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, 2011
or
¨ | 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)
Registrants 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 ¨ No x
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 ¨ 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 ¨
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 ¨ 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 Registrants 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
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 ¨ Accelerated filer x Non-accelerated filer ¨ Smaller Reporting Company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ 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 Registrants most recently completed second fiscal quarter, June 30, 2011, as reported on the NASDAQ Global Select Market, was approximately $309,731,000.
Number of shares outstanding of the Registrants Common Stock as of March 2, 2012: 77,984,252
Documents Incorporated by Reference: Definitive Proxy Statement for the 2012 Annual Meeting of Stockholders Part III
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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 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 |
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 Banks deposits are insured by the Federal Deposit Insurance Corporation (FDIC), up to applicable limits.
Through the merger with Center , we added Center Banks 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.
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
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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, 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.
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 44 branches and three 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. To better meet our customers needs, our mini-market branches generally offer extended hours from 9 a.m. to 6 p.m. Each of our branches operates 24-hour automated teller machines (ATMs). We also offer debit card services to all customers and courier services to qualifying 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. We also offer 24-hour banking by telephone. Our website at www.bbcnbank.com offers internet banking services and applications in both English and Korean.
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 borrowers business assets and/or real estate.
Our commercial business loan portfolio includes trade finance loans from BBCN Banks 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 Corporate Banking Center also 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. |
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| 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 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 such loans are generally restricted to seven years with a 25-year principal amortization schedule and a balloon payment due at maturity; however, our loan portfolio is composed of predominantly 5-year term loans. We offer both fixed and floating rate commercial real estate loans. It is our general policy to restrict commercial real estate loan amounts to 70% 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 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 able generally 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
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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 Banks SBA Loan Department. The SBA Loan Department is 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 home equity and signature loans, with a majority of our consumer loan portfolio currently consisting of signature loans. Effective February 28, 2007, we discontinued originating auto loans and effective January 1, 2008, we discontinued originating new home equity loans, due to the lack of scalability and profitability of these types of loans. However, upon the merger with Center, we resumed originating direct auto loans effective December 1, 2011. The consumer loans totaled $66.5 million at December 31, 2011, compared to $11.3 million at December 31, 2010.
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 (CDs) 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 Managements Discussion and Analysis of Financial Condition and Results of OperationsFinancial ConditionInvestment Security Portfolio.
Our securities are classified for accounting purposes as available-for-sale. We do not maintain a held-to-maturity or trading portfolio. 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, 2011, we had $740.9 million in securities available-for-sale. We purchased $236.0 million, and sold $138.2 million in investment securities during 2011. Investment securities available-for-sale acquired from Center Financial at the merger date was $293.1 million.
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.
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 Managements Discussion and Analysis of Financial Condition and Results of OperationsFinancial ConditionDeposits.
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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 Banks 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, 2011, the principal balance of the qualifying loans was $494.2 million and the collateral value of investment securities was $50.5 million, and no borrowings were outstanding against this line.
We have 44 banking offices in areas having high concentrations of Korean Americans, of which 34 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 three loan production offices located in Dallas, Seattle and Denver. 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.
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
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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 the state legislatures, and before 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.
General
As a California state-charted 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. In addition, while BBCN Bank is not a member of the Federal Reserve System, the Bank is subject to certain regulations of the Federal Reserve Board. The Bank is subject to supervision and regulation 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. 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, including being subject to examination by the DFI. 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.
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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 (Treasury) implemented the Capital Purchase Program under the Treasurys 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 rights preferences, privileges and voting powers as Center Financials Series A Preferred Stock.
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.
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 increased levels of capital 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 certain 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 the 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 certain 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 FRBs 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
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obtain additional resources for assisting its subsidiary banks. A bank holding companys failure to meet its source-of-strength obligations may constitute an unsafe and unsound practice or a violation of the FRBs regulations, or both. The source-of-strength doctrine most directly affects bank holding companies where a bank holding companys subsidiary bank fails to maintain adequate capital levels. In such a situation, the subsidiary bank will be required by the banks 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 companys activities to those permissible for a bank holding company. BBCN Bancorp has not elected financial holding company status.
Securities Exchange Act of 1934
BBCN Bancorps common stock is publicly held and listed on 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, including, among other things, required 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.
Dodd-Frank Act
As required by the Dodd-Frank Act, the FDIC adopted a new 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 FDICs 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 FDICs Board of Directors consider the appropriate level for the designated reserve ratio annually and, if
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changing the designated reserve ratio, engage in notice-and-comment rulemaking 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 the Deposit Insurance Fund 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 FDICs Temporary Liquidity Guarantee Program) to the extent that all such debt exceeds 3 percent of the other insured depository institutions Tier 1 capital.
Many aspects of the Dodd-Frank Act are subject to rulemaking 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 Federal Reserve Board. 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 loan loss reserves 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 Banks 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; |
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| Direct an increase in capital and the maintenance of higher specific minimum capital ratios, which may preclude the Bank from being deemed well capitalized and restrict its ability to accept certain brokered deposits; |
| Restrict the Banks 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 receiver under certain circumstances. |
Under the Federal Deposit Insurance Act (FDI Act) and the California Financial Code, 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 organizations 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 organizations is required to maintain 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 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, 2011, 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.
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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.
The current risk-based capital guidelines are based upon the 1988 capital accord of the International 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 countrys 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, referred to as Basel III. Under these standards, when fully phased-in on January 1, 2019, banking institutions will be required to maintain heightened Tier 1 common equity, Tier 1 capital, and total capital ratios, as well as maintaining a capital conservation buffer. The Tier 1 common equity 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 Tier 1 common equity 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. The Basel Committee also announced that a countercyclical buffer of 0% to 2.5% of common equity or other fully loss-absorbing capital will be implemented according to national circumstances as an extension of the conservation buffer. In general, it is expected that implementation of the Basel III standards will result in increased capital requirements for commercial banks in the United States.
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 adjusted total assets of at least 3%. All other institutions 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, 2011, BBCN Bancorp and BBCN Banks leverage capital ratios were 19.81% and 18.13%, respectively, exceeding regulatory minimums.
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 placed, 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 banks 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 banks 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
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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 impose more restrictions under the agencies prompt corrective action regulations, including restrictions on the banks 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 Deposit Insurance Fund (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 FDICs 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, 2010, the Banks assessment rate averaged 5 cents per $100 in assessable deposits. On 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 0.0084% of insured deposits in fiscal 2011. These assessments will continue until the FICO bonds mature in 2017.
The FDIC has redefined its deposit insurance premium assessment base to be an institutions 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 was used to calculate the June 30, 2011. Our FDIC insurance expense totaled $4.3 million in 2011.
The FDIC may terminate a depository institutions deposit insurance upon a finding that the institutions 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 banks depositors. The termination of deposit insurance for a bank would also result in the revocation of the banks charter by the DFI.
Restrictions on Dividends and Other Capital Distributions
Both California and federal law limit the payment of dividends by the Bank. Under the California Financial Code, the Bank is permitted to pay dividends out of the Banks net profits up to the lesser of retained earnings or the Banks 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 Banks
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retained earnings, (ii) its net income for the Banks last fiscal year and (iii) the Banks net income for its current fiscal year. Under federal law and the regulations of the FRB, the Bank may not, without FRB approval, pay dividends exceeding the Banks net income for its current year and two preceding fiscal years, less the sum of dividends paid during such periods and any transfers required by the FRB or required to be made for the retirement of preferred stock.
It is the FRBs 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 organizations expected future needs and financial condition. It is also the FRBs 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.
The terms of our Series A Preferred Stock, Series B Preferred Stock and Junior Subordinated Securities also limit our ability to pay dividends on our common stock. If we are not current in our payment of dividends on our Series A Preferred Stock, Series B Preferred Stock, or in our payment of interest on our Junior Subordinated Securities, we may not pay dividends on our common stock.
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 Banks 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 Banks 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.
As of December 31, 2011, we had 678 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.
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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.
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.
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 and New Jersey. We also have banking operations in Chicago and Seattle. 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. |
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 lending 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
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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.
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, 2011, approximately 72% 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.
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.
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. In addition, the America Recovery and Reinvestment Act of 2009 places certain restrictions on executive compensation that may impact our ability to attract, retain and motivate senior management personnel. 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.
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 borrowers 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.
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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 that are large in relation to our asset size, such as our recently completed merger with Center Financial, 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 managements 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.
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. BusinessSupervision 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 FDICs 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
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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 Banks 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 Seattle. 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.
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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.
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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; |
| changes in economic conditions that affect the Banks 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. Among other considerations, we intend to redeem, at an appropriate time prior to February 15, 2014, the Series A Preferred Stock, the Series B Preferred Stock and the warrants we issued to the U.S. Treasury Department. In addition, 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 have 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 intends to consider reinstating our prior dividend policy if economic conditions warrant it and subject to other business and strategic considerations. There can be no assurance, however, when or if we will reinstate 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 outstanding preferred stock may diminish the net income per share available dividends to holders of our common stock or on liquidation. The accrual of dividends and the accretion of discount on our Series A Preferred Stock and Series B Preferred Stock reduce the net income available to holders of our common stock. Dividends on the Series A Preferred Stock and the Series B Preferred Stock, which accrue at the rate of 5% per annum until February 15, 2014 and 9% per annum thereafter, are cumulative, which means that any dividends
21
not declared or paid will accumulate and be payable when the payment of dividends is resumed. Depending on our financial condition at the time, these dividend requirements may adversely affect our ability to declare and pay dividends on our common stock. The holders of the Series A Preferred Stock and Series B Preferred Stock would also be entitled to receive a liquidation payment of $1,000 per share before any payments of liquidation proceeds may be made to our common stockholders in the event of the liquidation, dissolution or winding up of the Company.
Our results of operations or financial condition could be adversely affected as a result of future impairment of our intangible assets. At December 31, 2011, we had $90.5 million of goodwill, primarily resulting from our merger with Center Financial Corporation. 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. In reviewing the carrying value of intangible assets, we look to the market value of our common stock, compared to book value. We further assess the recoverability of such intangible assets by evaluating the fair value of the related business unit. If recoverability is deemed impaired, a write-down of such intangible assets would be required.
We may be not be able to realize the anticipated benefits of the Center Merger, including estimated cost savings and synergies, or it may take longer than anticipated to achieve such benefits. The realization of the benefits anticipated as a result of the Center Merger, including cost savings and synergies, will depend in part on the integration of Center Financials operations with our operations. There can be no assurance that Center Financials operations can be integrated successfully into our operations in a timely fashion, or at all. The dedication of management resources to such integration may divert attention from our day-to-day business and there can be no assurance that there will not be substantial costs associated with the transition process or that there will not be other material adverse effects as a result of these integration efforts. Such effects, including, but not limited to, incurring unexpected costs or delays in connection with such integration, may have a material adverse effect on our financial results.
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, 2011, we operated full-service branches at 42 leased operations, 2 owned facilities operations and LPOs at 3 leased operations. Expiration dates of our leases range from March 2012 to April 2022. The two owned facilities, the Olympic and Western branches, had carrying values (including land value) of $3.9 million and $4.4 million, respectively, at December 31, 2011. We believe our present facilities are adequate for our current needs.
As of December 31, 2011, premises and equipment, net of accumulated depreciation and amortization, totaled $20.9 million. Total occupancy expense, including furniture and equipment expense for the year ended December 31, 2011, was $15.9 million. Total lease expense for the year ended December 31, 2011 was $8.6 million.
22
Item 3. | LEGAL PROCEEDINGS |
On May 2, 2011, a purported shareholder class action was filed in Los Angeles Superior Court against 1) the directors of Center Financial Corporation (Center), 2) Center, and 3) Nara Bancorp, Inc. (Rational Strategies Fund vs. Jin Chul Jhung, et, al, Center Financial Corporation, and Nara Bancorp, Inc., Case #BC460783). The Complaint alleges the directors of Center breached their fiduciary duties of care, good faith and loyalty, in approving the proposed merger of Center and Nara Bancorp, and that all defendants failed to properly disclose material information in the registration statement relating to the merger that has been filed with the SEC. In addition, it alleges that Nara Bancorp, Inc. aided and abetted the Center directors alleged breaches of fiduciary duty. The complaint seeks damages in an unspecified amount, attorneys fees, interest and costs. The parties to the class action signed a Memorandum of Understanding (MOU) to settle this lawsuit, subject to court approval, by making certain additional disclosures, all of which appear in the amended Registration Statement filed by the Company on Form S-4 on July 15, 2011. Center further agreed that it or its successor (the Company) would pay, following consummation of the merger, up to $400,000 in plaintiffs attorneys fees, if and to the extent awarded by the court. Any such payment would not become due until the merger was consummated and would be payable by the combined company. The parties signed a stipulation, dated as of October 28, 2011, formalizing the settlement reflected in the MOU. On March 7, 2012, the Court entered an order and final judgment approving the settlement and awarding plaintiffs counsel only $250,000 in attorneys fees and expenses.
The Company was a nominal defendant in Thomas Chung v. Nara Bancorp, Inc., et al, a shareholder derivative lawsuit which purports to be brought on the Companys behalf by Mr. Thomas Chung, a former chairman of the Companys board of directors (the Chung Lawsuit) and which was filed on May 20, 2008 in the Superior Court of California, County of Los Angeles. The Chung Lawsuit alleges that the members of the Companys board of directors as composed on the date the lawsuit was filed, as well as the Companys board of directors as it was composed in March 2005 (collectively, the Boards) breached their fiduciary duties to the Companys shareholders and mismanaged corporate assets. The complaint sought damages exceeding $54 million from the Boards, together with reimbursement from all defendants of Mr. Chungs legal costs incurred in pursuing the Chung Lawsuit. If any damages are recovered in the purported shareholder derivative lawsuit, such damages, but not any awards of legal costs to Mr. Chung would be payable to BBCN Bancorp. The court granted the Companys motion for summary judgment in September 2010 and the case was dismissed. Chung filed an appeal, and the Court of Appeals affirmed the trial courts ruling in January 2012. Mr. Chung did not file an appeal with the California Supreme Court within the required timeframe and thus the appellate courts ruling is final, and the case is over.
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.
23
Item 5. | MARKET FOR REGISTRANTS 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.
We had approximately 3,186 beneficial owners and 610 registered holders of our common stock as of March 2, 2012. 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, 2011 |
$ | 9.46 | $ | 5.72 | 0 | |||||||
September 30, 2011 |
$ | 8.54 | $ | 5.96 | 0 | |||||||
June 30, 2011 |
$ | 9.84 | $ | 7.05 | 0 | |||||||
March 31, 2011 |
$ | 10.48 | $ | 9.18 | 0 | |||||||
December 31, 2010 |
$ | 9.86 | $ | 6.98 | 0 | |||||||
September 30, 2010 |
$ | 8.43 | $ | 5.96 | 0 | |||||||
June 30, 2010 |
$ | 10.24 | $ | 7.34 | 0 | |||||||
March 31, 2010 |
$ | 11.78 | $ | 8.33 | 0 |
The closing price for our common stock on the Nasdaq Global Select Market on March 2, 2012 was $9.88 per share.
In March 2009, we announced our decision to suspend our prior policy of paying quarterly cash dividends in order to preserve capital. Future dividends are subject to the discretion of our Board of Directors after its consideration of a number of factors, including our future earnings, financial condition, bank regulatory capital requirements, cash needs and general business conditions. In addition, BBCN Bancorp agreed as a condition of its issuance of the Series A and Series B Preferred Stocks to the Treasury under the CPP that it would not pay cash dividends on its common stock at a quarterly rate greater than $0.0275 per share, or redeem, purchase or acquire any of its common stock or other equity securities, without the prior approval of the Treasury Department while the Series A and Series B Preferred Stock remains outstanding.
BBCN Bancorps 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 corporations surplus (as defined by Delaware law), or (ii) if there is no surplus, out of the corporations 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 companys 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 Bancorps 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, additional limitations under federal and California law and regulations and policies of the FRB.
The applicable statutory and regulatory limitations on the declaration and payment of dividends are further described in Item 1. BusinessSupervision and Regulation.
24
We did not repurchase any of our securities during 2011. Our ability to repurchase common stock is subject to prior approval of the FRB and the U.S. Treasury Department pursuant to the agreements we entered into in connection with our participation in the Treasury Departments Capital Purchase Program.
