and 9.14 shall survive any termination of this Agreement, and (ii) neither the Company nor Acquirer shall be relieved of or released from any liabilities or damages arising out of its knowing and intentional breach of any provision of this Agreement.
(i)      If this Agreement is terminated by Acquirer pursuant to Section 8.01(g) , then the Company shall promptly, but in no event later than two (2) days after the date of such termination, pay Acquirer all the documented out-of-pocket expenses incurred by Acquirer or any of its Affiliates in connection with this Agreement, including attorneys’ fees, and the transactions contemplated by this Agreement up to a maximum amount of $100,000, payable by wire transfer of same day funds; provided , however , that the Company shall not be required to make such payment if prohibited from doing so by its regulatory authorities.
(j)      The Parties have determined that it would be too difficult to determine the damages that would be suffered by a Party in the event of a breach of this Agreement by the other. Accordingly, the Parties hereby agree that a Party who properly terminates this Agreement on the basis of a material breach of this Agreement shall be entitled to obtain payment in the sum of $250,000 in immediately available funds within 48 hours of delivery of notice of such termination in the manner provided in Section 9.04 . The Parties further agree that receipt of such sum, plus any costs of collection (including reasonably attorneys’ fees) necessary to obtain payment of such sum, shall be the sole remedy of the non-breaching Party; provided , that nothing herein shall be deemed to prevent a non-breaching Party from seeking the remedy of specific performance as provided in Section 9.12 .
Section 8.03      Fees and Expenses . Costs and expenses of printing and mailing the Proxy Statement shall be the obligation of the Company. All filing and other fees paid to the SEC in connection with the Merger and all professional fees related to such registration shall be the obligation of the Acquirer. All other fees and expenses incurred in connection with the Merger, this Agreement and the transactions contemplated by this Agreement shall be paid by the Party incurring such fees or expenses, whether or not the Merger is consummated.
Section 8.04      Extension; Waiver . At any time prior to the Effective Time, the Parties, by action taken or authorized by their respective boards of directors, may, to the extent legally allowed, (a) extend the time for the performance of any of the obligations or other acts of the other Party, (b) waive any inaccuracies in the representations and warranties of the other Party contained in this Agreement or (c) waive compliance by the other Party with any of the agreements or conditions contained in this Agreement. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such Party, but such extension or waiver or failure to insist on strict compliance with an obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.
ARTICLE IX
GENERAL PROVISIONS

46


Section 9.01      Nonsurvival of Representations, Warranties and Agreements . None of the representations, warranties, covenants and agreements set forth in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Effective Time, except for Section 6.04 and for those other covenants and agreements contained in this Agreement that by their terms apply or are to be performed in whole or in part after the Effective Time.
Section 9.02      Amendment . This Agreement may be amended at any time prior to the Effective Time by the Parties (by action taken or authorized by their respective boards of directors), whether before or after receipt of the Requisite Shareholder Approval; provided , however , that after such shareholder approval of this Agreement, no amendment shall be made to this Agreement that by Law requires further approval or authorization by the shareholders of the Company without such further approval or authorization. This Agreement may only be amended by an instrument in writing signed by or on behalf of each of the Parties
Section 9.03      Waiver of Conditions . The conditions to each of the Parties’ obligations to consummate the Merger are for the sole benefit of such Party and may be waived by such Party in whole or in part to the extent permitted by applicable Laws.
Section 9.04      Notices . All notices and other communications in connection with this Agreement shall be in writing and shall be deemed given if delivered personally, sent via facsimile or email (with confirmation), mailed by registered or certified mail (return receipt requested) or delivered by an express courier (with confirmation) to the Parties at the following addresses (or at such other address for a party as shall be specified by like notice):
If to Acquirer, to:
BBCN Bancorp, Inc.
3731 Wilshire Boulevard, Suite 1000
Los Angeles, CA 90010
Attention:    Legal Department
        Juliet Stone or Lisa Pai
Facsimile:    (213) 235-3257 or (213) 406-8942
Email:        juliet.stone@bbcnbank.com
        lisa.pai@bbcnbank.com
with copies to:
Mayer Brown LLP
350 S. Grand Avenue, 25th Floor
Los Angeles, CA 90071
Attention:    James R. Walther
Facsimile:    (213) 576-8153
Email:        jwalther@mayerbrown.com

47


If to the Company, to:
Pacific International Bank
1155 North 130th Street
Seattle, WA
Attention:    Paul G. Sabado    
        President & CEO
Facsimile:    (206) 306-7532
Email:        paul.sabado@pibank.com
with a copy to:
Graham & Dunn PC
Pier 70
2801 Alaskan Way, Suite 300
Seattle, WA 98121
Attention:    Daniel S. Friedberg or Ryan Straus
Facsimile:    (206) 340-9599
Email:        dfriedberg@grahamdunn.com
        rstraus@grahamdunn.com

Section 9.05      Counterparts . This Agreement may be executed in two (2) or more counterparts (including by facsimile, pdf format or other electronic means), all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each of the Parties and delivered to the other Party, it being understood that each Party need not sign the same counterpart.
Section 9.06      Entire Agreement . This Agreement (including any exhibits hereto, the documents and the instruments referred to in this Agreement) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the Parties with respect to the subject matter of this Agreement, other than the Confidentiality Agreement.
Section 9.07      Severability . If any provision of this Agreement or the application thereof to any person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions, or the application of such provision to persons or circumstances other than those as to which it has been held invalid or unenforceable, will remain in full force and effect and will in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party. Upon such determination, the parties will negotiate in good faith in an effort to agree upon a suitable and equitable substitute provision to effect the original intent of the parties.
Section 9.08      Governing Law; Jurisdiction . This Agreement shall be governed and construed in accordance with the laws of the State of Delaware applicable to contracts made and entirely to be performed within such state, without regard to any applicable conflicts of law principles that would require the application of the laws of any other jurisdiction. The Parties

48


hereto agree that any suit, action or proceeding brought by either Party to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby, whether in tort or contract or at law or in equity, exclusively, in the United States District Court for the District of Delaware. Each of the Parties hereto irrevocably submits to the exclusive jurisdiction of such court in any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of, or in connection with, this Agreement or the transactions contemplated hereby and hereby irrevocably waives the benefit of jurisdiction derived from present or future domicile or otherwise in such action or proceeding. Each Party hereto irrevocably waives, to the fullest extent permitted by Law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in such court or that any such suit, action or proceeding brought in such court has been brought in an inconvenient forum or that such Party is not subject to personal jurisdiction in such court.
SECTION 9.09      WAIVER OF JURY TRIAL . EACH PARTY HERETO ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION, DIRECTLY OR INDIRECTLY, ARISING OUT OF, OR RELATING TO, THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (B) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) EACH PARTY MAKES THIS WAIVER VOLUNTARILY AND (D) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.09 .
Section 9.10      Publicity . Neither the Company nor Acquirer shall, and neither the Company nor Acquirer shall permit any of its Subsidiaries or their respective Representatives to, issue or cause the publication of any press release or other public announcement with respect to, or otherwise make any public statement, or, except as otherwise specifically provided in this Agreement, any disclosure of nonpublic information to a third party, concerning, the transactions contemplated by this Agreement without the prior consent (which shall not be unreasonably withheld or delayed) of Acquirer, in the case of a proposed announcement, statement or disclosure by the Company or its Subsidiaries or their respective Representatives, or the Company, in the case of a proposed announcement, statement or disclosure by Acquirer or its Subsidiaries or their respective Representatives; provided , however , that either Party may, without the prior consent of the other Party (but after prior consultation with the other Party to the extent practicable under the circumstances) issue or cause the publication of any press release or other public announcement to the extent required by Law or by the rules and regulations of NASDAQ.

49


Section 9.11      Assignment; Third-Party Beneficiaries . Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned by either of the Parties (whether by operation of law or otherwise) without the prior written consent of the other Party (which shall not be unreasonably withheld or delayed). Any attempted or purported assignment in contravention hereof shall be null and void. Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of and be enforceable by each of the Parties and their respective successors and assigns. Except for Section 6.04 , which is intended to benefit each Indemnified Party and his or her heirs and representatives, this Agreement (including the documents and instruments referred to in this Agreement) is not intended to and does not confer upon any person other than the Parties hereto any rights or remedies under this Agreement including, without limitation, the right to rely upon the representations and warranties set forth herein.
Section 9.12      Specific Performance . The Parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms. It is accordingly agreed that the Parties shall be entitled to seek specific performance of the terms hereof without being required to post any bond or other security, this being in addition to any other remedies to which they are entitled at law or equity, in tort or any other claims.
Section 9.13      Definitions . The following terms, as used herein, have the following meanings:
“ Acquirer Bank ” shall mean BBCN Bank, a California state-chartered bank and a wholly owned subsidiary of Acquirer.
“ Acquirer Material Adverse Effect ” shall mean any fact, event, change, condition, occurrence, development, circumstance, effect or state of facts that:
(i)      individually or in the aggregate, has been, or would reasonably be expected to be, materially adverse to the business, assets, results of operations or financial condition of Acquirer and its Subsidiaries, in each case taken as a whole; provided , however , that no fact, event, change, condition, occurrence, development, circumstance, effect or state of facts to the extent resulting from any of the following shall be considered in determining whether an Acquirer Material Adverse Effect has occurred or is in existence:
(1)      changes, after the date hereof, in Laws, rules and regulations of general applicability, or of general applicability to banks or their holding companies, or interpretations thereof by Governmental Entities, including any change in GAAP or regulatory accounting requirements,
(2)      changes in the economy or financial markets, generally, in the United States, or

50


(3)      changes in economic, business or financial conditions generally affecting the banking industry,
provided , that the foregoing shall not apply to the extent such fact, event, change, condition, occurrence, development, circumstance, effect, action, omission or state of facts of the type referred to therein, has a disproportionate impact on the business, assets, results of operations or financial condition of Acquirer and its Subsidiaries compared to other comparable companies within the banking industry, or
(ii)      prevents, materially delays or materially impairs the ability of Acquirer to perform its obligations under this Agreement or to consummate the Merger.
“ Acquisition Proposal ” means (i) any proposal or offer with respect to a merger, joint venture, partnership, consolidation, dissolution, liquidation, tender offer, recapitalization, reorganization, share exchange, business combination or similar transaction involving the Company or any of its Subsidiaries and (ii) any acquisition by any Person resulting in, or proposal or offer, which if consummated would result in, any Person becoming the beneficial owner of directly or indirectly, in one or a series of related transactions, 15% or more of the total voting power or of any class of equity securities of the Company or those of any of its Subsidiaries, or 15% or more of the consolidated total assets (including, without limitation, equity securities of its Subsidiaries) of the Company, in each case other than the transactions contemplated by this Agreement.
“ Affiliate ” shall mean, with respect to a Person, those other Persons that, directly or indirectly, control, are controlled by or are under common control with such Person; for purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” or “under common control with”), as applied to any person, means the possession, directly or indirectly, of (i) ownership, control or power to vote twenty-five percent (25%) or more of the outstanding shares of any class of voting securities of such person, (ii) control, in any manner, over the election of a majority of the directors, trustees or general partners (or individuals exercising similar functions) of such person or (iii) the power to exercise a controlling influence over the management or policies of such person as determined by the Federal Reserve; provided , however , neither the Company nor any of its Affiliates shall be deemed an Affiliate of Acquirer, or Acquirer’s ultimate parent company, or any of their respective Subsidiaries for purposes of this Agreement prior to the Effective Time and neither Acquirer nor any of its Affiliates shall be deemed an Affiliate of the Company or its Subsidiaries for purposes of this Agreement prior to the Effective Time.
“ Business Day ” shall mean any day other than a Saturday or Sunday or a day on which banks are required or authorized to close in the cities of Seattle, Washington or Los Angeles, California.
“ Company Material Adverse Effect ” shall mean any fact, event, change, condition, occurrence, development, circumstance, effect or state of facts that:

51


(i)      individually or in the aggregate, has been, or would reasonably be expected to be, materially adverse to the business, assets, results of operations or financial condition of the Company and its Subsidiaries, in each case taken as a whole; provided , however , that no fact, event, change, condition, occurrence, development, circumstance, effect or state of facts to the extent resulting from any of the following shall be considered in determining whether a Company Material Adverse Effect has occurred or is in existence:
(4)      changes, after the date hereof, in Laws, rules and regulations of general applicability, or of general applicability to banks or their holding companies, or interpretations thereof by Governmental Entities, including any change in GAAP or regulatory accounting requirements,
(5)      changes in the economy or financial markets, generally, in the United States, or
(6)      changes in economic, business or financial conditions generally affecting the banking industry,
provided , that the foregoing shall not apply to the extent such fact, event, change, condition, occurrence, development, circumstance, effect, action, omission or state of facts of the type referred to therein, has a disproportionate impact on the business, assets, results of operations or financial condition of the Company and its Subsidiaries compared to other comparable companies within the banking industry, or
(ii)      prevents, materially delays or materially impairs the ability of the Company to perform its obligations under this Agreement or to consummate the Merger.
“ Company Restricted Stock Plan ” shall mean the Pacific International Bancorp, Inc. 2006 Restricted Stock Plan.

“ Company Stock Option ” shall mean options to purchase Company Common Stock granted pursuant to the Company Stock Plan.

“ Company Stock Plan ” shall mean the Amended Pacific International Bancorp, Inc. 2001 Stock Option Plan.
“ Contract ” shall mean any agreement, contract, instrument, guarantee, undertaking, lease, note, mortgage, indenture, license or other legally binding commitment or obligation, whether written or oral.
“ Encumbrance ” shall mean any mortgage, lien, pledge, charge, security interest, easement, covenant or other restriction or title matter or encumbrance of any kind in respect of such asset but specifically excludes (i) specified encumbrances described in Section 9.13 of the Company Disclosure Schedule; (ii) encumbrances for current Taxes or other governmental charges not yet due and payable, or the validity or amount of which is being contested in good

52


faith by appropriate proceedings and are reflected on or specifically reserved against or otherwise disclosed in the Financial Statements; (iii) mechanics’, carriers’, workmen’s, repairmen’s or other like encumbrances arising or incurred in the ordinary course of business consistent with past practice relating to obligations as to which there is no default on the part of the Company, or the validity or amount of which is being contested in good faith by appropriate proceedings and are reflected on or specifically reserved against or otherwise disclosed in the Financial Statements; and (iv) other encumbrances that do not, individually or in the aggregate, materially impair the continued use, operation, value or marketability of the specific parcel of Leased Real Property to which they relate or the conduct of the business of the Company and its Subsidiaries as presently conducted.
“ Exchange Act ” shall mean the Securities Exchange Act of 1934.
“ Exchange Fund ” shall mean the fund containing the portion of the Merger Consideration to be distributed to the Company’s shareholders pursuant to this Agreement.
“ Excluded Shares ” shall mean Shares owned by Acquirer, the Company or any direct or indirect wholly owned subsidiary of Acquirer or the Company, in each case not held (i) in trust accounts (including grantor or rabbi trust accounts), managed accounts and the like, or otherwise held in a fiduciary or agency capacity, that are beneficially owned by third parties or (ii) in respect of a debt previously contracted.
“ Form S-4 Registration Statement ” shall mean the Form S-4 Registration Statement under the Securities Act of 1933 to be prepared and filed with the SEC by Acquirer pursuant to Section 6.11 .
“ GAAP ” shall mean U.S. generally accepted accounting principles.
“ Governmental Entity ” shall mean any federal, state, local, foreign or supranational court, tribunal, arbitral or administrative agency or commission or other governmental authority or instrumentality, and any stock exchange or industry self-regulatory organization.
“ Knowledge ” shall mean the actual knowledge of any of the senior management and directors of the Company or one of its Subsidiaries listed on Section 9.13 of the Company Disclosure Schedule, after appropriate inquiry.
“ Laws ” shall mean any federal, state, local or foreign law, common law, statute, code, ordinance, rule or regulation issued, promulgated, entered or authorized by any Governmental Entity.
“ Merger Consideration ” shall mean the amount of Acquirer Common Stock and cash consideration for fractional shares of Acquirer Common Stock (based upon the Per Share Merger Consideration formula), to which the holder of Company Common Stock is entitled to receive as a result of the Merger and the amount of cash the Treasury is to receive in respect of the Series A Preferred Stock as a result of the Merger.

53


“ NASDAQ ” shall mean the NASDAQ Global Select Market or The Nasdaq Stock Market, Inc., as applicable.
“ Order ” shall mean any order, writ, injunction, decree, judgment, ruling, arbitration award or stipulation issued, promulgated or entered into by or with any Governmental Entity.
“ Person ” shall mean any individual, corporation (including not-for-profit), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, Governmental Entity or other entity of any kind or nature.
“ Previously Disclosed ” with regard to a Party means only that information set forth on such Party’s Disclosure Schedule; provided , however , that (i) disclosure in any section of such Disclosure Schedule shall apply to the indicated sections of this Agreement and shall also apply to such other sections of this Agreement and such Disclosure Schedule as to which it is reasonably apparent that such disclosure is relevant and (ii) with regard to the Acquirer, “Previously Disclosed” shall also include information publicly disclosed by Acquirer in any forms, statements, certifications, reports and documents filed with SEC pursuant to the Securities Act or the Exchange Act since December 31, 2010 and publicly available prior to the day preceding the date of this Agreement, but excluding any disclosures contained solely in such documents under the heading “Risk Factors” and any disclosure of risks included in any “forward-looking statements” disclaimer or other statements that are similarly non-specific and cautionary and are predictive or forward-looking in nature.
“ Proxy Statement ” shall mean proxy materials relating to the matters to be submitted to the Company’s shareholders at the Shareholders Meeting.
“ SEC ” shall mean the United States Securities and Exchange Commission.
“ Securities Act ” shall mean the Securities Act of 1933.
“ Subsidiary ” shall, when used with respect to either party, have the meaning ascribed to it in Section 2(d) of the BHCA.
“ Superior Proposal ” shall mean an unsolicited bona fide Acquisition Proposal that would result in any Person becoming the beneficial owner, directly or indirectly, more than 50% of the assets (on a consolidated basis) or 100% of the total voting power of the equity securities of the Company that the Company Board has determined in its good faith judgment is reasonably likely to be consummated in accordance with its terms, taking into account all legal, financial and regulatory aspects of the proposal and the Person making the proposal, and if consummated, would result in a transaction more favorable to the Company’s shareholders from a financial point of view than the transaction contemplated by this Agreement (after taking into account any revisions to the terms of the transaction contemplated by Section 6.05(d) of this Agreement pursuant to Section 6.05(d) and the time likely to be required to consummate such Acquisition Proposal).

54


“ Surviving Bank ” shall mean the surviving banking corporation resulting from the Bank Merger, which shall be Acquirer Bank.
“ Takeover Laws ” shall mean any “fair price,” “moratorium,” “control share acquisition” or other anti-takeover statute or regulation.
“ Tax Return ” shall mean any return, report, information return or other document (including any related or supporting information) required to be filed with any taxing authority with respect to Taxes, including, without limitation, any claims for refunds of Taxes and any amendments or supplements to any of the foregoing.
“ Taxes ” shall mean all taxes, charges, levies, penalties or other assessments imposed by any United States federal, state, local or foreign taxing authority, including any income, excise, property, sales, transfer, franchise, payroll, withholding, social security, abandoned or unclaimed property or other taxes, together with any interest, penalties or additions to tax attributable thereto.
“ Treasury Warrant ” shall mean the warrant issued by the Company to the Treasury in connection with the Company’s sale of Series A Preferred Stock to the Treasury.
Section 9.14      Other Definitional Provisions . Unless the express context otherwise requires:
(a)      the words “hereof,” “herein” and “hereunder” and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement;
(b)      the terms defined in the singular have a comparable meaning when used in the plural, and vice versa;
(c)      the terms “Dollars” and “$” mean United States Dollars;
(d)      references herein to a specific Section, Subsection or Exhibit shall refer, respectively, to Sections, Subsections or Exhibits of this Agreement; and
(e)      wherever the word “include,” “includes” or “including” is used in this Agreement, it shall be deemed to be followed by the words “without limitation.”
(f)      references herein to any statute, law, code, regulation or treaty shall be deemed to include any amendments thereto from time to time or any successor statute, law, code, regulation, treaty or protocol thereof and any the rules and regulations promulgated thereunder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]



55


IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written.
BBCN Bancorp, Inc.
By:

Name:
Title:
Pacific International Bancorp, Inc.
By:

Name:
Title:



S-1


EXHIBIT A
Form of Bank Merger Agreement
THIS AGREEMENT OF BANK MERGER, dated as of October [___], 2012 (this “ Bank Merger Agreement ”), is entered into between BBCN Bank (“ Acquirer Bank ”), a California state-chartered bank and a wholly owned subsidiary of BBCN Bancorp, Inc., a Delaware corporation (“ BBCN Bancorp ”), and Pacific International Bank (“ Target Bank ”), a Washington state-chartered commercial bank and a wholly owned subsidiary of Pacific International Bancorp, Inc., a Washington corporation (“ Pacific International ”). Acquirer Bank and Target Bank are sometimes referred to herein collectively as the “ Parties ” and individually as a “ Party .”
WHEREAS, BBCN Bancorp and Pacific International entered into an Agreement and Plan of Merger, dated as of October [___], 2012 (the “ Holding Company Merger Agreement ”), providing, among other things, for the merger of Pacific International with and into BBCN Bancorp(the “ Merger ”); and
WHEREAS, in connection with the Merger, BBCN Bancorp and Pacific International desire to merge Target Bank with and into Acquirer Bank (the “ Bank Merger ”) concurrently with or as soon as reasonably practicable after the consummation of the Merger upon the terms and subject to the conditions set forth in this Bank Merger Agreement and the Holding Company Merger Agreement.
WHEREAS, the Parties intend that for federal income tax purposes the Bank Merger shall qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “ Code ”), and that this Agreement shall constitute a “plan of reorganization” for purposes of Sections 354 and 361 of the Code.
NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth in this Bank Merger Agreement and the Holding Company Merger Agreement, subject to the conditions set forth in this Bank Merger Agreement and the Holding Company Merger Agreement, and intending to be legally bound hereby, the Parties agree as follows:
1.     Effective Time . Upon the terms and subject to the conditions set forth in this Bank Merger Agreement and the Holding Company Merger Agreement, concurrently with or as soon as reasonably practicable after the consummation of the Merger, Acquirer Bank and Target Bank shall cause the Bank Merger to be consummated by (i) filing a copy of this Bank Merger Agreement, certified by the Secretary of State of the State of California pursuant to Section 1103 of the California General Corporation Law (the “ CGCL ”) and (ii) filing a copy of this Bank Merger Agreement, together with all other required documents and information, pursuant to Section 30.49.125 of the Revised Code of Washington (the “ RCW ”) with the Director of the State of Washington Department of Financial Institutions. The Bank Merger shall become effective upon the time and date of such filings (the “ Effective Time ”).
2.     The Merger . Acquirer Bank shall be the surviving bank in the Bank Merger (the “ Surviving Bank ”). At the Effective Time, Target Bank shall be merged with and into Acquirer Bank

A-1


and the separate existence of Target Bank shall cease. The Bank Merger shall be governed by, and shall have the effects set forth in, the CGCL and the RCW.
3.     Effects of the Merger .
(a)    At the Effective Time, the Surviving Bank shall succeed, without other transfer, to all the rights and properties, and shall be subject to all the debts and liabilities, of Target Bank, and the separate existence of Acquirer Bank, with all its purposes, objects, rights, powers, privileges, liabilities, obligations and franchises, shall continue unaffected and unimpaired by the Bank Merger.
(b)    The articles of incorporation (as amended effective as of the Effective Time to reflect the new name of the Surviving Bank) and the bylaws of Acquirer Bank, as in effect as of the Effective Time, shall be the articles of incorporation and bylaws of the Surviving Bank, until thereafter altered, amended or repealed in accordance with their terms and applicable law.
(c)    The shares of Target Bank common stock, no par value per share (“ Target Bank Common Stock ”) and the shares of Acquirer Bank common stock, no par value per share (“ Acquirer Bank Common Stock ”) shall be treated as follows at the Effective Time: (i) each share of Target Bank Common Stock issued and outstanding immediately prior to the Effective Time shall be automatically canceled without consideration and cease to be an issued and outstanding share of Target Bank Common Stock; and (ii) each share of Acquirer Bank Common Stock issued and outstanding immediately prior to the Effective Time shall remain issued and outstanding.
4.     Directors and Officers of the Surviving Bank . The directors and officers of Acquirer Bank shall be the directors and officers of the Surviving Bank without change in title or authority, but subject to the authority and power of the board of directors and shareholder of the Surviving Bank to add directors or officers to or otherwise modify the board of directors or number, titles and authority of the officers of the Surviving Bank.
5.     Procurement of Approvals . This Bank Merger Agreement shall be subject to the approval of BBCN Bancorp, as the sole shareholder of Acquirer Bank, and Pacific International, as the sole shareholder of Target Bank, at meetings to be called and held or by consent in lieu thereof in accordance with the applicable provisions of law and their respective organizational documents. Acquirer Bank and Target Bank shall use their commercially reasonable best efforts to proceed expeditiously and cooperate fully in the procurement of any other consents and approvals and in the taking of any other action, and the satisfaction of all other requirements prescribed by applicable law or otherwise necessary for the consummation of the Bank Merger on the terms provided herein, including, without limitation, the preparation and submission of such applications or other filings for approval of the Bank Merger as may be required by applicable laws and regulations.
6.     Conditions Precedent . The obligations of the Parties under this Bank Merger Agreement shall be subject to: (a) the approvals of this Bank Merger Agreement by BBCN Bancorp, as the sole shareholder of Acquirer Bank, and Pacific International, as the sole shareholder of Target Bank, at meetings duly called and held or by consent or consents in lieu thereof, in each case without any exercise of such dissenters’ rights as may be applicable; (b) receipt of approval of the Bank

A-2


Merger from all governmental and banking authorities whose approval is required by applicable laws and regulations; and (c) the consummation of the Merger pursuant to the Holding Company Merger Agreement at or before the Effective Time.
7.     General Provisions .
(a)     Termination and Agreement . The obligations of the Parties to effect the Bank Merger shall be subject to all the terms and conditions contained in the Holding Company Merger Agreement. This Bank Merger Agreement shall terminate, without any further action of any Party, notwithstanding shareholder approval, in the event that the Holding Company Merger Agreement shall be terminated as provided therein prior to the Effective Time.
(b)     Amendment . This Bank Merger Agreement may not be amended, modified or supplemented except by an instrument in writing signed on behalf of each of the Parties at any time prior to the Effective Time.
(c)     Successors and Assigns . This Bank Merger Agreement shall be binding upon and enforceable by the Parties and their respective successors and permitted assigns, but this Bank Merger Agreement may not be assigned by any Party, by operation of law or otherwise, without the prior written consent of the other Party.
(d)     Governing Law . This Bank Merger Agreement shall be governed by and construed in accordance with the laws of the State of California (without giving effect to choice of law principles thereof).
(e)     Counterparts . This Bank Merger Agreement may be executed in counterparts (which counterparts may be delivered by facsimile or other commonly used electronic means), each of which shall be considered one and the same agreement and shall become effective when both counterparts have been signed by each of the Parties and delivered to the other Party, it being understood that both Parties need not sign the same counterpart.
[Remainder of this page intentionally left blank]



A-3


IN WITNESS WHEREOF, the Parties have caused this Bank Merger Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written.
BBCN Bank
By:

Name:
Title:
Pacific International Bank
By:

Name:
Title:


A-1





















BBCN BANK


EMPLOYEE STOCK OWNERSHIP PLAN (Amended and Restated Effective as of November 30, 2011)























Prepared: December 9, 2011
©2011, Menke & Associates, Inc. All rights reserved.



 
 
CONTENTS
 
Section

Page
1
 
NATURE OF PLAN
1
2
 
DEFINITIONS
3
3
 
ELIGIBILITY
18
4
 
PARTICIPATION IN ALLOCATION OF BENEFITS
19
 
a
Participation
19
 
b
Leave of Absence
19
 
c
Omission of Eligible Employee
19
 
d
   Inclusion of Ineligible Employee
20
 
e
   Uniformed Services Participants
20
 
f
   Suspended Participation
20
 
 
 
 
5
 
CONTRIBUTIONS
21
 
a
Amount of Contribution...
21
 
b
Time for Making Contribution
21
 
c
Form of Contribution
21
 
 
 
 
6
 
INVESTMENT OF TRUST ASSETS
22
 
a
Authorized Investments
22
 
b
Investment Duties
22
 
c
Plan Loans
22
 
 
 
 
7
 
ALLOCATIONS TO ACCOUNTS
25
 
a
Individual Accounts
25
 
b
Company Stock Account
25
 
c
Other Investments Account
27
 
 
 
 
8
 
EXPENSES OF THE PLAN AND TRUST
28
 
 
 
 
9
 
VOTING COMPANY STOCK
29
 
 
 
 
10
 
DISCLOSURE TO PARTICIPANTS
30
 
a
Summary Plan Description
30
 
b
Summary Annual Report
30
 
c
Annual Statement
30
 
d
Notice of Rollover Treatment
30
 
e
Additional Disclosure
31
 
 
 
 
11
 
ALLOCATION OF CONTRIBUTIONS AND FORFEITURES
32
 
a
Allocation of Contributions and Forfeitures
32
 
b
Allocation Limitations

34


12
 
TERMINATION OF PLAN BENEFIT
36
 
a
Vesting at Death, Disability or Retirement
36
 
b
Determination of Plan Benefits in Connection with
 
 
 
Qualified Military Service
36
 
 
 
 
13
 
TERMINATION OF SERVICE PRIOR TO RETIREMENT, AND FORFEITURES
37
 
a
Vesting Schedule
37
 
b
Vesting Upon Reemployment
38
 
c
Forfeitures
38
 
d
Cash-Out Distribution
39
 
 
 
 
14
 
DISTRIBUTION OF PLAN BENEFIT
41
 
a
Death, Disability or Retirement
41
 
b
Other Termination of Participation
41
 
c
Death Prior to Completion of Distribution
41
 
d
Valuation Date
41
 
e
Consent and Notice Requirements
42
 
f
Required Commencement of Benefit Distribution
42
 
g
Undistributed Accounts
42
 
h
Optional Direct Transfer of Eligible Rollover Distributions
42
 
i
Lien on Distribution
42
 
 
 
 
15
 
HOW PLAN BENEFIT WILL BE DISTRIBUTED
45
 
 
Form of Distribution
45
 
 
Beneficiaries
45
 
 
Location of Participant or Beneficiary Unknown.
46
 
 
Facility of Payment
46
 
 
 
 
16
 
RIGHTS AND OPTIONS FOR DISTRIBUTED SHARES OF COMPANY STOCK
48
 
a
Put Option
48
 
b
Right of First Refusal
48
 
c
Other Options
48
 
 
 
 
17
 
SPECIAL PROVISIONS
45
 
a
Diversification of Investments
45


 
b
Cash Dividends
45
 
 
 
 
18
 
ADMINISTRATION
51
 
a
Named Fiduciaries for Administration of Plan and for Investment
53
 
b
Investment of Plan Assets
53
 
c
Funding Policy
53
 
d
Claims Procedures
53
 
e
Qualified Domestic Relations Orders
53
 
f
Indemnification of Certain Fiduciaries and Insurance
56
 
g
Independent Fiduciary
57
 
h
General
57
 
 
 
 
19
 
AMENDMENT AND TERMINATION
59
 
a
Amendment
59
 
b
Changes in the Code
59
 
c
Termination, Partial Termination or Complete Discontinuance
59
 
d
Determination by Internal Revenue Service
59
 
e
Return of Employer's Contribution
59
 
 
 
 
20
 
MISCELLANEOUS
60
 
a
Participation by Affiliated Company
60
 
b
Limitation of Rights; Employment Relationship
61
 
c
Merger; Transfer of Assets
61
 
d
Prohibition Against Assignment
61
 
e
Applicable Law; Severability
62
 
 
 
 
21
 
TOP-HEAVY RULES
63
 
a
Purpose and Effect
63
 
b
Top-Heavy Plan
63
 
c
Key Employee
64
 
d
Aggregated Plans
64
 
e
Minimum Vesting
64
 
f
Minimum Contribution
65
 
g
Coordination of Benefits
66
 
 
 
 
22
 
EXECUTION
 



BBCN BANK


EMPLOYEE STOCK OWNERSHIP PLAN





Section 1.     NATURE OF PLAN .

(a)    The purpose of this Plan is to enable participating Employees of the Company and of any participating affiliates to share in the growth and prosperity of the Company and to
provide Participants with an opportunity to accumulate capital for their future economic security. A primary purpose of the Plan is to enable Participants to acquire a proprietary interest in the Company. Consequently, the Plan is designed to be primarily invested in Employer Securities over the life of the Plan.
(b)    This Plan, originally effective as of January 1, 1996, and amended from time to time, and amended and most recently restated effective as of January 1, 2006, is amended and herein restated effective as of November 30, 2011, unless an earlier or later effective date is required pursuant to a statute or Treasury Regulation or as stated in the Plan document. The Plan is intended to qualify as an Employee Stock Ownership Plan, as defined in Section 4975(e)(7) of the Internal Revenue Code (hereinafter referred to as the “Code”). In addition, in accordance
with Section 54.4975-11(a)(5) of the Treasury Regulations, this Plan also forms a portion of the Plan which is a Stock Bonus Plan, which is intended to qualify under Section 401(a) of the Code. This restated Plan reflects the applicable provisions of the Pension Protection Act of 2006 (“PPA
‘06”), the applicable provisions of the final regulations under Code Section 415 (the “Final § 415

Regulations”) and the applicable provisions of the Heroes Earnings Assistance and Relief Tax Act of 2008 (“HEART ‘08”) as well as the applicable provisions of the Worker, Retiree and Employer Recovery Act of 2008 (“WRERA”).
This Plan is the second restatement of the Plan, originally effective as of

January 1, 1996. The Employee Stock Ownership Plan originally effective on January 1, 1996, was sponsored by Nara Bank, a California corporation (“Nara Bank”) the wholly owned subsidiary of Nara Bancorp, Inc., a publicly traded bank holding company (“Nara Bancorp”). Effective as of November 30, 2011 (the “Merger Effective Date”), Center Financial Corporation,
a bank holding company (“Center Financial”) will be merged with and into Nara Bancorp. Also



1     1106_2011rest_p.docx


effective as of the Merger Effective Date, Nara Bank will merge with and into Center Bank, a wholly owned subsidiary of Center Financial (“Center Bank”). Center Bank, the surviving corporation, will change its name to become BBCN Bank, and will become the sponsor of the Plan and the Employer.
All Trust assets acquired under this Plan as a result of Contributions, income and other additions to the Trust will be administered, distributed, forfeited and otherwise governed by the provisions of this Plan which is administered by the Committee for the exclusive benefit of Participants in the Plan and their Beneficiaries. It is intended that all benefits, rights and
features of this Plan be uniformly available to all Participants.
















































2     1106_2011rest_p.docx



Section 2.     DEFINITIONS .

In this Plan, whenever the context so indicates, the singular or plural number shall each be deemed to include the other, and the capitalized words shall have the following meanings:

ACCOUNT

One of several Accounts maintained to record the interest of a Participant in the
Plan.

AFFILIATED COMPANY

Any employer which is a member of a controlled group of corporations (as defined in Section 414(b) of the Code) which includes the Employer, any trade or business (whether or not incorporated) which is under common control (as
defined in Section 414(c) of the Code) with the Employer, any affiliated service group which includes the Employer (as defined in Section 414(m) of the Code), and any other entity required to be aggregated with the Employer under Section
414(o) of the Code. For purposes of Code Section 415 limits, the definition of
Affiliated Company shall be expanded in accordance with Code Section 415(h).

ALTERNATE PAYEE

A spouse, former spouse, child or other dependent of a Participant who is recognized by a Domestic Relations Order as having a right to receive all or a portion of the benefits otherwise payable to a Participant. See Section 18(e) of the Plan.

ANNIVERSARY DATE

The 31st day of December of each year.

ANNUAL ADDITIONS

The aggregate of amounts credited to a Participant’s Accounts each year from Contributions, Forfeitures, and a Participant’s voluntary contributions (if any) under all defined contribution plans of an Employer or Affiliated Company. Amounts allocated to an individual medical account (as defined in Section
415(l)(2) of the Code) which is part of a pension or annuity plan maintained by
the Company shall be treated as an Annual Addition. Any amounts attributable to postretirement medical benefits allocated to the separate account of a Key Employee (as defined in Section 419A(d)(3) of the Code) under any Welfare Benefit Plan (as defined in Section 419(e) of the Code) shall be treated as an Annual Addition. A restored Forfeiture, a transfer from another qualified pension plan, a rollover contribution (if any) shall not be counted as an Annual Addition.
For purposes of Code Section 415 limits, the definition of Annual Additions shall be expanded in accordance with Code Section 415(h).




3     1106_2011rest_p.docx



Notwithstanding the foregoing, Contributions which are applied to the payment of interest on a Securities Acquisition Loan and Forfeitures of Employer Securities purchased with the proceeds of a Securities Acquisition Loan shall be excluded if no more than one third (1/3) of the Contributions deductible under Section
404(a)(9) of the Code for that year is allocated to the Accounts of Highly
Compensated Employees.

BENEFICIARY

The person or persons entitled to receive any benefits under the Plan in the event
of a Participant’s death.

BOARD OF DIRECTORS

The board of directors of the Company.

BREAK IN SERVICE

A Plan Year during which a Participant has not completed more than 500 Hours of Service; provided, however, that for purposes of Section 3 of the Plan, the Eligibility Computation Period will be used to measure Breaks in Service.

CENTER BANK

The wholly owned subsidiary of Center Financial Corporation. As of the Merger Effective Date, Nara Bank will be merged with and into Center Bank, who will be the survivor bank and will change its name to become BBCN Bank. The employees of Center Bank will become eligible to participate in the Plan (as described in Section 3 of the Plan), effective as of January 1, 2012.

CENTER FINANCIAL CORPORATION

The bank holding company, which effective as of the Merger Effective Date, will be merged with and into Nara Bancorp, Inc.

CODE

The Internal Revenue Code of 1986, as amended from time to time.

COMMITTEE

The “Committee”, appointed by the Board of Directors to administer the Plan in accordance with Section 18 of the Plan, subject to such limitations as are set forth under this Plan.


4






COMPANY

Nara Bank, a California corporation. Effective as of the Merger Effective Date, the Company, who shall serve as the Plan’s sponsor, will become Center Bank, who will change its name to BBCN Bank.

COMPANY STOCK

Shares of Employer Securities, as defined herein, which meet the requirements of
Section 407(d) of ERISA and Section 409(l) of the Code.

COMPANY STOCK ACCOUNT

The Account of a Participant which is credited with the shares of Company Stock purchased and paid for by the Trust or contributed to the Trust.

CONTRIBUTIONS

Employer contributions which are deductible by an Employer under Section
404(a) of the Code.

COVERED COMPENSATION

The Total Compensation paid to a Participant by the Employer for each Limitation Year, including any salary deferrals under Sections 401(k) and 125 of the Code, but excluding reimbursement or other expense allowances, fringe benefits (cash and noncash), moving expenses, welfare benefits, and deferred compensation except deferrals under Sections 401(k) and 125 of the Code. Effective for all Plan Years beginning after December 31, 2008, in accordance with HEART ‘08, Covered Compensation shall include any differential wage payments (as defined in Section 3401(h)(2) of the Code).

Notwithstanding the foregoing definition, solely for purposes of the Plan’s Limitation Year beginning after June 30, 2007 (the “First Limitation Year”), the definition of Covered Compensation shall be applied in accordance with the definition of Total Compensation, as amended for the final regulations under Code Section 415 unless the application of the amended definition of Total Compensation would constitute an impermissible cutback of benefits in violation of Code Section 411(d)(6).

Notwithstanding the foregoing, the Covered Compensation of each Participant taken into account in determining allocations for any Plan Year shall not exceed
$245,000, as adjusted for cost-of-living increases in accordance with Section
401(a)(17)(B) of the Code. Covered Compensation means compensation paid during the Plan Year (the determination period). The cost-of-living adjustment in effect for a calendar year applies to annual compensation for the determination period that begins with or within such calendar year.

5
1106_2011rest_p.docx


DIRECT ROLLOVER

A payment by the Plan to the Eligible Retirement Plan specified by the
Distributee.

DISABILITY

If a Participant terminated employment because of a total and permanent disability, the Participant will be given a Disability Retirement without regard to age or length of service, and the Participant’s Plan Benefit shall be one hundred percent (100%) vested. Disability shall mean the Participant’s entitlement to Social Security disability benefits.

DISTRIBUTEE

Any Employee or former Employee. In addition, the Employee’s or former Employee’s surviving spouse and the Employee’s or former Employee’s spouse or former spouse who is the Alternate Payee under a qualified domestic relations
order, as defined in section 414(p) of the Code, are Distributees with regard to the interest of the spouse or former spouse. In accordance with PPA ‘06, for purposes of distributions made after December 31, 2006, a Distributee shall include a non- spouse Beneficiary.

DOMESTIC RELATIONS ORDER

Any judgment, decree, or order (including approval of a property settlement agreement) which is made pursuant to a State domestic relations law and which relates to the provision of child support, alimony payments or marital property rights to a spouse, former spouse, child or other dependent of a Participant. See Section 18(e) of the Plan.

EFFECTIVE DATE

The Effective Date of this amended and restated Plan is November 30, 2011 (except that provisions which are required to be effective before this date in accordance with certain provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”), intended as good faith compliance with the requirements of EGTRRA, are applicable to all Plan Years beginning after December 31, 2001, unless an earlier or later effective date is required pursuant to a statute or Treasury Regulation or as stated in the Plan document).

ELIGIBILITY COMPUTATION PERIOD

To determine Years of Service and Breaks in Service for purposes of eligibility, the initial twelve-consecutive-month period shall commence on the date the Employee first performs an Hour of Service for the Company. The second twelve-consecutive-month period shall be the Plan Year which commences prior to the end of the initial twelve-consecutive-month period, regardless of whether

6


the Employee is entitled to be credited with 1,000 Hours of Service during the initial eligibility computation period. An Employee who is credited with 1,000
Hours of Service in both the initial eligibility computation period and the first Plan Year which commences prior to the first anniversary of the Employee’s initial eligibility computation period will be credited with two Years of Service for purposes of eligibility to participate. All subsequent computation periods will continue to be determined on the Plan Year.

ELIGIBLE RETIREMENT PLAN

An individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, or a qualified trust described in Section 401(a) of the Code, that accepts the Distributee’s Eligible Rollover Distribution. However, in the case of an Eligible Rollover Distribution to the surviving spouse (or after December 31, 2006, a non-spouse Beneficiary), an Eligible Retirement Plan is an individual retirement account or individual retirement annuity.

The definition of Eligible Retirement Plan shall also mean an annuity contract described in Section 403(b) of the Code and an eligible plan under Section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this Plan. In accordance with PPA ‘06, for purposes of distributions made after December
31, 2007, the definition of Eligible Retirement Plan shall also include a Roth IRA as described in Section 408A(e) of the Code. The definition of Eligible Retirement Plan shall also apply in the case of a distribution to a surviving spouse (or in accordance with PPA ‘06, after December 31, 2006, a non-spouse Beneficiary), or to a spouse or former spouse who is the Alternate Payee under a qualified Domestic Relation Order, as defined in Section 414(p) of the Code.

ELIGIBLE ROLLOVER DISTRIBUTION

Any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: any hardship distribution described in Section 401(k)(2)(B)(i)(IV), any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee’s
designated Beneficiary, or for a specified period of ten (10) years or more; any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and the portion of any distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to Employer Securities).


7     1106_2011rest_p.docx


Notwithstanding the foregoing, for purposes of Section 14(h) of the Plan, a portion of a distribution shall not fail to be an Eligible Rollover Distribution merely because the portion consists of after-tax employee contributions which are not includable in gross income. However, such portion may be transferred only to an individual retirement account or annuity described in Section 408(a) or (b) of the Code, or to a qualified defined contribution plan described in Section 401(a)
or 403(a) of the Code that agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includable in gross income and the portion of such distribution which is not so includable. In accordance with PPA ‘06, effective for all years beginning December 31, 2006, after-tax contributions from a qualified retirement plan may be rolled over to a defined benefit plan or a 403(b) tax-sheltered annuity as described in Code Section 402(c)(2)(A). In addition, for purposes of Section
14(h) of the Plan, a 2009 RMD (as described in Section 14(f) of the Plan) shall be treated as an Eligible Rollover Distribution in accordance with the applicable provisions of WRERA.

EMPLOYEE

A person, employed by an Employer, any portion of whose income is subject to withholding of income tax and/or for whom Social Security contributions are made by an Employer, as well as any other person qualifying as a common law employee of an Employer. Employee shall include Leased Employees unless: (i) such Employee is covered by a money purchase pension plan providing: (1) a nonintegrated Employer contribution rate of at least ten percent (10%) of compensation, as defined in Section 415(c)(3) of the Code, but including amounts contributed pursuant to a salary reduction agreement which are excludable from the Employee’s gross income under Section 125, Section 402(e)(3), Section
402(h) or Section 403(b) of the Code; (2) immediate participation; and (3) full and immediate vesting; and (ii) Leased Employees do not constitute more than twenty percent (20%) of the Company’s nonhighly compensated work force.

“Employee” shall not include any individual who is either (i) engaged by the Company as an independent contractor or (ii) not reflected on the payroll records of the Company as a common law employee solely on account of the reclassification of such individual by the Internal Revenue Service, a court or administrative agency as a common law employee.

EMPLOYER

Nara Bank, a California corporation, its successors and assigns and any Affiliated Company. Effective as of the Merger Effective Date, the Employer shall become Center Bank, who will change its name to become BBCN Bank. A “Participating Employer” is an Employer which has been designated by the Board of Directors of the Company as an Employer participating in the Plan. See Section 20(a) of
the Plan.



8     1106_2011rest_p.docx


EMPLOYER SECURITIES

Common stock issued by the Company (or by a corporation which is a member of the same controlled group) which is readily tradable on an established securities market. Noncallable preferred stock shall be treated as Employer Securities if such stock is convertible at any time into common stock which meets the above requirements, and if (as of the date of acquisition by the Plan) the conversion
price is reasonable. The Employer Securities held by the Plan were common stock of Nara Bancorp, Inc., a Delaware corporation, a public bank holding company whose shares are traded on the Nasdaq System under the symbol “NARA”. Effective as of the Merger Effective Date, the Employer Securities held by the Plan shall be common stock of BBCN Bancorp, Inc., a Delaware corporation, a public bank holding company whose shares are traded on the Nasdaq under the symbol “BBCN”.

EMPLOYMENT COMMENCEMENT DATE

The date on which the Employee shall first perform an Hour of Service for the
Employer.

ENTRY DATE

The first day of January of each year.

ERISA

The Employee Retirement Income Security Act of 1974, as amended from time to time.




FISCAL YEAR

The annual accounting period adopted by the Company for federal income tax purposes.

FORFEITURES

The portion of a Participant’s Accounts which does not become part of the
Participant’s Plan Benefit. See Section 13 of the Plan.

HIGHLY COMPENSATED EMPLOYEE

The term “Highly Compensated Employee” shall mean: (a) a Highly Compensated Former Employee of the Company as well as (b) a Highly Compensated Current Employee. The term “Highly Compensated Current Employee” shall mean any Employee who:


9     1106_2011rest_p.docx



(A)
was a five percent (5%) owner at any time during the year or the preceding year, or

(B)
for the preceding year, had Total Compensation from the Company and/or from an Affiliated Company in excess of $110,000 (indexed at such time and in such manner as the Secretary of the Treasury may provide), and
was in the top-paid group of Employees (i.e., was among the top twenty percent (20%) of Employees in compensation) for such preceding year.

The determination of who is a Highly Compensated Employee, including the determination of the number and identity of Employees in the top-paid group, will be made in accordance with the provisions of Section 414(q) of the Code and the regulations thereunder.

A former employee shall be treated as a “Highly Compensated Former Employee” if such employee was a Highly Compensated Employee when he separated from service or was a Highly Compensated Employee at any time after attaining age fifty-five (55).

HOUR OF SERVICE

(a)    Each hour for which an Employee is paid, or entitled to payment, for the performance of duties for the Employer or any Affiliated Company during the applicable computation period.

(b)    Each hour for which an Employee is paid, or entitled to payment, by the Employer or any Affiliated Company on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence. Notwithstanding the
preceding sentence, (1) no more than 501 Hours of Service will be credited under this paragraph (b) to an Employee on account of any single continuous period during which the Employee performs no duties (whether or not such period occurs in a single computation period); (2) an hour for which an Employee is directly or indirectly paid, or entitled to payment, during a period in which no duties are performed, will not be credited to the Employee if such payment is made or due under a plan maintained solely for the purpose of complying with applicable workmen’s compensation, unemployment compensation or disability insurance laws; and (3) Hours of Service will not be credited for a payment which solely reimburses an Employee for medical or medically related expenses incurred by
the Employee. For purposes of this paragraph (b), a payment shall be deemed to be made by or due from an Employer or an Affiliated Company regardless of whether such payment is made by or due from the Employer or an Affiliated Company directly or indirectly through, among others, a trust fund, or insurer, to which the Employer or an Affiliated Company contributes or pays premiums and regardless of whether contributions made or due to the trust fund, insurer or other


10     1106_2011rest_p.docx



entity are for the benefit of particular Employees or are on behalf of a group of
Employees in the aggregate.

(c)    Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer or an Affiliated Company.

(d)    The determination of Hours of Service for reasons other than the performance of duties, and the crediting of Hours of Service to computation periods, shall be in accordance with U.S. Department of Labor Regulations Section 2530.200b-2 (b) and (c). There shall be no duplication of Hours of Service under any of the foregoing provisions.

(e)    In the case of a salaried Employee who is not paid on an hourly basis, Hours of Service shall be based on any available records which accurately reflect the actual number of hours worked by such Employee. If such records do not exist, such Employee shall be credited with Hours of Service on the basis of 45 hours for each week for which the Employee would be credited with at least one Hour of Service.

(f)    For purposes of determining whether a Participant has incurred a one-year Break in Service, a Participant will be credited with Hours of Service for (i) a leave of absence covered by the Family and Medical Leave Act of 1993, or (ii) certain periods of absence from work by reason of the Participant’s pregnancy,
the birth of a Participant’s child, the adoption of a Participant’s child, or caring for a Participant’s child during the period immediately following the birth or adoption of such child. If the Participant’s normal work hours are known, such Participant will be credited with the number of hours that normally would have been credited for such absence. If the Participant’s normal work hours are not known, such Participant will be credited with eight Hours of Service for each normal workday during such absence. Not more than 501 Hours of Service shall be credited for such purposes in the Plan Year in which such absence commences if the Participant would otherwise incur a Break in Service in such Plan Year;
otherwise, such Hours of Service shall be credited in the following Plan Year if such absence continues in such Plan Year.

INDEPENDENT FIDUCIARY

The term Independent Fiduciary shall refer to any entity or individual which is unrelated to any part of the Plan or Trust and which may be appointed from time to time by the Board of Directors to act on behalf of the Plan and/or Trust, or for such other purposes as the Board of Directors may determine to be in the best interest of the Plan and/or Trust.

INELIGIBLE EMPLOYEE

See Section 3 of the Plan.



11     1106_2011rest_p.docx


LEASED EMPLOYEE

Any person (other than an Employee of the Company) who pursuant to an agreement between the Company and any other person (“leasing organization”) has performed services for the Company (or for the Company and related persons determined in accordance with Section 414(n)(6) of the Code) on a substantially full-time basis for a period of at least one (1) year, and such services are performed under primary direction or control by the Company. Contributions or benefits provided a Leased Employee by the leasing organization which are
attributable to services performed for the Company shall be treated as provided by the Company.

LIMITATION YEAR

For purposes of the limitations imposed by Section 415 of the Code, the
Limitation Year shall be the Plan Year.

MERGER EFFECTIVE DATE

The effective date on which Center Financial Corporation merges with and into
Nara Bancorp, Inc. and Nara Bank merges with and into Center Bank.

NORMAL RETIREMENT AGE

The date on which a Participant attains age sixty-five (65).

OTHER INVESTMENTS ACCOUNT

The Account of a Participant which is credited with a share of the net income (or loss) of the Trust and Contributions and Forfeitures in other than Company Stock and which is debited with payments made to pay for Company Stock.

PARTICIPANT

Any Employee who is participating in this Plan as defined in Section 3 of the Plan or former Employee for whom an Account is maintained. A Participant ceases to be a Participant when such Participant’s Account is closed after all amounts have been distributed or Forfeited (in accordance with Section 13 of the Plan).

PLAN

The Nara Bank Employee Stock Ownership Plan, which includes the Plan and Trust Agreement. Effective as of the Merger Effective Date, the name of the Plan shall become BBCN Bank Employee Stock Ownership Plan.

PLAN ADMINISTRATOR

The Company shall serve as the Plan Administrator.

12     1106_2011rest_p.docx


PLAN BENEFIT

The vested amount, as defined in Sections 12 and 13 of the Plan, of a Participant’s
Accounts.

PLAN YEAR

The twelve (12) month period ending on each Anniversary Date.

QUALIFIED ELECTION PERIOD

The six (6) Plan Year period beginning with the first Plan Year in which the
Participant first became a Qualified Participant. See Section 17(a) of the Plan.

QUALIFIED PARTICIPANT

Any Participant who has attained age fifty-five (55) and has completed ten (10)
years of participation under the Plan. See Section 17(a) of the Plan.

RETIREMENT

Separation from service after attaining Normal Retirement Age or due to
Disability.

SECURITIES ACQUISITION LOAN

A loan, also called an ‘Exempt Loan’, which is used to purchase Employer Securities as described in Subsection 6(c) of the Plan and is in accordance with Treasury Regulation § 54.4975-7(b)(1)(ii) and (iii).

STOCK BONUS PLAN

The portion of the Plan, which in accordance with Treasury Regulation §
54.4975-11(a)(5), is designed to qualify as a stock bonus plan and is subject to the rules pertaining to a stock bonus plan under Section 401(a) of the Code. This portion of the Plan is not intended to qualify as an Employee Stock Ownership Plan.

SUSPENSE ACCOUNT

The Suspense Account maintained by the Trust to which shall be credited all shares of Employer Securities purchased with the proceeds of a Securities Acquisition Loan.

TOTAL COMPENSATION

For purposes of Section 415 of the Code, the definition of Covered Compensation in Section 2 of this Plan, and the Top Heavy provisions in Section 21 of this Plan,

13     1106_2011rest_p.docx


(a)    The term “Total Compensation” includes:

(1)    The Employee’s wages, salaries, fees for professional services, and other amounts received (without regard to whether or not an amount is paid in cash) for personal services actually rendered in the course of employment with the Employer maintaining the Plan to the extent that the amounts are includable in gross income (including, but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or other expense allowances under a nonaccountable plan (as described in Section 1.62-
2(c) of the regulations under Section 62 of the Code).

Total Compensation also includes Code Section 132(f) elective reductions, elective deferrals to Section 401(k) plans and similar arrangements (for example, Employer contributions under a salary reduction arrangement to purchase a Code Section 403(b) annuity), elective contributions to Code Section 457 nonqualified deferred compensation plans and salary reductions made to a cafeteria plan.

Notwithstanding the foregoing, for Limitation Years beginning on or after July 1,
2007, the term Total Compensation also includes “Post-Separation Pay” paid by the Employer on behalf of the Employee during the “Post-Separation Payment Period”, as such terms are defined herein. Post-Separation Pay includes (i) payment for regular services during the Employee’s regular working hours, or compensation for services outside the Employee’s regular working hours (such as overtime or shift differential), commissions, bonuses, or other similar payments which would have been paid to the Employee prior to a severance from employment if the Employee had continued in employment with the Employer; (ii) payment for unused accrued bona fide sick, vacation, or other leave, but only if the Employee would have been able to use the leave if employment had continued; and (iii) amounts received by an Employee pursuant to a nonqualified unfunded deferred compensation plan, but only if the payment would have been paid to the Employee at the same time if the Employee had continued in employment with the Employer and only to the extent that the payment is includible in the Employee’s gross income. The Post-Separation Payment Period
is defined as the period not exceeding the later of 2½ months after severance from employment with the Employer maintaining the Plan or the end of the Limitation Year that includes the date of severance from employment with the Employer maintaining the Plan.

(2)    In the case of an Employee who is an employee within the meaning of Section 401(c)(1) of the Code and the regulations thereunder, the Employee’s earned income (as described in Section 401(c)(2) of the Code and the regulations thereunder).

(3)    Amounts described in Sections 104(a)(3), 105(a) and 105(h) of the Code, but only to the extent that these amounts are includable in the gross income of the Employee.

14     1106_2011rest_p.docx


(4)    Amounts paid or reimbursed by the Employer for moving expenses incurred by an Employee, but only to the extent that at the time of the payment it is reasonable to believe that these amounts are not deductible by the Employee under Section 217 of the Code.

(5) The value of a nonqualified stock option granted to an Employee by the Employer, but only to the extent that the value of the option is includable in the gross income of the Employee for the taxable year in which granted.

(6)    The amount includable in the gross income of an Employee upon making the election described in Section 83(b) of the Code.

(7)    For all Limitation Years beginning on or after July 1, 2007, foreign compensation paid to an individual is includible as Total Compensation regardless of the fact that those amounts are not includible in the individual’s gross income
on account of the location of the services. The determination of whether an amount is treated as Total Compensation is made without regard to the exclusions from gross income under IRC Sections 872, 893, 894, 911, 931, and 933.

(8)    For all Limitation Years beginning on or after July 1, 2007, amounts that are includible in the gross income of an Employee under the rules of section 409A or section 457(f)(1)(A) or because the amounts are constructively received by the Employee.

(b)    The term “Total Compensation” does not include items such as:

(1)    Employer contributions made on behalf of an Employee to a simplified employee pension plan described in Code Section 408(k) which are not considered as compensation for the taxable year in which contributed. Additionally, any distributions from a plan of deferred compensation are not considered as compensation for Section 415 purposes, regardless of whether such amounts are includable in the gross income of the Employee when distributed. However, any amounts received by an Employee pursuant to an unfunded nonqualified plan may be considered as compensation for Code Section 415 purposes in the year such amounts are includable in the gross income of the Employee.

(2)    Amounts realized from the exercise of a nonqualified stock option, or when restricted stock (or property) held by an Employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture (under Section 83 of the Code).

(3)    Amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option.

(4)    Other amounts which receive special tax benefits, such as premiums for group term life insurance (but only to the extent that the premiums are not includable in the gross income of the Employee), or contributions made by an
15     1106_2011rest_p.docx


Employer (not under a salary deferral agreement) towards the purchase of an annuity contract described in Section 403(b) of the Code (only if the contributions are excludable from the gross income of the Employee).

(5)    Other items of remuneration that are similar to any of the items listed in paragraphs (b)(1) through (b)(4) of this section.

(6)    For all Limitation Years beginning on or after July 1, 2007, restorative payments are not counted as Annual Additions in any Limitation Year. Restorative payments are payments made to restore plan losses resulting from a fiduciary breach where there is a reasonable risk of liability for breach of fiduciary duty under Title I of ERISA (other than a failure to timely remit participant contributions), as well as a reasonable risk of liability for breach of fiduciary duty under other applicable federal or state law. Restorative payments do not include payments to make up for market fluctuations, payments to cover early termination or redemption fees in the case of a change in investment funds, or other payments not made on account of a reasonable risk of liability for breach of fiduciary duty.

TRUST

The Trust created by the Trust Agreement entered into between the Company and the Trustee.

TRUST AGREEMENT

The agreement between the Company and the Trustee or any successor Trustee establishing the Trust and specifying the duties of the Trustee.

TRUSTEE

The Trustee (or Trustees) designated by the Company’s Board of Directors (and any successor Trustee). The Board of Directors may provide that any person or group of persons may serve in more than one fiduciary capacity with respect to the Plan (including service as both Trustee and Committee member).

VALUATION DATE

The Anniversary Date coinciding with or immediately preceding the date of actual distribution of Plan Benefits. For purposes of the top heavy provisions of this Plan, the Valuation Date is the most recent Anniversary Date within a twelve (12)-month period ending on a Determination Date (as defined in Section 21) of the Plan.

YEAR OF SERVICE

For purposes of vesting under Section 13 of the Plan, all Plan Years beginning on or after the Effective Date during which an Employee has completed 1,000 or
16     1106_2011rest_p.docx



more Hours of Service, including any Plan Year during which such Employee has completed 1,000 or more Hours of Service but has not yet become eligible to participate in the Plan. Notwithstanding the foregoing, service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Code. See also, Section 12(b) of the Plan.

For purposes of eligibility, a twelve (12) month period beginning on an Employee’s Employment Commencement Date during which an Employee is credited with not less than 1,000 Hours of Service.

Years of Service also include, for purposes of vesting, all Years of Service recognized under this Employee Stock Ownership Plan prior to this amendment and restatement.

Effective as of January 1, 2012, those individuals who were employed with Center Bank shall become eligible to participate in the Plan (as described in Section 3 of the Plan), and shall be credited, for purposes of vesting under Section
13 and eligibility under Section 3, with all years of service with Center Bank.










































17     1106_2011rest_p.docx



Section 3.     ELIGIBILITY .

Each Employee shall become eligible to participate in the Plan retroactively to the first day of the Plan Year during which the Employee has completed a Year of Service, measured during the Eligibility Computation Period.
All Employees who were eligible to participate in the Company’s Employee Stock Ownership Plan on the Effective Date of this restated Plan are automatically eligible to participate in the restated Plan.
Upon the Employee so becoming eligible, participation in the Plan shall be based on the total Covered Compensation paid to the Employee for the entire Plan Year during which the Employee becomes eligible to participate.
Effective as of the Merger Effective Date, employees of Nara Bank shall become employees of Center Bank, who will change its name to BBCN Bank, and such employees shall continue to be eligible to participate in the Plan. Employees who were employed by Center Bank immediately prior to the Merger Effective Date, will become eligible to participate in the Plan, effective as of January 1, 2012.
The following Employees shall not be eligible to participate in the Plan, and shall be

known as “Ineligible Employees”:

•
An Employee whose terms of employment with the Employer are covered by a collective bargaining agreement shall not be eligible to participate in the Plan unless the terms of such collective bargaining agreement specifically provide for participation in this Plan;
•    An Employee who is a Leased Employee; and

•
An Employee who is a nonresident alien who does not receive any earned income (as defined in Code § 911(d)(2)) from the Employer which constitutes United States source income (as defined in Code § 861(a)(3)).
If an Ineligible Employee, who has otherwise met the Plan’s eligibility requirements as described above, and would otherwise have become eligible to participate in the Plan, shall go from a classification of an Ineligible Employee to an eligible Employee, such Employee shall become eligible to participate in the Plan on the date such Employee becomes an eligible Employee or, if later, the date the Employee would have otherwise entered the Plan had the
Employee always been an eligible Employee.



18     1106_2011rest_p.docx


Section 4.     PARTICIPATION IN ALLOCATION OF BENEFITS .

(a)     Participation .

A Participant will share in the allocation of Contributions and Forfeitures only if the Participant has accumulated 1,000 or more Hours of Service during the Plan Year. A Participant who accumulates less than 1,000 Hours of Service during a Plan Year will not share in the allocation of Contributions and Forfeitures under Section 11 for such Plan Year, and shall become an inactive Participant for that Plan Year.
A Participant reemployed following a Break in Service shall again resume participation in the Plan as of the date of reemployment for purposes of participating in Contributions and Forfeitures, subject to the requirements of this Subsection 4(a).
(b)     Leave of Absence .

A Participant’s employment is not considered terminated for purposes of the Plan if the Participant has been on leave of absence with the consent of the Company, provided that the Participant returns to the employ of the Company within thirty (30) days after the leave (or within such longer period as may be prescribed by law). Leave of absence shall mean a leave granted by the Company, in accordance with rules uniformly applied to all Participants, for reasons of health or public service or for reasons determined by the Company to be in its best interests. Solely for purposes of preventing a Break in Service, a Participant on such leave of absence shall be credited with eight (8) Hours of Service for each business day of the leave. A Participant who does not return to the employ of the Company within the prescribed time following the end of the leave of absence shall be deemed to have terminated employment as of the date when the leave began, unless such failure to return was the result of death, Disability or Retirement.
(c)     Omission of Eligible Employee .