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 |
830,011 | $ | 16.35 | 3,128,161 | ||||||||
Equity compensation plans not approved by security holders |
0 | 0 | 0 | |||||||||
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Total |
830,011 | $ | 16.35 | 3,128,161 | ||||||||
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25
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 Market 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, 2006
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDING DEC. 31, 2011
Period Ending | ||||||||||||||||||||||||
Index |
12/31/2006 | 12/31/2007 | 12/31/2008 | 12/31/2009 | 12/31/2010 | 12/31/2011 | ||||||||||||||||||
BBCN Bancorp, Inc. |
100 | 56.20 | 47.79 | 55.13 | 47.91 | 45.94 | ||||||||||||||||||
NASDAQ Composite |
100 | 110.66 | 66.42 | 96.54 | 114.06 | 113.16 | ||||||||||||||||||
S&P 600 Index |
100 | 99.70 | 68.71 | 86.28 | 108.98 | 110.09 | ||||||||||||||||||
SNL Bank and Thrift |
100 | 76.26 | 43.85 | 43.27 | 48.30 | 37.56 | ||||||||||||||||||
S&P 500 |
100 | 105.49 | 66.46 | 84.05 | 96.71 | 98.76 |
26
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, 2011. 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, | ||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||
(Dollars in thousands, except share and per share data) | ||||||||||||||||||||
Income Statement Data: |
||||||||||||||||||||
Interest income |
$ | 161,895 | $ | 150,436 | $ | 158,045 | $ | 166,928 | $ | 175,773 | ||||||||||
Interest expense |
32,077 | 42,052 | 65,699 | 70,707 | 78,568 | |||||||||||||||
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Net interest income |
129,818 | 108,384 | 92,346 | 96,221 | 97,205 | |||||||||||||||
Provision for loan losses |
27,939 | 84,630 | 61,023 | 48,825 | 7,530 | |||||||||||||||
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Net interest income after provision for loan losses |
101,879 | 23,754 | 31,323 | 47,396 | 89,675 | |||||||||||||||
Noninterest income |
23,130 | 24,481 | 18,468 | 13,993 | 22,573 | |||||||||||||||
Noninterest expense |
82,234 | 63,374 | 61,713 | 57,009 | 56,450 | |||||||||||||||
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Income before income tax provision (benefit) |
42,775 | (15,139 | ) | (11,922 | ) | 4,380 | 55,798 | |||||||||||||
Income tax provision (benefit) |
15,660 | (7,900 | ) | (6,199 | ) | 1,625 | 22,599 | |||||||||||||
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Net income (loss) |
$ | 27,115 | $ | (7,239 | ) | $ | (5,723 | ) | $ | 2,755 | $ | 33,199 | ||||||||
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Dividends and discount accretion on preferred stock |
(4,568 | ) | (4,291 | ) | (4,276 | ) | (474 | ) | 0 | |||||||||||
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Net income (loss) available to common stockholders |
$ | 22,547 | $ | (11,530 | ) | $ | (9,999 | ) | $ | 2,281 | $ | 33,199 | ||||||||
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Per Common Share Data: |
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Earnings (loss)basic |
$ | 0.53 | $ | (0.30 | ) | $ | (0.35 | ) | $ | 0.09 | $ | 1.27 | ||||||||
Earnings (loss)diluted |
0.53 | (0.30 | ) | (0.35 | ) | 0.09 | 1.25 | |||||||||||||
Book value (period end, excluding preferred stock and warrants) |
8.64 | 7.69 | 7.99 | 8.49 | 8.48 | |||||||||||||||
Cash dividends declared per common share |
0 | 0 | 0 | 0.11 | 0.11 | |||||||||||||||
Number of common shares outstanding (period end) |
77,984,252 | 37,983,027 | 37,824,007 | 26,246,560 | 26,193,560 | |||||||||||||||
Balance Sheet DataAt Period End: |
||||||||||||||||||||
Assets |
$ | 5,166,604 | $ | 2,963,296 | $ | 3,227,957 | $ | 2,672,054 | $ | 2,423,410 | ||||||||||
Securities available for sale and held to maturity |
740,920 | 528,262 | 782,690 | 406,586 | 258,773 | |||||||||||||||
Gross loans, net of unearned loan fees and discounts |
||||||||||||||||||||
(excludes loans held for sale) |
3,738,826 | 2,147,745 | 2,221,433 | 2,119,354 | 2,013,221 | |||||||||||||||
Deposits |
3,940,892 | 2,176,114 | 2,434,190 | 1,938,603 | 1,833,346 | |||||||||||||||
Federal Home Loan Bank borrowings |
344,402 | 350,000 | 350,000 | 350,000 | 297,000 | |||||||||||||||
Subordinated debentures |
52,102 | 39,268 | 39,268 | 39,268 | 39,268 | |||||||||||||||
Stockholders equity |
795,939 | 358,563 | 367,975 | 289,953 | 222,180 | |||||||||||||||
Average Balance Sheet Data: |
||||||||||||||||||||
Assets |
$ | 3,168,124 | $ | 3,007,294 | $ | 3,038,969 | $ | 2,544,667 | $ | 2,216,514 | ||||||||||
Securities available for sale |
520,460 | 516,460 | 619,594 | 298,886 | 199,293 | |||||||||||||||
Gross loans, including loans held for sale |
2,352,253 | 2,173,840 | 2,124,615 | 2,089,803 | 1,879,457 | |||||||||||||||
Deposits |
2,360,786 | 2,213,940 | 2,291,346 | 1,855,629 | 1,772,230 | |||||||||||||||
Stockholders equity |
414,768 | 364,159 | 304,770 | 238,800 | 204,863 | |||||||||||||||
Selected Performance Ratios: |
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Return on average assets(1) |
0.86 | % | (0.24 | )% | (0.19 | )% | 0.11 | % | 1.50 | % | ||||||||||
Return on average stockholders equity(2) |
6.54 | % | (1.99 | )% | (1.88 | )% | 1.15 | % | 16.21 | % | ||||||||||
Average stockholders equity to average assets |
13.09 | % | 12.11 | % | 10.03 | % | 9.38 | % | 9.24 | % | ||||||||||
Dividend payout ratio |
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(Dividends per share/earnings per share) |
0.00 | % | 0.00 | % | 0.00 | % | 122.22 | % | 8.66 | % | ||||||||||
Net interest spread(3) |
3.92 | % | 3.35 | % | 2.64 | % | 3.22 | % | 3.41 | % | ||||||||||
Net interest margin(4) |
4.29 | % | 3.75 | % | 3.15 | % | 3.96 | % | 4.60 | % | ||||||||||
Yield on interest-earning assets(5) |
5.35 | % | 5.21 | % | 5.39 | % | 6.87 | % | 8.32 | % | ||||||||||
Cost of interest-bearing liabilities(6) |
1.43 | % | 1.86 | % | 2.75 | % | 3.65 | % | 4.91 | % | ||||||||||
Efficiency ratio(7) |
53.77 | % | 47.70 | % | 55.69 | % | 51.73 | % | 47.13 | % |
27
For The Year Ended December 31, | ||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Regulatory Capital Ratios: |
||||||||||||||||||||
Bancorp: Leverage |
19.81 | % | 12.61 | % | 12.36 | % | 12.61 | % | 10.77 | % | ||||||||||
Tier 1 risk-based |
18.15 | % | 16.42 | % | 16.73 | % | 14.32 | % | 11.84 | % | ||||||||||
Total risk-based |
19.41 | % | 17.69 | % | 17.99 | % | 15.58 | % | 12.78 | % | ||||||||||
Bank: Leverage |
18.13 | % | 12.27 | % | 11.77 | % | 12.43 | % | 10.36 | % | ||||||||||
Tier I risk-based |
16.62 | % | 16.00 | % | 16.02 | % | 14.10 | % | 11.41 | % | ||||||||||
Total risk-based |
17.88 | % | 17.27 | % | 17.29 | % | 15.34 | % | 12.34 | % | ||||||||||
Asset Quality Data: |
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Nonaccrual loans |
$ | 31,060 | $ | 43,803 | $ | 51,674 | $ | 37,580 | $ | 16,592 | ||||||||||
Loans 90 days or more past due and still accruing(8) |
17,255 | 0 | 0 | 0 | 0 | |||||||||||||||
Restructured loans (accruing) |
18,795 | 35,103 | 64,341 | 3,256 | 765 | |||||||||||||||
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Total nonperforming loans |
67,110 | 78,906 | 116,015 | 40,836 | 17,357 | |||||||||||||||
Other real estate owned |
7,624 | 1,581 | 2,044 | 2,969 | | |||||||||||||||
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Total nonperforming assets |
$ | 74,734 | $ | 80,487 | $ | 118,059 | $ | 43,805 | $ | 17,357 | ||||||||||
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Asset Quality Ratios: |
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Nonaccrual loans to gross loans |
0.83 | % | 2.04 | % | 2.33 | % | 1.77 | % | 0.82 | % | ||||||||||
Nonperforming loans to gross loans |
1.79 | % | 3.67 | % | 5.22 | % | 1.93 | % | 0.86 | % | ||||||||||
Nonperforming assets to total assets |
1.45 | % | 2.72 | % | 3.66 | % | 1.64 | % | 0.72 | % | ||||||||||
Nonperforming assets to gross loans and OREO |
1.99 | % | 3.74 | % | 5.31 | % | 2.06 | % | 0.86 | % | ||||||||||
Allowance for loan losses to gross loans |
1.66 | % | 2.90 | % | 2.68 | % | 2.05 | % | 1.00 | % | ||||||||||
Allowance for loan losses to nonaccrual loans |
199.46 | % | 142.27 | % | 115.00 | % | 115.54 | % | 120.75 | % | ||||||||||
Allowance for loan losses to nonperforming loans |
92.31 | % | 78.98 | % | 51.22 | % | 106.33 | % | 115.43 | % | ||||||||||
Allowance for loan losses to nonperforming assets |
82.90 | % | 77.43 | % | 50.33 | % | 99.12 | % | 115.43 | % | ||||||||||
Net charge-offs to average gross loans |
1.20 | % | 3.76 | % | 2.12 | % | 1.22 | % | 0.35 | % |
(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 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) | Noninterest expense divided by the sum of net interest income plus noninterest 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. |
Item 7. | MANAGEMENTS 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 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.
28
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. Upon the completion of merger with Center Financial, our banking offices increased from 23 to 44 in California, the New York metropolitan area, New Jersey, Chicago and Seattle and three loan production offices located in Dallas, Seattle and Denver. We offer our banking services through out 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 Banks 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 Centers 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 Center merger.
We had previously identified three principal operating segments: banking operations, trade finance services and small business administration lending services. However, our strategic focus has migrated from transactional banking to relationship banking upon the merger with Center Financial. While the chief operating decision makers continue to monitor the revenue streams of the various products and services, we now focus more on the relational aspects of our customers who are encouraged to purchase a multitude of products and services. Accordingly, all of the operations are considered by us to be aggregated in one reportable operating segment.
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
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affected by economic conditions in 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 Managements 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.
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 managements analysis of other qualitative factors, including the current economic environment as described under Financial ConditionAllowance for Loan Losses below.
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, 2011 or 2010.
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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 issuers 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 issuers 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, 2011. Investment securities are discussed in more detail under Financial ConditionInvestment Securities Portfolios below.
Acquired Loans
Loans that we acquired in the merger with Center Financial are recorded at fair value with no carryover of the related allowance for loan losses. We considered all classified and criticized loans and FDIC-assisted Innovative Bank acquisition related 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 (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. Management 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 form the pool at the 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 pools 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
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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.
At the merger date, the gross loan portfolio, including covered loans, of Center Financial, was approximately $1.5 billion with a related allowance for loan losses of $39.9 million. The valuation resulted in a discount of approximately $118.0 million as of November 30, 2011. This discount consists of two components; nonaccretable discount and accretable discount. The Performing Loans portfolio was approximately $1.31 billion and was discounted by $67 million related to credit discount and $12 million for yield. The Credit Impaired Loans portfolio, including covered loans, was approximately $223 million and was discounted by $39 million, with substantially all of the discount being related to credit.
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 Financials 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, IntangiblesGoodwill and Other (Topic 350): Testing Goodwill for Impairment, we make a qualitative assessment of whether it is more likely than not that a reporting units 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 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, 2011.
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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 corporations 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 companys 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 Companys 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, fees from trade finance activities and the issuance of letters of credit, and net gains on sale of
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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.
Net Income
Our net income (loss) available to common stockholders was $22.5 million for 2011 compared to ($11.5 million) for 2010 and ($10.0 million) for 2009. Our earnings (loss) per common share based on fully diluted shares were $0.53, ($0.30) and ($0.35) for 2011, 2010 and 2009, respectively. The return on average assets was 0.86%, -0.24% and -0.19% and the return on average stockholders equity was 6.54%, -1.99% and -1.88%.
The increase in earnings for 2011 compared to 2010 was primarily due to decreases in loan loss provisions and increases in net interest margin, partially offset by the the increase in non-interest expense. The decline in earnings for 2010 compared to 2009 was primarily due to increases in loan loss provisions and non-interest expense, partially offset by increases in net interest margin and non-interest income.
Operations Summary
Year Ended December 31, | ||||||||||||||||||||||||||||
2011 | Increase (Decrease) |
2010 | Increase (Decrease) |
2009 | ||||||||||||||||||||||||
(Dollars in thousands) | Amount | % | Amount | % | ||||||||||||||||||||||||
Interest income |
$ | 161,895 | $ | 11,459 | 8 | % | $ | 150,436 | ($ | 7,609 | ) | (5 | )% | $ | 158,045 | |||||||||||||
Interest expense |
32,077 | (9,975 | ) | (24 | )% | 42,052 | (23,647 | ) | (36 | )% | 65,699 | |||||||||||||||||
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Net interest income |
129,818 | 21,434 | 20 | % | 108,384 | 16,038 | 17 | % | 92,346 | |||||||||||||||||||
Provision for loan losses |
27,939 | (56,691 | ) | (67 | )% | 84,630 | 23,607 | 39 | % | 61,023 | ||||||||||||||||||
Non-interest income |
23,130 | (1,351 | ) | (6 | )% | 24,481 | 6,013 | 33 | % | 18,468 | ||||||||||||||||||
Non-interest expense |
82,234 | 18,860 | 30 | % | 63,374 | 1,661 | 3 | % | 61,713 | |||||||||||||||||||
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Income before income tax provision |
42,775 | 57,914 | (383 | )% | (15,139 | ) | (3,217 | ) | (27 | )% | (11,922 | ) | ||||||||||||||||
Income tax provision |
15,660 | 23,560 | (298 | )% | (7,900 | ) | (1,701 | ) | (27 | )% | (6,199 | ) | ||||||||||||||||
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Net income |
$ | 27,115 | $ | 34,354 | (475 | )% | ($ | 7,239 | ) | ($ | 1,516 | ) | (26 | )% | ($ | 5,723 | ) | |||||||||||
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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 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
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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, 2011.