If, in any Plan Year, any Employee who should be included as a Participant in the Plan is erroneously omitted, and discovery of such omission is not made until after a Contribution by the Employer for the Plan Year has been made, the Employer shall make a subsequent Contribution with respect to the omitted Employee in the amount which the
Company would have contributed if he or she had not been omitted. Such Contribution shall be made regardless of whether or not it is deductible in whole or in part in any taxable year under
the applicable provisions of the Code.



19     1106_2011rest_p.docx


(d)     Inclusion of Ineligible Employee .

If, in any Plan Year, any Employee who should not have been included as a Participant in the Plan is erroneously included, and discovery of such incorrect inclusion is not made until after a Contribution by the Company for the year has been made, the Company shall not be entitled to recover the Contribution made with respect to the ineligible Employee regardless of whether a deduction is allowable with respect to such Contribution. In such event, the amount contributed with respect to the ineligible Employee shall constitute a Forfeiture for the Plan Year in which the discovery is made.
(e)     Uniformed Services Participants .

Notwithstanding the foregoing, participation in the allocation of Contributions and Forfeitures with respect to a Participant’s qualified military service will be provided in accordance with Section 414(u) of the Code. See also, Section 12(b) of the Plan.
(f)     Suspended Participation .

A Participant who ceases to be an eligible Employee as described in Section 3 of the Plan, shall become a suspended Participant. During the period of suspension, no amounts shall be credited to the Participant’s Accounts which are based on the Participant’s Covered Compensation from and after the date of suspension. However, amounts previously credited to a
Participant’s Accounts shall continue to vest in accordance with the provisions of this Plan.






























20     1106_2011rest_p.docx



Section 5.     CONTRIBUTIONS .

(a)     Amount of Contribution .

Contributions shall be made to the Trust in such amounts as may be determined by the Company’s Board of Directors, provided that such Contributions shall not exceed the maximum amounts deductible under Section 404(a)(3) and Section 404(a)(9) of the Code. Notwithstanding the foregoing, Contributions may not be made in amounts which would permit the limitation described in Section 11(b) of the Plan to be exceeded.
(b)     Time for Making Contribution .

Contributions for each year, as determined by the Company’s Board of Directors, shall be paid to the Trust not later than the due date for filing the Company’s federal income tax return for that year, including extensions of such date.
(c)     Form of Contribution .

Contributions may be paid in cash or shares of Company Stock as the Company’s

Board of Directors may from time to time determine in their discretion. Shares of Company

Stock will be valued at their then fair market value.




































21     1106_2011rest_p.docx



Section 6.     INVESTMENT OF TRUST ASSETS .

(a)     Authorized Investments .

The Trustee shall apply cash Contributions received by the Trust to 1) pay any outstanding obligations of the Trust under a Securities Acquisition Loan incurred for the purchase of Employer Securities, or 2) purchase shares of Company Stock from current shareholders, treasury shares, or newly issued shares from the Company. To the extent that cash Contributions to the Trust are in excess of amounts needed to pay outstanding obligations of the Trust under an existing Securities Acquisition Loan, pursuant to the terms of the Trust Agreement, the Trustee shall invest funds under the Plan in other investments as the Trustee deems prudent for the Trust, or such funds may be held in non-interest-bearing bank accounts as necessary on a temporary basis.
(b)     Investment Duties .

All investments will be made by the Trustee in accordance with the provisions of the Trust. All purchases of Company Stock shall be made at no more than fair market value, as determined by the Trustee. In the case of a purchase from a disqualified person (as defined in Code Section 4975(e)), all purchases of Company Stock shall be made at prices which do not exceed the fair market value of such shares as of the date of the transaction.
(c)     Plan Loans .

(1)    The Trustee may, as directed by the Company, incur Plan loans from time to time to carry out the purposes of the Trust, provided that the loan is a Securities Acquisition Loan, and the terms of the loan must comply with the following requirements: Any such loan shall be for a specified term, shall bear a reasonable rate of interest, and shall provide that the only assets of the Plan that may be given as collateral on such loan are qualifying Employer Securities of two classes: those acquired with the proceeds of the loan and those that were used as collateral on a prior Securities Acquisition Loan repaid with the proceeds of the current
Securities Acquisition Loan. Any such loan shall be primarily for the benefit of Plan Participants and their Beneficiaries. Any Securities Acquisition Loan made pursuant to this Subsection 6(c)
of the Plan, shall provide that at the time the loan is made, the interest rate for the loan and the price of the Employer Securities to be acquired with the loan proceeds should not be such that
Plan assets might be drained off. Payments made with respect to a Securities Acquisition Loan





22     1106_2011rest_p.docx


by the Plan during a Plan Year must not exceed an amount equal to the sum of such contributions and earnings received during or prior to the year less such payments in prior years.
No person entitled to payment under the Securities Acquisition Loan shall have any right to assets of the Plan other than: (i) collateral given for such loan,
(ii) Contributions (other than contributions of employer securities) that are made under a Plan to meet its obligations under such loan, and (iii) earnings attributable to such collateral and the investment of such Contributions. Any pledge of Employer Securities must provide for the release of shares so pledged pursuant to either the ‘General Rule’ or the ‘Special Rule’ set forth in Section 7 of the Plan. Shares of Employer Securities released from the Suspense Account shall be allocated to Participants’ accounts in shares of stock or other nonmonetary units. Repayments of principal and interest on any Securities Acquisition Loan shall be made by the Trustee (as directed by the Committee) only from Contributions in cash that are made to the Trust to meet its obligations under such Securities Acquisition Loan, or from any earnings attributable to the collateral given for such loan and the investment of Contributions made to the Trust in cash to meet its obligations under the loan. Such Contributions and earnings shall be accounted for separately in the books of accounts of the Plan until the Securities Acquisition Loan is repaid. The proceeds of a Securities Acquisition Loan may be used only to acquire Employer Securities, to repay such loan or to repay a prior Securities Acquisition Loan. The Plan may not obligate itself to acquire securities from a particular security holder at an indefinite
time determined upon the happening of an event such as the death of the holder. The protections and rights described in Section 16 of the Plan are nonterminable. Should this Plan cease to be an employee stock ownership plan, or should the Securities Acquisition Loan be repaid, all Employer Securities will continue to be subject to the provisions of Section 16 of the Plan. If securities acquired with the proceeds of a Securities Acquisition Loan available for distribution consist of more than one class, a Distributee must receive substantially the same portion of each
such class.

(2)    In the event of default upon a Securities Acquisition Loan, the value of Plan assets transferred in satisfaction of the loan must not exceed the amount of default. If the lender is a disqualified person (as defined in Code Section 4975(e)), a loan must provide for a
transfer of Plan assets upon default only upon and to the extent of the failure of the Plan to meet





23     1106_2011rest_p.docx


the payment schedule of the loan. For purposes of this paragraph, the making of a guarantee

does not make a person a lender.































































24     1106_2011rest_p.docx



Section 7.     ALLOCATIONS TO ACCOUNTS .

(a)     Individual Accounts .

The Committee shall establish and maintain individual Accounts for each Participant in the Plan. Individual Accounts shall also be maintained for all former Participants who still have an interest in the Plan. Except as provided in Section 17(a) of the Plan, such individual Accounts shall not require a segregation of the Trust assets and no Participant, former Participant or Beneficiary shall acquire any right to or interest in any specific asset of the Trust as a result of the allocation provided for in the Plan.
(b)     Company Stock Account .

(1)    The Company Stock Account of each Participant will be credited as of each Anniversary Date with the Participant’s allocated share of Company Stock (including fractional shares) purchased and paid for by the Trust or contributed in kind by the Company, with Forfeitures of Company Stock and with stock dividends on Company Stock held in the Participant’s Company Stock Account.
Employer Securities acquired by the Trust with the proceeds of a Securities Acquisition Loan shall be credited to a Suspense Account. For each Plan Year during the duration of the loan, the number of shares of Employer Securities to be released from said Suspense Account and allocated to the Company Stock Accounts of Participants shall be determined pursuant to either the “General Rule” or the “Special Rule” described below as selected by the Committee for each Securities Acquisition Loan. Once the Committee has selected either the General Rule or the Special Rule, that Rule shall be used exclusively for the allocation of shares of Employer Securities purchased with the proceeds of a particular Securities
Acquisition Loan.

(A)    General Rule: For each Plan Year during the duration of the loan, the Committee shall withdraw from the Suspense Account a number of shares of Employer Securities equal to the total number of such shares held in the Suspense Account immediately prior to the withdrawal multiplied by a fraction:
(i)    The numerator of which is the amount of principal and interest paid for the Plan Year; and
(ii)    The denominator of which is the sum of the numerator plus

the principal and interest to be paid for all future years.



25     1106_2011rest_p.docx


(B)    Special Rule:

(i)    For each Plan Year, the Committee shall withdraw from the Suspense Account a number of shares of Employer Securities equal to the total number of such shares held in the Suspense Account immediately prior to the withdrawal multiplied by a
fraction:




paid for the Plan Year; and
 
(aa)    The numerator of which is the amount of principal



(bb)    The denominator of which is the sum of the



numerator plus the principal to be paid for all future Plan Years.

(ii)    The Committee may select the Special Rule only if:

(aa)    The Securities Acquisition Loan provides for annual payments of principal and interest at a cumulative rate which is not less rapid at any time than level annual payments of such amounts for ten (10) years;
(bb)    The interest included in any payment is disregarded only to the extent that it would be determined to be interest under standard loan amortization
tables; and

(cc) By reason of a renewal, extension or refinancing, the sum of the expired duration of the original loan, any renewal period, any extension period and the duration of any new loan does not exceed 10 years.
(C)    In determining the number of shares to be released for any Plan

Year under either the General Rule or the Special Rule:

(i) The number of future years under the Loan must be definitely ascertainable and must be determined without taking into account any possible extensions or renewal periods;
(ii)    If the Loan provides for a variable interest rate, the interest to be paid for all future Plan Years must be computed by using the interest rate applicable as of the end of the Plan Year for which the determination is being made; and


(iii)    If the Employer Securities allocated to the Suspense Account includes more than one class of shares, the number of shares of each class to be withdrawn for a Plan Year from the Suspense Account must be determined by applying the
applicable fraction provided for above to each such class.



26     1106_2011rest_p.docx



(2) Allocations of Company Stock shall be reflected separately for each class of such stock, and the Committee shall maintain adequate records of the aggregate cost basis of Company Stock allocated to each Participant’s Company Stock Account.
(c)     Other Investments Account .

The Other Investments Account of each Participant will be credited with all cash, Contributions and Forfeitures, and will be credited (or debited) as of each Anniversary Date with the Participant’s share of the net income (or loss) of the Trust, and with cash dividends on Company Stock (not distributed to Participants) nor used to make payments on a Securities Acquisition Loan. The Other Investments Account of each Participant will be credited (or debited) as of each Anniversary Date with the Participant’s share of the unrealized appreciation (or depreciation) in the value of Trust assets other than Company Stock. It will be debited for any payments for purchases of Company Stock or for repayment of debt (including principal and
interest) incurred for the purchase of Employer Securities.








































27     1106_2011rest_p.docx



Section 8.     EXPENSES OF THE PLAN AND TRUST .

The Trust shall pay normal brokerage charges that are included in the cost of securities purchased or charged to proceeds in the case of sales. The Company shall pay all costs and expenses in connection with the design, establishment, or termination of the Plan. The Trust shall pay all costs and expenses of administering the Plan and Trust (as more fully set forth in the
Trust Agreement), unless the Company pays such costs and expenses.






















































28     1106_2011rest_p.docx



Section 9.     VOTING COMPANY STOCK .

All Company Stock held by the Trust shall be voted by the Trustee. For so long as the

Company has a “registration-type class of securities”, as such phrase is defined at Section

409(e)(4) of the Code, each Participant shall be entitled to direct the Trustee as to the voting of any Company Stock credited to such Participant’s Company Stock Account with respect to any issue on which the Company shareholders holding like securities are entitled to vote (as more fully set forth in the Trust Agreement). The Trustee shall vote in its sole discretion any unallocated shares held by the Trust as well as any allocated shares for which a Participant has
failed to give timely voting direction.
















































29     1106_2011rest_p.docx



Section 10.     DISCLOSURE TO PARTICIPANTS .

(a)     Summary Plan Description .

The Committee shall furnish each Participant (and each Beneficiary receiving benefits under the Plan) with a summary plan description in such form and at such times as required by Sections 102(a)(1) and 104(b)(1) of ERISA and the Department of Labor Regulations thereunder. Such summary plan description shall be updated from time to time as required under ERISA and the Department of Labor regulations thereunder.
(b)     Summary Annual Report .

The Committee shall furnish each Participant (and each Beneficiary receiving benefits under the Plan) with a summary annual report of the Plan in such form and at such times as required by Section 104(b)(3) of ERISA and the Department of Labor Regulations thereunder.
(c)     Annual Statement .

As soon as possible after each Anniversary Date, Participants will receive a written statement of their Accounts showing as of that Anniversary Date:
(1)    The balance in each of their Accounts as of the preceding Anniversary
Date.
(2)    The amount of Contributions and Forfeitures allocated to their Accounts for the year.

(3)    The adjustments to their Accounts to reflect their share of dividends and
the income and expenses of the Trust for the year.

(4)    The new balances in each of their Accounts, including the number of shares of Company Stock.

(5)    The vested percentage of their Plan Benefit.

Upon the discovery of any error or miscalculation in an Account, the Committee shall correct the same insofar as, in the Committee’s discretion, correction is feasible. Statements to Participants are for reporting purposes only, and no allocation, valuation or statement shall, by itself, vest any right or title in any part of the Trust fund.

(d)     Notice of Rollover Treatment .

The Committee shall, when making any distribution which qualifies as a qualifying rollover distribution under Section 402(c) or Section 401(a)(31) of the Code, provide
a written notice to the recipient which explains the provisions of Sections 402(c) and 401(a)(31)

30     1106_2011rest_p.docx



under which such distribution will not be subject to current tax if transferred to an Eligible

Retirement Plan. In the case of a distribution under Section 402(c), such notice shall be given

not less than thirty (30) days nor more than one hundred eighty (180) days before the distribution date. If the distribution is one to which Sections 401(a)(11) and 417 of the Internal Revenue Code do not apply, such distribution may commence less than thirty (30) days after the notice required under Section 1.411(a)11(c) of the Income Tax Regulations is given, provided that:
(1)    the Committee clearly informs the Participant that the Participant has a right to a period of at least thirty (30) days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and
(2)    the Participant, after receiving the notice, affirmatively elects a

distribution.

(e)     Additional Disclosure .

The Committee shall make available for examination by any Participant (or Beneficiary) copies of the summary plan description, the Plan, the Trust Agreement and the latest annual report of the Plan filed with the Department of Labor. Upon written request of any Participant (or Beneficiary), the Committee shall furnish copies of such documents and may make a reasonable charge to cover the cost of furnishing such copies, as provided in regulations
of the Department of Labor.






























31     1106_2011rest_p.docx



Section 11.     ALLOCATION OF CONTRIBUTIONS AND FORFEITURES .

(a)     Allocation of Contributions and Forfeitures .

The allocation will be made as follows: (1)     Contributions .
Contributions will be allocated as of each Anniversary Date among the Accounts of Participants who meet the requirements of Section 4 of the Plan, in the proportion that each such Participant’s Covered Compensation bears to the total Covered Compensation of all such Participants for that year. Shares of Employer Securities released from the Suspense Account (as provided in Section 7(b) of the Plan) by reason of the payment of interest and principal on a Securities Acquisition Loan shall be allocated as of each Anniversary Date among the Accounts of Participants in the Plan who meet the requirements of Section 4 of the Plan, in the proportion that each such Participant’s Covered Compensation bears to the total Covered Compensation of all such Participants for that year.
(2)     Forfeitures.

Forfeitures shall be allocated in the same manner as Contributions are
allocated.

(3)     Net Income (or Loss) of the Trust .

The net income (or loss) of the Trust will be determined annually as of
each Anniversary Date. Any stock dividends on shares of Company Stock held by the Trust shall be allocated to each Participant’s Company Stock Account in the ratio in which the cumulative number of shares allocated to the Participant’s Company Stock Account as of the preceding Anniversary Date bears to the total cumulative number of shares of Company Stock allocated to the Company Stock Accounts of all Participants as of that date.
Trust income attributable to any cash dividends paid on allocated shares of Company Stock and not used to make payments on a Securities Acquisition Loan shall be allocated to each Participant’s Other Investments Account in the ratio in which the cumulative number of shares allocated to the Participant’s Company Stock Account as of the preceding Anniversary Date bears to the total cumulative number of shares of Company Stock allocated to the Company Stock Accounts of all Participants as of that date. Trust income attributable to allocated shares of Company Stock and used to make payments on a Securities Acquisition
Loan, shall release shares of Employer Securities from the Suspense Account. Such shares shall



32     1106_2011rest_p.docx


be allocated to each Participant’s Company Stock Account in the ratio in which the cumulative number of shares allocated to the Participant’s Company Stock Account as of the preceding Anniversary Date bears to the total cumulative number of shares of Company Stock allocated to the Company Stock Accounts of all Participants as of that date. However, in the case of cash dividends on allocated shares, Employer Securities in an amount equal to such cash dividends will be allocated to such Participants for the year in which such cash dividends would otherwise have been allocated to such Participants. Trust income attributable to any cash dividends paid on
unallocated shares of Company Stock and not used to make payments on a Securities Acquisition Loan, shall be allocated to each Participant’s Other Investments Account in accordance with Subsection 11(a)(1) of the Plan. Trust income attributable to cash dividends paid on unallocated shares of Company Stock and used to make payments on a Securities Acquisition Loan, shall release shares of Employer Securities which shall be allocated to Participant’s Company Stock Account in accordance with Subsection 11(a)(1) of the Plan.
Trust income attributable to any gain from the sale of unallocated shares of Employer Securities shall be allocated to each Participant’s Other Investments Account in the proportion that each such Participant’s Covered Compensation for the Plan Year bears to the total Covered Compensation of all such Participants for that Plan Year. All other net income (or loss) will be allocated to each Participant’s Other Investments Account in the ratio in which the
balance of the Participant’s Other Investments Account on the preceding Anniversary Date bears to the sum of the balances of the Other Investments Accounts of all Participants on that date. For this purpose, Account balances shall be reduced by amounts distributed to Participants during the
Plan Year.

The net income (or loss) includes the increases (or decreases) in the fair market value of assets of the Trust, interest, dividends, other income and expenses attributable to assets in the Other Investments Accounts since the preceding Anniversary Date. Net income (or loss) does not include the interest paid under any installment contract for the purchase of Company Stock by the Trust or on any loan obtained by the Trust to purchase Company Stock. Notwithstanding the foregoing, no income (or loss) shall be allocated to a Participant’s Account
for the Plan Year in which the Participant receives final distribution of the Plan Benefit.







33     1106_2011rest_p.docx



(b)     Allocation Limitations .

(1)    Except to the extent permitted under Section 414(v) of the Code, if applicable, the Annual Addition that may be contributed or allocated to a Participant’s Account under the Plan for any Limitation Year shall not exceed the lesser of:
(i)    $49,000, as adjusted for increases in the cost-of-living under

Section 415(d) of the Code, or

(ii)    100 percent of the Participant’s Total Compensation for the

Limitation Year.

The compensation limit referred to in (ii) shall not apply to any

Contribution for medical benefits after separation from service (within the meaning of Section

401(h) or Section 419(A)(f)(2) of the Code) which is otherwise treated as an Annual Addition.

A Participant’s allocable share of Contributions applied to the payment of interest on a Securities Acquisition Loan and Forfeitures of Employer Securities purchased with the proceeds of a Securities Acquisition Loan shall not be included as an Annual Addition (in accordance with Code Section 415(c)(6)), provided that no more than one-third (⅓) of the Contribution for that year is allocated to the Accounts of Highly Compensated Employees.
The Annual Additions under Section 11(b) with respect to Employer Securities released from the Suspense Account (by reason of Contributions used for payments on a Securities Acquisition Loan) and allocated to Participants’ Company Stock Accounts shall be based upon the lesser of (A) the amount of such Contributions, or (B) the fair market value of such Employer Securities (determined by an Independent Appraiser) as of the Allocation Date. Annual Additions shall not include any allocation attributable to proceeds from the sale of Employer Securities by the Trust or to appreciation (realized or unrealized) in the fair market value of Company Stock.
(2)    If an Employer is contributing to another defined contribution plan, as defined in Section 414(i) of the Code, for Employees of the Company or any Affiliated Company, some or all of whom may be Participants in this Plan, then any such Participant’s Annual Additions in such other plan shall be aggregated with the Participant’s Annual Additions derived from this Plan for purposes of the limitation in Paragraph (1) of this Subsection.
(3)    If the Account balances or the Annual Additions to a Participant’s

Accounts would exceed the limitation described in Paragraphs (1) or (2) of this Subsection, the



34     1106_2011rest_p.docx


aggregate of the Annual Additions to this Plan shall be reduced until the applicable limitation is

satisfied.

(4)    If the reduction described above will be made to this Plan, the reduction shall be treated the same as Forfeitures and shall be allocated in accordance with Section
11(a)(2) of the Plan to the Accounts of Participants who are not affected by this limitation.

























































35     1106_2011rest_p.docx



Section 12.     DETERMINATION OF PLAN BENEFITS .

(a)     Vesting at Death, Disability or Retirement .

A Participant who, while employed with the Company, dies or attains Normal Retirement Age or incurs a Disability, will be one hundred percent (100%) vested in such Participant’s Plan Benefit.
Any amount credited to a Participant’s Accounts in accordance with Section 4 of the Plan for the Plan Year in which such Participant dies or attains Normal Retirement Age or incurs a Disability, shall also be nonforfeitable.
(b)     Determination of Plan Benefits in Connection with Qualified Military Service .

Notwithstanding any provision of this Plan to the contrary, benefits and service credit with respect to qualified military service (as such term is defined in Section 414(u) of the Code) will be provided in accordance with Section 414(u) of the Code, and in accordance with the provisions of this Section 12(b).
Effective as of January 1, 2007, a Participant who dies while performing qualified military service (as such term is defined in Section 414(u) of the Code) will be treated as having died while employed by the Company for purposes of Plan Sections 12 and 13 regarding vesting
and Plan Section 14 regarding distribution of benefits.
































36     1106_2011rest_p.docx



Section 13.
TERMINATION OF SERVICE PRIOR TO RETIREMENT, AND FORFEITURES
(a)     Vesting Schedule .

Except as provided in Section 12 of the Plan, the vesting of such Participant’s Plan Benefit will be based upon Years of Service, as defined in Section 2 of the Plan, in accordance with the following vesting schedule:

Years of Service      Percentage of Accounts Vested

Less than Two Years    0
Two Years    20
Three Years    40
Four Years    60
Five Years    80
Six Years    100

The computation of a Participant’s nonforfeitable percentage of the Participant’s interest in the Plan shall not be reduced as the result of any direct or indirect amendment to this Plan. For this purpose, the Plan shall be treated as having been amended if the Plan provides for an automatic change in vesting due to a change in top heavy status. (See Section 21(e) of the Plan). In the event that the Plan is amended to change or modify any vesting schedule, a Participant with at least three (3) Years of Service as of the expiration date of the election period may elect to have such Participant’s nonforfeitable percentage computed under the Plan without regard to such amendment. If a Participant fails to make such election, then such Participant shall be subject to the new vesting schedule. The Participant’s election period shall commence on the adoption date of the amendment and shall end sixty (60) days after the latest of:
(1)    the adoption date of the amendment,

(2)    the effective date of the amendment, or

(3)    the date the Participant receives written notice of the amendment from the

Employer or Committee.

Notwithstanding the foregoing, pursuant to applicable Treasury Regulations, no election need be provided for any Participant whose nonforfeitable percentage under the Plan, as amended, at any time cannot be less than such percentage determined without regard to such
amendment.





37     1106_2011rest_p.docx



(b)     Vesting Upon Reemployment .

If a Participant is reemployed by the Company following a Break in Service, such

Participant’s Accounts shall be vested as follows:

(1)     Vesting of Pre-Break in Service Account Balances .

If a Participant has had five (5) consecutive one-year Breaks in Service, Years of Service after such five-year period will not be taken into account for purposes of determining a Participant’s vested interest in the Participant’s prebreak Account balances and new Accounts will be established to record the Participant’s interest in the Plan for service after such five-year period.
(2)     Vesting of Subsequent Account Balances .

(A)    In the case of a Participant who, at the time of a Break in Service, does not have any vested right under Paragraph (a) above, Years of Service before such Break in Service shall not be taken into account unless such Participant returns to work for the Employer and completes one (1) Year of Service. Notwithstanding the foregoing, Years of Service before such Break in Service shall not be taken into account for purposes of determining a Participant’s vested interest in the Participant’s postbreak Accounts if the number of consecutive one-year Breaks in Service equals or exceeds five (5) years.
(B)    In the case of a Participant who, at the time of a Break in Service, had any partial degree of vested interest under Paragraph 13(a) above, upon reemployment with the Employer, for purposes of determining the Participant’s vested interest in his or her postbreak Account balances, such Participant shall be credited with all Years of Service prior to the Break in Service.
(c)     Forfeitures .

Forfeitures shall be charged first against a Participant’s Other Investments Account, second against Company Stock which was not acquired with the proceeds of a Securities Acquisition Loan, and third against Company Stock acquired with a Securities Acquisition Loan. If a portion of a Participant’s Account is to be forfeited and interests in more than one class of Employer Securities have been allocated to a Participant’s Account, the Participant shall forfeit the same percentage of each such class. The disposition of such
Forfeitures shall be as follows:





38     1106_2011rest_p.docx


(1)    If a Participant has incurred five consecutive one-year Breaks in Service and has not received a “cash-out distribution” (as defined below), the nonvested balance of the Participant’s Accounts shall be allocated as a Forfeiture as soon as possible after the close of the Plan Year in which the Participant incurs a five-year Break in Service.
(2)    If a Participant who is not one hundred percent (100%) vested receives a distribution of a Plan Benefit, which is not a “cash-out distribution” (as defined below), prior to the occurrence of a five-year Break in Service, and such Participant returns to work for the Employer, the portion of the Participant’s Accounts which was not vested shall be maintained separately (from any additional contributions to this Plan) until such Participant becomes one hundred percent (100%) vested. Such Participant’s vested and nonforfeitable percentage in such separate Accounts upon any subsequent termination of service shall be equal to:
X – Y     

100% - Y

For purposes of applying this formula, X is the vested percentage at the time of the subsequent termination, and Y is the vested percentage at the time of the prior termination. Separate Accounts shall share in the allocation of Trust income or loss on every Anniversary Date prior to Forfeiture, but such accounts shall not share in allocation of Trust income or loss on the Anniversary Date on which they are forfeited.
(3)    If a Participant receives a “cash-out distribution” (as defined below), such Participant shall incur a Forfeiture immediately upon receipt of the “cash-out distribution.” The nonvested balance of the Participant’s Accounts shall be allocated as a Forfeiture as of the Anniversary Date coinciding with or following the date such Participant incurred a one-year Break in Service or received the cash-out distribution, whichever is later.
(d)     Cash-Out Distribution .

If a partially vested Participant receives a cash-out distribution, the cash-out distribution will result in a Forfeiture of the nonvested portion of the Participant’s Accounts. A “cash-out distribution” is a distribution of the entire vested portion of a Participant’s Accounts that is made before the Participant incurs five (5) consecutive one-year Breaks in Service.
If any former Participant shall be reemployed by the Employer before five (5)

consecutive one-year Breaks in Service, and such former Participant had received a cash-out

distribution prior to reemployment, the forfeited portion of such Participant’s Accounts shall be



39     1106_2011rest_p.docx



reinstated only if the Participant repays the full amount distributed to such Participant. Such repayment must be made by the former Participant before the Participant incurs five (5) consecutive one-year Breaks in Service following the date of distribution and before the five- year anniversary of his reemployment date. In the event the former Participant does repay the full amount distributed to such Participant, the undistributed portion of the Participant’s Accounts must be restored in full, unadjusted by any gains or losses occurring subsequent to the Anniversary Date preceding the Participant’s termination. Restoration of a Participant’s Accounts shall include restoration of all Code Section 411(d)(6) protected benefits with respect to such restored amounts.
If the Participant repays the amount distributed to such Participant within the required time period, the Committee shall restore the forfeited portion of the Participant’s Accounts as of the Anniversary Date coinciding with or following the repayment. Such amount shall be restored, to the extent necessary, in the following manner:
(A)    first from current-year Forfeitures;

(B)    second from current-year Trust earnings; and

(C)    third from current-year Contributions.

To the extent the amounts described in clauses (A), (B) and (C) are insufficient to enable the Committee to make the required restoration, the Employer must contribute the additional amount necessary to enable the Committee to make the required restoration.
A terminated Participant who is zero percent (0%) vested shall be deemed to have received a cash-out distribution as of the day on which the Participant separates from service
with the Employer. For purposes of applying the restoration provisions of this Paragraph, the
Committee will treat a zero percent (0%) vested Participant as repaying the Participant’s cash- out distribution on the first day of reemployment with the Employer.

















40     1106_2011rest_p.docx



Section 14.     DISTRIBUTION OF PLAN BENEFIT .

(a)     Death, Disability or Retirement .

In the event of a Participant’s separation from service due to death, Disability or after attaining Normal Retirement Age, subject to Subsection 14(e) of the Plan, distribution of a Participant’s Plan Benefit shall be made in a lump sum during the Plan Year following the close of the Plan Year in which such event occurs.
(b)     Other Termination of Participation .

In the event a Participant’s employment terminates for reasons other than death, Disability or prior to attaining Normal Retirement Age, subject to Subsection 14(e) of the Plan, the Participant’s vested Plan Benefit will be distributed in a lump sum as soon as administratively feasible after the close of the Plan Year in which the Participant’s employment
terminates.

Notwithstanding any of the provisions of this Subsection 14(b), the Plan shall not be required to distribute any Employer Securities acquired with the proceeds of a Securities Acquisition Loan until the close of the Plan Year in which such Securities Acquisition Loan has been repaid in full.
(c)     Death Prior to Completion of Distribution .

If a Participant dies after the distribution of the Plan Benefit has commenced, the remaining portion of the Plan Benefit shall be distributed (in accordance with Subsection 15(b) of the Plan) at least as rapidly as under the method being used at the date of the Participant’s
death.

(d)     Valuation Date .

All Accounts, other than the Company Stock Accounts, shall be valued as of the appropriate Valuation Date, as defined in Section 2 of the Plan. The Trustee may carry out other valuations from time to time as necessary. The valuation of the Company Stock Accounts shall be valued as of a date coinciding with or immediately preceding the date of actual distribution of such Company Stock Accounts. Valuation of Company Stock contributed to or purchased by the Plan shall be determined the responsibility of the Trustee and shall be made pursuant to the terms
of the Trust Agreement.







41     1106_2011rest_p.docx


(e)     Consent and Notice Requirements .

If the Participant’s nonforfeitable account balance exceeds one thousand dollars ($1,000) at the time of the distribution, any distribution prior to the later of age sixty-two (62) or the Participant’s Normal Retirement Age may be made only with the written consent of the Participant. For purposes of this Subsection 14(e), the distribution of a Participant’s nonforfeitable account balance which does not exceed one thousand dollars ($1,000), which is made without the Participant’s consent, shall be referred to as an “involuntary distribution.” For purposes of this Subsection 14(e), the Participant’s nonforfeitable account balance shall be determined by including that portion of the Participant’s nonforfeitable account balance, if any, attributable to any rollover contributions (and earnings allocable thereto) within the meaning of Sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16) of the Code.
The Committee shall provide the Participant with a written notice which explains the provision of Section 411(a)(11), not less than thirty (30) days nor more than one hundred eighty (180) days before the distribution date. If the distribution is one to which Sections
401(a)(11) and 417 of the Internal Revenue Code do not apply, such distribution may commence less than thirty (30) days after the notice required under Section 1.411(a)-11(c) of the Income Tax Regulations is given, provided that:
(1)    the Committee clearly informs the Participant that the Participant has a right to a period of at least thirty (30) days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and
(2)    the Participant, after receiving the notice, affirmatively elects a
distribution.
 
Failure of a Participant to consent to an immediate distribution within the
applicable time limit (other than an involuntary distribution, as defined in this Subsection 14(e)) may be treated by the Employer as an election by the Participant to defer benefits to the later of age sixty-two (62) or the Normal Retirement Age of the Participant.

(f)     Required Commencement of Benefit Distribution .

(1) Distribution of a Participant’s Plan Benefit shall commence not later than sixty (60) days after the Anniversary Date coinciding with or next following the latest of (1) the Participant’s Retirement, (2) the tenth (10th) anniversary of the date the Participant became a
Participant, or (3) the Participant’s separation from service.

42     1106_2011rest_p.docx


If the amount of a Participant’s Plan Benefit cannot be determined by the Committee by the date on which a distribution is to commence, or the Participant cannot be located, distribution of the Participant’s Plan Benefit shall commence within sixty (60) days after the date on which the Participant’s Plan Benefit can be determined or after the date on which the Committee locates the Participant.
(2)    The distribution of the Plan Benefit of any Participant who attains age seventy and one-half (70½) in a calendar year shall commence not later than April 1 of the next calendar year (even if the Participant has not terminated). Effective for all Plan Years beginning on or after January 1, 1998, except in the case of a five percent (5%) owner (as defined in
Section 416(i)(1)(B)(i) of the Code), distributions shall commence in accordance with Subsection 14(f)(2) above. Effective for all Plan Years beginning on or after January 1, 2012, such distributions to such non-five percent owners shall commence unless such Participant elects otherwise . In the event a Participant elects not to receive the distributions, or in the case of a Participant (other than a five percent (5%) owner) who has begun receiving distributions in accordance with this Subsection who elects to cease receiving such distributions, the
distributions shall commence (or recommence) no later than April 1 of the calendar year following the calendar year in which the Participant separates from service with the Employer. All distributions made under this Subsection 14(f)(2) shall be determined and made in accordance with the Proposed Regulations under Section 401(a)(9), including the minimum distribution incidental benefit requirement of Section 1.401(a)(9)-2 of the Proposed Regulations.
Notwithstanding the foregoing, effective for purposes of determining required minimum distributions for calendar years beginning with the 2003 calendar year, all required minimum distributions shall be determined and made in accordance with the final regulations under Code Section 401(a)(9), including the incidental death benefit requirement in Code Section 401(a)(9)(G). Required minimum distributions will be made in accordance with Treasury Regulations 1.401(a)(9)-1 through 1.401(a)(9)-9. The provisions of this Plan reflecting Code Section 401(a)(9) shall supersede any distribution options of the Plan to the extent those other distribution provisions are inconsistent with Code Section 401(a)(9).
Notwithstanding the foregoing, in accordance with the provisions of the

Worker, Retiree and Employer Recovery Act of 2008 (“WRERA”), any required minimum

distribution made in accordance with this Section 14(f) of the Plan for calendar year 2009, shall



43     1106_2011rest_p.docx



be referred to for purposes of this Section and Section 14(h) of the Plan as a “2009 RMD”. Any such 2009 RMD shall be distributed in accordance with this Section 14(f), unless the Participant (or Beneficiary, if applicable) elects to waive such 2009 RMD in accordance with WRERA.
(g)     Undistributed Accounts .

Any part of a Participant’s Company Stock Account and Other Investments

Account which is retained in the Trust after the Anniversary Date coinciding with or

immediately following the date on which the Participant terminates employment will continue to be treated as a Company Stock Account or as an Other Investments Account, as the case may be. Thus, the Other Investments Account of a terminated Participant will be debited and the Participant’s Company Stock Account will be credited with such Participant’s share of any repurchases of Company Stock from other terminated Participants. However, except in the case of reemployment (as provided for in Section 4 of the Plan), none of the Participant’s Accounts will be credited with any further Contributions or Forfeitures.
(h)     Optional Direct Transfer of Eligible Rollover Distributions .

A Distributee may elect, at the time and in the manner prescribed by the Committee, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover.
(i)     Lien on Distribution .

Notwithstanding anything to the contrary herein, if, at the time of distribution, a Participant is indebted to the Trust, or has retained in his or her possession money or property which properly belongs to the Trust, the Trust shall have a lien on such distribution pending the resolution of such ownership rights. The Trustee may exercise such lien either by directing the Company secretary to withhold any stock transfer of title, or by withholding distribution of any stock or the value of any stock or other assets, pending resolution of such ownership rights. Notwithstanding the foregoing, Plan Benefits under this Plan may not be assigned or alienated
except to the extent allowable under Code Sections 401(a)(13) and 414(p).













44     1106_2011rest_p.docx



Section 15.     HOW PLAN BENEFIT WILL BE DISTRIBUTED .

(a)     Form of Distribution .

Subject to a Participant’s right to demand distribution of such Participant’s Company Stock Account and Other Investments Account entirely in the form of Employer Securities, as determined by the Company, the Trust may distribute such Participant’s Plan Benefit entirely in cash or entirely in the form of Employer Securities, or a combination of each. Distributions made in the form of Employer Securities shall be made in the form of whole shares of Employer Securities and the value of any fractional shares paid in cash.
The Trustee will make distributions from the Trust in accordance with the instructions from the Committee.
(b)     Beneficiaries .

(1)     Designation .

Distribution will be made to the Participant if living, and if not, to the Participant’s Beneficiary. A Participant may designate a Beneficiary upon becoming a Participant and may change such designation at any time by filing a written designation with the Committee. However, in order to be a valid designation, the written designation must be
received by the Committee prior to the death of the Participant. Notwithstanding anything in this Section 15 to the contrary, if a Participant is married, a Participant shall not designate anyone other than the Participant’s spouse as primary Beneficiary of the Participant’s Plan Benefit
unless such spouse consents in writing to such designation, such spouse acknowledges the effect of such election, and such writing is witnessed by a Plan representative or notary public and filed with the Committee. In the event a Participant is married, if such Participant becomes divorced from his or her spouse, the divorce will negate the former spouse as a Beneficiary, unless the Participant reaffirms the former spouse as a Beneficiary with a written designation.
(2)     Absence of Valid Designation .

If, upon the death of a Participant, former Participant or Beneficiary, there is no valid designation of a Beneficiary on file with the Company or the benefit is not claimed by any Beneficiary within a reasonable period of time after the death of the Participant, the benefit shall be paid to the Participant’s surviving spouse. If the Participant is not married or if the Participant’s spouse does not survive the Participant, the benefit shall be paid to the Participant’s
estate.



45     1106_2011rest_p.docx


(c)     Location of Participant or Beneficiary Unknown .

If a Participant (or Beneficiary) who is entitled to a distribution cannot be located and after the Committee has made reasonable efforts to locate the Participant, the Committee may choose to forfeit the Participant’s Plan Benefit and treat such amounts as a Forfeiture in accordance with Section 13 of the Plan at the time specified below. The Committee cannot forfeit a missing Participant’s Plan Benefit (or, in the case of a deceased Participant, his or her Beneficiary) unless each of the methods described below proves ineffective in locating the missing Participant.
The search methods for the missing Participants shall be as follows:

1)    Use of certified mail.
2)    Check related plan records.
3)    Check with designated Beneficiary.
4)    Use of either Internal Revenue Service (“IRS”) or Social Security
Administration (“SSA”) letter-forwarding service.

If the search methods listed above prove unsuccessful, the Committee may forfeit the Participant’s Plan Benefit. Such forfeiture will occur as of the close of the Plan Year in which the Employer has completed all four of the search methods; provided that the forfeiture will not occur prior to the close of the 60th day after the letter has been submitted under the missing participant service of the IRS or SSA.
If the Participant or Beneficiary makes a written claim for the forfeited Plan Benefits subsequent to the forfeiture, the Employer shall cause the Plan Benefit to be reinstated in the following manner:
(A)    first from current Plan Year Forfeitures;

(B)    second from current Plan Year Trust earnings; and

(C)    third from current Plan Year Contributions.

To the extent the amounts described in clauses (A), (B) and (C) are insufficient to enable the Committee to make the required restoration, the Employer must contribute the additional amount necessary to enable the Committee to make the required restoration.
(d)     Facility of Payment .

When a person entitled to a distribution of benefits under the Plan is under legal
disability, or, in the Committee’s opinion, is in any way incapacitated so as to be unable to manage the person’s financial affairs, the Committee may direct the Trustee to pay the benefits



46     1106_2011rest_p.docx


to such person’s legal representative. Any payment made in accordance with the preceding

sentence shall be a full and complete discharge of any liability for such payment under the Plan.































































47     1106_2011rest_p.docx



Section 16.
RIGHTS AND OPTIONS FOR DISTRIBUTED SHARES OF COMPANY STOCK .
(a)     Put Option .

For so long as the Company’s shares are readily tradable on an established market, the Company shall not be required to provide the Participant or Beneficiary with an option to put the shares to the Company, in accordance with Section 409(h) of the Code.
(b)     Right of First Refusal .

For so long as the Company’s shares are readily tradable on an established

market, shares of Company Stock distributed by the Trustee shall not be subject to a right of first refusal, until such time as such shares are no longer readily tradable on an established market.
(c)     Other Options .

Except as otherwise provided in this Section 16, no security acquired with the proceeds of a Securities Acquisition Loan may be subject to a put, call, buy-sell or similar
arrangement while held by or when distributed from the Plan.






































48     1106_2011rest_p.docx



Section 17.     SPECIAL PROVISIONS .

(a)     Diversification of Investments .

Within ninety (90) days after the close of each Plan Year in the Qualified Election Period, each Qualified Participant shall be permitted to direct the Plan as to the investment of not more than twenty-five percent (25%) of the shares of Employer Securities allocated to the Participant’s Company Stock Account (including shares that the Qualified Participant previously elected to diversify pursuant to this Subsection), less the number of shares previously diversified pursuant to such Participant’s election under this Subsection. In the case of the sixth (6th) year
of the Qualified Election Period, the preceding sentence shall be applied by substituting “fifty percent (50%)” for “twenty-five percent (25%).” The Participant’s direction shall be completed no later than ninety (90) days after the close of the ninety (90) day election period.
The Committee shall offer at least three investment options (not inconsistent with regulations prescribed by the Internal Revenue Service) to each Participant who makes an election under this Subsection.
In lieu of offering such investment options, the Committee may direct that all amounts subject to Participant elections under this Subsection be distributed to Qualified Participants. All such distributions shall be distributed within ninety (90) days after the close of the ninety (90) day election period. Distributions shall be made in accordance with Section 15(a)
of the Plan.

In lieu of receiving a distribution under this Subsection, a Qualified Participant may direct the Plan to transfer the distribution to another qualified plan of the Company which accepts such transfers, provided that such plan permits employee-directed investments and does not invest in Employer Securities to a substantial degree. Such transfer shall be made within ninety (90) days after the close of the ninety (90) day election period.
(b)     Cash Dividends .

Cash dividends, if any, on shares of Company Stock allocated to Participants’ Accounts may be accumulated in the Trust or may be paid to Participants currently as determined in the sole discretion of the Committee, exercised in a uniform and nondiscriminatory manner. It is intended that the Company shall be allowed a deduction with
respect to any dividends paid on allocated shares of Company Stock of any class held by the Plan

on the record date to the extent such dividends are paid in cash directly to the Participants, or



49     1106_2011rest_p.docx


their Beneficiaries, or are paid to the Plan and are distributed from the Plan to the Participants or their Beneficiaries not later than ninety (90) days after the close of the Plan Year in which paid; provided, however, that the Company shall not be required to pay or distribute any dividends with respect to the nonvested portion of the Company Stock Account of a Participant who has terminated employment prior to the date such dividends are paid directly to Participants, or are distributed from the Plan to the Participants. It is also intended that the Company shall be allowed a deduction for any dividends used to make payments on a Securities Acquisition Loan the proceeds of which were used to acquire the Employer Securities (whether or not allocated) with respect to which the dividend is paid, provided that in the case of dividends paid on allocated shares, Employer Securities in an amount equal to such dividends are allocated to such Participants for the year in which such dividends would otherwise have been allocated to such Participants. The Company shall be allowed a deduction for dividends paid only in the taxable year of the Company in which the dividend is either paid to a Participant or Beneficiary or held
to make payments on a Securities Acquisition Loan.






































50     1106_2011rest_p.docx



Section 18.     ADMINISTRATION .

(a)     Named Fiduciaries for Administration of Plan and for Investment and Control of

Plan Assets .

(1)     Board of Directors .

The Board of Directors shall have the following duties and responsibilities in connection with the administration of the Plan:
(A)    Making decisions with respect to amending or terminating the
Plan.

(B)    Making decisions with respect to the selection, retention or
removal of the Trustee and the Committee.

(C)    Periodically reviewing the performance of the Trustee, the members of the Committee, persons to whom duties have been allocated or delegated and any advisers appointed pursuant to paragraph (f)(1) below.
(D)    Determining the form and amount of Contributions.

The Board of Directors may by written resolution allocate its duties and responsibilities to one or more of its members or delegate such duties and responsibilities to any other persons; provided, however, that any such allocation or delegation shall be terminable upon such notice as the Board of Directors deems reasonable and prudent under the circumstances.
(2)     Committee .

(A)     General .

The Company shall administer the Plan and is designated as the “Plan Administrator” within the meaning of Section 3(16) of ERISA and Section 414(g) of the Code. The Committee and the Company shall each be a “named fiduciary” within the meaning
of Section 402 of ERISA, but each party’s role as a named fiduciary shall be limited solely to the exercise of its own authority and discretion, as defined under this Plan, to control and manage the operation and administration of this Plan. A named fiduciary may designate other persons who are not named fiduciaries to carry out its fiduciary duties hereunder, and any such person shall become a fiduciary under the Plan with respect to such delegated responsibilities. The members of the Committee shall be appointed by the Board of Directors and shall serve, without compensation, until such time as they resign, die or become incapable of exercising their duties
or are removed by the Board of Directors. All members of the Committee are designated as



51     1106_2011rest_p.docx



agents of the Plan for purposes of service of legal process. Any member may resign at any time by submitting an appropriate written instrument to the Company, and while any vacancy exists, the remaining members of the Committee may perform any act which the Committee is authorized to perform. All decisions required to be made by the Committee involving the interpretation, application and administration of the Plan shall be resolved by action of the Committee either at a meeting or in writing without a meeting.
(B)     Duties and Responsibilities .

The Committee shall have the following duties and responsibilities in connection with the administration of the Plan:
(i)    Interpreting and construing the terms of the Plan and Trust

Agreement.

(ii)    Establishing and implementing a funding policy as
described in Paragraph (c) below.

(iii)    Determining the eligibility of Employees for participation
in the Plan.
 
(iv)    Determining the eligibility of Employees for benefits
provided by the Plan including such duties and responsibilities as are necessary and appropriate

under the Plan’s claims procedures.

(v)    Making recommendations to the Board of Directors with respect to amendment or termination of the Plan, including recommendations with respect to
contributions under the Plan.

(vi)    Communicating with Participants and other persons. The Committee may establish rules and regulations and may take any
other necessary or proper action to carry out its duties and responsibilities. Notwithstanding the foregoing provisions, the Trustee shall have the primary responsibility for the withholding of income taxes from Plan distributions, for the payment of withheld income taxes on Plan distributions to the Internal Revenue Service, and for notification to Participants of their right to elect not to have income tax withheld from Plan distributions. Compliance with record keeping and reporting requirements of ERISA shall be the primary responsibility of the Company.
The Committee shall have full discretion to construe and interpret the

terms and provisions of this Plan, which interpretation or construction shall be final and binding



52     1106_2011rest_p.docx



on all parties including, but not limited to, the Company and any Participant or Beneficiary, except as otherwise provided by law. The Committee shall administer such terms and provisions in a uniform and nondiscriminatory manner and in full accordance with any and all laws applicable to the Plan. When making a determination or calculation, the Committee shall be entitled to rely upon information furnished by the Employer or anyone acting on behalf of the
Employer.

(C)     Allocation and Delegation of Responsibilities .

The Committee may, by written resolution, allocate its administrative duties and responsibilities to one or more of its members or it may delegate such duties and responsibilities to any other persons; provided, however, that any such allocation or delegation shall be terminable upon such notice as the Committee deems reasonable and prudent under the circumstances.
(b)     Investment of Plan Assets .

The Plan assets shall be invested and controlled by the Trustee pursuant to the provisions of Section 6 of the Plan and the provisions of the Trust Agreement.
(c)     Funding Policy .

The funding policy of the Plan is to invest trust assets primarily in Company Stock over the life of the Plan. The Trustee shall, from time to time, establish such investment methods as may be necessary to accomplish this funding policy.
(d)     Claims Procedures .

(1)     Procedure . Claims for benefits under the Plan shall be made in writing to the Committee. The Committee shall have full discretion to render a decision with respect to any claim. If a claim for benefits is wholly or partially denied by the Committee, then the Committee must provide notice of its denial to the claimant (a “Notice of Denial”), which shall be written in
a manner calculated to be understood by the claimant and which shall set forth: (i) the specific reason or reasons for denial of the claim; (ii) a specific reference to the pertinent Plan provisions upon which the denial is based; (iii) a description of any additional material or information necessary for the claimant to perfect the claim, together with an explanation of why the material or information is necessary; and (iv) appropriate information regarding the steps to be taken if
the claimant wishes to submit his or her claim for review.





53     1106_2011rest_p.docx



(i)     Disability Claims . If a claim is related to any distribution or rights to which a Participant or other claimant may be entitled in connection with the Participant’s termination of employment by reason of becoming disabled (“Disability Plan Benefits”) and the claim is wholly or partially denied by the Committee, then the Committee shall provide the Notice of Denial within a reasonable period of time, not to exceed 45 days after receipt of the claim. This period within which the Committee must provide a Notice of Denial may be extended twice, for up to 30 days per extension, provided that the Committee (i) determines that an extension is needed and beyond the control of the Plan, and (ii) notifies the claimant prior to the expiration of the initial 45-day period or of the first 30-day extension period. If the Committee shall fail to notify the claimant either that his or her claim for benefits has been granted or that it has been denied within the initial 45-day period or prior to the expiration of an extension, if applicable, then the claim shall be deemed to have been denied as of the last day of the applicable period, and the claimant then may request a review of his or her claim.
(ii)     Other Claims . The Committee shall notify a claimant in writing of the denial of any claim not related to Disability Plan Benefits within a reasonable period of time, not to exceed 90 days after receipt of the claim. If the Committee shall fail to notify the claimant either that his or her claim has been granted or that it has been denied within 90 days after the claim is received by the Committee, then the claim shall be deemed to have been denied.
(2)     Procedure for Review of a Denied Claim .

(i)     Disability Claims . If a claim is denied, a claimant may file a written request with the Committee that it conduct a full and fair review of his or her claim, and the Committee then must make a determination with respect to its review of the denied claim. A claimant must file a written request for a review of a claim for Disability Plan Benefits with the Committee within 180 days after the receipt by the claimant of a Notice of Denial of his or her claim or within 180 days after the claim is deemed to have been denied. The Committee’s decision with respect to its review of the denied claim shall be rendered not later than 45 days after the receipt of the claimant’s request for a review, unless special circumstances require an extension of time for processing, in which case the 45-day period may be extended to 90 days if the Committee shall notify the claimant in writing within the initial 45-day period and shall state
the reason for the extension.





54     1106_2011rest_p.docx



(ii)     Other Claims . A claimant must file a written request for a review of any claim not related to Disability Plan Benefits with the Committee within 60 days after the receipt by the claimant of a Notice of Denial of his or her claim or within 60 days after the claim is deemed to have been denied. The Committee’s decision with respect to its review of the denied claim shall be rendered not later than 60 days after the receipt of the claimant’s request for a review, unless special circumstances require an extension of time for processing, in which
case the 60-day period may be extended to 120 days if the Committee shall notify the claimant in writing within the initial 60-day period and shall state the reason for the extension.
(3)     Review of Documents . In connection with a claimant’s appeal of a denial of his or her benefits (including Disability Plan Benefits), the claimant may review pertinent documents and may submit issues and comments in writing. The Committee shall have full discretion to fully and fairly review the claim, and the Committee’s decision upon review shall (i) include specific reasons for the decision, (ii) be written in a manner calculated to be understood by the claimant, and (iii) contain specific references to the pertinent Plan provisions upon which the decision is based.
(e)     Qualified Domestic Relations Orders .

(1)    In the case of any Domestic Relations Order received by the Plan, the Committee shall promptly notify the Participant and any other Alternate Payee of the receipt of such order and of the Plan’s procedures for determining the qualified status of Domestic Relations Orders. Any Alternate Payee shall be permitted to designate a representative for receipt of copies of notices that are sent to the Alternate Payee with respect to such order. The amount that would be payable to the Alternate Payee shall be segregated in a segregated account as of the first day of the Plan Year during which the Domestic Relations Order is received by the Committee. Such segregated account shall continue to be treated in the same manner as the affected Accounts of the Participant, but will not be credited with any further Contributions or Forfeitures. If the order is determined to be a qualified order within the eighteen (18) month period described below, the segregated amount (including any interest or earnings thereon) shall continue to be treated as a segregated account in the name of the Alternate Payee. If the Committee determines that the order is not qualified, or if the Committee (or the appropriate court) is not able to resolve the issue within the eighteen (18) month period, the segregated
amount (including any interest or earnings thereon) shall be restored to the Participant. For



55     1106_2011rest_p.docx



purposes of this Paragraph, the “eighteen (18) month period” shall mean the eighteen (18) month period beginning with the date on which the first payment would be required to be made under the Domestic Relations Order.
(2)    In determining whether a Domestic Relations Order is qualified, the

Committee shall follow the procedures set forth in Section 18(d) above with respect to claims for

Plan Benefits.

(3)    A Domestic Relations Order will constitute a qualified Domestic Relations Order only if such order (i) does not require the Plan to provide any type or form of benefit (or any option) not otherwise provided under the Plan, (ii) does not require the Plan to provide increased benefits, and (iii) does not require the payment of benefits to an Alternate Payee which are required to be paid to another Alternate Payee under another order previously determined to be a qualified order. In addition, a Domestic Relations Order will constitute a qualified order only if such order clearly specifies (i) the name and last known mailing address of the Participant and of each Alternate Payee covered by the order, (ii) the amount or the percentage of a Participant’s Plan Benefit that is to be paid to each Alternate Payee, or the manner in which such amount or percentage is to be determined, (iii) the number of payments or the period to which such order applies, and (iv) each plan to which such order applies.
(4)    In the case of any payment to an Alternate Payee before a Participant has separated from service, the Plan shall not be required to make any payment to an Alternate Payee prior to the date the Participant attains (or would have attained) the Earliest Retirement Age. For purposes of this Paragraph, the term “Earliest Retirement Age” means the earliest of (i) the date on which the Participant is entitled to a distribution under the Plan, or (ii) the later of the date the Participant attains age fifty (50) or the earliest date on which the Participant could begin
receiving benefit if the Participant separated from service.

Notwithstanding the provisions of Subsection (4) above, distribution to an Alternate Payee shall be made in a lump sum as soon as administratively feasible after the Committee determines that the order is a qualified Domestic Relations Order.
(f)     Indemnification of Certain Fiduciaries and Insurance .

The Employer indemnifies and saves harmless the Trustee and the members of the
Committee, and each of them, from and against any and all loss resulting from liability to which the Trustee and the Committee may be subjected by reason of any act or conduct (except willful



56     1106_2011rest_p.docx


misconduct or gross negligence) in their official capacities in the administration of this Plan, the Trust or both, including all expenses reasonably incurred in their defense, in case the Employer fails to provide such defense. The indemnification provisions of this Section 18(f) do not relieve the Trustee or any Committee member from any liability he or she may have under ERISA for breach of a fiduciary duty. Furthermore, the Trustee and the Committee members and the Employer may execute a written agreement further delineating the indemnification agreement of this Section 18(f), provided such agreement must be consistent with and does not violate ERISA.
The Employer (in its discretion), the Committee or the Trustee may obtain a policy or policies of insurance for the Committee, the Trustee (and other fiduciaries of the Plan) to cover liability or loss occurring by reason of the act or omission of a fiduciary. If such insurance is purchased with Trust assets, the policy must permit recourse by the insurer against the fiduciary in the case of a breach of a fiduciary obligation by such fiduciary.
(g)     Independent Fiduciary .

An Independent Fiduciary may be appointed from time to time for such purposes as shall be determined by the Employer. An Independent Fiduciary may be appointed to serve in such capacity as may be deemed appropriate to act on behalf of the Plan and Trust with respect
to issues which involve a real or perceived conflict of interest among certain parties, or for such other purposes as the Employer may determine to be in the best interest of the Plan and Trust. The Independent Fiduciary shall be granted such power, authority and discretion as may be necessary and appropriate for it to carry out its duties and responsibilities, including, but not limited to, any and all powers and discretion granted the Committee under the Plan and Trust.
(h)     General .

(1)    The Board of Directors, the Committee or any person to whom duties and responsibilities have been allocated or delegated, may employ other persons for advice in connection with their respective responsibilities, including actuaries, plan consultants, investment advisers, attorneys and accountants.
(2)    Any person may serve in more than one capacity with respect to the Plan. (3)    The Board of Directors and the Committee shall have complete control
with respect to the duties and responsibilities allocated to them under the terms of the Plan, with all power and discretion necessary to carry out any of their duties described herein. The
decisions of the Board of Directors and the Committee in matters within their jurisdiction shall



57     1106_2011rest_p.docx



be final, binding and conclusive upon each Employer, each Employee, Beneficiary and every

other interested or concerned person or party.































































58     1106_2011rest_p.docx



Section 19.     AMENDMENT AND TERMINATION .

(a)     Amendment .

While the Company expects and intends to continue the Plan, the Company reserves the right to amend the Plan from time to time by action of the Board of Directors. Notwithstanding the foregoing:
(1)    An amendment may not change the duties and liabilities of the Committee or the Trustee without notification to the Committee or the Trustee, whichever is applicable;
(2)    An amendment shall not reduce the value of a Participant’s nonforfeitable

benefits accrued prior to the later of the adoption or the effective date of the amendment; and

(3)    Except as provided in Section 19(d) herein, under no condition shall any amendment result in the return or repayment to the Employer of any part of the Trust or the income therefrom or result in the distribution of the Trust for the benefit of anyone other than Employees and former Employees of the Employer and any other persons entitled to benefits under the Plan.
The Board of Directors shall notify the Committee and the Trustee of any amendment of the Plan within a reasonable period of time.
(b)     Changes in the Code .

Any other provision of this Plan to the contrary notwithstanding, if any amendment to the Code requires that a conforming Plan amendment must be adopted effective as of a stated effective date in order for this Plan to continue to be a qualified plan, this Plan shall
be operated in accordance with the requirement of such amendment to that law until the date when a conforming Plan amendment is adopted, or the date when a clear and unambiguous nonconforming Plan amendment is adopted, whichever occurs first.
(c)     Termination, Partial Termination or Complete Discontinuance of Contributions .

Although the Company has established the Plan with the bona fide intention and expectation that it will be able to make contributions indefinitely, nevertheless, the Company shall not be under any obligation or liability to continue its contributions or to maintain the Plan for any given length of time. The Company may in its sole discretion discontinue such contributions or terminate the Plan in whole or in part in accordance with its provisions at any time without any liability for such discontinuance or termination. In the event of a termination
(as defined in Treasury Regulation Section 1.401-6(b)(1)) or complete discontinuance of



59     1106_2011rest_p.docx


contribution, then the Accounts of all Participants affected by the termination or discontinuance of contributions will become nonforfeitable. In the event of a partial termination, the Accounts of all Participants affected by the partial termination will become nonforfeitable. After termination of the Plan, the Trust will be maintained until the Plan Benefits of all Participants have been distributed. Plan Benefits may be distributed following termination of the Plan or distributions may be deferred and distributed as provided in Section 14 of the Plan, as the Company shall determine. If Plan Benefits will be distributed after the Plan is terminated, the distribution may be delayed until IRS approval is received. In the event that Company Stock is sold in connection with the termination of the Plan or the amendment of the Plan to become a qualified employee plan that is not a stock bonus plan, all Plan Benefits will be distributed in
cash.

(d)     Determination by Internal Revenue Service .

Notwithstanding any other provision of the Plan, if the Internal Revenue Service shall fail or refuse to issue a favorable written determination or ruling with respect to the initial qualification of the Plan and exemption of the Trust from tax under Section 501(a) of the Code, all Contributions under Section 401(a), together with any income received or accrued thereon less any benefits or expenses paid shall, upon the written direction of the Company, be returned to the Company notwithstanding the provisions of the Trust, and the Trust shall then terminate. Any such Contribution returned to the Employer must be returned within one (1) year after the date the initial qualification is denied, but only if the application for the qualification is made by the time prescribed by law for filing the Employer’s return for the taxable year in which the Plan is adopted.
(e)     Return of Employer’s Contribution .

Notwithstanding any other provision of the Plan, if a Contribution is conditioned on its deductibility and the deduction is disallowed or if a Contribution is made due to a mistake of fact, such Contribution may be returned to the Employer if such Contribution is returned within one (1) year thereafter and if the amount returned does not exceed the excess of the actual Contribution over the amount which would have been contributed had there been no error in determining the deduction or mistake of fact. Earnings of the Plan attributable to the excess Contribution may not be returned to the Employer, but any losses attributable thereto must
reduce the amount so returned.



60     1106_2011rest_p.docx



Section 20. MISCELLANEOUS .

(a)     Participation by Affiliated Company .

(1)    Any Affiliated Company presently existing or hereafter acquired may, with the consent of the Company, adopt the Plan and Trust and thereby enable its employees to participate herein.
(2)    In the event any Participant is transferred to an Affiliated Company which is a participating Employer, such Participant shall continue to participate hereunder in the allocation of Contributions and the Participant’s Accounts shall continue to vest in accordance with Section 13 of the Plan. Any Participant who is transferred to an Affiliated Company which is not a participating Employer shall be treated as a suspended Participant in accordance with Section 4(f) of the Plan.
(b)     Limitation of Rights; Employment Relationship .

All Plan Benefits will be paid only from the Trust assets and neither the Company nor any Employer nor the Committee nor the Trustee shall have any duty or liability to furnish the Trust with any funds, securities or other assets except as expressly provided in the Plan. Nothing herein shall be construed to obligate any Employer to continue to employ any
Employee.

(c)     Merger; Transfer of Assets .

In no event shall this Plan be merged or consolidated with any other employee benefit plan, nor shall there be any transfer of assets or liabilities from this Plan to any other such plan, unless immediately after such merger, consolidation or transfer, each Participant’s benefits, determined as if the plan had terminated, are at least equal to or greater than the benefits which the Participant would have been entitled to had this Plan been terminated immediately before such merger, consolidation or transfer.
(d)     Prohibition Against Assignment .

The Plan Benefits may not be assigned or alienated; provided, however, that a qualified Domestic Relations Order shall not be construed as an assignment or alienation.
Except for indebtedness to the Trust and orders to make payments or assign benefits to a spouse, former spouse, child or other dependent under a qualified Domestic Relations Order, neither the Company nor the Trustee shall recognize any transfer, mortgage, pledge, hypothecation, order or
assignment by any Participants or Beneficiaries of all or part of their interest hereunder, and such



61     1106_2011rest_p.docx


interest shall not be subject in any manner to transfer by operation of law, and shall be exempt from the claims of creditors or other claimants from all orders, decrees, levies, garnishment and/or executions and other legal or equitable process or proceedings against such Participants or Beneficiaries to the fullest extent which may be permitted by law. Notwithstanding anything in Subsection 20(d) to the contrary, in accordance with the provisions of Code Section 401(a)(13)
as amended by the Taxpayer Relief Act of 1997, Plan Benefits may be reduced to satisfy a Participant’s liability to the Plan due to the Participant’s conviction of a crime involving the Plan, a judgement, consent order, or decree in an action for violation of fiduciary standards; or a
settlement involving the Department of Labor or the Employee Benefits Security Administration.

    


(e)     Applicable Law; Severability .
The Plan hereby created shall be construed, administered and governed in all respects in accordance with ERISA and to the extent not superseded by federal law, in accordance with the laws of California; provided, however, that if any provision is susceptible of more than one interpretation, such interpretation shall be given thereto as is consistent with the Plan being a qualified employee stock ownership plan within the meaning of the Code. If any provision of this instrument shall be held by a court of competent jurisdiction to be invalid or
unenforceable, the remaining provisions hereof shall continue to be fully effective.


