Average Balance Sheet and Analysis of Net Interest Income
Year Ended December 31, | ||||||||||||||||||||||||||||||||||||
2011 | 2010 | 2009 | ||||||||||||||||||||||||||||||||||
Average Balance |
Interest Income/ Expense |
Average Yield/ Rate |
Average Balance |
Interest Income/ Expense |
Average Yield/ Rate |
Average Balance |
Interest Income/ Expense |
Average Yield/ Rate |
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(Dollars in thousands) | ||||||||||||||||||||||||||||||||||||
INTEREST-EARNING ASSETS: |
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Loans(1)(2)(3) |
$ | 2,352,253 | $ | 145,554 | 6.19 | % | $ | 2,173,840 | $ | 134,390 | 6.18 | % | $ | 2,124,615 | $ | 131,416 | 6.19 | % | ||||||||||||||||||
Securities(3) |
520,460 | 15,501 | 2.98 | % | 516,460 | 15,141 | 2.93 | % | 619,594 | 25,742 | 4.15 | % | ||||||||||||||||||||||||
Other investments |
148,339 | 812 | 0.55 | % | 192,459 | 856 | 0.44 | % | 171,270 | 680 | 0.40 | % | ||||||||||||||||||||||||
Federal funds sold |
3,469 | 28 | 0.81 | % | 6,082 | 49 | 0.81 | % | 14,806 | 207 | 1.40 | % | ||||||||||||||||||||||||
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Total interest-earning assets |
3,024,521 | 161,895 | 5.35 | % | 2,888,841 | 150,436 | 5.21 | % | 2,930,285 | 158,045 | 5.39 | % | ||||||||||||||||||||||||
Non-interest earning assets: |
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Cash and due from bank |
48,632 | 29,844 | 71,025 | |||||||||||||||||||||||||||||||||
Premises and equipment, net |
11,036 | 11,082 | 11,585 | |||||||||||||||||||||||||||||||||
Accrued interest receivable |
9,381 | 9,560 | 10,246 | |||||||||||||||||||||||||||||||||
Intangible assets |
11,207 | 3,312 | 3,857 | |||||||||||||||||||||||||||||||||
Other assets |
63,347 | 64,655 | 11,971 | |||||||||||||||||||||||||||||||||
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Total non-interest earning assets |
143,603 | 118,453 | 108,684 | |||||||||||||||||||||||||||||||||
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Total assets |
$ | 3,168,124 | $ | 3,007,294 | $ | 3,038,969 | ||||||||||||||||||||||||||||||
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INTEREST-BEARING LIABILITIES: |
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Deposits: |
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Demand, interest-bearing |
$ | 751,783 | 6,322 | 0.84 | % | $ | 608,051 | 6,374 | 1.05 | % | $ | 467,764 | 8,948 | 1.91 | % | |||||||||||||||||||||
Savings |
130,568 | 2,945 | 2.26 | % | 135,008 | 3,274 | 2.43 | % | 125,877 | 3,948 | 3.14 | % | ||||||||||||||||||||||||
Time certificates |
1,002,780 | 10,978 | 1.09 | % | 1,118,383 | 18,234 | 1.63 | % | 1,397,419 | 37,740 | 2.70 | % | ||||||||||||||||||||||||
FHLB advances |
314,216 | 9,774 | 3.11 | % | 353,384 | 12,099 | 3.42 | % | 356,528 | 13,041 | 3.66 | % | ||||||||||||||||||||||||
Other borrowings |
44,971 | 2,058 | 4.58 | % | 42,895 | 2,071 | 4.83 | % | 37,883 | 2,022 | 5.34 | % | ||||||||||||||||||||||||
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Total interest-bearing liabilities |
2,244,318 | 32,077 | 1.43 | % | 2,257,721 | 42,052 | 1.86 | % | 2,385,471 | 65,699 | 2.75 | % | ||||||||||||||||||||||||
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Non-interest bearing liabilities and equity |
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Demand deposits |
475,655 | 352,498 | 300,286 | |||||||||||||||||||||||||||||||||
Other liabilities |
33,383 | 32,916 | 48,442 | |||||||||||||||||||||||||||||||||
Stockholders equity |
414,768 | 364,159 | 304,770 | |||||||||||||||||||||||||||||||||
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Total liabilities and stockholders equity |
$ | 3,168,124 | $ | 3,007,294 | $ | 3,038,969 | ||||||||||||||||||||||||||||||
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NET INTEREST INCOME AND YIELD: |
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Net interest income |
$ | 129,818 | $ | 108,384 | $ | 92,346 | ||||||||||||||||||||||||||||||
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Net interest margin |
4.29 | % | 3.75 | % | 3.15 | % | ||||||||||||||||||||||||||||||
Net interest margin, excluding non-accrual interest |
4.31 | % | 3.80 | % | 3.20 | % | ||||||||||||||||||||||||||||||
Net interest margin, excluding non-accrual interest and loan prepayment fee income |
4.29 | % | 3.78 | % | 3.18 | % | ||||||||||||||||||||||||||||||
Net interest spread(4) |
3.92 | % | 3.35 | % | 2.64 | % | ||||||||||||||||||||||||||||||
Net interest spread(5) |
4.17 | % | 3.60 | % | 2.94 | % | ||||||||||||||||||||||||||||||
Cost of funds(6) |
1.18 | % | 1.61 | % | 2.45 | % |
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(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 |
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(In Thousands) | ||||||||||||||||||||
2011 |
$ | 2,173 | ($ | 2,744 | ) | $ | 487 | ($ | 368 | ) | $ | 2,429 | ||||||||
2010 |
1,855 | (2,261 | ) | 525 | (1,415 | ) | 0 | |||||||||||||
2009 |
1,311 | (2,343 | ) | 632 | (1,470 | ) | 0 |
(2) | Average balances of loans are net of deferred loan fees and costs and include non-accrual loans and loans held for sale, but excludes the guaranteed portion of delinquent SBA loans. |
(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, | ||||||||||||||||||||||||
2011 compared to 2010 | 2010 compared to 2009 | |||||||||||||||||||||||
Net Increase (Decrease) |
Change due to | Net Increase (Decrease) |
Change due to | |||||||||||||||||||||
Rate | Volume | Rate | Volume | |||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
INTEREST INCOME: |
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Interest and fees on loans |
$ | 11,164 | $ | 116 | $ | 11,048 | $ | 2,974 | $ | (69 | ) | $ | 3,043 | |||||||||||
Interest on other investments |
(44 | ) | 175 | (219 | ) | 176 | 87 | 89 | ||||||||||||||||
Interest on securities |
360 | 242 | 118 | (10,601 | ) | (6,772 | ) | (3,829 | ) | |||||||||||||||
Interest on federal funds sold |
(21 | ) | 0 | (21 | ) | (158 | ) | (66 | ) | (92 | ) | |||||||||||||
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TOTAL INTEREST INCOME |
$ | 11,459 | $ | 533 | $ | 10,926 | $ | (7,609 | ) | $ | (6,820 | ) | $ | (789 | ) | |||||||||
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INTEREST EXPENSE: |
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Interest on demand deposits |
$ | (52 | ) | $ | (1,396 | ) | $ | 1,344 | $ | (2,574 | ) | $ | (4,774 | ) | $ | 2,200 | ||||||||
Interest on savings |
(329 | ) | (224 | ) | (105 | ) | (674 | ) | (945 | ) | 271 | |||||||||||||
Interest on time certificates of deposit |
(7,256 | ) | (5,519 | ) | (1,737 | ) | (19,506 | ) | (12,971 | ) | (6,535 | ) | ||||||||||||
Interest on FHLB |
(2,325 | ) | (1,051 | ) | (1,274 | ) | (942 | ) | (828 | ) | (114 | ) | ||||||||||||
Interest on other borrowings |
(13 | ) | (111 | ) | 98 | 49 | (204 | ) | 253 | |||||||||||||||
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TOTAL INTEREST EXPENSE |
$ | (9,975 | ) | $ | (8,301 | ) | $ | (1,674 | ) | $ | (23,647 | ) | $ | (19,722 | ) | $ | (3,925 | ) | ||||||
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NET INTEREST INCOME |
$ | 21,434 | $ | 8,834 | $ | 12,600 | $ | 16,038 | $ | 12,902 | $ | 3,136 | ||||||||||||
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Net Interest Income and Net Interest Margin
Net interest income was $129.8 million for 2011, compared to $108.4 million for 2010 and $92.3 million for 2009. The net interest margin was 4.29% for 2011 compared to 3.75% for 2010 and 3.15% for 2009. Interest income reversed for non-accrual loans (net of income recognized) was $368 thousand for 2011, compared to $1.4 million for 2010 and $1.5 million for 2009. Excluding this effect, the net interest margin for 2011, 2010 and 2009 was 4.31%, 3.80% and 3.20%, respectively.
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
36
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.
Comparison of 2010 with 2009
Net interest income increased $16.0 million, or 17%, during 2010. The increase in net interest income was due to the increase in the net interest margin. The cost of deposits decreased during 2010 due to the decrease in the rates paid on certificates of deposit upon renewal and on money market accounts as a result of the decline in market interest rates. There was no change to the prime rate during 2010.
Interest Income
Interest income was $161.9 million for 2011, compared to $150.4 million for 2010 and $158.0 million for 2009. The yield on average interest-earning assets was 5.35% for 2011, compared to 5.21% for 2010 and 5.39% for 2009.
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 acquired loans from 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 from the merger, yielding 1.86%.
Comparison of 2010 with 2009
The decrease in interest income of $7.6 million, or 5%, for 2010 compared to 2009 was primarily due to a decrease in the weighted average yield on average interest-earning assets, particularly in investment securities. The yield on average investment securities was 2.93% for 2010, compared to 4.15% for 2009. The decrease in the weighted average yield on investment securities was due to sale of investment securities totaling $201.8 million with a weighted average yield of 4.89%, which was replaced by new investment securities purchased in 2010, which had lower yields than the weighted average yield of the portfolio as a result of decreases in market interest rates. The weighted average yield on loans for 2010 was 6.18%, compared to 6.19% for 2009. Average loans increased $49.2 million to $2.2 billion for 2010 from $2.1 billion for 2009.
Interest Expense
Deposits
Interest expense on deposits was $20.2 million for 2011 compared to $27.9 million for 2010 and $50.6 million for 2009. The average cost of total deposits was 0.86% for 2011 compared to 1.26% for 2010 and 2.21% for 2009. The average cost of interest-bearing deposits was 1.07% compared to 1.50% for 2010 and 2.54% for 2009.
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 with 18% at December 31, 2010 and 14% at December 31, 2009.
37
Comparison of 2010 with 2009
The decrease in interest expense on total deposits of $22.8 million, or 45%, for 2010 compared to 2009 was primarily due to the decrease in the rates paid on certificates of deposits upon renewal and on money market accounts as a result of the decline in market interest rates.
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 $314.2 million in 2011, compared to $353.4 million in 2010 and $356.5 million in 2009. Interest expense on FHLB borrowings was $9.8 million in 2011, compared to $12.1 million for 2010 and $13.0 million for 2009. The average cost of FHLB advances was 3.11% for 2011, compared to 3.42% for 2010 and 3.66% for 2009. The decrease in the average cost of FHLB advances in 2011 was primarily due to the early retirement of $70 million in higher-rate advances, which resulted in a prepayment expense of $6.4 million during the month of December 2011. In addition, matured advances with higher rates being either refinanced at lower rates or allowed to expire during 2011 contributed to the decrease in the average cost. The assumed FHLB advances from the merger accounted for $129.4 million and the average cost of 0.50% as of December 31, 2011.
The average cost of other borrowings, including subordinated debentures, was 4.58% for 2011, compared to 4.83% for 2010 and 5.34% for 2009. The fluctuation in the average cost of other borrowings was due to changes in the 3-month LIBOR, to which all but one of our issues of subordinated debentures are tied. For 2011, the 3-month LIBOR average was 0.34%, compared to 0.34% and 0.69% for 2010 and 2009, respectively. Interest expense on subordinated debentures was $1.9 million for 2011, compared to $1.9 million for 2010 and $2.0 million for 2009.
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 managements 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 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.
38
Comparison of 2010 with 2009
The provision for loan losses was $84.6 million for 2010, an increase of $23.6 million, or 39%, from $61.0 million for 2009. The increase is primarily due to an additional $26.3 million of charge-offs taken on over $60 million of problem loans that were transferred to loans held for sale at June 30, 2010 and sold in a bulk sale in the third quarter 2010. Net charge-offs increased to $81.7 million for 2010, compared to $45.0 million for 2009. The increase in net charge-offs was mostly due to an increase in partial charge-offs on impaired loans resulting primarily from declines in collateral values on collateral dependent loans as well as the charge-offs associated with the loans transferred to loans held for sale. Total classified loans decreased to $136.0 million at December 31, 2010, compared to $157.2 million at December 31, 2009, primarily due to sales of $115 million of problem loans during the year, the majority of which were classified, as well as the charge-off of classified loans, offset by $131.0 million in additional classified credits during the year.
See Financial ConditionAllowance for Loan Losses for a description of our methodology for determining the allowance for loan losses.
Non-interest Income
Non-interest income was $23.1 million for 2011, compared to $24.5 million for 2010 and $18.5 million for 2009.
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 continues improvement of the 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 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.
Comparison of 2010 with 2009
Service charges on deposit accounts decreased $320 thousand, or 5%, to $6.5 million for 2010 from $6.8 million for 2009. The decrease was primarily due to a decrease in overdraft and NSF charges, assessed on deposit customers, which decreased $299 thousand, or 6%, to $4.8 million for 2010 from $5.1 million for 2009. Net gains on sales of SBA loans increased $706 thousand, or 102%, to $1.4 million in 2010 from $694 thousand in 2009. Total SBA loan originations during 2010 increased $43.4 million, or 386% to $54.6 million compared to $11.2 million for 2009 due to the recovery of the SBA secondary market. Sales of SBA loans for 2010 was $27.4 million compared to $11.0 million for 2009. The increase in net gains on sales of SBA loans was also due to the increase in premium paid. The average premium increased to 9.38% for 2010 compared to 6.14% for 2009. Other loans sold in 2010 and 2009 were $77.2 million and $13.7 million, respectively. Net gains on sales of other loans increased $3.6 million, or 500%, to $4.4 million for 2010 from $728 thousand for 2009. The increase in net gains on sales of other loans was due to the sale of problem assets of $61.1 million, which had been written down to estimated market value at June 30, 2010, but which resulted in a net gain of $3.7 million during third quarter of 2010.
39
Net gains on sales of securities available-for-sale increased $2.0 million, or 45%, to $6.4 million for 2010 from $4.4 million for 2009. A total of $201.8 million in available-for-sale investment securities were sold during 2010 as part of the rebalancing of duration and mix of the investment securities portfolio. Net losses on sales of other real estate owned (OREO) increased $285 thousand, or 89%, to ($605 thousand) for 2010 from ($320 thousand) for 2009. We sold 13 properties during 2010 compared to 11 properties in 2009.
A breakdown of non-interest income by category is shown below:
Year Ended December 31, | ||||||||||||||||||||||||||||
Increase (Decrease) |
Increase (Decrease) |
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(Dollars in thousands) | 2011 | Amount | % | 2010 | Amount | % | 2009 | |||||||||||||||||||||
Non-interest Income: |
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Service charges on deposit accounts |
$ | 6,370 | $ | (94 | ) | (1 | )% | $ | 6,464 | $ | (320 | ) | (5 | )% | $ | 6,784 | ||||||||||||
International service fees |
2,625 | 256 | 11 | % | 2,369 | 363 | 18 | 2,006 | ||||||||||||||||||||
Loan servicing fees, net |
1,533 | (303 | ) | (17 | )% | 1,836 | (30 | ) | (2 | ) | 1,866 | |||||||||||||||||
Wire transfer fees |
1,555 | 363 | 30 | % | 1,192 | (140 | ) | (11 | ) | 1,332 | ||||||||||||||||||
Net gains on sales of SBA loans |
7,354 | 5,954 | 425 | % | 1,400 | 706 | 102 | 694 | ||||||||||||||||||||
Net gains on sales of other loans |
33 | (4,335 | ) | (99 | )% | 4,368 | 3,640 | 500 | 728 | |||||||||||||||||||
Net gains on sales and calls of securities available for sale |
1,289 | (5,107 | ) | (80 | )% | 6,396 | 1,969 | 45 | 4,427 | |||||||||||||||||||
Net gains (losses) on sales of OREO |
193 | 798 | (132 | )% | (605 | ) | (285 | ) | (89 | ) | (320 | ) | ||||||||||||||||
Net valuation losses on interest rate swaps |
(114 | ) | 743 | (87 | )% | (857 | ) | (411 | ) | (92 | ) | (446 | ) | |||||||||||||||
Other income and fees |
2,292 | 374 | 19 | % | 1,918 | 521 | 37 | 1,397 | ||||||||||||||||||||
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Total non-interest income |
$ | 23,130 | $ | (1,351 | ) | (6 | )% | $ | 24,481 | $ | 6,013 | 33 | % | $ | 18,468 | |||||||||||||
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Non-interest Expense
Non-interest expense was $82.2 million for 2011, compared to $63.4 million for 2010 and $61.7 million for 2009. The increases were $18.9 million, or 30% for 2011 and $1.7 million, or 3% for 2010.
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.
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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.
Comparison of 2010 with 2009
The increase in non-interest expense for 2010 over 2009 was primarily due to increases in furniture and equipment, credit related, and merger and integration expense, partially offset by a decrease in the FDIC insurance premium. Furniture and equipment expense increased $614 thousand, or 21% to $3.5 million for 2010 from $2.9 million for 2009. The increase was primarily due to an increase in depreciation expense for information technology equipment purchased in 2010. Credit related expenses increased $374 thousand, or 8% to $4.8 million for 2010 from $4.4 million for 2009. This increase was primarily due to an increase in loan collection related expense. The increase in merger and integration expense was due to Center merger related expenses such as investment banking and legal fees of $1.0 million. The decrease in the FDIC insurance premium was due to a one-time assessment of $1.47 million paid on June 30, 2009. Excluding the one-time assessment, the FDIC insurance premium increased $1.2 million, or 32%, due to an increase in the assessment rate.
A breakdown of non-interest expense by category is provided below:
Year Ended December 31, | ||||||||||||||||||||||||||||
Increase (Decrease) | Increase (Decrease) | |||||||||||||||||||||||||||
(Dollars in thousands) | 2011 | Amount | % | 2010 | Amount | % | 2009 | |||||||||||||||||||||
Non-interest Expense: |
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Salaries and employee benefits |
$ | 31,629 | $ | 6,368 | 25 | % | $ | 25,261 | $ | (176 | ) | (1 | )% | $ | 25,437 | |||||||||||||
Occupancy |
11,833 | 2,066 | 21 | 9,767 | (151 | ) | (2 | ) | 9,918 | |||||||||||||||||||
Furniture and equipment |
4,033 | 493 | 14 | 3,540 | 614 | 21 | 2,926 | |||||||||||||||||||||
Advertising and marketing |
2,486 | 466 | 23 | 2,020 | 349 | 21 | 1,671 | |||||||||||||||||||||
Data processing and communications |
3,913 | (41 | ) | (1 | ) | 3,954 | 212 | 6 | 3,742 | |||||||||||||||||||
Professional fees |
2,971 | 433 | 17 | 2,538 | 214 | 9 | 2,324 | |||||||||||||||||||||
FDIC assessment |
4,347 | (621 | ) | (13 | ) | 4,968 | (269 | ) | (5 | ) | 5,237 | |||||||||||||||||
Credit related expense |
3,789 | (992 | ) | (21 | ) | 4,781 | 374 | 8 | 4,407 | |||||||||||||||||||
Merger and integration expense |
4,713 | 3,712 | 371 | 1,001 | 1,001 | 100 | 0 | |||||||||||||||||||||
Prepayment charge on retirement of debt |
6,385 | 6,385 | 100 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
Other |
6,135 | 591 | 11 | 5,544 | (507 | ) | (8 | )% | 6,051 | |||||||||||||||||||
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Total non-interest expense: |
$ | 82,234 | $ | 18,860 | 30 | % | 63,374 | $ | 1,661 | 3 | % | $ | 61,713 | |||||||||||||||
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Income Tax Provision
The provision (benefit) for income taxes for 2011 was $15.7 million compared to ($7.9 million) in 2010 and ($6.2 million) in 2009. The effective income tax (benefit) rate was 37% for 2011 compared to (52%) for 2010 and (52%) for 2009. The effective tax rate for 2011 reflected larger affordable housing tax credits in 2011 versus 2010, partially offset by larger non-deductible merger costs incurred in 2011 versus 2010. The higher effective tax benefit rates during 2010 and 2009 compared to the statutory tax rate was primarily due to the impact of state taxes and tax credits in a loss year. See Note 9 of Notes to Consolidated Financial Statements for more detailed information on Income taxes.
41
Financial Condition
Our total assets were $5.17 billion at December 31, 2011 compared to $2.96 billion at December 31, 2010, an increase of $2.2 billion or 75%. Total assets increased due to the merger as we recorded the Center assets and liabilities at fair value as of the November 30, 2011 merger date in accordance with the acquisition method of accounting. A summary of the major assets acquired and liabilities assumed with the fair value adjustments is provided in the table below.