62     1106_2011rest_p.docx



Section 21.     TOP-HEAVY RULES .

(a)     Purpose and Effect .

The purpose of this Section 21 is to comply with the requirements of Section 416 of the Code. The provisions of this Section 21 are effective for each Plan Year beginning on or after the Effective Date in which the Plan is a “ Top-Heavy Plan ” within the meaning of Section
416(g) of the Code.

(b)     Top-Heavy Plan .

In general, the Plan will be a Top-Heavy Plan for any Plan Year if, as of the “ Determination Date ” (that is, the last day of the preceding Plan Year, or in the case of the first Plan Year, the last day of such Plan Year), the sum of the amounts in paragraphs (i), (ii) and (iii) below for Key Employees exceeds sixty percent of the sum of such amounts for all Employees who are covered by this Plan or by a defined contribution plan or defined benefit plan that is aggregated with this Plan in accordance with Section 21(d) herein:
(i)    The aggregate Account balances of Participants under this Plan.

(ii)
The aggregate Account balances of Participants under any other defined contribution plan included under Section 21(d) herein.
(iii)
The present value of the cumulative accrued benefits of Participants calculated under any defined benefit plan included in Section 21(d) herein.
In making the foregoing determination: (i) a Participant’s Account balances or cumulative accrued benefits shall be increased by the aggregate distributions, if any, made with respect to the Participant during the 1-year period (except with respect to distributions made for a reason other than death, Disability, or severance from employment, for which the 5-year period shall continue to apply), ending on the Determination Date, including distributions under a terminated plan that, if it had not been terminated, would have been required to be included in
the aggregation group, (ii) the Account balances or cumulative accrued benefits of a Participant who was previously a Key Employee, but who is no longer a Key Employee, shall be disregarded, (iii) the Account balances or cumulative accrued benefits of a Beneficiary of a Participant shall be considered Accounts or accrued benefits of the Participant, (iv) the Account balances or cumulative accrued benefits of a Participant who has not performed services for an Employer or an Affiliated Company at any time during the 1-year period ending on the
Determination Date shall be disregarded and (v) any rollover contribution (or similar transfer)



63     1106_2011rest_p.docx


from a plan maintained by a corporation other than an Employer under this Plan initiated by a Participant shall not be taken into account as part of the Participant’s aggregate Account balances under this Plan.
(c)     Key Employee .

In general, a “ Key Employee ” is an Employee (or a former or deceased Employee)

who, at any time during the Plan Year, is or was:

(i)    an officer of the Employer having annual compensation greater than

$160,000, as adjusted from time to time by the Internal Revenue Service; provided that, for purposes of this paragraph, no more than fifty Employees of the Employer (or, if lesser, the greater of three Employees or ten percent of the Employees) shall be treated as officers;
(ii)    a five percent or greater owner of an Employer; or

(iii)
a one percent or greater owner of an Employer having annual compensation from the Employer of more than $150,000.
For purposes of this Section 21, the term “compensation” means Total Compensation as defined in Section 2 of the Plan, except such compensation for any Plan Year shall not exceed $245,000, as adjusted for cost-of-living increases in accordance with Section
401(a)(17)(B) of the Code.

(d)     Aggregated Plans .

Each other defined contribution plan and defined benefit plan maintained by an Employer that covers a Key Employee as a Participant or that is maintained by an Employer in order for a plan covering a Key Employee to satisfy Section 401(a)(4) or 410 of the Code shall be aggregated with this Plan in determining whether this Plan is top-heavy. In addition, any other defined contribution or defined benefit plan of an Employer may be included if all such plans that are included, when aggregated, will not discriminate in favor of officers, shareholders or Highly Compensated Employees and will satisfy all of the applicable requirements of Sections 401(a)(4) and 410 of the Code.
(e)     Minimum Vesting .

For any Plan Year in which the Plan is a Top-Heavy Plan, the vested percentage

of a Participant’s Accounts, with respect to any Participant who completes at least one Hour of





64     1106_2011rest_p.docx



Service after the Plan becomes a Top-Heavy Plan, shall not be less than the percentage determined under the following table:

Years of Service      Vested Percentage

Less than 2
0
2
20
3
40
4
60
5
80
6 or more
100

If the foregoing provisions of this Section 21(e) become effective, and the Plan subsequently ceases to be a Top-Heavy Plan, the Participant’s vested Accounts shall not be reduced, and all Participants shall have the vested percentage of their Accounts determined under the provisions of this Section 21(e).
(f)     Minimum Contribution .

Subject to the following provisions of this Section and Section 21(g), for any Plan Year in which the Plan is a Top-Heavy Plan, the Contribution credited to each Participant who is not a Key Employee (regardless of whether such Employee has completed 1,000 Hours of Service and regardless of such Employee’s level of compensation) shall not be less than the
lesser of: (1) 3 percent of such Participant’s compensation from the Employer for that year, or (2) the percent of compensation for the Plan Year for the Key Employee for whom such percentage is highest for the year. In no event, however, shall the total Contribution credited in any year to a Participant who is not a Key Employee (expressed as a percentage of such Participant’s compensation from the Employers) be required to exceed the maximum total Contribution credited in that year to a Key Employee (expressed as a percentage of such Key Employee’s compensation from the Employers). Contributions made by an Employer under the Plan pursuant to Participants’ income deferral authorizations shall not be deemed Contributions for purposes of this Section. Employer matching contributions (as defined in Code Section
401(m)(4)(A)) shall be taken into account for purposes of this paragraph. The amount of minimum Contribution otherwise required to be allocated to any Participant for any Plan Year under this Section shall be reduced by the amount of Contributions allocated to such Participant for a Plan Year ending with or within that Plan Year under any other tax-qualified defined
contribution plan maintained by an Employer.



65     1106_2011rest_p.docx


(g)     Coordination of Benefits .

For any Plan Year in which the Plan is top-heavy, in the case of a Participant who is a non-Key Employee and who is a Participant in a top-heavy tax-qualified defined benefit plan that is maintained by an Employer and that is subject to Section 416 of the Code, Section 21(f) above shall not apply, and the minimum benefit to be provided to each such Participant in accordance with this Section 21 and Section 416(c) of the Code shall be the minimum annual retirement benefit to which such Participant is entitled under such defined benefit plan in accordance with such Section 416(c), reduced by the amount of annual retirement benefit purchasable with such Participant’s Accounts (or portions thereof) attributable to Contributions
under this Plan and any other tax-qualified defined contribution plan maintained by an Employer.














































66     1106_2011rest_p.docx



Section 22.     EXECUTION .

To record the adoption of this Plan, the Company has caused its appropriate officer to affix its corporate name hereto this      day of      _, 2011.




BBCN BANK





By:     

(Print Name and Title)














































67     1106_2011rest_p.docx


NONSTANDARDIZED ADOPTION AGREEMENT PROTOTYPE CASH OR DEFERRED PROFIT-SHARING PLAN

Sponsored by

DIVERSIFIED RETIREMENT CORPORATION

The Employer named below hereby establishes a Cash or Deferred P'rofit-Sharing Plan for eligible Employees as provided in this Adoption Agreement and the accompanying Basic Plan Document #01.

L     EMPLOYER INFORMATION

If more than one Employer is adopting the Plan, complete this section based on the lead Employer. Additional Employers who are members of the same controlled group or affiliated service group may adopt this Plan by completing and executing a Participation Agreement that, once executed, will become part of this Adoption Agreement.

A.     Name and Address: BBCN Bank
3731 Wilshire Blvd.. Suite 1000

Los Angeles. CA 90010

B. Telephone Number: 213-251-2222

C. Employer's Tax ID Number: 95-3972168

D. Form Of Business:



Corporation
 



E.     Is The Employer Part Of A Controlled Group?
Part Of An Affiliated Service Group?
 
YES
YES
 



F.     Name Of Plan: BBCN Bank Employees' 401(k) and Profit Sharing Plan

G.      Three Digit Plan Number:     001

H.     Employer's Tax Year End:      December 31 51

L     Employer's Business Code:    


II.      EFFECTIVE DATE

A.    New Plans:

This is a new Plan having an Effective Date of . The Effective Date may be no earlier than the Plan



Year beginning after December 31, 2001 or if later, the first day of the Plan Year in which it is adopted. B.     Amended and Restated Plans:
This is an amendment and/or restatement of an existing Plan. The initial Effective Date of the Plan was January 1 1989. The Effective Date of this amendment and/or restatement is December 21, 2012. The Effective Date of the restated Plan may be no earlier than for Plan Years beginning after December 31,
2001.




C.    Amended or Restated Plans for EGTRRA:

This is an amendment and/or restatement of an existing Plan to comply with the Economic Growth and Tax
Relief Reconciliation Act of 2001, Pub. L. 107-17 (EGTRRA)]. The initial Effective Date of the Plan was
. Except as provided for in the Plan, the Effective Date of this amendment and/or restatement is
. (The restatement date should be no earlier than the first day of the current Plan Year. The Plan
contains appropriate retroactive Effective Dates with respect to provisions of EGTRRA.)

Except to the extent permitted under Code Section 411(d)(6) and the Regulations issued thereunder, an Employer cannot reduce, eliminate or make subject to Employer discretion any Code Section
411(d)(6) protected benefit. Where this Plan document is being adopted to amend another plan that
contains a protected benefit not provided for in the Basic Plan Document #01, the Employer may complete Schedule A as an addendum to this Adoption Agreement. Schedule A describes such protected benefits and shall become part of this Plan. If a prior plan document contains a plan feature not provided for in the Basic Plan Document #01, the Employer may attach Schedule B describing such feature. Provisions listed on Schedule B may not be covered by the IRS Opinion Letter issued with respect to the Basic Plan Document #01.

D.    Effective Date for Elective Deferrals:

If different from above, the Elective Deferral provisions shall be effective      . E.    Effective Date for Safe Harbor 401(k) Contributions:
If different from above, this provision shall be effective . This provision must be adopted prior to the first day of the Plan Year and remain in effect for an entire twelve (12) month period.

F.    Effective Date for Roth Elective Deferrals:

If different from above, Roth Elective Deferral provisions shall be effective . The Effective Date of this provision cannot be earlier than January 1, 2006.

G.    Frozen Plan:

This Plan was frozen effective . For any period following this Effective Date, neither the Employer nor any Participant may contribute to this Plan, and no otherwise eligible Employee shall become a Participant in this Plan. All existing account balances will become fully vested as of the date specified above.


Ill.      DEFINITIONS

A.     ucompensation''

Select the definition of Compensation, the Compensation Computation Period, any Compensation Dollar Limitation and Exclusions from Compensation for each contribution type from the options listed below. Enter the letter of the option selected on the lines provided below. Leave the line blank if no election needs to be made. The Compensation Computation Period must be the same as the Limitation Year defined at Section III(F).






Contribution Type

Compensation
Definition
Compensation
Computation
Period
Compensation Dollar Limitation
Exclusions From Compensation
All Contributions
d
a
$
g, j
Elective Deferrals (including Roth Elective Deferrals, if applicable)
 
 

$
 
Voluntarv After-tax
 
 
$
 
Required After-tax
 
 
$
 
Matching ;)ontribution
(Formula 1
 
 

$
 
Matching Contribution
(Formula :1)_
 
 

$
 
Non-Elective Contribution
(Formula 1)
 
 

$
 





Non-Elective Contribution
(Formula 2)
 
 

$
 
Safe Harbor Contribution
 
 
NIA
NIA
QNEC
 
 
$
 
QMAC
 
 
$
 
ADPIACP Tests
d
a
NIA
NIA

1.    Compensation Definition:

a.
Code Section 3401(a) - W-2 Compensation subject to income tax withholding at the source, with all pre-tax contributions excluded.

b.
Code Section 3401(a) - W-2 Compensation subject to income tax withholding at the source, with all pre-tax contributions included (Plan defaults to this election].

c.
Code Section 604116051 - Income reportable on Form W-2, with all pre-tax contributions excluded.

d.
Code Section 604116051 -Income reportable on Form W-2, with all pre-tax contributions included.

e.    Code Section 415 - All income received for services perfonned for the Employer, with all
pre-tax contributions excluded.

f.
Code Section 415 - All income received for services perfonned for the Employer, with all pre-tax contributions included.

The selection of any of the above definitions of Compensation meets the Code Section
414(s) definition of Compensation. The Code Section 415 definition shall always apply with
respect to sole proprietors and partners.

2.
Deemed Compensation from permitted waiver of group health coverage under a Cafeteria Plan Arrangement: The Employer elects to include deemed Code Section 125 Compensation not available to a Participant in cash in lieu of group health coverage in the Plan's definition of Compensation. x

3.    Compensation Computation Period:

a.    Compensation paid during a Plan Year while a Participant [Plan defaults to this election]. b.    Compensation paid during the entire Plan Year.
c.    Compensation paid during the Employes fiscal year. d.    Compensation paid during the calendar year.
4.
Compensation Dollar Limitation: The dollar limitation section does not need to be completed unless Compensation of less than the Code Section 401(a)(17) limit of $200,000 is to be used. When an integrated allocation formula in Section VI is selected, Compensation cannot be limited to an amount less than the maximum amount under Code Section 401(a)(17).

5.     Exclusions from Compensation (non-integrated plans only):

a.
There will be no exclusions from Compensation under the Plan (Plan defaults to this safe harbor election].

b.    Overtime

c.    Bonuses

d.    Commissions




e.
Exclusion applies only to Participants who are Highly Compensated Employees (safe harbor].

f.    Holiday and vacation pay




g.
Reimbursements or other expense allowances, fringe benefits (cash and non-cash), moving expenses, deferred compensation, and welfare benefits [safe harbor].

h. Post-severance payments, as described in paragraph 1.17(c)(6) of Basic Plan Document
#01. (This exclusion may apply no earlier than the 2005 Limitation Year.)

i. Compensation in excess of$ for Highly Compensated Employees [safe harbor].

j. Other: Taxable value of company stock and cash value of gift cards.

Any exclusion of Compensation except (a), (e), (g), (h) and (i) must satisfy the requirements of Section 1.401(a)(4) of the Income Tax Regulations and Code Section 414(s) and the Regulations thereunder. These exclusions do not fall under the llsafe harbor" modifications to Compensation and therefore must be tested to determine if the modified definition of Compensation satisfies Code Section 414(s).

B.    "Disability"

1.      As defined in the Basic Plan Document #01 [Plan defaults to this election].

2.      As defined in the Employer's Disability Insurance Plan.

3.
An individual will be considered to be disabled if he or she is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long, continued and indefinite duration. An individual shall not be considered to be disabled unless he or she furnishes proof of the existence thereof in such form and manner as the Secretary of the Treasury may prescribe.

C.     "Highly Compensated Employees- Top-Paid Group Election"

1.
Top-Paid Group Election: In determining who is a Highly Compensated Employee, the Employer may make the Top-Paid Group election. The effect of this election is that an Employee (who is not a 5% owner at any time during the determination year or the look-back year) who earned more than
$95,000, as indexed for the look-back year, is a Highly Compensated Employee if the Employee was in the Top-Paid Group for the look-back year. This election is applicable for the Plan Year in which this Plan is effective.


 
a.      The Employer does not make the Top-Paid Group election.

b.      The Employer makes the Top-Paid Group election [Plan defaults to this election].



2. Calendar Year Data Election: lithe Plan Year is not the calendar year, the prior year computation period for purposes of determining if an Employee earned more than $95,000, as indexed, is the calendar year beginning in the prior Plan Year. This election is applicable for the Plan Year in which this Plan is effective.

D.    "Hour of Service"

Hours shall be determined by the method selected below. The method selected shall be applied to all
Employees:

1.      Not applicable. A Year of Service (Period of Service) is defined using the Elapsed Time method.

2.          On the basis of actual hours for which an Employee is paid or entitled to payment [Plan defaults to this election].

3.      On the basis of days worked. An Employee shall be credited with ten (1 0) Hours of Service if the
Employee would be credited with at least one (1) Hour of Service during the day.

4.      On the basis of weeks worked. An Employee shall be credited with forty-five (45) Hours of Service if the Employee would be credited with at least one (1) Hour of Service during the week.







5. On the basis of semi-monthly payroll periods. An Employee shall be credited with ninety-five (95) Hours of Service if the Employee would be credited with at least one (1) Hour of Service during the semi-monthly payroll period.

6.
On the basis of months worked. An Employee shall be credited with one-hundred-ninety (190) Hours of Service if the Employee would be credited with at least one (1) Hour of Service during the month.

E.     "Integration Level"

1.
Not applicable. Either the Plan's allocation fonmula is not integrated with Social Security or there are no Non-Elective Employer Contributions being made to the Plan [Plan defaults to this election].

2.     The Taxable Wage Base.


3.
 
     %(not more than 100%) of the Taxable Wage Base.



4.      $      , provided that such amount is not in excess of the amount detenmined under paragraph
(E)(2) above.

5.      One dollar over 80% of the Taxable Wage Base.

6.      20% of the Taxable Wage Base.

F.      11 Limitation Year"

Unless elected otherwise below, the Limitation Year shall be the Plan Year.

The twelve (12) consecutive month period commencing on Januarv 1 51 and ending on December 31 51 .

If applicable, there will be a short Limitation Year commencing on      and ending on      . Thereafter, the Limitation Year shall end on the date specified above.

G.    "Net Profit"

1.
Not applicable. Employer contributions to the Plan are not conditioned on profits [Plan defaults to this election].


2.


 
Net Profits are required for making Employer contributions and are defined as follows:

a.      As defined in the Basic Plan Document #01.

b.      Net Profits will be defined in a unifonm and nondiscriminatory manner which will not result
in a deprivation of an eligible Participant of any Employer contribution.

c.    Net Profits are required for the following types of contributions:






i. Employer Matching Contributions (Formula
ii. Employer Matching Contributions (Formula 2).
iii. Employer QNEC and QMAC Contributions.
     iv. Non-Elective Employer Contributions (Formula 1).

v. Non-Elective Employer Contributions (Formula 2).

Elective Deferrals, Top-Heavy minimums (if required), and Safe Harbor Contributions (if applicable) must be contributed regardless of profits.




H.    "Plan Year"

The twelve (12) consecutive month period commencing on January 1" and ending on December 31''-

If applicable, there wilt be a short Plan Year commencing on      and ending on      . Thereafter, the
Plan Year shall end on the date specified above.

I.     "QDRO Payment Daten





 
1.     The date the QDRO is determined to be qualified [Plan defaults to this election].

2.
The statutory age fifty (50) requirement applies for purposes of making distribution to an alternate payee under the provisions of a QDRO.



J.     "Qualified Joint and Survivor Annuity"

1.
Not applicable. The Plan is not subject to Qualified Joint and Survivor Annuity rules. The safe harbor provisions of paragraph 8.7 of the Basic Plan Document #01 apply. The normal form of payment is a lump sum. No annuities are offered under the Plan [Plan defaults to this election].

2. The normal form of payment is a lump sum. The Plan does provide for annuities as an optional form of payment at Section XVI(D) of the Adoption Agreement. The Plan's Joint and Survivor Annuity rules are avoided and the safe harbor provisions of paragraph 8.7 of the Basic Plan Document #01 witt apply, unless the Participant elects to receive his or her distribution in the form
of an annuity. If this option is selected, Section III(K) below must also be completed.

     3.      The Joint and Survivor Annuity rules are applicable and the survivor annuity will be      % (50%,
66-2/3%, 75% or 100%) of the annuity payable during the lives of the Participant and his or her
Spouse. If no selection is specified, 50% shall be deemed elected.

K.    "Qualified Pre-Retirement Survivor Annuity"

Do not complete this section if paragraph (J)(1) was elected.

1.      The Qualified Pre-Retirement Survivor Annuity shall be 100% of the Participant's Vested Account
Balance in the Plan as of the date of the Participant's death.

     2.      The Qualified Pre-Retirement Survivor Annuity shall be 50% of the Participant's Vested Account
Balance in the Plan as of the date of the Participant's death.

If this provision applies but no selection is made, the Qualified Pre-Retirement Survivor Annuity
shall be 50%.

L.     "Valuation of Plan Assets"








The assets of the Plan shall be valued on the last day of the Plan Year and on the following Valuation
Date(s):

1.      There are no other mandatory Valuation Dates.

2.      The Valuation Dates are applicable for the contribution type specified below:






Contribution Type
Valuation Date
All Contributions
a
Elective Deferrals (including
Roth Elective Deferrals, if applicable)
 
Voluntary After-tax Contributions
 
Required After-tax Contributions
 
Deemed IRA Contribution
 
Matching Contributions (Formula 1)
 
Matching Contributions (Formula 2)
 
Non-Elective Contributions Formula 1l
 
Non-Elective Contributions (Formula 2)
 




I Safe Harbor Contributions
QNEC
QMAC

a.    Daily valued.
b.     The last day of each month.
c.    The last day of each quarter in the Plan Year.
d.    The last day of each semi-annual period in the Plan Year. e.    other:
(Note: Date must be at least once during the Plan Year.)


IV.     ELIGIBILITY REQUIREMENTS

Complete the following using the eligibility requirements as specified for each contribution type. To become a
Participant in the Plan, the Employee must satisfy the following eligibility requirements.



Contribution Tvpe

Minimum
Aae

Service
Requirement

Class
Exclusions
Eligibility Computation Period


Entrv Date
All Contributions
Elective Deferral
Roth El: tive annlicable
 
21
3
1,2,9,10
1
2
s (including
Deferrals, if
 
 
 
 
 
Voluntary After-tax
Contributions
 
 
 
 
 
 
Required After-tax
Contributions
 
 
 
 
 
atching ontributions
Formula 11
 
 
 
 
 
atching ontributions
Formula 21
 
 
 
 
 
on-Eiecte Contributions
Formula 1
 
 
 
 
 
Non-Elective Contributions
!Formula 21
 
 
 
 
 
Safe Harbor Contributions*
 
 
 
 
 
QNECs
 
 
 
 
 
QMACs
 
 
 
 
 

*If any age or Service requirement selected is more restrictive than that which is imposed on any Employee contribution, that group of Employees will be subject to the ADP and/or ACP testing as prescribed under applicable IRS Regulations.

A. Age:

1. No age requirement.

2.    Insert the applicable age in the chart above. The age may not be more than twenty-one (21). B.    Service:
The maximum Service requirement for Elective Deferrals is one (1) year. For all other contributions, the maximum is two (2) years. If a Service requirement greater than one (1) year is selected, Participants must be 100% vested in that contribution.

1. No Service requirement.

2.
Completion of Days of Service. [No more than 730 Days of Service may be required; if more than 365 days are entered here, Participants must be 100% vested upon entering the Plan.]

3.
Completion of ,:2 months of Service [No more than twenty-four (24) months of Service may be required; if more than twelve (12) months are entered here, Participants must be 100% vested upon entering the Plan.]







4.
Completion of months of Service [No more than twenty-four (24) months of Service may be required; if more than twelve (12) months are entered here, Participants must be 100% vested upon enteling the Plan.]

5.     One (1) Year of Service or Period of Service.

6.     Two (2) Years of Service or Periods of Service.

7.
One (1) Expected Year of Service. An Employee whose position is required as a condition of employment to work a Year of Service may enter after six (6) months of actual Service.

8.
One (1) Expected Year of Service. An Employee whose position is required as a condition of employment to work a Year of Service may enter after months of actual Service [must be twelve (12) months or less].

9.
One (1) Expected Year of Service. An Employee whose position is required as a condition of employment to work a Year of Service may enter after months of actual Service [must be twelve (12) months or less].

10.
Completion of Hours of Service (1,000 hours or less) within the month(s) time period [the monthly period must be a pro-ration of twelve (12) months or less] following an Employee's commencement of employment. An Employee who is otherwise eligible who meets the statutory one (1) Year of Service requirement and any age requirement if applicable, shall participate in the Plan not later than the earlier of the first day of the first Plan Year after the Employee has met the statutory requirements or six (6) months after the day such requirements are met.

11.     Completion of      Hours of Service (may not be more than 1,000 Hours).

C.      Method for Measuring Service Eligibility Period (do not enter this method in the table above):

A Year of Service for eligibility purposes is defined as follows (choose one):

     1.      Not applicable.

2. Hours of Service method. A Year of Service will be credited upon completion of Hours of Service. A Year of Service for eligibility purposes may not be less than one (1) Hour of Service nor greater than 1,000 hours by operation of law. If left blank, the Plan will use 1,000 hours.

3.      Elapsed Time method.

D.     Employee Class Exclusions:

The exclusion of any classification may cause the Plan to fail the ratio percentage test under Code Section 410(b)(1)(A) or (B) which may require the Plan to be tested under the average benefits test of Code Section 410(b)(1)(C).

1.
Employees included in a unit of Employees covered by a collective bargaining agreement between the Employer and Employee Representatives, if benefits were the subject of good faith bargaining and if two percent or less of the Employees are covered pursuant to the agreement are professionals as defined in Regulations Section 1.410(b)-9, unless participation in this Plan is specifically provided for in the collective bargaining agreement. For this purpose, the term "employee representative" does not include any organization more than half of whose members are owners, officers, or executives of the Employer.

2.
Employees who are non-resident aliens [within the meaning of Code Section 7701(b)(1)(B)] who receive no Earned Income [within the meaning of Code Section 911(d)(2)] from the Employer which constitutes income from sources within the United States [within the meaning of Code Section
861(a)(3)].

3. Employees compensated on an hourly basis.

4. Employees compensated on a salaried basis.

5. Employees compensated on a commission basis.

6. Leased Employees.




7. Key Employees.

8. Highly Compensated Employees.

9. Employees of any member of the controlled and/or affiliated service group Employer whose
Employer does not affirmatively adopt this Plan.

10.
The Plan shall exclude from participation any nondiscliminatory classification of Employees determined as follows (any exclusion must pass coverage and nondiscrimination testing): 410(b) transaction Employees until necessarv.

E.    Eligibility Computation Period:

The initial eligibility computation period shall commence on the date on which an Employee first performs an Hour of Service and end with the first anniversary thereof. Each subsequent computation period shall commence on:

1. Not applicable. The Plan has a Service requirement of less than one (1) year or uses the Elapsed
Time method to determine eligibility.

2. The anniversary of the Employee's employment commencement date and each subsequent twelve
(12) consecutive month period thereafter.

3. The first day of the Plan Year which ccmmences prior to the first anniversary date of the
Employee's employment commencement date and each subsequent Plan Year thereafter.

F.     Entry Date:

1. The Employee's date of hire.

2.
The first day of the month coinciding with or next following the date on which an Employee meets the eligibility requirements.

3. The first day of the payroll period coinciding with or next following the date on which an Employee
meets the eligibility requirements, or as soon as administratively feasible thereafter.

4.
When the Days of Service method is selected at Section IV(B)(2), the Entry Date shall be the day the Employee meets the eligibility requirements, or as soon as administratively feasible thereafter.

5.
The earlier of the first day of the Plan Year, or the first day of the fourth, seventh or tenth month of the Plan Year coinciding with or next following the date on which an Employee meets the eligibility requirements.

6.
The earlier of the first day of the Plan Year or the first day of the seventh month of the Plan Year coinciding with or next following the date on which an Employee meets the eligibility requirements.

7.
The first day of the Plan Year following the date on which the Employee meets the eligibility requirements. If this election is made, the Service waiting period cannot be greater than one-half year and the minimum age requirement may not be greater than age twenty and one-half (20%).

8. The first day of the Plan Year nearest the date on which an Employee meets the eligibility
requirements. This option can only be selected for Employer related contributions.

9.
The first day of the Plan Year during which the Employee meets the eligibility requirements. This option can only be selected for Employer related contributions.

10.
Other: . This option may not require an entry date more than two (2) months following the date on which an Employee meets the eligibility requirements.

G.      Employees on Effective Date:

If option (1) is selected, options (2) and (3) should not be selected. Options (2) and (3) can be selected or just option (2) or (3).

1. All Employees will be required to satisfy both the age and Service requirements specified above.




2.          Employees employed on the Plan's Effective Date do not have to satisfy the age requirement specified above.

3.      Employees employed on the Plan's Effective Date do not have to satisfy the Service requirement
specified above.

     H.     Special Waiver of Eligibility Requirements:

The age and/or Service eligibility requirements specified above shall be waived for the eligible Employees specified below who are employed on the specified date for the contribution type(s) specified. This waiver applies to either the age or Service requirement or both as elected below.


Waiver Date
Waiver of Age
Requirement
Waiver of Service
Requirement

Contribution Type
 
 
 
All Contributions
 
 
 
Elective Deferrals (including Roth
Elective Deferrals, if applicable)
 
 
 
Matching Contribution (Formula 1)
 
 
 
MatchinQ Contribution (Formula 2)
 
 
 
Non-Elective Contribution Formula 1)
 
 
 
Non-Elective Contribution (Formula 2)
 
 
 
Safe Harbor Contribution
 
 
 
QNEC
 
 
 
QMAC

The waiver above applies to:

 
1.
All eligible Employees employed on the specified date.
 
2.
The indicated class of Employees employed on the specified date.


Note: Any selection here may cause the Plan to be discriminatory in operation and therefore would
have to be tested for nondiscrimination.


V.     RETIREMENT AGES

A.     Normal Retirement:

Select option (1) or (2) and either (3)(a) or (3)(b).

1.      Normal Retirement Age shall be age 65 [not to exceed sixty-five (65)].

2.
Normal Retirement Age shall be the later of attaining age [not to exceed age sixty-five (65)] or the (not to exceed the fifth) anniversary of the first day of the first Plan Year in which the Participant commenced participation in the Plan.

3.     The Normal Retirement Date shall be:

a.
as of the date the Participant attains Normal Retirement Age [Plan defaults to this election].

D      b.      the first day of the month next following the Participant's attainment of Normal Retirement
Age.

B.     Early Retirement:










1.      Not applicable.

2.
The Plan shall have an Early Retirement Age of      [not less than age fifty-five (55)] and completion of      Years of Service.

3.     The Early Retirement Date shall be:





a.      as of the date the Participant attains Early Retirement Age [Plan defaults to this election].

b.      the first day of the month next following the Participant's attainment of Early Retirement
Age.


VI.      CONTRIBUTIONS TO THE PLAN

The Employer shall make contributions to the Plan in accordance with the formula or formulas selected below. The
Employer's contribution shall be subject to the limitations contained in Articles Ill and X of the Basic Plan Document
#01. For this purpose, a contribution for a Plan Year shall be limited by Compensation earned in the Limitation Year that ends with or within such Plan Year. For Limitation Years beginning on or after January 1, 2002, except to the extent permitted under paragraph 4.6(h) of the Basic Plan Document #01 and under Code Section 414(v), the Annual Addition that may be contributed or allocated to a Participant's account under the Plan for any Limitation Year beginning after December 31, 2001 shall not exceed the lesser of (a) $40,000, as adjusted for increases in the cost­ of-living under Code Section 415(d), or (b) 100% of the Participant's Compensation within the meaning of Code Section 415(c)(3), for the Limitation Year.

A. Elective Deferrals:

1.    Participants shall be permitted to make Elective Deferrals:

a.      in any amount up to 90% (may be no more than 100%) of Compensation.

b.     in any amount from a minimum of      % (may be no Jess than 1%) to a maximum of
     %(may be no more than 100%) of their Compensation not to exceed$      [may
be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].

c. in a fiat dollar amount from a minimum of $ (may be no less than $500) to a maximum of $ , [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable] not to exceed % (no more than 100%) of their Compensation.

d. in any amount up to the maximum percentage of Compensation and dollar amount permissible under Code Section 402(g) and 414(v) not to exceed the limits of Code Section 401(k), 404 and 415.

e. Highly Compensated Employees may defer any amount up to % (may be no more than 100%) of Compensation or$ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].

f.      Catch-up Contributions may be made by eligible Participants.

2.
Participants shall be permitted to terminate their Elective Deferrals (including Roth Elective Deferrals, if any) at any time upon proper and timely notice to the Employer. Modifications and reinstatement of Participants' Elective Deferrals will become effective as soon as administratively feasible on a prospective basis as provided for below:

Modifications     Reinstatement      Method


D D D D D D

D D
D D
B.     Roth Elective Deferrals:
 
On a daily basis.
On the first day of each quarter. On the first day of the next month.
The beginning of the next payroll period.
On the first day of the next semi-annual period. Upon      days notice to the Plan Administrator.