As of November 30, 2011 | ||||||||||||
(in thousands) | Carrying Balances |
Fair Value Adjustments |
Adjusted Balances |
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Assets Acquired: |
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Cash and cash equivalents |
$ | 325,993 | $ | 0 | $ | 325,993 | ||||||
Investment securities available for sale |
293,065 | 0 | 293,065 | |||||||||
Term federal funds sold, original maturities more than 90 days |
50,000 | 0 | 50,000 | |||||||||
Loans, net |
1,486,407 | (55,942 | ) | 1,430,465 | ||||||||
FRB and FHLB stock |
12,591 | 0 | 12,591 | |||||||||
Premises and equipment |
12,053 | 410 | 12,463 | |||||||||
FDIC loss share receivable |
17,503 | (6,651 | ) | 10,852 | ||||||||
Deferred tax assets |
19,627 | 29,243 | 48,870 | |||||||||
Core deposit intangible |
408 | 3,692 | 4,100 | |||||||||
Other assets |
64,992 | (1,507 | ) | 63,485 | ||||||||
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Total assets acquired |
$ | 2,282,639 | $ | (30,755 | ) | $ | 2,251,884 | |||||
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Liabilities Assumed: |
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Certificates of deposit |
$ | (1,822,974 | ) | $ | (4,432 | ) | $ | (1,827,406 | ) | |||
Borrowings |
(149,812 | ) | 1,052 | (148,760 | ) | |||||||
Other liabilities |
(16,572 | ) | (276 | ) | (16,848 | ) | ||||||
Preferred stock |
(54,158 | ) | 0 | (54,158 | ) | |||||||
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Total liabilities assumed |
$ | (2,043,516 | ) | $ | (3,656 | ) | $ | (2,047,172 | ) | |||
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Total identifiable net assets |
$ | 239,123 | $ | (34,411 | ) | $ | 204,712 | |||||
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Center merger and fair value adjustments are discussed in more detail in Note 2 to our Consolidated Financial Statements presented elsewhere herein.
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 $1.59 billion to $3.74 billion at December 31, 2011 from $2.15 billion at December 31, 2010, principally reflecting the addition of the acquired Center loan portfolio at fair value.
During 2011, new loans originated were $476.8 million compared to $376.4 million for 2010. 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 59% of our total loans were adjustable rate loans at December 31, 2011, compared to 52% at December 31, 2010. Approximately 36% of new loan originations were fixed rate loans for 2011 compared to 30% for 2010.
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
42
issued by us (if any). As of December 31, 2011, 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 $183.3 million to one borrower. The largest aggregate amount of loans that the Bank had outstanding to any one borrower and related entities was $40.6 million, which were performing as agreed at December 31, 2011.
The following table shows the composition of our loan portfolio by type of loan on the dates indicated:
December 31, | ||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||||||||||||||||||||||
Amount | % | Amount | % | Amount | % | Amount | % | Amount | % | |||||||||||||||||||||||||||||||
Loan portfolio composition: |
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Real estate loans: |
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Residential |
$ | 2,043 | 0 | % | $ | 2,263 | 0 | % | $ | 4,801 | 0 | % | $ | 5,280 | 0 | % | $ | 7,412 | 0 | % | ||||||||||||||||||||
Commercial |
2,631,880 | 70 | % | 1,525,687 | 71 | % | 1,597,839 | 72 | % | 1,406,068 | 66 | % | 1,305,164 | 65 | % | |||||||||||||||||||||||||
Construction |
44,756 | 1 | % | 46,900 | 2 | % | 54,084 | 2 | % | 61,524 | 3 | % | 61,920 | 3 | % | |||||||||||||||||||||||||
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Total real estate loans |
2,678,679 | 71 | % | 1,574,850 | 73 | % | 1,656,724 | 75 | % | 1,472,872 | 69 | % | 1,374,496 | 68 | % | |||||||||||||||||||||||||
Commercial business |
849,576 | 23 | % | 504,458 | 23 | % | 497,606 | 22 | % | 552,864 | 26 | % | 527,320 | 26 | % | |||||||||||||||||||||||||
Trade finance |
146,684 | 4 | % | 57,430 | 3 | % | 51,411 | 2 | % | 66,603 | 3 | % | 78,055 | 4 | % | |||||||||||||||||||||||||
Consumer and other |
66,631 | 2 | % | 13,268 | 1 | % | 18,035 | 1 | % | 28,520 | 1 | % | 34,809 | 2 | % | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total loans outstanding |
3,741,570 | 100 | % | 2,150,006 | 100 | % | 2,223,776 | 100 | % | 2,120,859 | 100 | % | 2,014,680 | 100 | % | |||||||||||||||||||||||||
Less: deferred loan fees |
(2,744 | ) | (2,261 | ) | (2,343 | ) | (1,505 | ) | (1,459 | ) | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
Gross loans receivable |
3,738,826 | 2,147,745 | 2,221,433 | 2,119,354 | 2,013,221 | |||||||||||||||||||||||||||||||||||
Less: allowance for loan losses |
(61,952 | ) | (62,320 | ) | (59,424 | ) | (43,419 | ) | (20,035 | ) | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
Loans receivable, net |
$ | 3,676,874 | $ | 2,085,425 | $ | 2,162,009 | $ | 2,075,935 | $ | 1,993,186 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
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 70% of the appraised value of the property at the time of loan funding. We offer both fixed and floating interest rate loans. The maturities 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 1% of total loans outstanding. Total real estate loans, consisting primarily of commercial real estate loans, increased $1.1 billion or, 70%, to $2.7 billion at December 31, 2011 from $1.6 billion at December 31, 2010 primarily due to the addition of the acquired Center loan portfolio at fair value.
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
43
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 2011, commercial business loans increased by $345.1 million, or 68%, to $849.6 million at December 31, 2011 from $504.5 million at December 31, 2010 primarily due to the addition of the acquired Center loan portfolio at fair value. Consumer loans comprise less than 2% 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) | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||
Commitments to extend credit |
$ | 458,096 | $ | 205,752 | $ | 198,807 | $ | 200,170 | $ | 224,837 | ||||||||||
Standby letters of credit |
29,028 | 9,777 | 9,907 | 9,354 | 15,231 | |||||||||||||||
Other commercial letters of credit. |
49,457 | 30,180 | 23,575 | 17,183 | 18,552 | |||||||||||||||
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|
|
|
|
|
|
|
|
|
|||||||||||
$ | 536,581 | $ | 245,709 | $ | 232,289 | $ | 226,707 | $ | 258,620 | |||||||||||
|
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|
|
|
|
|
|
|
|
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 borrowers 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 $74.7 million at December 31, 2011, compared to $80.5 million at December 31, 2010. The change in non-performing assets in 2011 was primarily due to decreases in restructured loans and increases in loans past due 90 days or more, still accruing of $17.3 million. 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.
44
The amount of additional interest income that the Bank would have recorded in 2011, 2010 and 2009, if non-accrual loans had been current in accordance with their original contracted terms, was $1.9 million, $2.3 million and $3.2 million, respectively. The following table illustrates the composition of non-performing assets as of the dates indicated:
December 31, | ||||||||||||||||||||
(Dollars in thousands) | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||
Non-accrual loans |
$ | 31,060 | $ | 43,803 | $ | 51,674 | $ | 37,580 | $ | 16,592 | ||||||||||
Loans past due 90 days or more, still accruing |
17,255 | 0 | 0 | 0 | 0 | |||||||||||||||
Restructured loans |
18,795 | 35,103 | 64,341 | 3,256 | 765 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total nonperforming loans |
$ | 67,110 | $ | 78,906 | $ | 116,015 | $ | 40,836 | $ | 17,357 | ||||||||||
Other real estate owned |
7,624 | 1,581 | 2,044 | 2,969 | 0 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total non-performing assets |
$ | 74,734 | $ | 80,487 | $ | 118,059 | $ | 43,805 | $ | 17,357 | ||||||||||
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|
|
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|
|
We did not have any commitments to extend additional credit on restructured loans as of December 31, 2011 or 2010.
The following tables present information on nonaccrual loans by type of businesses the borrowers are engaged in as of December 31, 2011 and 2010:
December 31, 2011 | ||||||||||||||||||||||||
Type of Business | Real Estate and Rental and Leasing |
Retail Trade/ Wholesale Trade |
Construction | Finance and Insurance |
Other | Total | ||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||
Real estate loans: |
||||||||||||||||||||||||
Residential |
$ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||
Commercial |
4,101 | 3,671 | 857 | 0 | 10,575 | 19,204 | ||||||||||||||||||
Construction |
127 | 0 | 0 | 0 | 0 | 127 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
4,228 | 3,671 | 857 | 0 | 10,575 | 19,331 | ||||||||||||||||||
Commercial business |
689 | 1,331 | 25 | 4,989 | 4,428 | 11,462 | ||||||||||||||||||
Trade finance |
0 | 117 | 0 | 0 | 0 | 117 | ||||||||||||||||||
Consumer and other |
0 | 0 | 0 | 0 | 150 | 150 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 4,917 | $ | 5,119 | $ | 882 | $ | 4,989 | $ | 15,153 | $ | 31,060 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 | ||||||||||||||||||||||||
Type of Business | Real Estate and Rental and Leasing |
Retail Trade/ Wholesale Trade |
Construction | Finance and Insurance |
Other | Total | ||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||
Real estate loans: |
||||||||||||||||||||||||
Residential |
$ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||
Commercial |
9,460 | 4,506 | 894 | 0 | 3,488 | 18,348 | ||||||||||||||||||
Construction |
0 | 0 | 8,547 | 0 | 0 | 8,547 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
9,460 | 4,506 | 9,441 | 0 | 3,488 | 26,895 | ||||||||||||||||||
Commercial business |
939 | 4,654 | 34 | 5,027 | 5,337 | 15,991 | ||||||||||||||||||
Trade finance |
0 | 469 | 0 | 0 | 0 | 469 | ||||||||||||||||||
Consumer and other |
0 | 0 | 0 | 0 | 448 | 448 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 10,399 | $ | 9,629 | $ | 9,475 | $ | 5,027 | $ | 9,273 | $ | 43,803 | |||||||||||||
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|
|
|
|
45
Maturity and Repricing of Loans
The following table illustrates the maturity distribution and repricing intervals of loans outstanding as of December 31, 2011. 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, 2011 | ||||||||||||||||
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 |
$ | 0 | $ | 2,043 | $ | 0 | $ | 2,043 | ||||||||
Commercial |
298,191 | 1,607,900 | 725,789 | 2,631,880 | ||||||||||||
Construction |
42,872 | 1,884 | 0 | 44,756 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total real estate loans |
341,063 | 1,611,827 | 725,789 | 2,678,679 | ||||||||||||
Commercial business loans |
290,726 | 395,514 | 163,336 | 849,576 | ||||||||||||
Trade finance loans |
144,808 | 1,876 | 0 | 146,684 | ||||||||||||
Consumer loans |
29,885 | 35,602 | 1,145 | 66,632 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 806,482 | $ | 2,044,819 | $ | 890,270 | $ | 3,741,571 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Loans with fixed interest rates |
$ | 213,897 | $ | 1,019,533 | $ | 288,339 | $ | 1,521,769 | ||||||||
Loans with variable interest rates without interest rate floors |
257,156 | 598,778 | 314,484 | 1,170,418 | ||||||||||||
Loans with variable interest rates with interest rate floors |
335,429 | 426,508 | 287,447 | 1,049,384 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 806,482 | $ | 2,044,819 | $ | 890,270 | $ | 3,741,571 | ||||||||
|
|
|
|
|
|
|
|
Concentrations
Loan concentrations are considered to exist when there are significant amounts of loans to multiple borrowers engaged in similar activities, which would cause them to be similarly affected by economic or other conditions. The following table summarizes the industry concentrations exceeding 10% of our loan portfolio as of the dates indicated:
December 31, | ||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||||||||||||||||||||||
Amount | % of Portfolio Percent |
Amount | % of Portfolio Percent |
Amount | % of Portfolio Percent |
Amount | % of Portfolio Percent |
Amount | % of Portfolio Percent |
|||||||||||||||||||||||||||||||
Wholesale Trade |
$ | 387,905 | 10 | % | $ | 149,686 | 7 | % | $ | 126,017 | 6 | % | $ | 129,541 | 6 | % | $ | 196,853 | 10 | % | ||||||||||||||||||||
Retail Trade |
718,436 | 19 | % | 521,349 | 24 | % | 515,009 | 23 | % | 524,763 | 25 | % | 508,252 | 25 | % | |||||||||||||||||||||||||
Services |
793,526 | 21 | % | 485,738 | 23 | % | 655,981 | 29 | % | 639,807 | 30 | % | 573,455 | 28 | % | |||||||||||||||||||||||||
Finance, Insurance, Property Management |
1,301,386 | 35 | % | 727,767 | 34 | % | 748,264 | 34 | % | 633,572 | 30 | % | 628,683 | 31 | % | |||||||||||||||||||||||||
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|
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|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total |
$ | 3,201,253 | 86 | % | $ | 1,884,540 | 88 | % | $ | 2,045,271 | 92 | % | $ | 1,927,683 | 91 | % | $ | 1,907,243 | 95 | % | ||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total Loans Outstanding |
$ | 3,741,570 | $ | 2,150,006 | $ | 2,223,776 | $ | 2,120,859 | $ | 2,014,680 | ||||||||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
Our lending activities are predominately in California, the New York City metropolitan area, and New Jersey. At December 31, 2011, California represented 72.0% of the total loans outstanding and New York and New Jersey represented 17.5%. The remaining 10.5% of total loans outstanding represented other states.
46
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. California has experienced significant declines in real estate values and adverse effects of the recession. Californias unemployment rate in December 2011 was approximately 11.9%. Our loan portfolio has been affected by the economy, but the impact is lessened by having most of our loans in large metropolitan California cities rather than in the outlying suburban communities that have seen higher declines in real estate values.
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 quarterly 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 borrowers financial condition and general economic conditions in the borrowers 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 $62.0 million at December 31, 2011, compared to $62.3 million at December 31, 2010. We recorded provisions for loan losses of $27.9 million in 2011, compared to $84.6 million in 2010 and $61.0 million in 2009. During 2011, we charged off $32.2 million in loans outstanding, and recovered $3.9 million in loans previously charged off. Total Watch List loans at December 31, 2011 were $302.8 million compared to $165.6 million at December 31, 2010 as the December 31, 2011 balance reflected the inclusion of $163.1 million of acquired Center loans. The allowance for loan losses was 1.66% of gross loans at December 31, 2011, compared to 2.90% at December 31, 2010. The decrease in this ratio was primarily due to the addition of loans acquired from Center that had no allowance allocated to them as a result of acquisition accounting.