If Participants are permitted to make Elective Deferrals, they shall also be permitted to make Roth Elective
Deferrals. Roth Elective Deferrals may be treated as Catch-Up Contributions.




C.      Bonus Option:

1.      Not applicable. The Plan's definition of Compensation excludes bonuses from deferrable
Compensation for both Elective Deferrals and Roth Elective Deferrals.






D.




2.
Not applicable. Participants are not penmitted to make a separate deferral election and the Participant's deferral amount elected on their Salary Deferral Agreement will also apply to any bonus received by the Participant for any Plan Year.

3.
The Employer penmits a Participant to amend his or her deferral election to defer to the Plan an amount not to exceed % (may be no more than 100%) or$ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable] of any bonus received by the Participant for any Plan Year.

Automatic Enrollment:

The Employer elects the automatic enrollment provrsrons for Elective Deferrals as follows. Automatic enrollment in Roth Elective Deferrals is not permitted under the Plan. The automatic enrollment provisions apply to all eligible Employees. Employees and Participants shall have the right to amend the stated automatic Elective Deferral percentage or receive cash in lieu of deferral into the Plan.

1. RESERVED

2. Automatic Deferrals:

a.
New Employees: Employees who have not met the eligibility requirements shall have Elective Deferrals withheld in the amount of % (not more than 10%) of Compensation or $ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable] upon entering the Plan.

i.      On an annual basis the Elective Deferral limit under the Plan shall be increased up to a maximum amount determined by the Employer.

ii.     After      Years of Service, the amount specified above shall increase to
     %(no more than 10%) or$      [may be no more than the Code Section
402(g) limit and Code Section 414(v) limit, if applicable].

This requirement is effective for Employees hired on or after      .

b. Current Employees: Employees who are eligible to participate but not deferring shall have Elective Deferrals withheld in the




amount of % (not more than 10%) of Compensation or $ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].

i.      On an annual basis the Elective Deferral limit under the Plan shall be increased up to a maximum amount determined by the Employer.


ii.     After     
 
Years of Service, the amount specified above shall increase to


     %(no more than 10%) or$      [may be no more than the Code Section
402(g) limit and Code Section 414(v) limit, if applicable].

c.          Current Participants: Current Participants who are deferring at a percentage less than the amount selected herein shall have Elective Deferrals withheld in the amount of
     % (not more than 10%) of Compensation or $      [may be no more than the
Code Section 402(g) limit and Code Section 414(v) limit, if applicable].

i.      On an annual basis the Elective Deferral limit under the Plan shall be increased up to a maximum amount determined by the Employer.

ii.     After      Years of Service, the amount specified above shall increase to
     %(no more than 10%) or$      [may be no more than the Code Section
402(g) limit and Code Section 414(v) limit, if applicable].




Employees and Participants shall have the right to amend the stated automatic Elective Deferral provisions or receive cash in lieu of deferral into the Plan. For purposes of this provision, Employees returning an election form indicating a 11 Zero'' deferral amount shall be deemed "Current Participants".

E.     Voluntary After-tax Contributions:













If the Employer wishes to reserve the right to recharacterize Elective Deferrals as Voluntary After-tax
Contributions in order to pass the ADPIACP Test, this section must be completed.

1.      The Plan does not permit Voluntary After-tax Contributions.

2.
Participants may make Voluntary After-tax Contributions in any amount from a minimum of % (may not be less than 1%) to a maximum of % (may be no more than 100%) of their Compensation or a flat dollar amount from a minimum of$ (may not be less than $1,000) to a maximum of $ [may be no more than the Code Section 402(g) limit and Code Section
414(v) limit. if applicable].

3.
Participants may make Voluntary After-tax Contributions in any amount up to the maximum permitted by law.

4.
The maximum combined limit of Elective Deferrals, Roth Elective Deferrals, and Voluntary After-tax Contributions will not exceed % (may be no more than 100%) of Compensation or$ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].



F.     Required After-tax Contributions (for Thrift Savings Plans only):




1.      The Plan does not permit Required After-tax Contributions.

2.      Participants shall be required to make Required After-tax Contributions as follows:



a.           %(may be no more than 100%) of Compensation.

b.     A percentage determined by the Employee.

c.      A flat dollar amount of $      [may be no more than the Code Section 402(g) limit and
Code Section 414(v) limit, if applicable].




d. The maximum combined limit of Elective Deferrals, Roth Elective Deferrals and Required After-tax Contributions will not exceed % (may be no more than 100%) of Compensation or$
[may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].

G.    Rollover Contributions:



l
 
1.      The Plan does not accept Rollover Contributions.

2.      Rollover Contributions may be made:



 
a.      after meeting the eligibility requirements for participation in the Plan.

b.      prior to meeting the eligibility requirements for participation in the Plan.



3.    The Plan will accept a Participant Rollover Contribution of an Eligible Rollover Distribution from
(check only those that apply):

a.      A Qualified Plan described in Code Section 401(a) or 403(a).

b.      An annuity contract described in Code Section 403(b).

c.
An eligible plan under Code Section 457(b) which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state.




d.
An Individual Retirement Account (which was not used as a conduit from a Qualified Plan) or Annuity described in Code Section 408(a) or 408(b) that is eligible to be rolled over and would otheiWise be includable in gross income.

4.
The Plan will accept a Direct Rollover of an Eligible Rollover Distribution from (check only those that apply):

a.      A Qualified Plan described in Code Section 401(a) or 403{a), excluding Voluntary After-tax
Contributions.

b.      A Qualified Plan described in Code Section 401(a) or 403{a), including Voluntary After-tax
Contributions.

 
c.

An annuity contract described in Code Section 403(b), excluding Voluntary After-tax
Contributions.
 
d.
An annuity contract described in Code Section 403(b), including Voluntary After-tax
Contributions.
 
e.
An eligible plan under Code Section 457(b) which is maintained by a state, political subdivision of a state, or an agency or instrumentality of a state or political subdivision of a
 
 
state.
 
f.
A Roth Elective Deferral Account if it is a Direct Rollover from another Roth Elective
 
 
Deferral Account under a Qualified Plan described in Code Section 402A{e)(1) and only
to the extent the rollover is permitted under Code Section 402(c).
H.    Deemed IRA Contributions/Reserved:






1.      The Plan does not accept any Deemed IRA contributions.

2.
Deemed IRA contributions may be made to this Plan for Plan Years beginning      (may be no earlier than January 1, 2003):

a.      In accordance with the Traditional IRA rules as described in the Basic Plan Document
#01. An Individual must meet the eligibility requirements for participation in the Plan in
order to make a "Deemed IRA" contribution.

b. In accordance with the Roth IRA rules as described in the Basic Plan Document #01. An Individual must meet the eligibility requirements for participation in the Plan in order to make a "Deemed IRA" contribution.



I.     Safe Harbor Plan Provisions:

If the Safe Harbor Plan provisions are elected, the nondiscrimination tests at Article XI of the Basic Plan Document #01 are not applicable. Safe Harbor Contributions made are subject to the withdrawal restrictions of Code Section 401(k)(2){B) and Treasury Regulation Section 1.401(k)-1(d); such contributions (and earnings thereon) must not be distributable earlier than severance from employment, death, Disability, an event described in Code Section 401(k)(10), or in the case of a profit-sharing or stock bonus plan, the attainment of age 59%. Safe Harbor Contributions are NOT available for Hardship withdrawals.




The ACP Test Safe Harbor is automatically satisfied if the only Matching Contribution to the Plan is either a Basic Matching Contribution or an Enhanced Matching Contribution that does not provide a match on Elective Deferrals in excess of 6% of Compensation. For Plans that allow Voluntary or Required After-tax Contributions, the ACP Test is applicable with regard to such contributions.

Employees eligible to make Elective Deferrals to this Plan must be eligible to receive the Safe Harbor
Contribution in the Plan listed below, to the extent required by applicable IRS Regulations.

The Employer elects to comply with the Safe Harbor Cash or Deferred Arrangement provisions of Article XI
of the Basic Plan Document #01 and elects one of the following contribution formulas:




1.    Safe Harbor Tests:

a. Only the ADP Test Safe Harbor provisions are applicable. A formula in paragraphs (3), (4) or (5) below has been selected and the ADP Safe Harbor has been satisfied.

b. Only the ACP Test Safe Harbor provisions are applicable. No additional Matching Contributions would be needed in order to satisfy the ACP Safe Harbor if the Plans satisfies the Basic or Enhanced Match.

c.    Both the ADP and ACP Test Safe Harbor provisions are applicable. If both ADP and ACP
provisions are applicable:

i.      No additional Matching Contributions will be made in any Plan Year in which the
Safe Harbor provisions are used.

ii. The Employer may make Matching Contributions in addition to any Safe Harbor Matching Contributions elected below. [Complete provisions in Section VI(J) regarding Matching Contributions that will be made in addition to those Safe Harbor Matching Contributions made below.]

Safe Harbor Contributions cannot be subject to an Hours of Service or employment on the last day of the Plan Year requirement.

2. Designation of Alternate Plan to Receive Safe Harbor Contribution: If the Safe Harbor Contribution as elected below is not being made to this Plan, the name of the other plan that will receive the Safe Harbor Contribution is:


3.
 
Basic Matching Contribution Formula: Matching Contributions will be made on behalf of Participants in an amount equal to 100% of the amount of the Eligible Participant's Elective Deferrals that do not exceed 3% of the Participant's Compensation and 50% of the amount of the Participant's Elective Deferrals that exceed 3% of the Participant's Compensation but that do not exceed 5% of the Participant's Compensation.



4.
Enhanced Matching Contribution Formula: Matching Contributions will be made in an amount equal to the sum of:

a.
100% of the Participant's Elective Deferrals that do not exceed ;2% of the Participant's Compensation [insert a number that is three (3) or greater but not greater than six (6); if a number greater than six (6) is inserted or if left blank, this will not qualify as an Enhanced Matching Contribution Formula and the ADP test will apply], plus

b.
75% of the Participant's Elective Deferrals that exceed ;2% of the Participant's Compensation but do not exceed §% of the Participant's Compensation [insert a number that is three (3) or greater but not greater than six (6) in the second blank. Both blanks should be completed so that at any rate of Elective Deferrals, the Matching Contribution is at least equal to the Matching Contribution receivable if the Employer were making a Basic Matching Contribution. The rate of match cannot increase as Elective Deferrals increase. If a number greater than six (6) is inserted or if left blank, this will not qualify as an Enhanced Matching Contribution Formula and the ACP Test will apply.]

If an additional discretionary Matching Contribution is made, the dollar amount of that contribution may not exceed 4% of eligible Plan Compensation.

     5.      Guaranteed Non-Elective Contribution Formula: The Employer shall make a Non-Elective
Contribution equal to      % (not less than 3%) of the Compensation of each Eligible Participant.


     6.
 




Flexible Non-Elective Contribution Formula: This provision provides the Employer with the ability to amend the Plan to comply with the Safe Harbor provisions during the Plan Year. To provide such option, the Employer must amend the Plan and indicate on Schedule C that the Safe Harbor Non-Elective Contribution (not less than 3%) will be made for the specified Plan Year. Such election must comply with all the applicable notice requirements.



Additional non-Safe Harbor Contributions may be made to the Plan pursuant to Section VI(J) hereof. Any additional contributions may be subject to nondiscrimination testing.




7.
Limitations on Safe Harbor Matching Contributions: If a Safe Harbor Matching Contribution is made to the Plan:





 
a.      The Employer elects to make Safe Harbor Matching Contributions on an annual basis.

b.     The Employer elects to match actual Elective Deferrals made:




 
 
i.     on a payroll basis [Plan defaults to this election]. ii.     on a monthly basis.
iii. on a Plan Year quarterly basis.

iv. The Employer elects to true up Safe Harbor Matching Contributions made to the
Plan on the above basis.

If one of the Matching Contribution calculation periods at paragraph (7)(b) above is selected, Matching Contributions must be deposited to the Plan not later than the last day of the calendar quarter next following the quarter to which they relate.






 
    c. The Employer will only contribute the Safe Harbor Contribution to Non-Highly
Compensated Employees.
 

J.

Matching Employer Contribution:
 
 
Do not complete this section of the Adoption Agreement if the Plan only offers a Safe Harbor
 
 
Contribution. A Plan that offers both a Safe Harbor Contribution as well as an additional Employer
 
 
Contribution that is specified below, must complete both Sections Vl(l) and VI(J) of this Adoption
 
 
Agreement.
 
 
Select the Matching Contribution Formula, Computation Period and special Limitations for each contribution
 
 
type from the options listed below. Enter the letter of the option(s) selected on the lines provided. Leave the
 
 
line blank if no election is required.
 
 

The Matching Contribution(s) selected below will be deemed an additional discretionary ACP Test Safe
Harbor Matching Contribution in accordance with the selection made at Section Vl(l). The allocation of any
 
 
additional Matching Contribution made by the Employer will not exceed 4% of eligible Compensation.
 
 

The Matching Contribution(s) selected below will be deemed a discretionary contribution that will be subject
to nondiscrimination testing.


Type of
Contribution
Matching
Contribution
(Formula 1)
Matching
Computation
Period


Limitations
Matching
Contribution
(Formula 2)
Matching
Computation
Period


Limitations
Elective Deferrals (including Roth Elective Deferrals, if applicable)
 
 
 
 
 
 
Voluntary After-tax
 
 
 
 
 
 
Required After-tax
 
 
 
 
 
 
403(b) Deferrals
 
 
 
 
 
 

If any election is made with respect to "403(b) Deferrals" above, and if this Plan is used to fund any
Employer Contributions, Employer Contributions will be based on the Elective Deferrals made to an existing
403(b) plan sponsored by the Employer.

Name of corresponding 403(b) plan, as applicable:     


If the Matching Contribution formula selected by the Employer is 100% vested and may not be distributed to the Participant before the earlier of the date the Participant has a severance from employment, retires, becomes disabled, attains 59%, or dies, it may be treated as a Qualified Matching Contribution.

Matching Contribution Formulas may be subject to a minimum or maximum dollar or percentage
limit.




1.      Matching Contribution Formulas:

Matching Contribution Formulas for Elective Deferrals and Roth Elective Deferrals:

a.
Percentage of Deferral Match: The Employer shall contribute to each eligible Participant's account an amount equal to % (no more than 500%) of the Participant's Elective Deferrals up to a maximum of % (no more than the Annual Addition limit for the Plan Year) of Compensation or $ [no more than the Annual Addition limit for the Plan Year].

b.      Uniform Dollar Match: The Employer shall contribute to each eligible Participant's

account $     

(no more than the Annual Addition limit for the Plan Year) if the


Participant contributes at least % (no more than 100%) of Compensation or $ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable]. The Employer's contribution will be made up to a maximum of % (no more than the Annual Addition limit for the Plan Year) of Compensation.

c.
Discretionary Match: The Employer shall have the right to make a Discretionary Matching Contribution. The Employer's Matching Contribution shall be determined by the Employer with respect to each Plan Year's eligible Participants. Such contribution shall be in the amount specified and allocated as follows:

d.
Tiered Match: The Employer shall contribute to each eligible Participant's account an amount equal to:

     % (no more than 500%) of the first      % of the Participant's Compensation contributed, and

     % (no more than 400%) of the next      % of the Participant's Compensation
contributed, and

     % (no more than 300%) of the next      % of the Participant's Compensation contributed.

The Employer's contribution will be made up to the greater of (may be no more than
500%) lesser of (may be no less than 1%)      %of Compensation, or$      (no
more than the Annual Addition limit for the Plan Year).




 
The percentages specified above may not increase as the rate of Elective Deferrals or Employee Contributions increase. This formula must meet Code Section
401(a)(4) and the ACP Test.
 
e.
Percentage of Compensation Match: The Employer shall contribute to each eligible
 
 
Participant's account      % (no less than 1%) of Compensation if the eligible Participant
 
 
contributes at least      % (no more than 100%) of Compensation.
 
 
The Employer's contribution will be made up to the   greater of (may be no more than
500%)   lesser of (may be no less than 1%)      %of Compensation or$      (no
 
 
more than the Annual Addition limit for the Plan Year).
 
 
This formula must meet Code Section 401(a)(4) and the ACP Test.
 
f.
Proportionate Compensation Match: The Employer shall contribute to each eligible
 
 
Participant who defers at least      % (may be no more than 100%) of Compensation,
 
 
an amount determined by multiplying such Employer Matching Contribution by a fraction,
 
 
the numerator of which is the Participant's Compensation and the denominator of which is
 
 
the Compensation of all Participants eligible to receive such an allocation.
 
 
The Employer's contribution will be made up to the   greater of (may be no more than
500%)   lesser of (may be no less than 1%)      %of Compensation or$      (no
 
 
more than the Annual Addition limit for the Plan Year).
 
 
This formula must meet Code Section 401(a)(4) and the ACP Test.
 

g.

Catch-Up Contributions: The Employer elects to match Catch-Up Contributions under
 
 
the same formula or formulas as elected above.




In the event that an Excess Contribution is recharacterized as a Catch-up Contribution, any Matching Contribution made thereon may remain in the Plan if the Matching Contribution Formula is not otherwise exceeded.

Additional Matching Contribution Formulas for Voluntary After-tax Contributions:

h.
Percentage of Deferral Match: The Employer shall contribute to each eligible Participant's account an amount equal to % (no less than 1%) of the Participant's Contribution up to a maximum of % (may be no more than 500%) of Compensation or$ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].

i.      Uniform Dollar Match: The Employer shall contribute to each eligible Participant's

account $     

(no more than the Annual Addition limit for the Plan Year) if the


Participant contributes at least      % (may be no more than 100%) of Compensation or
$      [may be no more than the Code Section 402(g) limit and Code Section 414(v)
limit, if applicable]. The Employer's contribution will be made up to the maximum of
     %(may be no more than 500%) of Compensation.

j.
Discretionary Match: The Employer shall have the right to make a Discretionary Matching Contribution. The Employer's Matching Contribution shall be determined by the Employer with respect to each Plan Year's eligible Participants. Such contribution shall be in the amount specified and allocated as follows:

Additional Matching Contribution Formulas for Required After tax Contributions:

k.
Percentage of Deferral Match: The Employer shall contribute to each eligible Participant's account an amount equal to % (no less than 1%) of the Participant's Contribution up to a maximum of % (may be no more than 500%) of Compensation or$ [may be no more than the Code Section 402(g) limit and Code Section 414(v) limit, if applicable].

I.     Uniform Dollar Match: The Employer shall contribute to each eligible Participant's

account $     

(no more than the Annual Addition limit for the Plan Year) if the


Participant contributes at least      % (may be no more than 100%) of Compensation or
$      [may be no more than the Code Section 402(g) limit and Code Section 414(v)
limit, if applicable]. The Employer's contribution will be made up to the maximum of
     %(may be no more than 500%) of Compensation.

m.
Discretionary Match: The Employer shall have the right to make a Discretionary Matching Contribution. The Employer's Matching Contribution shall be determined by the Employer with respect to each Plan Year's eligible Participants. Such contribution shall be in the amount specified and allocated as follows:

Additional Matching Contribution Formulas for 403(b) Deferrals:

n.
Percentage of Deferral Match: The Employer shall contribute to each eligible Participant's account an amount equal to % (no less than 1%) of the Participant's deferral up to a maximum of % (may be no more than 500%) of Compensation or
$      [may be no more than the Code Section 402(g) limit and Code Section 414(v)
limit, if applicable].

o.     Uniform Dollar Match: The Employer shall contribute to each eligible Participant's

account $     

(no more than the Annual Addition limit for the Plan Year) if the





Participant contributes at least      % (may be no more than 100%) of Compensation or
$      [may be no more than the Code Section 402(g) limit and Code Section 414(v)
limit, if applicable]. The Employer's contribution will be made up to the maximum of
     %(may be no more than 500%) of Compensation.




p.
Discretionary Match: The Employer shall have the right to make a Discretionary Matching Contribution. The Employer's Matching Contribution shall be detenmined by the Employer with respect to each Plan Year's eligible Participants. Such contribution shall be in the amount specified and allocated as follows:

2.
Matching Contribution Computation Period: The Compensation or any dollar limitation imposed in calculating the Matching Contribution will be based on the period selected below. Matching Contributions will be calculated on the following basis:


a.      Payroll Based
b.      Weekly
c.     Bi-weekly
d.      Semi-monthly

e.      Monthly
f.    Quarterly
g.      Semi-annually
h.      Annually



The calculation of Matching Contributions based on the Computation Period selected above has no applicability as to when the Employer remits Matching Contributions to the Trust.

3. Limitations on Matching Formulas:

a.
Contributions to Participants who are not Highly Compensated Employees: Contribution of the Employer's Matching Contribution will be made only to eligible Participants who are Non-Highly Compensated Employees.

b.    Deferrals withdrawn prior to the end of the Matching Computation Period: Matching
Contributions (whether or not Qualified) will not be made on Employee contributions withdrawn prior to the end of the [ 1 Matching Computation Period, or [ 1 Plan Year.

If elected, this requirement shall not apply in the event of a withdrawal occurring as the
result of a termination of employment for reasons of retirement, Disability or death.

c.
Maximum Plan Limit for Matching Contributions: In no event will Matching Contributions exceed % (no more than 500%) of Compensation, or $ (no more than the Annual Addition limit for the Plan Year).

If elected, this limitation applies to the total of all Elective Deferrals, Roth Elective Deferrals, Catch-Up Contributions, Voluntary After-tax Contributions, and Required After­ tax Contributions made to the Plan for the Plan Year.

d.    True Up of Matching Contributions:    The Employer elects to true up Matching
Contributions made to the Plan.

K.      Non-Elective Employer Contributions:

The Employer shall have the right to make a discretionary contribution. If a discretionary contribution is made, the Employer's contribution for the Plan Year shall be allocated to the accounts of eligible Participants as follows (enter the number of the allocation method being used by the Plan):

TVOe of Contribution
Allocation Method
Non-Elective Fonmula 1
1
Non-Elective Fonmula 2
 

1.
Pro-Rata Formula: The Employer's contribution for the Plan Year shall be allocated to each eligible Participant on a pro-rata basis based on the Compensation of the Participant to the total Compensation of all Participants.

2.    Uniform Percentage Formula: The Employer's contribution shall be allocated to each eligible
Participant as a uniform percentage of the Employer's Net Profit.




3.
Percentage of Compensation Formula: The Employer's contribution shall be % of each Participanfs Compensation allocated on a pro-rata basis based on the Compensation of the Participant to the total Compensation of all Participants.

4.
Hours of Service Formula: The Employer's contribution shall be a discretionary amount allocated in the same dollar amount to each eligible Participant based on each Hour of Service performed or each day that the Participant is entitled to Compensation.




5.
Uniform Dollar Amount Formula: The Employer shall contribute and allocate to the account of each eligible Participant an equal dollar amount.

6.
Excess Integrated Contribution Formula: The Employer's contribution shall be allocated as an amount taking into consideration amounts contributed to Social Security using the four-step Excess Integrated Allocation Fonmula as described in the Basic Plan Document #01; the Integration Level is defined at Section III(E) of this Adoption Agreement.

7.
Base Integrated Contribution Formula: The Employer's contribution shall be allocated as an amount taking into consideration amounts contributed to Social Security using the two-step Base Integrated Allocation Fonmula as described in the Basic Plan Document #01; Employer Contributions shall be allocated as follows: % of each eligible Participant's Compensation, plus % of Compensation in excess of the Integration Level defined at Section III(E) hereof. If the Integration Level selected in Section III(E) is other than the Taxable Wage Base, the maximum disparity rate will be adjusted as follows: (a) if the Integration Level selected is greater than zero (O) but not more than the greater of $10,000 or 20% of the Taxable Wage Base, the maximum disparity rate will be 5.7%; (b) if the Integration Level selected is more than the greater of $10,000 or 20% but not more than 80% of the Taxable Wage Base, the maximum disparity rate will be
4.3%; (c) if the Integration Level selected is more than 80% of the Taxable Wage Base, but not
more than any amount more than 80% of the Taxable Wage Base, but less than 100% of the
Taxable Wage Base, the maximum disparity rate will be 5.4%.

Only one Plan maintained by the Employer may be integrated with Social Security. Any Plan utilizing a Safe Harbor formula as provided in Section Vl(l) of this Adoption Agreement may not apply the Safe Harbor Contributions to the integrated allocation formula.

8.
Uniform Points Contribution Formula: The allocation for each eligible Participant will be detenmined by a uniform points method. Each eligible Participant's allocation shall bear the same relationship to the Employer contribution as the Participant's total points bears to all points awarded. The Employer must grant points for at least age or Service. Each eligible Participant will receive points for each of the following:

a.           year(s) of age.

b.           Year(s) of Service detenmined:

i.     In the same manner as detenmined for eligibility.

ii.     In the same manner as detenmined for vesting.

     iii.     Points will not be awarded with respect to Year(s) of Service in excess of      .

d.      $      (not to exceed $200) of Compensation.

The contribution formulas must satisfy the design-based safe harbors described in the Regulations under
Code Section 401(a)(4).

L.     Qualified Matching (QMAC) and Qualified Non-Elective (QNEC) Employer Contribution Formulas:


1.
  


 
QMAC Contribution Formula:      The Employer may contribute to each eligible Participant's
Qualified Matching Contribution account an amount equal to (select one or more of the following):

a.      $__ or      % of the Participant's Elective Deferrals (including Roth Elective
Deferrals, if applicable).

b.      $__ or      % of the Participant's Elective Deferrals (including Roth Elective
Deferrals, if applicable) not to exceed      % of Compensation.

c.      $      or      % of the Participant's Voluntary After-tax Contributions.

d.      $      or      % of the Participant's Required After-tax Contributions.





2. Discretionary QMAC Contribution Formula: The Employer shall have the right to make a discretionary QMAC contribution. The Employers Matching Contribution shall be detenmined by the Employer with respect to each Plan Year's eligible Participants. Such contribution shall be in the amount specified and allocated as follows: .

This part of the Employers contribution shall be fully vested when made.

3.      QNEC Contribution Formula: The Employer may contribute to each eligible Participant's Qualified
Non-Elective Contribution account an amount equal to (select one or more of the following):

a.           % of Compensation of all eligible Participants. This part of the Employer's contributions shall be fully vested when made.

b.         $      not to exceed      % of Compensation. This part of the Employer's contribution shall be fully vested when made and subject to the limitations specified in the Basic Plan
Document #01.

4.
Discretionary Percentage QNEC Contribution Formula: The Employer shall have the right to make a discretionary QNEC contribution which shall be allocated to each eligible Participant's account in proportion to his or her Compensation as a percentage of the Compensation of all eligible Participants. This part of the Employer's contribution shall be fully vested when made. This contribution will be made to:

a.      All eligible Participants.

b.      Only eligible Participants who are Non-Highly Compensated Employees.

5. Discretionary Uniform Dollar QNEC Contribution Formula: The Employer shall have the right to make a discretionary QNEC contribution which shall be allocated to each eligible Participant's account in a unifonm dollar amount to be determined by the Employer and allocated in a
nondiscriminatory manner. This part of the Employer's contribution shall be fully vested when made. This contribution will be made to:

a.     All eligible Participants.

     b.     Only eligible Participants who are Non-Highly Compensated Employees.

M.      Qualified Matching Contributions and Qualified Non-Elective Contributions For Test Correction
Purposes:

Qualified Matching (QMAC) and Qualified Non-Elective (QNEC) Contributions made exclusively for test correction purposes may only be selected if the Employer elects to use the Current Year testing method in Section X herein and are not subject to any allocation requirement selected under Section VII herein.

1.
Corrective QNEC Contribution Formula: The Employer shall have the right to make a QNEC contribution in the amount necessary to pass the ADP/ACP Test or the maximum permitted under Code Section 415. This contribution will be allocated to some or all Non-Highly Compensated Participants designated by the Plan Administrator. The allocation will be the lesser of the amount required to pass the ADP/ACP Test, or the maximum permitted under Code Section 415. This part of the Employers contribution shall be fully vested when made.

2.      Qualified Matching Contributions (QMAC):

 
a.

For purposes of the ADP and ACP Tests, all Matching Contributions made to the Plan will
 
 
be deemed "Qualified" for purposes of calculating the Actual Deferral Percentage and/or
Actual Contribution Percentage. All Matching Contributions must be fully vested when made.













21





 
b.

For purposes of the ADP and ACP Tests, only Matching Contributions made to the Plan
 
that are needed to meet the Actual Deferral Percentage or Actual Contribution Percentage
Test will be deemed "Qualified" for purposes of calculating the Actual Deferral Percentage
and/or Actual Contribution Percentage. All such Matching Contributions used must be fully
vested when made.
     3.      Qualified Non-Elective Contributions (QNEC):

a. For purposes of the ADP and ACP Tests, all Non-Elective Contributions made to the Plan will be deemed "Qualified" for purposes of calculating the Actual Deferral Percentage and/or Actual Contribution Percentage. All Non-Elective Contributions must be fully vested when made.

 

b.

For purposes of the ADP and ACP Tests, only the Non-Elective Contributions made to the
 
Plan that are needed to meet the Actual Deferral Percentage or Actual Contribution
Percentage Test will be deemed "Qualified" for purposes of calculating the Actual Deferral
Percentage and/or Actual Contribution Percentage. All such Non-Elective Contributions
used must be fully vested when made.
N.     Additional Adopting Employers:

1.
All participating Employers' contributions and forfeitures, if applicable, attributable to each specific contribution source made by such Employer shall be pooled together and allocated uniformly among all eligible Participants.

2. Each participating Employer's contribution and forfeitures, if applicable, attributable to each specific contribution source made by such Employer shall be allocated only to eligible Participants of the participating Employer.

Where contributions and forfeitures are to be allocated to eligible Participants by participating Employers, each such Employer must maintain data demonstrating that the allocations by group satisfy the nondiscrimination rules under Code Section 401(a)(4).


VII.      ALLOCATIONS TO PARTICIPANTS

A.      Allocation Accrual Requirements:

No Hours of Service or last day requirement may be imposed on any Employer contribution that is subject to the Safe Harbor Plan rules.

1. There are no allocation requirements for Participants to receive any contribution made to the Plan; however, a Participant must have received Compensation from the Employer to be entitled to an allocation of contributions.

2.      Employer contributions will be allocated to all Participants employed on the last day of the Plan
Year regardless of hours worked.

3.      The Plan is using the Elapsed Time method; contributions will be allocated to all Participants who have completed      [not more than twelve (12)] months of Service regardless of the hours credited. If left blank, the Plan will use twelve (12) months.

4.
Employer contributions for a Plan Year will be allocated to all Participants upon completion of the hours and/or employment requirements below.

a.    A Year of Service for allocation accrual purposes cannot be less than one (1) Hour of
Service nor greater than 1,000 hours by operation of law. If left blank, the Plan will use
1,000 hours. Enter whole digit numbers only.

Contribution Type
All contributions
Matching Contribution (Formula 1)
Matching Contribution (Formula 2) Non-Elective Contribution (Formula 1)



Non-Elective Contribution (Formula 2) QMAC




QNEC     1

b.
Participants must be employed on the last day of each quarter of the Plan Year in order to receive the following contribution(s):

All contributions
Matching Contribution (Formula 1)
Matching Contribution (Formula 2)
Non-Elective Contribution (Formula 1)
Non-Elective Contribution (Formula 2)
QMAC
QNEC

Note: Use of this subsection (b) requires that no more than one (1) Hour of Service be required in subsection (a) above for the contribution types selected.

c.
Participants must be employed on the last day of the Plan Year in order to receive the following contribution(s):

All contributions
Matching Contribution (Formula 1)
Matching Contribution (Formula 2)
Non-Elective Contribution (Formula 1)
Non-Elective Contribution (Formula 2)
QMAC
QNEC

d.      Participants must complete the Hours of Service indicated above or be employed on the last day of the Plan Year to receive the Employer Contribution(s) selected above.

5.
Employer Contributions for a Plan Year will be allocated to terminated Participants who have met the following allocation accrual requirements (check all applicable boxes):

NonM     Non-
All      Match     Match Elective     Elective     
Contributions Formula 1 Formula 2 Formula 1 Formula 2 QMAC QN EC

a.
The Hours of Service or Period of Service requirement above will be waived if termination is due to:


i.