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 ConditionAllowance 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 $82.0 million and $122.7 million, respectively as of December 31, 2011 and December 31, 2010, with
47
specific allowances of $18.0 million and $21.1 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, 2011. 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:
DELINQUENT LOANS BY TYPE* | 12/31/2011 | 12/31/2010 | 12/31/2009 | 12/31/2008 | 12/31/2007 | |||||||||||||||
(In thousands) | ||||||||||||||||||||
Real estateResidential |
$ | 36 | $ | 46 | $ | 784 | $ | 0 | $ | 0 | ||||||||||
Real estateCommercial |
38,929 | 21,016 | 51,876 | 22,230 | 24,810 | |||||||||||||||
Real estateConstruction |
4,626 | 8,547 | 0 | 6,179 | 0 | |||||||||||||||
Commercial business |
25,524 | 17,530 | 15,303 | 20,937 | 8,797 | |||||||||||||||
Trade finance |
319 | 469 | 0 | 93 | 37 | |||||||||||||||
Consumer and other |
1,930 | 491 | 1,514 | 1,776 | 1,030 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Delinquent Loans |
$ | 71,364 | $ | 48,099 | $ | 69,477 | $ | 51,215 | $ | 34,674 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Non-accrual loans included above |
$ | 31,060 | $ | 43,803 | $ | 51,674 | $ | 37,580 | $ | 16,592 | ||||||||||
|
|
|
|
|
|
|
|
|
|
* | Delinquent over 30 days, including non-accrual loans, but excluding the guaranteed portion of delinquent SBA loans. |
48
As of December 31, 2011 | ||||||||||||||||||||||||||||
30-59 Days Past Due |
60-89 Days Past Due |
Greater than 90 Days Past Due |
Total Past Due |
Non-accrual loans |
Total Delinquent loans |
Greater than 90 days and accruing |
||||||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||||||
Legacy Loans |
||||||||||||||||||||||||||||
Real estateResidential |
$ | 36 | $ | 0 | $ | 0 | $ | 36 | $ | 0 | $ | 36 | $ | 0 | ||||||||||||||
Real estateCommercial |
||||||||||||||||||||||||||||
Retail |
431 | 0 | 0 | 431 | 2,612 | 3,043 | 0 | |||||||||||||||||||||
Hotel & Motel |
0 | 0 | 0 | 0 | 482 | 482 | 0 | |||||||||||||||||||||
Gas Station & Car Wash |
634 | 0 | 0 | 634 | 1,368 | 2,002 | 0 | |||||||||||||||||||||
Mixed Use |
0 | 0 | 0 | 0 | 822 | 822 | 0 | |||||||||||||||||||||
Industrial & Warehouse |
360 | 0 | 0 | 360 | 3,055 | 3,415 | 0 | |||||||||||||||||||||
Other |
0 | 119 | 0 | 119 | 10,865 | 10,984 | 0 | |||||||||||||||||||||
Real estateConstruction |
0 | 0 | 0 | 0 | 127 | 127 | 0 | |||||||||||||||||||||
Commercial business |
1,396 | 392 | 0 | 1,788 | 11,462 | 13,250 | 0 | |||||||||||||||||||||
Trade finance |
0 | 0 | 0 | 0 | 117 | 117 | 0 | |||||||||||||||||||||
Consumer and other |
5 | 0 | 0 | 5 | 150 | 155 | 0 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Subtotal |
$ | 2,862 | $ | 511 | $ | 0 | $ | 3,373 | $ | 31,060 | $ | 34,433 | $ | 0 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Acquired Loans |
||||||||||||||||||||||||||||
Real estateResidential |
$ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||
Real estateCommercial |
||||||||||||||||||||||||||||
Retail |
147 | 64 | 1,675 | 1,886 | 0 | 1,886 | 1,675 | |||||||||||||||||||||
Hotel & Motel |
0 | 45 | 0 | 45 | 0 | 45 | 0 | |||||||||||||||||||||
Gas Station & Car Wash |
2,547 | 177 | 817 | 3,541 | 0 | 3,541 | 817 | |||||||||||||||||||||
Mixed Use |
1,178 | 1,702 | 389 | 3,269 | 0 | 3,269 | 389 | |||||||||||||||||||||
Industrial & Warehouse |
3,393 | 0 | 110 | 3,503 | 0 | 3,503 | 110 | |||||||||||||||||||||
Other |
1,472 | 228 | 4,237 | 5,937 | 0 | 5,937 | 4,237 | |||||||||||||||||||||
Real estateConstruction |
0 | 4,499 | 0 | 4,499 | 0 | 4,499 | 0 | |||||||||||||||||||||
Commercial business |
1,747 | 1,402 | 9,125 | 12,274 | 0 | 12,274 | 9,125 | |||||||||||||||||||||
Trade finance |
0 | 0 | 202 | 202 | 0 | 202 | 202 | |||||||||||||||||||||
Consumer and other |
705 | 370 | 700 | 1,775 | 0 | 1,775 | 700 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Subtotal |
$ | 11,189 | $ | 8,487 | $ | 17,255 | $ | 36,931 | $ | 0 | $ | 36,931 | $ | 17,255 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
TOTAL |
$ | 14,051 | $ | 8,998 | $ | 17,255 | $ | 40,304 | $ | 31,060 | $ | 71,364 | $ | 17,255 | ||||||||||||||
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We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. 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:
| Special Mention: Loans classified as special mention have a potential weakness that deserves managements close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institutions 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 |
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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: 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 table illustrates total watch list loans as of the dates indicated:
WATCH LIST LOANS | 12/31/2011 | 12/31/2010 | 12/31/2009 | 12/31/2008 | 12/31/2007 | |||||||||||||||
(In thousands) | ||||||||||||||||||||
Special Mention |
$ | 96,936 | $ | 29,573 | $ | 42,671 | $ | 71,169 | $ | 9,351 | ||||||||||
Substandard |
199,150 | 135,774 | 153,535 | 55,622 | 20,226 | |||||||||||||||
Doubtful |
6,751 | 260 | 3,655 | 9,883 | 1,210 | |||||||||||||||
Loss |
0 | 0 | 0 | 0 | 10 | |||||||||||||||
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Total Watch List Loans |
$ | 302,837 | $ | 165,607 | $ | 199,861 | $ | 136,674 | $ | 30,797 | ||||||||||
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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:
(Dollars in thousands) | December 31, | |||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||
LOANS: |
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Average gross loans receivable, including loans held for sale (net of deferred fees) |
$ | 2,352,253 | $ | 2,173,840 | $ | 2,124,615 | $ | 2,089,803 | $ | 1,879,457 | ||||||||||
Total gross loans receivables, excluding loans held for sale at end of year (net of deferred fees) |
3,738,826 | 2,134,061 | 2,208,943 | 2,098,443 | 2,008,729 | |||||||||||||||
ALLOWANCE: |
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Balancebeginning of year |
$ | 62,320 | $ | 59,424 | $ | 43,419 | $ | 20,035 | $ | 19,112 | ||||||||||
Loans charged off: |
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Residential real estate |
0 | 23 | 0 | 0 | 0 | |||||||||||||||
Commercial real estate |
18,698 | 58,818 | 18,218 | 4,763 | 0 | |||||||||||||||
Construction |
3,489 | 848 | 6,116 | 2,614 | 0 | |||||||||||||||
Commercial business loans |
9,756 | 23,607 | 19,775 | 17,801 | 6,568 | |||||||||||||||
Consumer and other loans |
256 | 1,356 | 1,577 | 515 | 880 | |||||||||||||||
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Total loans charged off |
32,199 | 84,652 | 45,686 | 25,693 | 7,448 | |||||||||||||||
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Less: recoveries: |
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Commercial and industrial real estate |
1,328 | 770 | 166 | 49 | 0 | |||||||||||||||
Commercial business loans |
2,320 | 1,951 | 445 | 100 | 646 | |||||||||||||||
Consumer and other loans |
244 | 197 | 57 | 103 | 195 | |||||||||||||||
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Total loan recoveries |
3,892 | 2,918 | 668 | 252 | 841 | |||||||||||||||
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Net loans charged off |
28,307 | 81,734 | 45,018 | 25,441 | 6,607 | |||||||||||||||
Provision for loan losses |
27,939 | 84,630 | 61,023 | 48,825 | 7,530 | |||||||||||||||
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Balanceend of year |
$ | 61,952 | $ | 62,320 | $ | 59,424 | $ | 43,419 | $ | 20,035 | ||||||||||
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(Dollars in thousands) | December 31, | |||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||
RATIOS: |
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Net loan charge-offs to average gross loans |
1.20 | % | 3.76 | % | 2.12 | % | 1.22 | % | 0.35 | % | ||||||||||
Allowance for loan losses to gross loans at end of year |
1.66 | % | 2.90 | % | 2.68 | % | 2.05 | % | 1.00 | % | ||||||||||
Net loan charge-offs to beginning allowance |
45.42 | % | 137.54 | % | 103.68 | % | 126.98 | % | 34.57 | % | ||||||||||
Net loan charge-offs to provision for loan losses |
101.32 | % | 96.58 | % | 73.77 | % | 52.11 | % | 87.74 | % | ||||||||||
Allowance for loan losses to nonperforming loans |
92.31 | % | 78.98 | % | 51.22 | % | 106.33 | % | 115.43 | % |
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 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 | ||||||||||||||||||||||||||||||||||||||||
12/31/2011 | 12/31/2010 | 12/31/2009 | 12/31/2008 | 12/31/2007 | ||||||||||||||||||||||||||||||||||||
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 |
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(Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||
Loan Type |
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Real estateResidential |
$ | 9 | 0 | % | $ | 14 | 0 | % | $ | 18 | 0 | % | $ | 27 | 0 | % | $ | 24 | 0 | % | ||||||||||||||||||||
Real estateCommercial |
38,307 | 70 | % | 32,885 | 71 | % | 40,841 | 73 | % | 24,144 | 67 | % | 12,498 | 65 | % | |||||||||||||||||||||||||
Real estateConstruction |
724 | 1 | % | 3,396 | 2 | % | 913 | 2 | % | 0 | 3 | % | 0 | 3 | % | |||||||||||||||||||||||||
Commercial business |
20,681 | 23 | % | 24,930 | 23 | % | 15,655 | 22 | % | 18,060 | 26 | % | 6,752 | 26 | % | |||||||||||||||||||||||||
Trade finance |
1,786 | 4 | % | 192 | 3 | % | 410 | 2 | % | 0 | 4 | % | 0 | 4 | % | |||||||||||||||||||||||||
Consumer and other |
445 | 2 | % | 634 | 1 | % | 1,144 | 1 | % | 869 | 2 | % | 643 | 2 | % | |||||||||||||||||||||||||
Unallocated |
0 | N/A | 269 | N/A | 443 | N/A | 319 | N/A | 118 | N/A | ||||||||||||||||||||||||||||||
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Total |
$ | 61,952 | 100 | % | $ | 62,320 | 100 | % | $ | 59,424 | 100 | % | $ | 43,419 | 100 | % | $ | 20,035 | 100 | % | ||||||||||||||||||||
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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 Banks 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 Banks 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: borrowers 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
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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 the most recent 12 quarters 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 $20.4 million at December 31, 2011, compared to $23.9 million at December 31, 2010.
Additionally, in order to systematically quantify the credit risk impact of other trends and changes within the loan portfolio, the Bank utilizes qualitative adjustments to the Migration Analysis within established parameters. The parameters for making adjustments are established under a Credit Risk Matrix that provides seven possible scenarios for each of the factors below. The matrix allows for up to three positive (Major, Moderate, and Minor), three negative (Major, Moderate, and Minor), and one neutral credit risk scenarios within each factor for each loan type pool. Generally, the factors are considered to have no significant impact (neutral) to our historical migration ratios. However, if information exists to warrant adjustment to the Migration Analysis, changes are made in accordance with the established parameters supported by narrative and/or statistical analysis. The Credit Risk Matrix and the nine possible scenarios enable the Bank to qualitatively adjust the Loss Migration Ratio or individual specific reserve allocations by as much as 50 basis points in either direction (positive or negative) for each loan type pool. This matrix considers the following nine factors, which are patterned after the guidelines provided under the FFIEC Interagency Policy Statement on the Allowance for Loan and Lease Losses:
| Changes in lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices. |
| Changes in national and local economic and business conditions and developments, including the condition of various market segments. |
| Changes in the nature and volume of the loan portfolio. |
| Changes in the experience, ability, and depth of lending management and staff. |
| Changes in the trends of the volume and severity of past due and classified loans; and changes in trends in the volume 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 $23.5 million at December 31, 2011 compared to compared to $17.0 million at December 31, 2010.
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
52
cash flows discounted at the loans effective interest rate; 2) the loans 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 borrowers 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 loans effective interest rate or on the fair value of the loans 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 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, 2011, were $82.1 million , a net decrease of $40.6 million from $122.7 million at December 31, 2010. This net decrease in impaired loans is due primarily to the sales of 24 impaired loans,
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totaling $33.1 million, and the return of 34 loans totaling $22.4 million to non-impaired status year-to-date. 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 $3.6 million at December 31, 2011. These covered nonperforming assets are subject to the loss sharing agreements with the FDIC. The covered nonperforming assets at December 31, 2011 were as follows:
(in thousands) | December 31, 2011 | |||
Covered loans on non-accrual status |
$ | 0 | ||
Covered other real estate owned |
3,575 | |||
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Total covered nonperforming assets |
$ | 3,575 | ||
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Acquired covered loans |
$ | 89,959 | ||
Covered nonperforming assets to net covered loans |
3.97 | % |
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 $740.9 million at December 31, 2011, compared to $528.3 million at December 31, 2010. We had no securities in the held to maturity category at December 31, 2011 or 2010. During 2011, we acquired $293.1 million of available-for-sale securities in the merger with Center, $100.6 million in mortgage related securities were paid down, $138.2 million in securities were sold, $83.3 million in securities were called, and $236.0 million were purchased. All of the securities involved in these transactions were classified as available for sale. Securities with an amortized cost of $53.1 million were pledged to the FRB at December 31, 2011. We also pledged securities with an amortized cost of $360.0 million to the California State Treasurers 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.
Our available-for-sale securities portfolio is primarily invested in CMOs and residential MBS, which comprised 97% and 73% of our total available-for-sale portfolio as of December 31, 2011 and 2010, respectively. At December 31, 2011 and 2010, all of our CMOs and MBS were issued by GNMA, FNMA or FHLMC, which guarantee the contractual cash flows of these investments.
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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, | ||||||||||||||||||||||||
2011 | 2010 | |||||||||||||||||||||||
Amortized Cost |
Estimated Fair Value |
Unrealized/ Unrecognized Gain (Loss) |
Amortized Cost |
Estimated Fair Value |
Unrealized/ Unrecognized Gain (Loss) |
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(Dollars in thousands) | ||||||||||||||||||||||||
Available-for-sale: |
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Debt securities*: |
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U.S. Treasury |
$ | 300 | $ | 300 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||
GSE Bonds |
0 | 0 | 0 | 125,429 | 125,718 | 289 | ||||||||||||||||||
GSE CMOs |
222,400 | 227,836 | 5,436 | 101,312 | 103,201 | 1,889 | ||||||||||||||||||
GSE MBS |
477,555 | 487,754 | 10,199 | 282,205 | 284,834 | 2,629 | ||||||||||||||||||
U.S. Corporate debt securities |
5,532 | 4,348 | (1,184 | ) | 4,473 | 3,708 | (765 | ) | ||||||||||||||||
Municipal Bonds |
5,257 | 5,764 | 507 | 5,258 | 5,282 | 24 | ||||||||||||||||||
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Total debt securities |
711,044 | 726,002 | 14,958 | 518,677 | 522,743 | 4,066 | ||||||||||||||||||
Mutual funds |
14,710 | 14,918 | 208 | 5,462 | 5,519 | 57 | ||||||||||||||||||
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Total available-for-sale |
$ | 725,754 | $ | 740,920 | $ | 15,166 | $ | 524,139 | $ | 528,262 | $ | 4,123 | ||||||||||||
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* | Government Sponsored Enterprises (GSE) included GNMA, FHLB, FNMA, FHLMC, and FFCB. |
The following table summarizes the maturity of securities based on carrying value and their related weighted average yield at December 31, 2011.
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 |
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U.S. Treasury |
$ | 300 | 0.05 | % | $ | 0 | 0 | % | $ | 0 | 0 | % | $ | 0 | 0 | % | $ | 300 | 0.05 | % | ||||||||||||||||||||
GSE CMOs |
0 | 0 | 903 | 1.21 | 23,996 | 1.52 | 197,501 | 2.58 | 222,400 | 2.47 | % | |||||||||||||||||||||||||||||
GSE MBS |
0 | 0 | 0 | 0 | 53,697 | 2.26 | 423,858 | 3.14 | 477,555 | 3.04 | % | |||||||||||||||||||||||||||||
U.S. Corporate debt securities |
0 | 0 | 0 | 0 | 0 | 0 | 5,532 | 3.84 | 5,532 | 3.84 | % | |||||||||||||||||||||||||||||
Municipal Bonds |
0 | 0 | 340 | 4.78 | 2,480 | 6.71 | 2,437 | 6.42 | 5,257 | 6.45 | % | |||||||||||||||||||||||||||||
Mutual funds |
0 | 0 | 0 | 0 | 0 | 0 | 14,710 | 2.61 | 14,710 | 2.61 | % | |||||||||||||||||||||||||||||
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Total available-for-sale |
$ | 300 | 0.05 | % | $ | 1,243 | 2.19 | % | $ | 80,173 | 2.18 | % | $ | 644,038 | 2.97 | % | $ | 725,754 | 2.88 | % | ||||||||||||||||||||
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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, 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 |
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(Dollars in thousands) | ||||||||||||||||||||||||||||||||||||
GSE CMOs |
2 | $ | 3,305 | $ | (28 | ) | 1 | $ | 14,007 | $ | (16 | ) | 3 | $ | 17,312 | $ | (44 | ) | ||||||||||||||||||
GSE MBS |
5 | 38,082 | (123 | ) | 0 | 0 | 0 | 5 | 38,082 | (123 | ) | |||||||||||||||||||||||||
U.S. Corporate debt securities |
0 | 0 | 0 | 1 | 3,303 | (1,184 | ) | 1 | 3,303 | (1,184 | ) | |||||||||||||||||||||||||
Municipal Bonds |
1 | 5,229 | (19 | ) | 0 | 0 | 0 | 1 | 5,229 | (19 | ) | |||||||||||||||||||||||||
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8 | $ | 46,616 | $ | (170 | ) | 2 | $ | 17,310 | $ | (1,200 | ) | 10 | $ | 63,926 | $ | (1,370 | ) | |||||||||||||||||||
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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 issuers 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 issuers financial condition.
We consider the losses on our investments in an unrealized loss position at December 31, 2011 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 making loans and investment activities. We offer a wide variety of deposit account products to commercial and consumer customers. Total deposits increased to $3.94 billion at December 31, 2011 from to $2.18 billion at December 31, 2010.
The increase in deposits during 2011 was primarily due to the addition of Centers deposit balances of $1.83 billion at the time of acquisition, partially offset by a strategic reduction of time deposits. At December 31, 2011, we had $80.7 million in brokered deposits and $300 million in California State Treasurer deposits, compared to
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$63.1 million and $200.0 million, respectively, at December 31, 2010. The brokered deposits represented approximately 2% of our total deposits as of December 31, 2011 compared to 3% as of December 31, 2010. The California State Treasurer deposits have three to six months maturities with a weighted average interest rate of 0.05% at December 31, 2011 compared to 0.22% at December 31, 2010.
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.
December 31, | ||||||||||||||||||||||||
2011 | 2010 | 2009 | ||||||||||||||||||||||
Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Demand, non-interest bearing |
$ | 984,350 | 25 | % | $ | 388,731 | 18 | % | $ | 330,489 | 14 | % | ||||||||||||
Demand, interest bearing |
1,237,378 | 32 | % | 688,593 | 31 | % | 524,188 | 21 | % | |||||||||||||||
Savings |
198,063 | 5 | % | 126,255 | 6 | % | 136,804 | 6 | % | |||||||||||||||
Time deposit of $100,000 or more |
759,923 | 19 | % | 321,542 | 15 | % | 932,699 | 38 | % | |||||||||||||||
Other time deposits |
761,178 | 19 | % | 650,993 | 30 | % | 510,010 | 21 | % | |||||||||||||||
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Total Deposits |
$ | 3,940,892 | 100 | % | $ | 2,176,114 | 100 | % | $ | 2,434,190 | 100 | % | ||||||||||||
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The following table indicates the maturity schedules of our time deposits, for the years indicated.
December 31, | ||||||||||||||||||||||||
2011 | 2010 | 2009 | ||||||||||||||||||||||
Amount | Percentage | Amount | Percentage | Amount | Percentage | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Three months or less |
$ | 570,292 | 37 | % | $ | 339,857 | 35 | % | $ | 739,857 | 51 | % | ||||||||||||
Over three months through six months |
271,743 | 18 | % | 152,838 | 16 | % | 537,378 | 37 | % | |||||||||||||||
Over six months through twelve months |
434,687 | 29 | % | 311,210 | 32 | % | 135,265 | 10 | % | |||||||||||||||
Over twelve months |
244,379 | 16 | % | 168,630 | 17 | % | 30,209 | 2 | % | |||||||||||||||
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Total time deposits |
$ | 1,521,101 | 100 | % | $ | 972,535 | 100 | % | $ | 1,442,709 | 100 | % | ||||||||||||
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The following table indicates the maturity schedules of our time deposits in amounts of $100,000 or more as of December 31, 2011.
December 31, 2011 | ||||||||
(Dollars in thousands) | ||||||||
Amount | Percentage | |||||||
Three months or less |
$ | 378,942 | 49 | % | ||||
Over three months through six months |
118,118 | 16 | % | |||||
Over six months through twelve months |
196,731 | 26 | % | |||||
Over Twelve months |
66,132 | 9 | % | |||||
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Total time deposits |
$ | 759,923 | 100 | % | ||||
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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.
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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, 2011 and 2010, 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, 2011 and 2010, FHLB advances totaled $344.4 million and $350.0 million with average remaining maturities of 1.3 years and 2.2 years, respectively. During 2011, long-term FHLB advances totaling $71.0 million were retired prior to maturity, which resulted in a prepayment charge of $6.4 million. The weighted average rate for FHLB advances was 1.93% at year-end 2011, compared to 3.18% at year-end 2010. As of December 31, 2011, our FHLB borrowing capacity based on pledged collateral and the remaining available borrowing capacity were $1,270.3 million and $930.2 million, respectively. See Note 7 of Notes to Consolidated Financial Statements for more detailed information on FHLB advances.
Secured Borrowings
Secured borrowings of $11.8 million at December 31, 2010 represents the sold portion of SBA loans sold with 90 days recourse. Recognition of these sales is required to be deferred until the end of the 90-day recourse period. As the SBA amended their agreements in February 2011, all loans submitted for secondary market sales on or after February 15, 2011 are treated as sales and they are not recorded as secured borrowings.
Subordinated Debentures
At December 31, 2011, six wholly owned subsidiary grantor trusts (Trusts) established by us had issued $56 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, 2011 and 2010, Trusts are not reported on a consolidated basis pursuant to ASC 810, Consolidation. Therefore, the capital securities of $56 million are not presented on the consolidated statements of financial condition. Instead, the long-term subordinated debentures of $52.1 million as of December 31, 2011, issued by us to the Trust and the investment in Trusts common stock of $2.0 million (included in other assets) are separately reported.
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The following table summarizes our outstanding Debentures related to the trust preferred securities at December 31, 2011.
TRUST NAME |
ISSUANCE DATE |
AMOUNT | PRINCIPAL BALANCE OF DEBENTURES |
STATED MATURITY |
ANNUALIZED COUPON RATE |
RATE AT 12/31/2011 |
INTEREST DISTRIBUTION DATES | |||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Nara Bancorp Capital Trust I |
3/28/2001 | $ | 10,000 | $ | 10,400 | 6/8/2031 | 0.1018 | 10.18 | % | June 8 and December 8 | ||||||||||||||
Nara Capital Trust III |
6/5/2003 | $ | 5,000 | $ | 5,155 | 6/15/2033 | 3 month LIBOR + 3.15% |
3.70 | % | Every 15th 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 7th 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 17th 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 15th of March, June, September and December | ||||||||||||||
Center Capital Trust I |
12/29/2003 | $ | 18,000 | $ | 12,834 | 1/7/2034 | 3 month LIBOR +2.85% |
3.25 | % | Every 7th of January, April, July and October | ||||||||||||||
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Total Trust |
$ | 56,000 | $ | 52,102 | ||||||||||||||||||||
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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 Departments TARP Capital Purchase Program. The warrant was reduced to 521,266 shares upon our completion of a qualified common stock offering in November, 2009.
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 Departments 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 Financials 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.
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On October 31, 2011, we raised additional capital of $59.9 million, net proceeds after underwriting fees and offering expenses, through a public offering of 8.7 million shares of our common stock at a price of $7.25 per share.
Our total stockholders equity increased $437.3 million, or 122%, to $795.9 million at December 31, 2011 from $358.6 million at December 31, 2010 primarily as the result above mentioned capital raise and merger with Center. At December 31, 2011, our ratio of common equity to total assets was 13.04% compared to 9.85% at December 31, 2010, and our tangible common equity represented 11.42% of tangible assets at December 31, 2011, compared with 9.76% of tangible assets at December 31, 2010. Tangible common equity per share was $7.43 at December 31, 2011, compared with $7.61 at December 31, 2010. 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 Bancorps and the Banks actual capital at December 31, 2011 to those required by our regulatory agencies to be deemed adequately capitalized for capital adequacy classification purposes (It should be noted that the following capital ratios are higher than those estimated in our previously released earnings press release. The change was the result of further analysis of the purchase accounting adjustments used to determine the amount of deferred tax asset that could be included as capital):
As of December 31, 2011 (Dollars in thousands) | ||||||||||||||||||||||||
Actual | Required | Excess | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
BBCN Bancorp, Inc |
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Tier 1 capital to total assets |
$ | 733,319 | 19.81 | % | $ | 148,044 | 4.00 | % | $ | 585,275 | 15.81 | % | ||||||||||||
Tier 1 risk-based capital ratio |
$ | 733,319 | 18.15 | % | $ | 161,572 | 4.00 | % | $ | 571,747 | 14.15 | % | ||||||||||||
Total risk-based capital ratio |
$ | 784,054 | 19.41 | % | $ | 323,144 | 8.00 | % | $ | 460,910 | 11.41 | % |
As of December 31, 2011 (Dollars in thousands) | ||||||||||||||||||||||||
Actual | Required | Excess | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
BBCN Bank |
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Tier I capital to total assets |
$ | 670,855 | 18.13 | % | $ | 148,038 | 4.00 | % | $ | 522,817 | 14.13 | % | ||||||||||||
Tier 1 risk-based capital ratio |
$ | 670,855 | 16.62 | % | $ | 161,445 | 4.00 | % | $ | 509,410 | 12.62 | % | ||||||||||||
Total risk-based capital ratio |
$ | 721,551 | 17.88 | % | $ | 322,891 | 8.00 | % | $ | 398,660 | 9.88 | % |
Liquidity Management
Liquidity risk is the risk of reduction in our earnings or capital that would result if we were not able to meet our obligations when they come due without incurring unacceptable losses. Liquidity risk includes the risk of unplanned decreases or changes in funding sources and changes in market conditions that affect our ability to liquidate assets quickly and with minimum loss of value. Factors considered in liquidity risk management are the stability of the deposit base; the marketability, maturity, and pledging of our investments; the availability of alternative sources of funds; and our demand for credit.
The objective of our liquidity management is to have funds available to meet cash flow requirements arising from fluctuations in deposit levels and the demands of daily operations, which include funding of securities purchases, providing for customers credit needs, and 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
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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 $96.6 million, $135.8 million and $57.0 million during 2011, 2010 and 2009, respectively. Net cash inflows from operating activities for 2011 were primarily attributable to proceeds from sales of loans and net income.
Net cash inflows (outflows) from investing activities totaled $190.3 million, $159.5 million and $(554.1) million during 2011, 2010 and 2009, respectively. Net cash inflows for investing activities during 2011 were primarily due to the net cash received from the merger with Center.
Net cash inflows (outflows) from financing activities totaled $(159.1) million, $(248.5) million and $573.5 million during 2011, 2010 and 2009, respectively. Net cash outflows from financing activities for 2011 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 FRBs Discount Window. The maximum amount that we are currently available to borrow on an overnight basis from the FHLB and the FRB is $1,293.4 million. 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, consisting of cash and cash equivalent, interest-bearing cash deposits with other banks, overnight federal funds sold to other banks, liquid investment securities available for sale, and loan repayments within 30 days, were $689.8 million at December 31, 2011 compared to $510.5 million at December 31, 2010. Cash and cash equivalents, including federal funds sold were $300.1 million at December 31, 2011 compared to $172.3 million at December 31, 2010.
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 2011, our gross loan to deposit ratio averaged 100%, compared to an average ratio of 98% and 93% for 2010 and 2009.
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We believe our liquidity sources to be stable and adequate to meet our day-to-day cash flow requirements. At December 31, 2011, 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, 2011, we are not aware of any material commitments for capital expenditures in the foreseeable future.
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 10 years. Our facility lease obligations are discussed in Note 12 of the Notes to Consolidated Financial Statements.
The following table summarizes BBCN Bancorps contractual obligations and commitments to make future payments as of December 31, 2011. 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 |
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Time Deposits |
$ | 1,521,101 | $ | 1,276,723 | $ | 239,838 | $ | 4,378 | $ | 162 | ||||||||||
Subordinated Debentures |
52,102 | 0 | 0 | 0 | 52,102 | |||||||||||||||
Federal Home Loan Bank Borrowings |
340,146 | 211,146 | 109,000 | 0 | 20,000 | |||||||||||||||
Operating Lease Obligations |
47,730 | 8,399 | 14,543 | 11,402 | 13,386 | |||||||||||||||
Unused commitments to extend credit |
458,096 | 361,356 | 77,068 | 4,908 | 14,764 | |||||||||||||||
Standby letters of credit |
29,028 | 27,436 | 1,592 | 0 | 0 | |||||||||||||||
Other commercial letters of credit |
49,457 | 49,457 | 0 | 0 | 0 | |||||||||||||||
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Total |
$ | 1,647,134 | $ | 1,074,689 | $ | 405,099 | $ | 107,864 | $ | 59,482 | ||||||||||
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Recently Issued Accounting Standards
FASB 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 is not expected to 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 defers the effective date of ASU 2011-05. The deferral is temporary until the FASB reconsiders the operational concerns and needs of financial statement users. The FASB has not yet established a timetable for its reconsideration.
FASB ASU 2011-08, IntangiblesGoodwill and Other (Topic 350); Testing Goodwill for ImpairmentThis ASU permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting units fair value is less than its carrying amount before applying the two-step goodwill impairment test. If an entity can support the conclusion that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it would not need to perform the two-step impairment test for that reporting unit. The ASU is effective for annual and interim goodwill impairment tests performed in fiscal years beginning after December 15, 2011. Adoption of ASU 2011-08 is not expected to have a significant impact on our financial condition or result of operations.
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.
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Interest Rate Risk
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 Banks 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, 2011, the aggregate fair value of the outstanding interest rate caps was $9 thousand and we recognized mark-to-market losses on valuation of $157 thousand in 2011. See Note 17 of Notes to Consolidated Financial Statements for more detailed information on swaps and caps. As of December 31, 2011, we did not have any outstanding interest rate swap agreements at December 31, 2011.
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.
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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, 2011:
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) |
$ | 343,887 | $ | 114,887 | $ | 348,003 | $ | 221,098 | $ | 1,027,875 | ||||||||||
Loan Total Loans(2) |
1,113,490 | 648,580 | 1,361,124 | 660,784 | 3,783,978 | |||||||||||||||
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|
|
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Rate Sensitive Assets |
$ | 1,457,377 | $ | 763,467 | $ | 1,709,127 | $ | 881,882 | $ | 4,811,853 | ||||||||||
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|
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TCD $100,000 or more |
378,942 | 314,849 | 65,977 | 155 | 759,923 | |||||||||||||||
TCD under $100,000 |
191,350 | 391,581 | 178,239 | 8 | 761,178 | |||||||||||||||
Money Market accounts and other |
1,237,378 | 0 | 0 | 0 | 1,237,378 | |||||||||||||||
Savings accounts |
118,252 | 24,347 | 55,464 | 0 | 198,063 | |||||||||||||||
Borrowings from FHLB |
11,000 | 202,314 | 109,000 | 22,088 | 344,402 | |||||||||||||||
Subordinated Debentures |
42,102 | 0 | 0 | 10,000 | 52,102 | |||||||||||||||
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Rate Sensitive Liabilities |
$ | 1,979,024 | $ | 933,091 | $ | 408,680 | $ | 32,251 | $ | 3,353,046 | ||||||||||
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Interest Rate Cap |
50,000 | 0 | (50,000 | ) | 0 | |||||||||||||||
Net Gap Position |
$ | (471,647 | ) | $ | (169,624 | ) | $ | 1,250,447 | $ | 849,631 | ||||||||||
Cumulative Gap Position |
$ | (471,647 | ) | $ | (641,271 | ) | $ | 609,176 | $ | 1,458,807 |
(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 $42.4 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, 2011, 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, 2011 | December 31, 2010 | |||||||||||||||
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 |
5.46 | % | (4.61 | )% | (3.12 | )% | (4.62 | )% | ||||||||
+ 100 basis points |
2.91 | % | (1.84 | )% | (2.92 | )% | (2.27 | )% | ||||||||
- 100 basis points |
0.77 | % | 4.57 | % | 0.56 | % | 0.24 | % | ||||||||
- 200 basis points |
0.83 | % | 8.58 | % | (4.33 | )% | (0.57 | )% |
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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, 2011.
Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The following Consolidated Financial Statements of BBCN Bancorp, together with the reports thereon of Crowe Horwath LLP, begin on page F-1 of this Report and are incorporated herein by reference:
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Financial Condition as of December 31, 2011 and 2010
Consolidated Statements of Income for the Years Ended December 31, 2011, 2010 and 2009
Consolidated Statements of Cash Flows for the Years Ended December 31, 2011, 2010 and 2009
Notes to Consolidated Financial Statements for the Years Ended December 31, 2011, 2010 and 2009
See Item 15. Exhibits and Financial Statement Schedules for financial statements filed as a part of this Report.
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 Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of December 31, 2011. Based upon that evaluation, our Chief Executive 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 managements best estimates and judgments.
b. Managements 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
66
Control-Integrated Framework, published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and which is effected by the Companys 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 Companys 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 Companys 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.
As permitted, the Company has excluded the current year acquisition of Center Financial (representing approximately 43% of total assets at December 31, 2011) from the scope of managements report on internal control over financial reporting.
With the participation of the Companys Chief Executive Officer and Chief Financial Officer, management has conducted an evaluation of the effectiveness of the Companys system of internal control over financial reporting. Based on this evaluation, management determined that the Companys system of internal control over financial reporting was effective as of December 31, 2011.
Our independent registered public accounting firm has issued an audit report on our internal control over financial reporting which is included on page F-2 of this report.
/S/ ALVIN D. KANG | /S/ PHILIP E. GULDEMAN | |||
Alvin D. Kang | Phillip E. Guldeman | |||
President and Chief Executive Officer |
Executive Vice President and Chief Financial Officer | |||
Los Angeles, California | Los Angeles, California | |||
March 13, 2012 | March 13, 2012 |
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 2011 that have materially affected or are reasonably likely to materially affect, the Companys internal control over financial reporting.
Item 9B. | OTHER INFORMATION |
None.
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Item 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The information required by this Item is incorporated herein by reference to the section of BBCN Bancorps definitive Proxy Statement for its 2012 Annual Meeting of Stockholders (the 2012 Proxy Statement) entitled Election of Directors and the discussion in the 2012 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 2012 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 2012 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 2012 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 2012 Proxy Statement entitled Ratification of the Selection of the Independent Registered Public Accounting Firm.