Retirement
 
 
 
181
 
 
 
ii.
Disability
 
 
 
181
 
 
 
iii.
iv.
Death
Other (must be nondiscriminatory
 
 
 
181
 
 
 
 
in operation):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
b. The last day of employment requirement above will be waived if termination is due to:

i. Retirement D D D 181 D D D ii. Disability D D D 181 D D D iii. Death D D D 181 D D D iv. Other (must be nondiscriminatory
in operation):



D    D     D     D    D    D    D










23





 

B.

Contributions to Disabled Participants:

The Employer will make contributions on behalf of a Participant who is permanently and totally disabled.
 
These contributions will be based on the Compensation each such Participant would have received for the
Limitation Year if the Participant had been paid at the rate of Compensation paid immediately before
becoming penmanently and totally disabled. Such imputed Compensation for the disabled Participant may
be taken into account only if the Participant is not a Highly Compensated Employee. These contributions
will be 100% vested when made.

VIII.      DISPOSITION OF FORFEITURES

A.      Forfeiture Allocation Alternatives:

1.      Not applicable; all contributions are fully vested.

2.
Select one or more methods in which forfeitures associated with the contribution type will be allocated (number each item in order of use):

Employer Contribution Type
All Non-Safe Harbor     Non-Elective
Disposition Method      Matching Contributions     Contributions




a.
Restoration of Participant's
forfeitures.
 
 
b.
Used to offset Plan expenses.
 
c.
Used to reduce the Employer's
 
 
Non-Elective Contribution.
 
d.
Used to reduce the Employer's
 
 
Matching Contribution.
 
e.
Added to the Employer's contribution
 
 
(other than Matching Contributions or
 
 
Base Integration Fonmula) under the
 
 
Plan.
 
f.
Added to the Employer's Matching
 
 
Contribution under the Plan (these
 
 
contributions will be subject to ACP
 
 
Testing).
 
g.
Allocate to all Participants
eligible to share in the allocations
 
 
in the same proportion that each
 
 
Participant's Compensation for the
 
 
year bears to the Compensation of all
 
 
other Participants for such year.
    N/A
h.
Allocate to all NHCEs eligible to share
 
 
in the allocations in proportion to each
 
 
such Participant's Compensation for
 
 
the year.
    N/A
i.
Allocate to all NHCEs eligible to share in
 
 
the allocations in proportion to each such
 
 
Participant's Elective Deferrals for the year.
 
    N/A
j.
Allocate to all Participants eligible to share
 
 
 
in the allocations in the same proportion
 
 
 
that each Participant's Elective Deferrals
 
 
 
for the year bears to the Elective Deferrals
 
 
 
of all Participants for such year.
 
    N/A





Participants eligible to share in the allocation of other Employer contributions under Section VI shall be eligible to share in the allocation of forfeitures. The selection of (i) or 0) may require that the Plan be tested
for nondiscrimination using a general test described in Regulations Section 1.41O(b).

B.     Timing of Allocation of Forfeitures:

If no timely distribution or deemed distribution [pursuant to paragraph 6.5(c) of the Basic Plan Document
#01] has been made to a former Participant, non-vested portions shall be forfeited at the end of the Plan Year during which the former Participant incurs his or her fifth consecutive one (1) year Break in Service or Period of Severance for Plans that use the Elapsed Time Method.

If a former Participant has received the full amount of his or her Vested Account Balance, the non-vested portion of his or her account shall be forfeited and be disposed of:

 
1.
during the Plan Year following the Plan Year in which the forfeiture arose.
2.
as of any Valuation or Allocation Date during the Plan Year (or as soon as administratively feasible
 
following the close of the Plan Year) in which the former Participant receives full payment of his or
 
her vested benefit.
D

3.

as of the end of the Plan Year during which the former Participant receives full payment of his or her vested benefit.
D
4.

as of the earlier of the first day of the Plan Year, or the first day of the seventh month of the Plan
Year following the date on which the former Participant has received full payment of his or her
 
 
vested benefit.
D
5.

as of the next Valuation or Allocation Date following the date on which the former Participant
 
 
receives full payment of his or her vested benefit.

IX.      MULTIPLE PLANS MAINTAINED BY THE EMPLOYER AND TOP-HEAVY CONTRIBUTIONS


A.
 
Plans Maintained By The Employer:



The Employer does maintain another Plan [including a Welfare Benefit Fund or an individual medical account as defined in Code Section 415(1)(2)], under which amounts are treated as Annual Additions and has completed the proper sections below. If the Participant is covered under another qualified Defined Contribution Plan maintained by the Employer, other than a Master or Prototype Plan [option (1) below shall automatically apply if the other plan is a Master or Prototype Plan]:

     1.      The provisions of Article X of the Basic Plan Document #01 will apply as if the other plan were a
Master or Prototype Plan.

2. The Employer has specified below the method under which the plans will limit total Annual Additions to the Maximum Permissible Amount, and will properly reduce any Excess Amounts in a manner that precludes Employer discretion:

B.    Top-Heavy Provisions:











In the event the Plan is or becomes Top-Heavy, the minimum contribution or benefit required under Code Section 416 and paragraph 14.3 of the Basic Plan Document #01 relating to Top-Heavy Plans shall be satisfied in the elected manner:

1. The minimum contribution




will be satisfied by this Plan.

2. The minimum contribution will be satisfied by (name of other Qualified Plan):

Minimum contribution or benefit to be provided (specify interest rates and mortality table, if applicable):     



3.
For any Plan Year during which the Plan is Top-Heavy, the sum of the contributions (excluding Elective Deferrals) allocated to non-Key Employees shall not be less than the amount required under the Basic Plan Document #01. Top-Heavy minimums will be allocated to:

     a.      all eligible Participants [Plan defaults to this election].




b.     only eligible non-Key Employees who are Participants.

     4.      Matching Contributions shall not be included when satisfying Top-Heavy minimum contributions.


X.     NONDISCRIMINATION TESTING

A Plan may use different testing methods for the ADP and ACP Tests provided the Plan does not penmit recharacterization of Excess Contributions, Elective Deferrals to be used in the ACP Test, or Qualified Matching Contributions to be used in the ADP Test.

If no election is made, the Plan will use the Current Year testing method for both the ADP and ACP Tests.

A. Testing Elections:

1.
The Plan is not subject to ADP or ACP testing. The Plan does not offer Voluntary After-tax or Required After-tax Contributions and it either meets the Safe Harbor provisions of Section Vl(l) of this Adoption Agreement, or it does not benefit any Highly Compensated Employees.

D 2. This Plan is using the Current Year testing method for purposes of the ADP Test. D 3. This Plan is using the Current Year testing method for purposes of the ACP Test. D 4. This Plan is using the Prior Year testing method for purposes of the ADP Test.
D 5. This Plan is using the Prior Year testing method for purposes of the ACP Test.

B.     Testing Elections for the First Plan Year:





D

     C.





D.


Complete only when Prior Year testing method election is made and the Employer is not using the
"deemed 3%" rule.

1.
If this is not a successor Plan, then for the first Plan Year this Plan permits any Participant to make Elective Deferrals, the ADP used in the ADP Test for Participants who are Non-Highly Compensated Employees shall be such first Plan Year's ADP.

2.
If this is not a successor Plan, then for the first Plan Year this Plan penmits (a) any Participant to make Employee contributions, (b) provides for Matching Contributions or (c) both, the ACP used in the ACP Test for Participants who are Non-Highly Compensated Employees shall be such first Plan Year'sACP.

Recharacterization:

Elective Deferrals may be recharacterized as Voluntary After-tax Contributions to the extent so provided by this Plan, to




satisfy the ADP Test. The Employer must have elected to penmit Voluntary After-tax Contributions in the Plan for this election to be operable.

Forfeitures of Vested Excess Aggregate Contributions Resulting from ADP Test Failure:

Forfeitures of Excess Aggregate Contributions resulting from failure of the ADP Test and the inability to distribute corresponding Matching Contributions will be allocated to the Matching Contribution accounts of Non-Highly Compensated Employees instead of being used to reduce Employer Contributions for the Plan Year in which the failure occurred.




XI.      VESTING

Participants shall always have a fully vested and nonforfeitable interest in their Employee contributions (including Elective Deferrals, Catch-Up Contributions, Roth Elective Deferrals, Deemed IRA Contributions, Required After-tax Contributions, and Voluntary Alter-tax Contributions), Qualified Matching Contributions ("QMACs"), Qualified Non­ Elective Contributions ("QNECs") or Safe Harbor Contributions, and their investment earnings.

Each Participant shall acquire a vested and nonforfeitable percentage in his or her account balance attributable to
Employer contributions and their earnings under the schedule(s) selected below.




A.    Vesting Computation Period:




  

A Year of SeiVice for vesting will be determined on the basis of the (choose one):

1.      Not applicable. All contributions are fully vested.

2.      Elapsed Time method.

3.
Hours of SeiVice method. A Year of SeiVice will be credited upon completion of 1.000 Hours of SeiVice. A Year of SeiVice for vesting purposes will not be less than one (1) Hour of SeiVice nor greater than 1,000 hours by operation of law. [If left blank, the Plan will use 1,000 hours.]

The computation period for purposes of determining Years of SeiVice and Breaks in SeiVice for purposes of computing a Participant's nonforfeitable right to his or her account balance derived from Employer contributions:

a. shall commence on the date on which an Employee first performs an Hour of Service for the Employer and each subsequent twelve (12) consecutive month period shall commence on the anniversary thereof.

b.
shall commence on the first day of the Plan Year during which an Employee first perfonms an Hour of SeiVice for the Employer and each subsequent twelve (12) consecutive month period shall commence on the anniversary thereof.

A Participant shall receive credit for a Year of SeiVice if he or she completes the number of hours specified above at any time during the twelve (12) consecutive month computation period. A Year of SeiVice may be earned prior to the end of the twelve (12) consecutive month computation period and the Participant need not be employed at the end of the twelve (12) consecutive month computation period to receive credit for a Year of Service.



B.    Vesting Schedules:

The Employer must select either the two-twenty vesting schedule option [(8)(4)] or the three-year cliff vesting schedule [(8)(3)] to apply in any Plan Year in which the Plan is Top-Heavy. The percentages selected for option (8)(5) may not be less for any year than the percentages shown at option (8)(4). Any switch to a Top-Heavy schedule will remain in effect even if the Plan later falls out of Top-Heavy status unless the Employer executes an amendment to this Adoption Agreement. If a Participant has at least three (3) Years of SeiVice for vesting purposes at the time of the amendment, the Plan must provide that Participant the option of remaining on the vesting schedule in effect prior to such amendment.




Select the appropriate schedule for each contribution type and complete the blank vesting percentages from the list below and insert the option number in the vesting schedule chart below. Employer Contributions that are not Safe Harbor Contributions may only choose option (3) or (4) or a schedule where amounts vest faster than at option (4).

    Years of Service     
1    

1.    Full and immediate Vesting

2.          %     100%

3.      0%    O%     100%

4.      %     20%     40%      60%    80%    100%


5.           %      -- %     -- %     -- %
 
     %    100%



Vesting Schedule Chart      Employer Contribution Type

All Employer Contributions Matching Contribution (Fonmula 1) Matching Contribution (Fonmula 2)
Match on Voluntary After-tax Contribution


27




Match on Required After-tax Contribution
Match on 403(b) Deferrals
Non-Elective Contribution (Formula 1)
Non-Elective Contribution (Formula 2) Top-Heavy Minimum Contribution

If a different Vesting Schedule than that entered above applies to Employer Contributions made prior to the first day of the Plan's 2007 Plan Year, it should be entered in Schedule B of this Adoption Agreement.

C.     Service Disregarded for Vesting:

 
1. Not applicable. All Service is recognized.

2. Service prior to the Effective Date of this Plan or a predecessor plan is disregarded when
computing a Participant's vested and nonforfeitable interest.
 
D

3. Service prior to a Participant having attained age eighteen (18) is disregarded when computing a
Participant's vested and nonforfeitable interest.
D

D.
Full Vesting of Employer Contributions for Current Participants:
 
Notwithstanding the elections above, all Employer contributions made to a Participant's account shall be
100% fully vested if the Participant is employed on the Effective Date of the Plan (or such other date as
entered herein):      . The operation of this provision may not result in the discrimination in favor of
Highly Compensated Employees.

XII.      SERVICE WITH PREDECESSOR ORGANIZATION

This option only applies in the situation where the Employer does not or did not maintain the plan of a Predecessor
Organization.


     A.
 
Not applicable. The Employer does not maintain the plan of a Predecessor Organization.





 
B.     The Plan will recognize Service with all Predecessor Organizations.
C.
Service with the following organization(s) will be recogni




zed for the Plan purpose indicated: Allocation
Eligibilitv Accrual Vesting








Attach additional pages as necessary.

     D.    The Plan shall recognize      Years of Service with the Employer(s) named in Section XII(C) above. XIII.      IN-SERVICE WITHDRAWALS
Distribution restrictions apply in the case of Elective Deferrals (including Roth Elective Deferrals, if applicable), Safe
Harbor Contributions, Qualified Matching Contributions and Qualified Non-Elective Contributions, including the
withdrawal restrictions prior to attainment of age 59%.

If the Participant could withdraw his or her account in the past, this right may not be taken away.

A.     In-Service Withdrawals:





 
1.      ln-se!Vice withdrawals are not permitted in the Plan.

2.
In-service withdrawals are permitted in the Plan. Participants may withdraw the following contribution types after meeting the following requirements (select one or more of the following options):





Withdrawal Restrictions
Contribution Types      A     B      c      D    E     F     G     H


a.

All Contributions

n/a

n/a

n/a
 
 

n/a

n/a

n/a
b.
Elective Deferrals
 
n/a
n/a
 
[gJ
n/a
n/a
n/a
c.
Roth Elective Deferrals
 
n/a
n/a
 
[gJ
n/a
n/a
n/a
d.
Voluntary After-tax Contributions
 
 
 
 
 
n/a
n/a
n/a
e.
Required After-tax Contributions
 
 
 
 
 
n/a
n/a
n/a
f.
Rollover Contributions
 
[gJ
 
 
 
n/a
n/a
n/a
g.
Vested Matching (Formula 1)
 
n/a
 
 
 
 
 
 
h.
Vested Matching (Formula 2)
 
n/a
 
 
 
 
 
 
i.
Vested Non-Elective (Formula 1)
 
n/a
 
 
[gJ
 
 
 
j.
Vested Non-Elective (Formula 2)
 
n/a
 
 
 
 
 
 
k.
Safe Harbor Matching
 
n/a
n/a
 
[gJ
n/a
n/a
n/a
I.
Safe Harbor Non-Elective
 
n/a
n/a
 
 
n/a
n/a
n/a
m.
Qualified Non-Elective
 
n/a
n/a
 
[gJ
n/a
n/a
n/a
n.
Qualified Matching
 
n/a
n/a
 
 
n/a
n/a
n/a
Withdrawal Restriction Ke

 
A.

B.
Not available for in-service withdrawals.

Available for in-service withdrawals without restrictions.
c.

Participants having completed five (5) years of Plan participation may elect to withdraw all or any part of their Vested Account Balance.
D.
Participants may withdraw all or any part of their Account Balance after having attained
 
the Plan's Normal Retirement Age (Normal Retirement Age cannot be less than age 59%
 
for in-service withdrawal of Elective Deferrals, Roth Elective Deferrals, Safe Harbor
 
Contributions, QMACs or QNECs).
E.
Participants may withdraw all or any part of their Vested Account Balance after having
 
attained age 59%  (not less than age 59%).
F.
Participants may elect to withdraw all or any part of their Vested Account Balance which
 
has been credited to their account for a period in excess of two (2) years.
G.
Available for withdrawal only if the Participant is 100% vested (an election at (C), (D), (E)
 
or (F) must also be made).
H.
All requirements selected in (C) through (G) above must be satisfied prior to a distribution
 
 
 
being made from the Plan.
0

3.

In-ser

vice withdrawals may be made to Participants who have attained age 70%.
B.      Hardship Withdrawals:




Prior to age 59%, a Participant may withdraw balances attributable to Elective Deferrals (including Roth Elective Deferrals, if applicable) for reason of Hardship only. Safe Harbor Contributions, Qualified Matching Contributions, and Qualified Non-Elective Contributions are not available for Hardship distributions.








1.      Hardship withdrawals are not permitted in the Plan.

2.
Hardship withdrawals are penmitted in the Plan and will be taken from the Participant's account as follows (select one or more of these options):












 
a.      Participants may withdraw Elective Deferrals.

b.      Participants may withdraw Elective Deferrals and any earnings credited as of December
31, 1988 (or if later, the end of the last Plan Year ending before July 1, 1989).

c.      Participants may withdraw Roth Elective Deferrals.

d.      Participants may withdraw Rollover Contributions plus their earnings.

e.      Participants may withdraw vested Non-Elective Contributions (Formula 1) plus their
earnings.



f.     Participants may withdraw vested Non-Elective Contributions (Formula 2) plus their
earnings.

g.      Participants may withdraw fully vested Non-Elective Contributions (Fonmula 1) plus their
earnings.

h.     Participants may withdraw fully vested Non-Elective Contributions (Fonmula 2) plus their
earnings.

i.      Participants may withdraw vested Employer Matching Contributions (Fonmula 1) plus their
earnings.

j.     Participants may withdraw vested Employer Matching Contributions (Formula 2) plus their
earnings.

k.      Participants may withdraw Qualified Matching Contributions and Qualified Non-Elective
Contributions plus their earnings, and the earnings on Elective Deferrals which have been
credited to the Participant's account as of December 31, 1988 (or if later, the end of the last Plan Year ending before July 1, 1989).


XIV.      LOAN PROVISIONS


0 A. lSI B. lSI C.
 
Participant loans are not available from the Plan.





Participant loans are penmitted in accordance with the Employer's established loan procedures.

Loan payments will be suspended under the Plan as permitted under Code Section 414(u) in compliance with the Uniformed Services Employment and Reemployment Rights Act of 1994.




XV.      INVESTMENT MANAGEMENT

A     Investment Management Responsibility:

1.      The Employer shall appoint a discretionary Trustee to manage the assets of the Plan.

2.     The Employer shall retain investment management responsibility and/or authority.     Unless otherwise appointed, the Trustee shall act in a nondiscretionary capacity.












30




3.
The party designated below shall be responsible for the investment of the Participant's account. By selecting a box, the Employer is making a designation as to who will have authority to issue investment directives with respect to the specified contribution type (check all applicable boxes):

 
Trustee
Emgloyer
ParticiQant
a.
All Contributions
n/a
n/a
[8J

b.

c.

Elective Deferrals/Roth Elective Deferrals

Voluntary After-tax Contributions
 
 
 
d.
Required After-tax Contributions
 
 
 
e.

f.
Safe Harbor Contributions

Matching Contributions (Formula 1)
 
 
 
g.
Matching Contributions (Formula 2)
 
 
 
h. i.
j.
QMACs

QNECs

Non-Elective Contributions (Formula 1)
 
 
 
k.
Non-Elective Contributions (Formula 2)
 
 
 
I.
Rollover Contributions
 
 
 
m.
Deemed IRA Contributions
 
 
 
To the extent that Participant self-direction was previously permitted, the Employer shall have the right to either make the assets part of the general fund, or leave them as self- directed subject to the provisions of the Basic Plan Document #01.

B.    Limitations on Participant Directed Investments:

1.
Participants are permitted to invest among only those investment alternatives made available by the Employer under the Plan.

 
D

2. Participants are permitted to invest in any investment alternative permitted under the Basic Plan


D

c.
Document #01.

Insurance:
 
 
The Plan permits life insurance as an investment alternative.

XVI.      DISTRIBUTION OPTIONS

A.      Timing of Distributions [both (1) and (2) must be completed]:

1.
Distributions payable as a result of termination for reasons other than death, Disability or retirement shall be paid .Q {select from the list at (A)(3) below].

2.     Distributions payable as a result of termination for death, Disability or retirement shall be paid .!<
{select from the list at (A)(3) below].

3.     Distribution Options:

a.
As soon as administratively feasible on or after the Valuation Date following the date on which a distribution is requested or is otherwise payable.




b.
As soon as administratively feasible following the close of the Plan Year during which a distribution is requested or is otherwise payable.




c.
As soon as administratively feasible following the date on which a distribution is requested or is otherwise payable. (This option is recommended for daily valuation plans.)

d.
As soon as administratively feasible after the close of the Plan Year during which the Participant incurs [cannot be more than five (5)] consecutive one (1) year Breaks in Service.

e.    Only after the Participant has attained the Plan's Normal Retirement Age or Early
Retirement Age, if applicable.

B.    Required Beginning Date:

The Required Beginning Date of a Participant with respect to the Plan is (select one from below):

     1.      The April 1 of the calendar year following the calendar year in which the Participant attains age
70Y,.


2.
 
The April 1 of the calendar year following the calendar year in which the Participant attains age
70Y, except that distributions to a Participant (other than a 5% owner) with respect to benefits accrued after the later of the adoption of this Plan or Effective Date of the amendment of this PIan must commence no later than the April 1 of the calendar year following the later of the calendar year in which the Participant attains age 70Y, or the calendar year in which the Participant retires.



3.
The later of the April 1 of the calendar year following the calendar year in which the Participant attains age 70Y, or retires except that distributions to a 5% owner must commence by the April 1 of the calendar year following the calendar year in which the Participant attains age 70Y,.

Option (3) may only be elected if (i) it corresponds to an amendment previously made to the Plan pursuant to Regulations Section 1.411(d)-4, Q&A-10(b), or (ii) it does not eliminate an age 70Y, distribution option as described in the preceding Regulations because either (A) the Plan is a new Plan or (B) Section XIII(A)(3) is checked or the Plan already offers a pre-retirement distribution at least as generous as Section XIII(A)(3).

C.    Minimum Distribution Requirements:

1.
Election to Apply Five (5) Year Rule to Distributions to Designated Beneficiaries: If the Participant dies before distributions begin and there is a Designated Beneficiary, distribution to the Designated Beneficiary is not required to begin by the date specified in the Basic Plan Document
#01 but the Participant's entire interest will be distributed to the Designated Beneficiary by
December 31 of the calendar year containing the fifth anniversary of the Participant's death.

2.
Election to Allow Participants or Beneficiaries to Elect Five (5) Year Rule: Participants or Beneficiaries may elect on an individual basis whether the five (5) year rule or the life expectancy rule described in the Basic Plan Document #01 applies to distributions after the death of a Participant who has a Designated Beneficiary. The election must be made no later than the earlier of September 30 of the calendar year in which distribution would be required to begin under the Plan, or by September 30 of the calendar year which contains the fifth anniversary of the Participant's (or, if applicable, surviving Spouse's) death. If neither the Participant nor Beneficiary makes an election under this paragraph, distributions will be made in accordance with Article VII of the Basic Plan Document #01 and, if applicable, the elections in Section XVI(C)(1) above.

D.    Forms of Payment (select all that apply):

The normal form of payment is determined at Section III(J) of this Adoption Agreement. If option (1) or no selection is made in Section III(J), then options (4), (5) and (6) in this section cannot be selected.




 

1.

Lump sum.
 
2.
Installment payments.
 
3.
Partial payments; the minimum amount will be $Q.
 
4.
Life annuity.
 
5.
Term certain annuity with payments guaranteed for      years [not to exceed twenty (20)].




6.      Joint and D 50%, D 66-2/3%, D 75% or D 100% survivor annuity. E.     Type of Payment (select all that apply):

 
1.
Cash.
 

2.

Employer securities.
 
3.
Other marketable securities.
 
4.
Other:      (fill in the blank with the type of other in-kind distributions allowed under the Plan).
F.     Application of Involuntary Cash-out Provisions:

1.          The Plan shall not make involuntary cash-outs to any terminated vested Participant. Distributions will only be made with the consent of the Participant.

2.      The Plan shall make involuntary cash-outs to a terminated vested Participant as follows:

a. The Plan shall make involuntary cash-out distributions of Vested Account Balances of less than $200. Distribution of amounts $200 or greater shall only be made with the consent of the Participant.

     b.      The Plan shall make involuntary cash-out distributions of Vested Account Balances of
$1,000 or less. Distribution of amounts greater than $1,000 shall only be made with the
consent of the Participant.

3.     When detenmining the value of the Participant's nonforfeitable account balance for purposes of the
Plan's involuntary cash-out rules, the Plan elects to:





 
a. exclude Rollover Contributions.

b. include Rollover Contribution




s.

If no selection is made, the Plan will exclude Rollover Contributions when determining the value of the Participant's nonforfeitable account balance for involuntary cash out purposes. Rollover Contributions, if any, will always be included when determining whether the $1,000 threshold has been exceeded.



G.    Automatic Rollovers:

Do not complete if a selection has been made at Section XVI(F)(1) or (2) above.

1.
The Plan shall make automatic relievers of Vested Account Balances that are greater than $1,000 but are not more than $5,000 in accordance with the provisions of Article VI of the Basic Plan Document #01.

2.      The Plan shall make automatic relievers of Vested Account Balances that are not more than $5,000 in accordance with the provisions of Article VI of the Basic Plan Document #01.

H.     Distribution Upon Severance from Employment:









 
1.      Not applicable.

2.
Distribution upon severance from employment as described in the Basic Plan Document #01 shall apply for distributions after December 21, 2012 (no earlier than December 31, 2001) regardless of when the severance from employment occurred.

3.      Distribution upon severance from employment as described in the Basic Plan Document #01 shall

apply for distributions after     

(no earlier than December 31, 2001) for severance from


employment occurring after      (enter the Effective Date if different than the Effective Date above).





XVII.     SPONSOR INFORMATION AND ACCEPTANCE

This Plan may not be used and shall not be deemed to be a Prototype Plan unless an authorized representative of the Sponsor has acknowledged the use of the Plan. Such acknowledgment that the Employer is using the Plan does not represent that the Adoption Agreement (as completed) and Basic Plan Document #01 have been reviewed by a representative of the Sponsor or constitute a qualified retirement plan.

Acknowledged and accepted by the Sponsor this 2"' day of September, 2008.

Name: Laura Gaynor

Title: Vice President





Signature:

Questions concerning the language contained in and qualification of the Prototype should be addressed to:
Diversified Retirement Comoration. Manager of Plan Document Consulting Group

(Position): Manager (Phone Number): 914-627-3000

In the event that the Sponsor amends, discontinues or abandons this Prototype Plan, notification will be provided to the Employes address provided on the first page of this Adoption Agreement.


XVIII.     SIGNATURES

Completion of this Adoption Agreement requires consideration of complex tax and legal issues. The Employer should consult with or should obtain the advice of its legal counsel and/or tax advisor before executing this Adoption Agreement. By executing this Adoption Agreement, the Employer acknowledges that it is a legal document with significant tax and legal ramifications. The Employer understands that its failure to properly complete or amend this Adoption Agreement may result in failure of the Plan to qualify or in disqualification of the Plan. Neither the Sponsor nor any of its agents or affiliates assumes any responsibility for the completion and operation of the Plan established under this Adoption Agreement and Basic Plan Document #01.

A. Employer: BBCN Bank

This Adoption Agreement and the corresponding provisions of Basic Plan Document #01 are adopted by the
Employer this     4 th day of December 2012

Executed on behalf of the Employer by:    

Title:

Signature:
 


Employer's Reliance: The adopting Employer may rely on an Opinion Letter issued by the Internal Revenue Service as evidence that the Plan is qualified under Code Section 401 except to the extent provided in Revenue Procedure 2005-16. The Employer may not rely on the Opinion Letter in certain other circumstances or with respect to certain qualification requirements, which are specified in the



Opinion Letter issued with respect to the Plan and in Revenue Procedure 2005-16. In order to have reliance in such circumstances or with respect to such qualification requirements, application for a determination letter must be made to Employee Plans Determinations of the Internal Revenue Service. This Adoption Agreement may only be used in conjunction with Basic Plan Document #01.

B.    Trust Agreement/Custodial Agreement:

     Plan assets will be invested in group annuity contracts and the terms of the contract(s) will apply.

Plan assets are held in a tax qualified Trust. The Trust provisions used will be as contained in the Basic
Plan Document #0 1.




Plan assets are held in a tax qualified Trust. The Trust provisions used will be as contained in the accompanying pre-approved executed Trust Agreement between the Employer and the Trustee attached hereto.

Plan assets are being held in a Custodial Account arrangement. The Custodial Account provisions used will be as contained in the Basic Plan Document #01.

Plan assets are being held in a Custodial Account arrangement. The Custodial Account provisions used will be as contained in the accompanying pre-approved executed Custodial Account Agreement between the Employer and the Custodian attached hereto.

C.     Trustee:

The Trustee appointed shall act in the capacity of a non-discretionary directed Trustee.

     The Trustee appointed shall act in the capacity of a discretionary Trustee.

Name and address of Trustee:









The Employer's Plan as contained herein is accepted by the Trustee this day of , .

 
Accepted on behalf of the Trustee by:

Title:
    

Signature:
 

Accepted on behalf of the Trustee by: Title:


    

Signature:
 

D.

Custodian:

Name and address of Custodian:
 







The Employer's Plan as contained herein is accepted by the Custodian this      day of      ,      . Accepted on behalf of the Custodian by:                      Title:
Signature:




PARTICIPATION AGREEMENT

Each Participating Employer must execute a separate Participation Agreement If not applicable, do not
complete this Participation Agreement

By executing this Participation Agreement, the undersigned Employer elects to become a Participating Employer in the Plan and accompanying Adoption Agreement as if the Participating Employer were a signatory to the Adoption Agreement. The Participating Employer accepts, and agrees to be bound by, all of the elections granted under the provisions of the Prototype Plan as made by the signatory sponsoring Employer in Section XVIII(A) of the Adoption Agreement. Further, the Participating Employer hereby appoints the signatory sponsoring Employer as its attorney in fact for the purpose of adopting on its behalf of all future amendments whether required or voluntary and any applicable corresponding documents (e.g., Loan Policy, QDRO procedures, Trust Agreement). This includes the adoption of all future Model Amendments to this Prototype Plan which are required by the U.S. Department of the Treasury or the Internal Revenue Service as a result of a modification or amendment of applicable Federal laws or regulations that become effective subsequent to the execution of this Participation Agreement.

A.     PARTICIPATING EMPLOYER:

Name: Address:
Phone Number:     Tax ID Number:


B.     EFFECTIVE DATE:

The Effective Date of the Plan for the Participating Employer is:

This is an adoption of a new plan by the Participating Employer.

This is an adoption of an amendment and/or restatement of a plan currently maintained by the Participating
Employer identified as follows:

Name of Plan:

Original Effective Date:


C.     SIGNATURES:

Executed on behalf of the Participating Employer by: ------------------- Title:
Signature:


Executed on behalf of the Signatory Sponsoring
Employer by:

Title: Signature:

Executed on behalf of the Trustee by:          Title:
Signature:




SCHEDULE A PROTECTED BENEFITS
This Schedule describes Code Section 411(d)(6) protected benefits included in the adopting Employer's prior plan document that are not available in this Prototype Defined Contribution Plan, Basic Plan Document #01. Complete as applicable.

1. Plan Provision: Frozen Match Source

The Plan's prior matching source is available for in-service distributions at age 59 1/2 and hardship distributions. The assets are 100% vested.

Effective Date: December 21, 2012




SCHEDULE 8

PRIOR PLAN PROVISIONS

This Schedule should be used by the adopting Employer if a prior plan contains provisions not found in this Prototype Defined Contribution Plan, Basic Plan Document #01, or where the Employer wishes to document transactions or historical provisions of the Employer's Plan.


1. Plan Provision: WRERA 2009 Minimum Distributions

The BBCN Bank Employees' 401(k) and Profit Sharing Plan ("Plan") has been amended for the Worker, Retiree and Employer Recovery Act of 2008 (WRERA). The 2009 Required Minimum Distributions were administered as follows:

The 2009 Required Minimum Distributions were paid out unless the Participant elected otherwise.

Direct rollovers were not penmitted for the 2009 Required Minimum Distribution payments.

Effective Date: December 21, 2012


2. Plan Provision: Catch-up Contributions

Catch-up contributions will be matched based on the Safe Harbor Matching
Contribution formula.

Effective Date: December 21, 2012


3. Plan Provision: The Plan is hereby amended and restated effective as of December 21, 2012.
Effective January 1, 2013, certain provisions are being changed and the updated
provisions are reflected in the appropriate sections of the restated Adoption
Agreement. However, for the period December 21, 2012 through December 31,
2012, the Plan will continue to be administered in accordance with the Plan provisions in effect prior to December 21, 2012. The following provision is changing effective January 1, 2013:

The Plan provides for the Rule of Parity.

Effective Date: December21, 2012


























2







SCHEDULE C

SAFE HARBOR ELECTIONS FOR FLEXIBLE NON-ELECTIVE CONTRIBUTION


The following elections are made with regard to the Plan's Safe Harbor status pursuant to Section VII herein. For
Plan Years indicated below, the Plan hereby invokes a Safe Harbor status in accordance with IRS Notices 98-52 and

2000-3.


For all Plan Years in which this Safe Harbor election is being made, the limitations and restrictions found in Section

VII herein apply.


1. For the Plan Year beginning and ending , the Employer hereby invokes a Safe Harbor status as provided in IRS Notice 2000-3. The Safe Harbor Contribution will be an amount equal to % (not Jess than 3%) of Compensation. This election is made on this day of , (date may not be later than 30 days prior to the end of the Plan Year in which such election is being made).

2. For the Plan Year beginning and ending , the Employer hereby invokes a Safe Harbor status as provided in IRS Notice 2000-3. The Safe Harbor Contribution will be an amount equal to % (not Jess than 3%) of Compensation. This election is made on this day of , (date may not be later than 30 days prior to the end of the Plan Year in which such election is being made).

3. For the Plan Year beginning and ending , the Employer hereby invokes a Safe Harbor status as provided in IRS Notice 2000-3. The Safe Harbor Contribution will be an amount equal to % (not less than 3%) of Compensation. This election is made on this day of , (date may not be later than 30 days prior to the end of the Plan Year in which such election is being made).

4. For the Plan Year beginning and ending , the Employer hereby invokes a Safe Harbor status as provided in IRS Notice 2000-3. The Safe Harbor Contribution will be an amount equal to % (not Jess than 3%) of Compensation. This election is made on this day of , (date may not be later than 30 days prior to the end of the Plan Year in which such election is being made).

5. For the Plan Year beginning and ending , the Employer hereby invokes a Safe Harbor status as provided in IRS Notice 2000-3. The Safe Harbor Contribution will be an amount equal to % (not Jess than 3%) of Compensation. This election is made on this day of , (date may not be later than 30 days prior to the end of the Plan Year in which such election is being made).




SCHEDULED

COLLECTIVE AND COMMINGLED FUNDS

The Trustee is authorized to invest all or any part of the Fund in the following Collective and Commingled Funds as provided for in the Basic Plan Document #01:


1.

2.

3.

4.

5.

6.

7.

8.

9.

10.




SCHEDULE E MISCELLANEOUS ADMINISTRATIVE ELECTIONS

The following elections are made with regard to the administration of the Plan:

1. ERISA Section 404(c): The Employer intends to be covered by the fiduciary liability provisions with respect to Participant-directed investments under ERISA Section 404(c). Under the terms of this Plan, Participants (or their Beneficiaries) have a reasonable opportunity to give instructions to the Plan Administrator in accordance with the policy set by the Plan Administrator (whether written, oral, or in electronic fonm) regarding the choice of investment of their account balance. The Plan Administrator is obligated to comply with the Participant's or Beneficiary's investment instructions unless complying with such instructions would result in a prohibited transaction under the Code, ERISA or the Department of Labor, violate the Plan document, or jeopardize the Plan's tax-qualified status.

2. Hardship Withdrawals On Behalf of Primary Beneficiaries: Hardship withdrawals shall NOT be allowed to be taken on behalf of the primary beneficiary as permitted by Section 826 of the Pension Protection Act of
2006. (If this option is chosen such withdrawal shall NOT be allowed as penmitted under the terms of the Basic Plan
Document #1).


















































5





"
TAX EXEMPT AND OOV£RN/.\!';NT ENTITIES DIVISION
 


DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE WASHINGTON, D.C. 20224



Plan oe"cripUon= Proto ype tl'on-stdmlardhed Profit Sh;>ring Phn <ith COD/\
Ff'J: 3llJe2el901 010 C<>.'"' 200610329 £!11: ll-Jb890H
BPD: 01 Pl n: 010 Letter Serial No= Ml87 69a
Date of SubmHBion: Ol/ll/2006



DIV£RStFIE:D lliVESTME!!TS 1\.DV:i:SORS WC
4 HA11l!ATT.WVrtJ..E ROAD PURCHASE, NY 10577


Dcolr 1\pplicanc=

Conto1<=t l'ernon:
Janell Hayes/Letitia Young
Telephone !IU:t'.ber:
513-263-l602/5ll-26l-l584
!n Rererence To: T£0!l::I:P:752l Date< 03/ll/2006



rn our opinion, the form of the plan identHi"d above h acceptable under eec:tion 401 of th Internal Revenue Cod" for uBe by e<t'.ployerB for the benefit of their employees. Thto opinion relate" only to the accepti>biUty of the !onn o the plJn under the Internal Revenue Code. It ill not an opinion of the effect of other Pederal or local ntatut<m.

You muut furnlnh a copy of thio letter, a copy of the approved plan, and copie9 of any nubnequent aou:ndmenta to each er..ployer who adopts this plan.

Thin letter conuideru the changen in qualUication requirements contained in the 2004 CUmulative Liue of 1/oUcco
2004-84, 2004·2 c.s. 1olo.

Our opinion on the acceptability of the form of the plan ia not a ruling or determination "" to whether an employer'n plan qualifie.!l under Code nection 40l(a). However, an employer that adoptn thin plan may rely on this letter with renpect to the qualification of its plan under Code oection 401(a), au provided for in Rev. Proc.
2005·16, 2005·1 c. B. 674 and outlined below. Pleaae revie"' Announcement 2009·23 l.R.B. :<008-H to determine
the Hema neceoaary for filing An applicAtion !or a determination letter H one h r quird tor reliance, or is ctherwiue deuired. The t r.-_, of the plan muot be !ollowd in operation. Clenero>lly, the employer ""'Y requ ot a d t rminilticn letter by filing an application "'ith l:tnployee Plans DetcrtrJinationo on !"OrtrJ 5107, 1\pplication
!or Determination for Jldcpterl! of t'IO.Ater or Prototype or Volun:e Submitter Phn•.

c:xcept its provided below, our opinion doe<l not apply with reopect to the r quire nento of,      (il) COde o ctions Ol(a)( ). 401(1), UO(b) <>nd iH(n).      Our oploioo doeo not .tpply tor purpo eo o!Code 11ection 40l(al(lO)(;i) dnd 11ection oJOl(a) (16) if "n eroployer ever maintained anotl1er <tllilli ied plan for one or ;:>Ore err.ployeell who are covered by thh plan. For thio purpoae, the eroployer will not be c:on>Jidered to have maintained "nether plan merely becauae the employer haa maintnined ""other defined contribution pl.,n(s), provided auc:h other plan( 11)
h. B been te=inated prior co the eHecetve date o!this plan and no annual "ddition<1 h11ve been credited to the accou.-,e or any participant under Auch other plan{n) a9 ot ""Y dilte within the limitation yeAr o!thH• pt..n. see
"ection 19.02{1) of Rev. !'roc. 2005-16, 2005-1 c.a. 67'1 regarding nonlltl>nd11rdized detined contribut:ion pl,•nu ,1r.d the repeal o!Code uection H5(e). OUr opinion "lBo doeo net apply !or purposeD of Code nection 40l(a) (16) l!, "!ter nece,..ber 31, l9S5, the employer ,..aint"i"§ a wel!.,re benefit fund defined in Code ection l9(e), which provio.lo po tretirement rnedieal benefitA l>Uocated to nep.>rate ac-counts !or key employees as defined in cede PCC ion 419!\(d) (3). or "n individu"l medical account A" defined in Code ection 415(1} (2).







l.<'!tter HH






DIVS.<tSIFlED llNilS-rNEIITS !I.DVTSO!'l:S 11/C FFN: 3!33S2Bl901 010
Nge 2



Our opinio" appliea wlth. rellp cto the require Mnt of Code s <:tion UO(bl it 100 per<:ent of all non xc:lu(!able employees bene!H und r tile plan. Employers that elect a llilfe harbor ..tloc..uon orrnula an<i a sate harbor compensation defir itlorl can alan rely on iln opinion letter with respect to the nondi <:rimir.totory a<r10unts require.,ent under uect1on Ol(i1)(4) <>nd with respect to whether the fo= of the plan 8<1thfie11 the requirements or
=ectiono 401 (It) (J) and -101 (m) (2). In the """" of plans d c:ribed in sect!on 401 (k) (lll ilnd/or '0l(m) (12), employen ""'Y alo rely on the opinion letter with reGpect to wh<!ther the form of the plan satillfien those requirement" unless the plan provides for the Bafe harbor contribution to be made under another plan.

If you, the <MBter or prototype nponoor, have any quenticnB conc:crnir.g the IRS procen ing of thiu c;one, ple,.ae call the aeove telephon<> nurrber. This nu:t'ber ionly for us" of the opor.Bor. Individual partieipant9 .1nd/or
.1dopting employe:with qucBtions conce=ing the plan Bhould contact the = tcr or prototype aponoor. The plan'n
11doption agrec,ent mu t include the pon9or•s 11ddre9and telephone number !or inqu ri!HI by adopting employers.

If you write to the IRS regarding thin pl.:tn, ple: .ne provide your telephone number and the "'o"t convenient time
!or us to c<>Ll in ca11e "e need n-ore information. Whether you c:all or write, ple;oae refer to the Letter Serial
Number and rile Folder Number Bhown in the heading of this letter.

'l'ou ohould keep thin letter a.. a pcrma.nent rec:ord. Ple;ose notify un if you modi!y or dinc:entinue npon!Joruhip of thi" plan.
Sincerely yours,




l\ndre" Zucke= Director,
Employee Plans Rulings <>nd Agree01ento





















Letter 33i




















2




SEPARATION AND RELEASE AGREEMENT
This Separation and Release Agreement (the “ Agreement ”), by and among BBCN Bancorp, Inc. (together with its subsidiaries, “ BBCN ”), BBCN Bank and Alvin D. Kang (“ Executive ”), is effective as of the close of business on January 14, 2013 (the “ Effective Date ”).
WHEREAS, BBCN and Executive have mutually agreed that Executive’s employment and service as an executive officer of and a director of BBCN will terminate in accordance with this Agreement; and
WHEREAS, BBCN and Executive desire to enter into this Agreement to memorialize the terms of, and each party’s rights and obligations in connection with, the termination of Executive’s employment and service as a director.
NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein and other good and valuable consideration, including the execution of the Release Agreement (as hereinafter defined) by Executive, the receipt and sufficiency of which is hereby acknowledged by the parties hereto, the parties agree as follows:
Termination of Service . Executive’s employment with BBCN, and any and all of Executive’s other positions and offices (including service as a director) with BBCN, will terminate effective as of the close of business on January 31, 2013 without the need for any further action by Executive (the “ Termination Date ”).
Duties and Authority . During the period from the Effective Date through the Termination Date, except as otherwise directed by BBCN’s Board of Directors, Executive will continue to perform his Chief Executive Officer duties on an active full-time basis and will provide advice and assistance to aid in transition to his successor, as reasonably requested by BBCN’s Board of Directors. After the Termination Date, Executive shall have no authority to act on behalf of BBCN, or to bind BBCN to any undertaking or agreement.
Accrued Obligations; Reimbursements . Within five (5) business days after the Termination Date, BBCN shall pay to Executive any earned but unpaid annual base salary and any accrued but unused vacation pay, and, in accordance with the applicable expense reimbursement policy, as soon as practicable following submission of all applicable documentation, any expense reimbursement payments owed to Executive for expenses incurred prior to the Termination Date.
Payments and Benefits . In addition to the accrued and other amounts described in Section 3 of this Agreement, provided Executive executes the Release and Waiver of Claims attached hereto as Exhibit A (the “ Release Agreement ”) on January 31, 2013, and does not revoke the Release Agreement within the seven (7) day revocation period following execution thereof, BBCN shall pay or provide to Executive the following (in each case, subject to withholding of applicable taxes):

sf-3235406 v10

a lump sum cash payment equal to Six Hundred and Seventy-Five Thousand Dollars ($675,000) payable after the Termination Date promptly after the Release Agreement has been executed and the seven-day revocation period has expired;
a lump sum cash bonus in the amount of $119,500 in respect of 2012 under BBCN’s annual cash bonus incentive plan (its “Performance Incentive Plan” or “PIP”), payable at the same time 2012 PIP bonuses are paid to other PIP participants; and
a $40,000 credit relating to 2012 will be made to Executive’s deferral account under the Long Term Incentive Agreement by and between Nara Bank and Executive, dated June 27, 2008, (the “Incentive Agreement”) with such credit and any distributions to be made in accordance with the terms of the Incentive Agreement. In connection with any merger of BBCN in which it is not the surviving entity, or in any sale of all or substantially all its assets or any similar transaction, BBCN will take appropriate steps to have the Incentive Agreement assumed by the acquiring party.
Stock Options . Executive’s vested stock options that are outstanding as of the Termination Date will remain exercisable through the last day of the term of the respective option, as set forth in the applicable stock option agreements, notwithstanding the termination of Executive’s employment and any terms in the stock option agreements to the contrary.
No Other Benefits . Except for (w) the amounts and benefits described in Sections 3, 4 and 5 of this Agreement, (x) Executive’s rights with respect to any accrued and vested benefits under any qualified 401(k) savings plan and any right to continuation of group health coverage at Executive’s expense in accordance with the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), (y) Executive’s rights to deferred payments under the Incentive Agreement and the Long Term Incentive Plan pursuant to which the Incentive Agreement was executed and (z) Executive’s claims for indemnification and advancement of expenses as a director, officer or employee of BBCN under the Certificate of Incorporation, Articles of Incorporation or Bylaws of BBCN and any indemnification agreement, Executive shall not be entitled to any other payments or benefits from BBCN in respect of his employment or termination thereof. For the avoidance of doubt, all of Executive’s unvested outstanding performance unit awards granted under the Nara Bancorp, Inc. 2001/Nara Bank 2000 Continuation Long Term Incentive Plan or the Nara Bancorp, Inc. 2007 Equity Incentive Plan (renamed as the BBCN Bancorp, Inc. 2007 Equity Incentive Plan) and any other unvested outstanding equity awards shall be forfeited as of the Termination Date.
Nonsolicitation of Employees . For a period of eighteen (18) months after the Termination Date, without the written consent of BBCN’s Board of Directors or a person authorized thereby (which consent may be withheld in the absolute discretion of BBCN), Executive shall not, directly or indirectly solicit, recruit, induce, or encourage any person who is an employee of BBCN during such eighteen-month period to terminate his or her employment with BBCN or to become an employee of any organization with which Executive may become affiliated, or cause or influence any organization with which Executive may become affiliated to do the same; provided, however, that nothing in this Section 7 shall prohibit Executive or any organization with which Executive may become affiliated from (x) soliciting any person whose employment or engagement for services was terminated by BBCN at least three months prior to the date of such solicitation provided such termination was not encouraged or assisted by Executive or any organization with which Executive

2
sf-3235406 v10

may become affiliated, or (y) engaging in any general solicitation not targeted at any employee of BBCN, including any non-directed executive searches or placing general advertisements for employees in newspapers or other media of general circulation..
Enforcement . The parties agree and acknowledge that the obligations of the parties pursuant to Sections 7 and 10 of this Agreement are of a unique and special nature and that a party will not have an adequate remedy at law in the event of a failure by the obligated party to abide by his or its obligations under such Sections, nor will money damages adequately compensate for the injury caused by breach of such obligations. Therefore, it is agreed and hereby acknowledged by the parties that, in the event of a breach by a party of any of such obligations, BBCN and/or the Bank, on the one hand, or Executive, on the other hand, as applicable, shall have the right, among other rights, to damages sustained thereby and to obtain an injunction or decree of specific performance from any court of competent jurisdiction to restrain or compel the other party to perform as agreed in Section 7 or 10 of this Agreement, as applicable. Nothing herein shall in any way limit or exclude any other right granted by law or equity to any party.
Cooperation . The parties acknowledge that from time to time the assistance and cooperation of Executive may be of value with respect to (a) areas and matters in which Executive was involved during his employment, including with respect to any internal or external communications concerning the business of BBCN, his involvement and participation therein and his termination of employment, and (b) transitioning matters in which Executive was involved during his employment. Such assistance and cooperation, including Executive’s compensation and time requirements, shall be determined upon the reasonable agreement of the parties. Executive will be provided an opportunity to review and approve any internal or external announcements regarding his termination of service. Executive acknowledges that he has approved a press release to be issued upon the execution and delivery of this Agreement.
Non-Disparagement . Executive shall not make any public comments disparaging or denigrating BBCN, including each of its respective current, former and future officers, directors, employees, agents, representatives, attorneys, and shareholders, or encourage or assist any other person or entity making any such public comments. BBCN shall use its reasonable best efforts to cause the members of BBCN’s Board of Directors and its executive officers with the title of Senior Vice President and above not to make any public comments disparaging or denigrating Executive or encourage or assist any other person or entity making any such public comments. Nothing set forth herein shall be interpreted to prohibit either party from responding publicly to incorrect public statements, making truthful statements when required by law, subpoena, court order, or the like and/or from responding to any inquiry about this Agreement or its underlying facts and circumstances by any regulatory or investigatory organization and/or from making any truthful statements in the course of any legal proceeding.
Return of Property . No later than the Termination Date, Executive agrees to return to BBCN all company-owned property in his possession, specifically including all keys and card keys to company buildings or property; all company-owned equipment; and all company documents and papers, including all trade secrets and other confidential company information and, after returning such information to BBCN, to purge all BBCN confidential information from any personal

3
sf-3235406 v10

computers, tablets or other such devices and otherwise to follow BBCN security protocols applicable to employees whose employment has been terminated.
Entire Agreement . This Agreement sets forth the complete agreement between Executive and BBCN relating the Executive’s termination of employment. Executive acknowledges that, except as described in this Agreement, Executive is not entitled to any further compensation or benefits from BBCN. Executive further acknowledges and agrees that, in signing this Agreement, Executive does not rely and has not relied upon any representations or statements by BBCN or representative thereof with regard to the subject matter, basis, or effect of this Agreement or the Release Agreement that are not specifically set forth in this Agreement or the Release Agreement. Notwithstanding the foregoing, nothing in this Agreement is intended to or shall limit, supersede, nullify, or affect (a) the Incentive Agreement, (b) Executive’s claims for indemnification and advancement of expenses as a director, officer or employee of BBCN under the Certificate of Incorporation, Articles of Incorporation or Bylaws of BBCN and any indemnification agreement or (c) any duties and responsibilities Executive may have or owe to BBCN by virtue of any separate agreement or obligation. Without limiting the generality of the foregoing, after the termination of his employment, Executive shall continue to have a duty and obligation to maintain the confidentiality of all trade secrets (including lists of customers and customer prospects of BBCN) and other confidential information of BBCN and its customers and not to use any such trade secrets or other confidential information for any purpose except in connection with the services to be provided pursuant to Sections 2 and 9 of this Agreement.
Severability . If any section, subsection or provision hereof is found for any reason whatsoever to be invalid or inoperative, that section, subsection or provision shall be deemed severable and shall not affect the force and validity of any other provision of this Agreement. If any covenant herein is determined by a court to be overly broad thereby making the covenant unenforceable, the parties agree and it is their desire that such court shall substitute a reasonable judicially enforceable limitation in place of the offensive part of the covenant and that as so modified the covenant shall be as fully enforceable as if set forth herein by the parties themselves in the modified form. The covenants of Executive in this Agreement shall each be construed as an agreement independent of any other provision in this Agreement, and the existence of any claim or cause of action of Executive against BBCN, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by BBCN of the covenants in this Agreement.
No Admission of Wrongdoing . Neither this Agreement nor the Release Agreement shall be construed as an admission of liability or wrong-doing by either party .
No Limitation of Rights . Nothing in this Agreement shall limit or otherwise affect BBCN’s rights with respect to any compensation plans, agreements or arrangements, including, without limitation, any rights it may have to amend, modify or terminate such plans, agreements or arrangements in accordance with their terms.
Governing Law . This Agreement shall be interpreted, construed, and governed by the laws of the State of California, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Agreement to the substantive law of another jurisdiction.

4
sf-3235406 v10

Construction . Each party acknowledges that: (a) it has read this Agreement and the Release Agreement; (b) it has been represented in the preparation, negotiation and execution of this Agreement by legal counsel of its own choice; and (c) it understands the terms and consequences of this Agreement and is fully aware of the legal and binding effect of this Agreement. This Agreement shall not be construed more strongly against either party, regardless of who is more responsible for its preparation. If there is a conflict between this Agreement and any present or future law, the part that is affected shall be curtailed only to the extent necessary to bring it within the requirements of that law.
Expenses and Fees . Subject to the next sentence, each party shall bear the expenses incurred by such party in connection with the negotiation and execution of this Agreement and the consummation of the transactions contemplated hereby. If any legal action or arbitration is brought relating to this Agreement, the prevailing party in any final judgment or arbitration award, or the non-dismissing party in the event of a voluntary dismissal by the party instituting the action, shall be entitled to the full amount of all reasonable expenses, including all court costs, arbitration fees and actual attorneys’ fees paid or incurred in good faith.
Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
Successors . This Agreement may not be assigned by Executive. In addition to any obligations imposed by law upon any successor to BBCN, BBCN will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the stock, business and/or assets of BBCN, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that BBCN would be required to perform it if no such succession had taken place. Executive agrees and consents to any such assumption by a successor or parent of BBCN, as well as any assignment of this Agreement by BBCN for that purpose. As used in this Agreement, “ BBCN ” shall mean BBCN as herein before defined as well as any such successor or parent that expressly assumes this Agreement or otherwise becomes bound by all of its terms and provisions by operation of law.
Amendment . This Agreement may be amended only by written agreement executed by each of the parties.
Tax Withholding . BBCN may deduct from all compensation and benefits payable under this Agreement any taxes or withholdings BBCN is required to deduct pursuant to state, federal or local laws.
Internal Revenue Code Section 409A . To the extent applicable, it is intended that this Agreement and any payment made hereunder shall comply with the requirements of Section 409A of the Internal Revenue Code, or an exemption or exclusion therefrom and any related regulations or other guidance promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service and this Agreement shall be interpreted accordingly; provided that, for the avoidance of doubt, this provision shall not be construed to require a gross-up or other reimbursement payment in respect of any taxes, interest or penalties imposed on Executive as a result of Internal Revenue Code Section 409A.

5
sf-3235406 v10

IN WITNESS WHEREOF, each party has signed this Agreement on the date shown next to its signature below.

BBCN BANCORP, INC.


Date:     1-14-2013_________         By: __s/Kevin S. Kim    ___
Name: ___ Kevin S. Kim________
Title: ___ Chairman___________


BBCN BANK    


Date: __ 1-14-2013_______     By: ___ s/Kevin S. Kim ______
Name: ___ Kevin S. Kim ________
Title: ____ Chairman ___________

    
ALVIN D. KANG



Date: __ 1-14-2013_______         ____ s/Alvin D. Kang ___________

        

6
sf-3235406 v10


EXHIBIT A
RELEASE AND WAIVER OF CLAIMS
This Release and Waiver of Claims (“ Release Agreement ”) is entered into effective as of January 31 , 2013, by and between BBCN Bancorp, Inc. (together, with its subsidiaries, “ BBCN ”) and Alvin D. Kang (“you” or “ Executive ”).
BBCN and Executive agree as follows:
1. In accordance with the Separation and Release Agreement entered into by and between BBCN and Executive, effective as of January 14, 2013 (the “ Separation Agreement ”), the employment relationship between Executive and BBCN will terminate at the close of business on January 31, 2013.
2. General Release. Except for those obligations of BBCN created by the Separation Agreement or this Release Agreement or for any claims to indemnification and to advancement of expenses as a director, officer or employee of BBCN you may have under the Certificate of Incorporation, Articles of Incorporation or Bylaws of BBCN, any indemnification agreement, you may have entered into with the foregoing or otherwise by law, you, Executive, release and discharge and promise not to sue BBCN, and each of its or their current and former partners, directors, officers, employees, representatives, attorneys, successors and assignees, past and present, and each of them (individually and collectively, “ Releasees ”) from and with respect to any and all claims, wages, release agreements, obligations, demands and causes of action, known or unknown, suspected or unsuspected, concealed or hidden (collectively, “ Claims ”), of any kind whatsoever arising out of or in any way connected with your service as an employee or director of BBCN (or the termination of such services), including without limitation any Claims for wages, penalties, severance pay, bonuses or similar benefits, sick leave, pension, retirement, vacation pay, life insurance, health or medical insurance or any other fringe benefit, any benefits arising from any ERISA benefit plan, workers’ compensation or disability, any Claims under Title VII of the Civil Rights Act of 1964, Civil Rights Act of 1991, the Americans with Disabilities Act, the Family and Medical Leave Act, the California Fair Employment and Housing Act, the California Labor Code, and orders of the California Industrial Welfare Commission, or any other federal, state or local law, regulation or ordinance, and any other Claims resulting from any act or omission by or on the part of Releasees committed or omitted prior to date you sign this Release Agreement. Notwithstanding anything to the contrary in this Release Agreement, you are not releasing any claim that may not be waived as a matter of law. This Release does not prevent you from filing a charge with or participating in an investigation by a governmental administrative agency; but you waive any right to receive any monetary award resulting from such a charge or investigation.
3. ADEA Release . You also expressly acknowledge and agree that, in addition to the release set forth in Section 2 above, you are waiving and releasing any and all rights or claims against Releasees that you may have under the Age Discrimination in Employment Act of 1967, as amended (“ ADEA ”), which have arisen on or before the date you sign this Release Agreement. You also expressly acknowledge and agree that:

sf-3235406 v10

(a)    In return for this Release Agreement, you will receive consideration (including the payments and benefits due under the Separation Agreement) in addition to any consideration you were already entitled to receive before entering into this Release Agreement;
(b)    You are advised to consult with an attorney before signing this Release Agreement;
(c)    You were given a copy of this Release Agreement and informed that you have at least twenty-one (21) days in which to consider this Release Agreement. If you want to accept this Release Agreement, you must return this Release Agreement, signed by you, to BBCN within twenty-one (21) days after you received it or on your last day of employment, whichever is later; and
(d)    You understand that you have seven (7) days after you sign this Release Agreement in which to revoke this Release Agreement (the “ Revocation Period ”). This Release Agreement will not be effective or enforceable until the Revocation Period expires without you revoking the Release Agreement. If you revoke this Release Agreement before the expiration of the Revocation Period, then this Release Agreement shall be of no force or effect. To revoke, you must deliver your written notice of revocation before expiration of the Revocation Period to the Chairman of the Board of BBCN.
4.     California Civil Code Section 1542 . THE RELEASES SET FORTH IN SECTIONS 2 AND 3 OF THIS RELEASE AGREEMENT APPLY TO KNOWN AND UNKNOWN CLAIMS. ACCORDINGLY, YOU EXPRESSLY WAIVE ANY RIGHTS YOU MAY HAVE UNDER SECTION 1542 OF THE CALIFORNIA CIVIL CODE WHICH PROVIDES AS FOLLOWS:
“ A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR .”
5.     No Claims Assigned or Filed . You represent and warrant that you have not assigned or transferred to any person, BBCN or entity not a party to this Release Agreement any of the “Claims” released pursuant to Sections 2, 3, and 4 of this Release Agreement. You further represent and warrant that neither you nor anyone acting on your behalf has filed any complaints, charges, or lawsuits with any court or government agency, or commenced any arbitration proceeding, relating to any of the “Claims” released pursuant to Sections 2, 3 and 4 of this Release Agreement.
6.     Miscellaneous . This Release Agreement shall be governed by the laws of the State of California, excluding such state’s conflict of laws principles. If any provision of this Release Agreement or its application is held invalid, the invalidity shall not affect other provisions or applications of the Release Agreement which can be given effect without the invalid provisions or application; therefore, the provisions of this Release Agreement are declared to be severable. This Release Agreement constitutes the entire Release Agreement of the parties and supersedes all prior

8
sf-3235406 v10

negotiations and all release agreements, whether written or oral. This Release Agreement may be modified only by a writing signed by all of the parties to this Release Agreement and no waiver of any provision in this Release Agreement shall be binding on any party unless in writing and signed by such party. This Release Agreement is binding on and enforceable against BBCN and your heirs, successors and assigns. This Release Agreement is not and shall not be construed as an indication that you or BBCN may have engaged in any wrongful conduct. This Release Agreement may be executed in counterparts, and each counterpart, when executed, shall have the efficacy of a signed original. Photographic and facsimile copies of such signed counterparts may be used in lieu of the originals for any purpose.
You have read and understand this Release Agreement and voluntarily sign it without coercion.
BBCN BANCORP, INC.          EXECUTIVE

By: ____/s/ Kevin S. Kim______        __/s/ Alvin D. Kang__________________
Name: ______________________
Title: __Chairman of the Board___        Alvin D. Kang
Date of Delivery to Executive: January 14, 2013    Date of Signature: January 31, 2013
Date of Receipt by BBCN: __________
NOTE: In order to accept this Release Agreement, You may not sign it before your last day of work. Any modification or alteration of any terms of this Release Agreement voids this Release Agreement in its entirety.




9
sf-3235406 v10



EXHIBIT 23.1


CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-172521, 333-156282 and 333-161992 on Form S-3 and 333-179241 and 333-145014 on Form S-8 of BBCN Bancorp, Inc. of our report dated March 13, 2012, relating to the 2011 and 2010 consolidated financial statements appearing in this Annual Report on Form 10-K.

/s/ Crowe Horwath LLP
Sherman Oaks, California
March 1, 2013




Consent of Independent Registered Public Accounting Firm
The Board of Directors
BBCN Bancorp, Inc.:
We consent to the incorporation by reference in the registration statement (Nos. 333-172521, 333-156282, and 333-161992) on Form S-3 and (Nos. 333-179241 and 333-145014) on Form S-8 of BBCN Bancorp, Inc. of our report dated March 1, 2013, with respect to the consolidated statement of financial condition of BBCN Bancorp, Inc. and subsidiaries as of December 31, 2012, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the year then ended, and the effectiveness of internal control over financial reporting as of December 31, 2012, which reports appear in the December 31, 2012 annual report on Form 10‑K of BBCN Bancorp, Inc.
/s/ KPMG LLP
Los Angeles, California
March 1, 2013




EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECTUVIE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Bonita I. Lee, certify that:

1.
I have reviewed this periodic report on Form 10-K of BBCN Bancorp, Inc.

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
    
a.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of end of the period covered by this report based on such evaluation; and

d.
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrants' board of directors (or persons performing the equivalent functions):

a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated: March 1, 2013
/s/ Bonita I. Lee
_______________________________
Bonita I. Lee
Acting President and Chief Operating Officer
                            

                            




EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Philip E. Guldeman, certify that:
1.
I have reviewed this periodic report on Form 10-K of BBCN Bancorp, Inc.

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
    
a.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of end of the period covered by this report based on such evaluation; and

d.
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrants' board of directors (or persons performing the equivalent functions):

a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


Date: March 1, 2013
/s/ Philip E. Guldeman
_______________________________
Philip E. Guldeman
Executive Vice President and
Chief Financial Officer                        





EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECHTIVE OFFICER
PURSUANT TO SECTION 906 OF THE
PUBLIC COMPANY ACCOUNTING REFORM AND INVESTOR PROTECTION ACT OF 2002


In connection with the periodic report of BBCN Bancorp, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2012 , as filed with the Securities and Exchange Commission (the “Report”), I, Bonita I. Lee, Acting President and Chief Operating Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that:
 
     (1)    the Report fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and
 
     (2)    the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.


Dated: March 1, 2013
/s/ Bonita I. Lee
__________________________
Acting President and Chief Operating Officer





EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE
PUBLIC COMPANY ACCOUNTING REFORM AND INVESTOR PROTECTION ACT OF 2002


In connection with the periodic report of BBCN Bancorp, Inc (the “Company”) on Form 10-K for the period ended December 31, 2012 , as filed with the Securities and Exchange Commission (the “Report”), I, Philip E. Guldeman, Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that:
 
     (1)    the Report fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and
 
     (2)    the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

Dated: March 1, 2013
                            
/s/ Philip E. Guldeman
_______________________________
Executive Vice President and
Chief Financial Officer