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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) | |
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 August 6, 2010 (incorporated herein by reference to the Proxy Statement on Schedule 14A, Proposal No. 4, filed with the SEC on May 24, 2010, SEC file number 000-50245) | |
3.7 | Amended and Restated Bylaws of BBCN Bancorp, Inc. (incorporated herein by reference to the Current Report on Form 8-K, Exhibit 5.1, filed with the SEC on February 1, 2012, SEC file number 000-50245) |
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4.1 | Amended and Restated Declaration of Trust, dated March 28, 2001, by and among Delaware Trustee, Wilmington Trust Company as Property Trustee, Nara Bancorp and the Administrative Trustees named therein (incorporated herein by reference to the Annual Report on Form 10-K, Exhibit 4.5, for the year ended December 31, 2001, filed with the SEC on April 1, 2002, SEC file number 333-50126) | |
4.2 | Indenture, dated March 28, 2001, between Nara Bancorp and Wilmington Trust Company as Debenture Trustee (incorporated herein by reference to the Annual Report on Form 10-K, Exhibit 4.6, for the year ended December 31, 2001, filed with the SEC on April 1, 2002, SEC file number 333-50126) | |
4.3 | Common Securities Guarantee Agreement, dated March 28, 2001, of Nara Bancorp (incorporated herein by reference to the Annual Report on Form 10-K, Exhibit 4.7, for the year ended December 31, 2001, filed with the SEC on April 1, 2002, SEC file number 333-50126) | |
4.4 | Capital Securities Guarantee Agreement, dated March 28, 2001, between Nara Bancorp and Wilmington Trust Company as Guarantee Trustee (incorporated herein by reference to the Annual Report on Form 10-K, Exhibit 4.8, for the year ended December 31, 2001, filed with the SEC on April 1, 2002, SEC file number 333-50126) | |
4.5 | 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) | |
4.6 | 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) | |
4.7 | 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) | |
4.8 | 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) | |
4.9 | 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) | |
4.10 | 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) | |
4.11 | 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) | |
4.12 | 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) | |
4.13 | 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) |
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4.14 | 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) | |
4.15 | 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) | |
4.16 | 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) | |
4.17 | Certificate of Designations for Fixed Rate Cumulative Perpetual Preferred Stock, Series A, of Nara Bancorp, Inc. (incorporated herein by reference to the Current Report on Form 8-K, Exhibit 4.1, filed with the SEC on November 28, 2008, SEC file number 000-50245) | |
4.18 | Form of Nara Bancorp, Inc. Series A Preferred Stock Certificate (incorporated herein by reference to the Current Report on Form 8-K, Exhibit 4.2, filed with the SEC on November 28, 2008, SEC file number 000-50245) | |
4.19 | Warrant to Purchase Common Stock of Nara Bancorp, Inc. dated November 21, 2008, issued to United States Treasury Department (incorporated herein by reference to the Current Report on Form 8-K, Exhibit 4.3, filed with the SEC on November 28, 2008, SEC file number 000-50245) | |
4.20 | Indenture, dated as of December 30, 2003, between Center Financial Corporation and Wells Fargo Bank, National Association* | |
4.21 | 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* | |
4.22 | Guarantee Agreement, dated December 30, 2003, by and between Center Financial and Wells Fargo, National Association* | |
4.23 | Certificate of Designations for Series B Preferred Stock of Nara Bancorp, Inc, dated November 30, 2011* | |
4.24 | Warrant to Purchase Common Stock of BBCN Bancorp, Inc., dated November 30, 2011, 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) |
71
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 Change in Control Agreement (entered into by named executive officer Alvin D. Kang, Bonita I. Lee, and Mark H. Lee) (incorporated herein by reference to the Current Report on Form 8-K, Exhibit 99.1, filed with the SEC on August 6, 2008, SEC file number 000-50245) | |
10.10 | 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) | |
10.11 | 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) | |
10.12 | Letter Agreement, between Nara Bancorp, Inc. and the United States Treasury, dated November 21, 2008, including the Securities Purchase Agreement attached thereto, with respect to the issuance and sale of the Senior Preferred Stock and the Warrant referred to therein (incorporated herein by reference to the Current Report on Form 8-K/A, Exhibit 10.1, filed with the SEC on December 17, 2008, SEC file number 000-50245) | |
10.13 | 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.* | |
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* | |
14.2 | Code of Ethics and Business Conduct* | |
21.1 | List of Subsidiaries* | |
23.1 | Consent of Crowe Horwath 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* |
72
32.1 | Certification of Chief Executive Officer pursuant to section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002* | |
32.2 | Certification of Chief Financial Officer pursuant to section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002* | |
99.1 | Certification of Principal Executive Officer and Principal Financial Officer pursuant to Interim Final RuleTARP Standards for Compensation and Corporate Governance at 31 CFR Part 30* | |
101.INS** | XBRL Instance Document | |
101.SCH** | XBRL Taxonomy Extension Schema Document | |
101.CAL** | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF** | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB** | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE** | XBRL Taxonomy Extension Presentation Linkbase Document |
* | Filed herewith |
** | Furnished herewith |
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.
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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 BANCORP, INC. | ||
By: |
/s/ ALVIN D. KANG | |
Alvin D. Kang | ||
President and Chief Executive 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.
By |
/s/ ALVIN D. KANG |
March 13, 2012 | Alvin D. Kang | |||
Director, President and Chief Executive Officer (Principal Executive Officer) | ||||||
By |
/S/ PHILIP E. GULDEMAN |
March 13, 2012 | Philip E. Guldeman | |||
Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) | ||||||
By: |
/s/ STEVEN D. BROIDY |
March 13, 2012 | Steven D. Broidy | |||
Director | ||||||
By: |
/s/ LOUIS M. COSSO |
March 13, 2012 | Louis M. Cosso | |||
Director | ||||||
By: |
/s/ JIN CHUL JHUNG |
March 13, 2012 | Jin Chul Jhung | |||
Director | ||||||
By: |
/s/ CHANG HWI KIM |
March 13, 2012 | Chang Hwi Kim | |||
Vice Chairman of the Board | ||||||
By: |
/s/ KEVIN S. KIM |
March 13, 2012 | Kevin S. Kim | |||
Director | ||||||
By: |
/s/ PETER Y.S. KIM |
March 13, 2012 | Peter Y.S. Kim | |||
Director | ||||||
By: |
/s/ SANG HOON KIM |
March 13, 2012 | Sang Hoon Kim | |||
Director | ||||||
By: |
/s/ CHUNG HYUN LEE |
March 13, 2012 | Chung Hyun Lee | |||
Director | ||||||
By: |
/s/ JESUN PAIK |
March 13, 2012 | Jesun Paik | |||
Director |
74
By: |
/s/ JOHN H. PARK |
March 13, 2012 | John H. Park | |||
Director | ||||||
By: |
/s/ KI SUH PARK |
March 13, 2012 | Ki Suh Park | |||
Chairman of the Board | ||||||
By: |
/s/ SCOTT YOON-SUK WHANG |
March 13, 2012 | Scott Yoon-Suk Whang | |||
Director |
75
BBCN Bancorp, Inc. and Subsidiaries
Consolidated Financial Statements at December 31, 2011 and 2010 and
for Each of the Three Years in the Period Ended December 31, 2011 and
Report of Independent Registered Public Accounting Firm thereon.
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
BBCN Bancorp, Inc.
Los Angeles, California
We have audited the accompanying consolidated statements of financial condition of BBCN Bancorp, Inc. and Subsidiaries (formerly known as Nara Bancorp, Inc.) (the Company) as of December 31, 2011 and 2010, and the related consolidated statements of income, changes in stockholders equity and cash flows for each of the years in the three-year period ended December 31, 2011. We also have audited the Companys internal control over financial reporting as of December 31, 2011, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys management is responsible for these consolidated financial statements, 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 Managements Report on Internal Control Over Financial Reporting located in Item 9a of Form 10-K. Our responsibility is to express an opinion on these financial statements and an opinion on the Companys internal control over financial reporting 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audit of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A companys 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 companys 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 companys 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.
As permitted, the Company excluded the operations of Center Financial Corporation, the acquired institution, from the scope of managements report on internal control over financial reporting. As such, they have also been excluded from the scope of our audit of internal control over financial reporting.
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 2010, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
/S/ CROWE HORWATH LLP
Sherman Oaks, California
March 13, 2012
F-2
BBCN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2011 AND 2010
2011 | 2010 | |||||||
(In thousands, except share data) | ||||||||
ASSETS | ||||||||
Cash and cash equivalents: |
||||||||
Cash and due from banks |
$ | 81,785 | $ | 23,916 | ||||
Interest-bearing deposit at Federal Reserve Bank |
217,800 | 148,415 | ||||||
Federal funds sold |
525 | 0 | ||||||
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Total cash and cash equivalents |
300,110 | 172,331 | ||||||
Term federal funds sold, original maturities more than 90 days |
40,000 | 0 | ||||||
Securities available for sale, at fair value |
740,920 | 528,262 | ||||||
Loans held for sale, at the lower of cost or fair value |
42,407 | 26,927 | ||||||
Loans receivable, net of allowance for loan losses (December 31, 2011$61,952; December 31, 2010$62,320) |
3,676,874 | 2,085,425 | ||||||
Other real estate owned, net |
7,624 | 1,581 | ||||||
Federal Reserve Bank stock, at cost |
0 | 6,367 | ||||||
Federal Home Loan Bank (FHLB) stock, at cost |
27,373 | 17,717 | ||||||
Premises and equipment, net |
20,913 | 10,915 | ||||||
Accrued interest receivable |
13,439 | 8,648 | ||||||
Deferred tax assets, net |
72,604 | 37,072 | ||||||
Customers liabilities on acceptances |
10,515 | 11,528 | ||||||
Bank owned life insurance |
42,514 | 24,117 | ||||||
Investments in affordable housing partnerships |
15,367 | 7,998 | ||||||
Goodwill |
90,473 | 2,509 | ||||||
Other intangible assets, net |
4,276 | 534 | ||||||
Prepaid FDIC insurance |
9,720 | 9,639 | ||||||
FDIC loss share receivable |
10,819 | 0 | ||||||
Other assets |
40,656 | 11,726 | ||||||
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Total assets |
$ | 5,166,604 | $ | 2,963,296 | ||||
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F-3
BBCN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (continued)
DECEMBER 31, 2011 AND 2010
2011 | 2010 | |||||||
(In thousands, except share data) | ||||||||
LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
LIABILITIES: |
||||||||
Deposits: |
||||||||
Noninterest bearing |
$ | 984,350 | $ | 388,731 | ||||
Interest bearing: |
||||||||
Money market and other |
1,237,378 | 688,593 | ||||||
Savings deposits |
198,063 | 126,255 | ||||||
Time deposits of $100,000 or more |
759,923 | 321,542 | ||||||
Other time deposits |
761,178 | 650,993 | ||||||
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Total deposits |
3,940,892 | 2,176,114 | ||||||
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FHLB borrowings |
344,402 | 350,000 | ||||||
Subordinated debentures |
52,102 | 39,268 | ||||||
Secured borrowings |
0 | 11,758 | ||||||
Accrued interest payable |
6,519 | 4,830 | ||||||
Acceptances outstanding |
10,515 | 11,528 | ||||||
Other liabilities |
16,235 | 11,235 | ||||||
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Total liabilities |
4,370,665 | 2,604,733 | ||||||
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COMMITMENTS AND CONTINGENCIES (Note 12) |
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STOCKHOLDERS EQUITY: |
||||||||
Preferred stock, $0.001 par value; authorized 10,000,000 undesignated shares; issued and outstanding 122,000 shares and 67,000 shares as of December 31, 2011 and 2010, respectively |
||||||||
Series A, Fixed Rate Cumulative Perpetual Preferred Stock, issued and outstanding 67,000 shares at December 31, 2011 and 2010, net, with a liquidation preference of $67,428,000 at December 31, 2011 and 2010 |
65,158 | 64,203 | ||||||
Series B, Fixed Rate Cumulative Perpetual Preferred Stock, issued and outstanding 55,000 shares at December 31, 2011 and none at December 31, 2010, net, with a liquidation preference of $55,229,000 and $0 at December 31, 2011 and 2010, respectively |
54,192 | 0 | ||||||
Common stock, $0.001 par value; authorized, 150,000,000 shares at December 31, 2011 and 100,000,000 shares at December 31, 2010; issued and outstanding, 77,984,252 and 37,983,027 shares at December 31, 2011 and 2010, respectively |
78 | 38 | ||||||
Capital surplus |
524,644 | 171,364 | ||||||
Retained earnings |
142,909 | 120,361 | ||||||
Accumulated other comprehensive income, net |
8,958 | 2,597 | ||||||
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Total stockholders equity |
795,939 | 358,563 | ||||||
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Total liabilities and stockholders equity |
$ | 5,166,604 | $ | 2,963,296 | ||||
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See accompanying notes to consolidated financial statements.
F-4
BBCN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009
2011 | 2010 | 2009 | ||||||||||
(In thousands, except share data) | ||||||||||||
INTEREST INCOME: |
||||||||||||
Interest and fees on loans |
$ | 145,554 | $ | 134,390 | $ | 131,416 | ||||||
Interest on securities |
15,501 | 15,141 | 25,742 | |||||||||
Interest on federal funds sold and other investments |
840 | 905 | 887 | |||||||||
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Total interest income |
161,895 | 150,436 | 158,045 | |||||||||
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INTEREST EXPENSE: |
||||||||||||
Interest on deposits |
20,245 | 27,882 | 50,636 | |||||||||
Interest on FHLB advances |
9,926 | 12,099 | 13,041 | |||||||||
Interest on other borrowings |
1,906 | 2,071 | 2,022 | |||||||||
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Total interest expense |
32,077 | 42,052 | 65,699 | |||||||||
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NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES |
129,818 | 108,384 | 92,346 | |||||||||
PROVISION FOR LOAN LOSSES |
27,939 | 84,630 | 61,023 | |||||||||
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |
101,879 | 23,754 | 31,323 | |||||||||
NON-INTEREST INCOME: |
||||||||||||
Service charges on deposit accounts |
6,370 | 6,464 | 6,784 | |||||||||
International service fees |
2,625 | 2,369 | 2,006 | |||||||||
Loan servicing fees, net |
1,533 | 1,836 | 1,866 | |||||||||
Wire transfer fees |
1,555 | 1,192 | 1,332 | |||||||||
Net gains on sales of SBA loans |
7,354 | 1,400 | 694 | |||||||||
Net gains on sales of other loans |
33 | 4,368 | 728 | |||||||||
Net gains on sales and calls of securities available for sale |
1,289 | 6,396 | 4,427 | |||||||||
Net gains (losses) on sales of OREO |
193 | (605 | ) | (320 | ) | |||||||
Net valuation losses on interest rate swaps |
(114 | ) | (857 | ) | (446 | ) | ||||||
Other income and fees |
2,292 | 1,918 | 1,397 | |||||||||
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Total non-interest income |
23,130 | 24,481 | 18,468 | |||||||||
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NON-INTEREST EXPENSE: |
||||||||||||
Salaries and employee benefits |
31,629 | 25,261 | 25,437 | |||||||||
Occupancy |
11,833 | 9,767 | 9,918 | |||||||||
Furniture and equipment |
4,033 | 3,540 | 2,926 | |||||||||
Advertising and marketing |
2,486 | 2,020 | 1,671 | |||||||||
Data processing and communications |
3,913 | 3,954 | 3,742 | |||||||||
Professional fees |
2,971 | 2,538 | 2,324 | |||||||||
FDIC assessment |
4,347 | 4,968 | 5,237 | |||||||||
Credit related expenses |
3,789 | 4,781 | 4,407 | |||||||||
Merger and integration expense |
4,713 | 1,001 | 0 | |||||||||
Prepayment charge on retirement of debt |
6,385 | 0 | 0 | |||||||||
Other |
6,135 | 5,544 | 6,051 | |||||||||
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Total non-interest expense |
82,234 | 63,374 | 61,713 | |||||||||
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INCOME (LOSS) BEFORE INCOME TAX PROVISION (BENEFIT) |
42,775 | (15,139 | ) | (11,922 | ) | |||||||
INCOME TAX PROVISION (BENEFIT) |
15,660 | (7,900 | ) | (6,199 | ) | |||||||
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NET INCOME (LOSS) |
$ | 27,115 | $ | (7,239 | ) | $ | (5,723 | ) | ||||
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DIVIDENDS AND DISCOUNT ACCRETION ON PREFERRED STOCK |
(4,568 | ) | (4,291 | ) | (4,276 | ) | ||||||
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NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS |
$ | 22,547 | $ | (11,530 | ) | $ | (9,999 | ) | ||||
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EARNINGS (LOSS) PER COMMON SHARE: |
||||||||||||
Basic |
$ | 0.53 | $ | (0.30 | ) | $ | (0.35 | ) | ||||
Diluted |
$ | 0.53 | $ | (0.30 | ) | $ | (0.35 | ) |
See accompanying notes to consolidated financial statements.
F-5
BBCN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009
Preferred Stock, net of discount |
Common Stock | Capital Surplus |
Retained Earnings |
Accumulated Other Comprehensive Income (Loss), net |
Comprehensive Income (Loss) |
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Shares | Amount | |||||||||||||||||||||||||||
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(In thousands, except share data) | ||||||||||||||||||||||||||||
BALANCE, JANUARY 1, 2009 |
$ | 62,336 | 26,246,560 | $ | 26 | $ | 86,843 | $ | 141,890 | $ | (1,142 | ) | ||||||||||||||||
Issuance of additional stock under public offering, net of offering costs |
11,500,000 | 12 | 81,960 | |||||||||||||||||||||||||
Issuance of additional shares pursuant to various stock plans |
77,447 | (81 | ) | |||||||||||||||||||||||||
Tax effects of stock plan |
(408 | ) | ||||||||||||||||||||||||||
Stock-based compensation |
1,492 | |||||||||||||||||||||||||||
Cash dividends accrued (5%) |
(3,349 | ) | ||||||||||||||||||||||||||
Accretion of preferred stock discount |
927 | (927 | ) | |||||||||||||||||||||||||
Comprehensive income (loss): |
||||||||||||||||||||||||||||
Net loss |
(5,723 | ) | $ | (5,723 | ) | |||||||||||||||||||||||
Other comprehensive income (loss): |
||||||||||||||||||||||||||||
Change in unrealized gain (loss) on securities available for sale, net of tax |
4,193 | 4,193 | ||||||||||||||||||||||||||
Change in unrealized gain (loss) on interest-only strips, net of tax |
10 | 10 | ||||||||||||||||||||||||||
Change in unrealized gain (loss) on interest rate swaps, net of tax |
(84 | ) | (84 | ) | ||||||||||||||||||||||||
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Total comprehensive income (loss) |
$ | (1,604 | ) | |||||||||||||||||||||||||
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BALANCE, DECEMBER 31, 2009 |
$ | 63,263 | 37,824,007 | $ | 38 | $ | 169,806 | $ | 131,891 | $ | 2,977 | |||||||||||||||||
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F-6
BBCN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (continued)
YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009
Preferred Stock, net of discount |
Common Stock | Capital Surplus |
Retained Earnings |
Accumulated Other Comprehensive Income (Loss), net |
Comprehensive Income (Loss) |
|||||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||||||
(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 plan |
32 | |||||||||||||||||||||||||||
Stock-based compensation |
376 | |||||||||||||||||||||||||||
Cash dividends accrued (5%) |
(3,351 | ) | ||||||||||||||||||||||||||
Accretion of preferred stock discount |
940 | (940 | ) | |||||||||||||||||||||||||
Comprehensive income (loss): |
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Net loss |
(7,239 | ) | $ | (7,239 | ) | |||||||||||||||||||||||
Other comprehensive income (loss): |
||||||||||||||||||||||||||||
Change in unrealized gain (loss) on securities available for sale, net of tax |
(355 | ) | (355 | ) | ||||||||||||||||||||||||
Change in unrealized gain (loss) on interest-only strips, net of tax |
1 | 1 | ||||||||||||||||||||||||||
Change in unrealized gain (loss) on interest rate swaps, net of tax |
(26 | ) | (26 | ) | ||||||||||||||||||||||||
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Total comprehensive income (loss) |
$ | (7,619 | ) | |||||||||||||||||||||||||
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BALANCE, DECEMBER 31, 2010 |
$ | 64,203 | 37,983,027 | $ | 38 | $ | 171,364 | $ | 120,361 | $ | 2,597 | |||||||||||||||||
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F-7
BBCN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (continued)
YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009
Preferred Stock, net of discount |
Common Stock | Capital Surplus |
Retained Earnings |
Accumulated Other Comprehensive Income (Loss), net |
Comprehensive Income (Loss) |
|||||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||||||
(In thousands, except share data) | ||||||||||||||||||||||||||||
BALANCE, JANUARY 1, 2011 |
$ | 64,203 | 37,983,027 | $ | 38 | $ | 171,364 | $ | 120,361 | $ | 2,597 | |||||||||||||||||
Acquisition of Center Financial Corporation |
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 plan |
138 | |||||||||||||||||||||||||||
Stock-based compensation |
103 | |||||||||||||||||||||||||||
Cash dividends accrued (5%) |
(3,578 | ) | ||||||||||||||||||||||||||
Accretion of preferred stock discount |
989 | (989 | ) | |||||||||||||||||||||||||
Comprehensive income (loss): |
||||||||||||||||||||||||||||
Net income |
27,115 | $ | 27,115 | |||||||||||||||||||||||||
Other comprehensive income (loss): |
||||||||||||||||||||||||||||
Change in unrealized gain (loss) on securities available for sale, net of tax |
6,382 | 6,382 | ||||||||||||||||||||||||||
Change in unrealized gain (loss) on interest-only strips, net of tax |
5 | 5 | ||||||||||||||||||||||||||
Change in unrealized gain (loss) on interest rate swaps, net of tax |
(26 | ) | (26 | ) | ||||||||||||||||||||||||
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Total comprehensive income (loss) |
$ | 33,476 | ||||||||||||||||||||||||||
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BALANCE, DECEMBER 31, 2011 |
$ | 119,350 | 77,984,252 | $ | 78 | $ | 524,644 | $ | 142,909 | $ | 8,958 | |||||||||||||||||
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See accompanying notes to consolidated financial statements.
F-8
BBCN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009
2011 | 2010 | 2009 | ||||||||||
(In thousands) | ||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||||||
Net income (loss) |
$ | 27,115 | $ | (7,239 | ) | $ | (5,723 | ) | ||||
Adjustments to reconcile net income to net cash from operating activities: |
||||||||||||
Depreciation, amortization, net of discount accretion |
8,687 | 10,977 | 5,006 | |||||||||
Stock-based compensation expense |
103 | 376 | 1,492 | |||||||||
Provision for loan losses |
27,939 | 84,630 | 61,023 | |||||||||
Valuation adjustment of a loan held for sale |
35 | 0 | 0 | |||||||||
Valuation adjustment of OREO |
1,022 | 2,155 | 2,276 | |||||||||
Proceeds from sales of loans |
105,602 | 110,885 | 25,429 | |||||||||
Originations of loans held for sale |
(64,752 | ) | (46,045 | ) | (5,221 | ) | ||||||
Deferred gain on transfer of assets |
0 | (1,166 | ) | 0 | ||||||||
Net gains on sales of SBA and other loans |
(7,387 | ) | (5,768 | ) | (1,422 | ) | ||||||
Net gains on sales and calls of securities available for sale |
(1,289 | ) | (6,396 | ) | (4,427 | ) | ||||||
Net (gains) losses on sales of OREO |
(193 | ) | 605 | 320 | ||||||||
Net valuation losses on interest rate swaps and caps |
114 | 857 | 446 | |||||||||
Increase in cash surrender value on bank owned life insurance |
(788 | ) | (546 | ) | (222 | ) | ||||||
Tax benefits from stock option exercised |
139 | 32 | (489 | ) | ||||||||
Change in investments in affordable housing partnership |
1,068 | 1,008 | (3,060 | ) | ||||||||
Change in FDIC loss share receivable |
33 | 0 | 0 | |||||||||
Change in accrued interest receivable |
457 | 2,613 | (3,093 | ) | ||||||||
Change in deferred income taxes |
8,696 | (7,910 | ) | (6,372 | ) | |||||||
Change in FDIC insurance prepayment |
4,219 | 5,509 | (14,148 | ) | ||||||||
Change in other assets |
(6,803 | ) | 2,110 | 1,464 | ||||||||
Change in accrued interest payable |
(2,122 | ) | (7,844 | ) | 4,125 | |||||||
Change in other liabilities |
(5,313 | ) | (3,072 | ) | (363 | ) | ||||||
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Net cash provided by operating activities |
96,582 | 135,771 | 57,041 | |||||||||
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CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||||||
Net change in loans receivable |
(245,979 | ) | (100,783 | ) | (167,651 | ) | ||||||
Purchase of premises and equipment |
(1,168 | ) | (2,973 | ) | (1,650 | ) | ||||||
Purchase of securities available for sale |
(236,033 | ) | (190,577 | ) | (787,755 | ) | ||||||
Proceeds from disposition of equipment |
0 | 2 | 0 | |||||||||
Proceeds from sales of OREO |
4,847 | 10,363 | 5,162 | |||||||||
Proceeds from sales of securities available for sale |
139,458 | 208,142 | 239,734 | |||||||||
Proceeds from matured or called, or paid down securities available for sale |
183,945 | 235,063 | 160,189 | |||||||||
Proceeds from sale of term federal funds |
10,000 | 0 | 0 | |||||||||
Purchase of Federal Reserve Bank stock |
0 | (1,968 | ) | (2,079 | ) | |||||||
Redemption of Federal Home Loan Bank stock |
2,875 | 2,218 | 0 | |||||||||
Redemption of Federal Reserve Bank stock |
6,367 | 0 | 0 | |||||||||
Net cash received from merger |
325,993 | 0 | 0 | |||||||||
|
|
|
|
|
|
|||||||
Net cash provided by / (used in) investing activities |
190,305 | 159,487 | (554,050 | ) | ||||||||
|
|
|
|
|
|
F-9
BBCN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009
2011 | 2010 | 2009 | ||||||||||
(In thousands) | ||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||||||
Net change in deposits |
$ | (62,628 | ) | $ | (258,076 | ) | $ | 495,587 | ||||
Net change in other borrowings |
(12,541 | ) | 11,758 | 0 | ||||||||
Repayments of FHLB borrowings |
(140,982 | ) | (35,000 | ) | (50,000 | ) | ||||||
Proceeds from FHLB borrowings |
0 | 35,000 | 50,000 | |||||||||
Issuance of additional common stock |
59,869 | 0 | 81,972 | |||||||||
Issuance of additional stock pursuant to various stock plans |
524 | 1,150 | 0 | |||||||||
Payments of cash dividends |
(3,350 | ) | (3,351 | ) | (4,015 | ) | ||||||
|
|
|
|
|
|
|||||||
Net cash provided by / (used in) financing activities |
(159,108 | ) | (248,519 | ) | 573,544 | |||||||
|
|
|
|
|
|
|||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS |
127,779 | 46,739 | 76,535 | |||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |
172,331 | 125,592 | 49,057 | |||||||||
|
|
|
|
|
|
|||||||
CASH AND CASH EQUIVALENTS, END OF YEAR |
$ | 300,110 | $ | 172,331 | $ | 125,592 | ||||||
|
|
|
|
|
|
|||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
||||||||||||
Interest paid |
$ | 30,388 | $ | 49,896 | $ | 61,574 | ||||||
Income taxes paid (refund) |
$ | 17,867 | $ | (1,458 | ) | $ | (4,671 | ) | ||||
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTMENT ACTIVITIES |
||||||||||||
Transfer from loans receivable to other real estate owned |
$ | 8,078 | $ | 12,660 | $ | 6,833 | ||||||
Transfer from loans receivable to loans held for sale |
$ | 31,471 | $ | 80,077 | $ | 13,721 | ||||||
Reduction of common stock warrants |
$ | 0 | $ | 0 | $ | (2,383 | ) | |||||
Center Merger: |
||||||||||||
Assets acquired |
$ | 2,251,884 | $ | 0 | $ | 0 | ||||||
Liabilities assumed |
$ | (1,993,014 | ) | $ | 0 | $ | 0 | |||||
Issuance of 55,000 shares of a new series of the preferred stock to the Treasury Departments TARP Capital Purchase Program |
$ | (54,158 | ) | $ | 0 | $ | 0 |
See accompanying notes to consolidated financial statements.
F-10
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009
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 ConsolidationThe 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 FlowsCash 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 $400 thousand at December 31, 2011 and $18.4 million at December 31, 2010. Net cash flows are reported for customer loan and deposit transactions, deferred income taxes and other assets and liabilities.
SecuritiesSecurities 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, 2011 and 2010, 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
F-11
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
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 TransactionsAs 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 Companys 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 Companys overall risk management, the Companys 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.
LoansLoans 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 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, as well as when required by regulatory requirements. 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 LoansCertain 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 LoansLoans that the Company acquired from Center Financial are recorded at fair value with no carryover of the related allowance for loan losses. The Company considered all classified and criticized loans and certain of the FDIC-assisted Innovative Bank acquisition related 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
F-12
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
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 pools 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 AssetsThe 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 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 is again 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 receivablenet 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, plus 1 to 2%. The Companys 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
F-13
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Company has capitalized $1.3 million, $283 thousand and $200 thousand of servicing assets during 2011, 2010 and 2009, respectively, and amortized $706 thousand, $868 thousand and $1.1 million during the years ended December 31, 2011, 2010 and 2009, respectively. The acquired servicing assets from Center was $2.5 million at the acquisition date. The carrying amount of servicing assets was $5.6 million and $2.2 million at December 31, 2011 and 2010, respectively.
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. At December 31, 2011, the fair value of servicing assets was determined using a weighted-average discount rate of 5.8% and prepayment speed of 14.2%. At December 31, 2010, the fair value of servicing assets was determined using a weighted-average discount rate of 5.7% and prepayment speed of 14.8%. The fair values of servicing assets were approximately $7.9 million and $4.0 million at December 31, 2011 and 2010, respectively, on serviced loans totaling $559.5 million and $222.7 million at December 31, 2011 and 2010 and is included in other assets in the accompanying consolidated statements of condition. No impairment charges were required in 2011, 2010, or 2009.
The estimated annual amortization of servicing assets as of December 31, 2011, for each of the succeeding five fiscal years is indicated in the table below:
Year Ending December 31 |
||||
(In thousands) | ||||
2012 |
$ | 1,184 | ||
2013 |
858 | |||
2014 |
686 | |||
2015 |
541 | |||
2016 |
733 | |||
Thereafter |
1,613 | |||
|
|
|||
$ | 5,615 | |||
|
|
Servicing fee income which is reported on the income statement as Loan Servicing Fees, net is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned. The amortization of mortgage servicing rights is netted against loan servicing fee income. Servicing fees totaled $2.2 million, $2.4 million and $2.6 million for the years ended December 31, 2011, 2010 and 2009, respectively. Late fees and ancillary fees related to loan servicing are not material.
Allowance for Loan LossesThe 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 managements judgment, should be charged-off.
F-14
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
In addition, the Company is subject to periodic examination by its federal and state examiners, and may be required by such regulators to recognize additions to the allowance for loan losses based on their assessment of credit information available to them at the time of their examinations.
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 impairment 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 borrowers 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 loans 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 and residential loans 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 segregate these segments 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. For the legacy loans, the historical loss experience is based on the actual loss history experienced by the Company over the most recent three years. 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 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,
F-15
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
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 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.
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 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.
The process of assessing the adequacy of the allowance for loan losses is necessarily subjective. Further, and particularly in terms of economic downturns, it is reasonably possible that future credit losses may exceed historical loss levels and may also exceed managements current estimates of incurred credit losses inherent within the loan portfolio. As such, there can be no assurance that future loan charge-offs will not exceed managements current estimate of what constitutes a reasonable allowance for loan losses.
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.
Concentration of Credit RiskOur loan portfolio is divided into three general markets: California, New York / New Jersey, and all other states. The California market represents the biggest credit market concentration (72.0%) followed by New York / New Jersey (17.5%) and All Other States (10.5%). Within the California market, most of our business activity is with customers located within Los Angeles County (60.7%). Therefore, the Companys 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 (29.4%), hotel/motel (16.2%), gas stations (15.3%), and industrial & warehouse (9.8%). Within our commercial and industrial loan portfolio, the largest industry concentrations are wholesalers (28.4%), retail trade (24.2%), and manufacturing (12.7%).
F-16
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Federal Home Loan Bank (FHLB) StockThe 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 EquipmentPremises 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 OwnedOther 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 ReceivableIn 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 Financials 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 discount factor utilized was 1.62%. 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.
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 AssetsGoodwill 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. The Company has selected December 31 as the date to perform the annual impairment test. 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 as of December 31, 2011 and 2010 noting no impairment of recorded goodwill and other intangibles.
F-17
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Stock-Based CompensationCompensation 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 Companys 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 TaxesIncome 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 corporations 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 companys 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 Companys 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 ShareBasic 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.
EquityThe Company accrues for preferred stock dividends as earned and for common stock dividends as declared. Preferred stock dividends of $3.4 million and $3.4 million were paid in 2011 and 2010 and there were $657,000 and $428,000 of preferred stock dividends accrued but unpaid at December 31, 2011 and 2010, respectively. There were no common stock dividends declared during 2011 and 2010. Accrued preferred and common stock dividends are included in other liabilities.
F-18
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Bank Owned Life InsuranceThe 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 PartnershipsThe 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. The tax credits are recognized in the consolidated financial statements to the extent that they are utilized on the Companys tax returns.
Comprehensive IncomeComprehensive 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 ContingenciesLoss 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, 2011 or 2010.
Loan Commitments and Related Financial InstrumentsFinancial 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 InstrumentsFair 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.
Operating SegmentsThe Company previously identified three principal operating segments: banking operations, trade finance services and small business administration lending services. However, the Companys strategic focus has migrated from transactional banking to relationship banking upon the merger with Center Financial. While the chief operating decision makers continue to monitor the revenue streams of the various products and services, the Company now focuses more on the relational aspects of the customers who are encouraged to purchase a multitude of products and services. Accordingly, all of the operations are considered by the Company to be aggregated in one reportable operating segment.
Impairment of Long-Lived AssetsThe 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.
F-19
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Transfer of Financial AssetsTransfers 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.
Use of Estimates in the Preparation of Consolidated Financial StatementsThe 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, accounting for lease arrangements, accounting for incentive compensation, profit sharing and bonus payments and the valuation of servicing assets.
ReclassificationsSome items in the prior year financial statements were reclassified to conform to the current presentation.
Recent Accounting Pronouncements
FASB ASU 2010-29, Business Combinations (Topic 805), Disclosure of Supplementary Pro Forma Information for Business CombinationsThis ASU specifies that if a public entity presents comparative financial statements, the entity (acquirer) should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The ASU also expands the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. We disclosed pro forma information in the notes to consolidated financial statements of the merger with Center Financial. See Note 2 of Notes to Consolidated Financial Statements.
FASB ASU 2011-02, Receivable (Topic 310), Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit LossesASU 2011-02 clarifies the guidance for evaluating whether a restructuring constitutes a troubled debt restructuring (TDR). The guidance requires that a creditor separately conclude that both of the following exist: i) The restructuring constitutes a concession, ii) The debtor is experiencing financial difficulties. In addition, the guidance clarifies that a creditor is precluded from using the effective interest rate test in the debtors guidance on restructuring of payables when evaluating whether a restructuring constitutes a TDR. The amendments in ASU 2011-02 are effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. We adopted ASU 2011-02 on its disclosures in the consolidated financial statements effective third quarter of 2011.
Newly Issued But Not Yet Effective 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
F-20
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
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 is not expected to 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 defers the effective date of ASU 2011-05. The deferral is temporary until the FASB reconsiders the operational concerns and needs of financial statement users. The FASB has not yet established a timetable for its reconsideration.
FASB ASU 2011-08, IntangiblesGoodwill and Other (Topic 350); Testing Goodwill for ImpairmentThis ASU permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting units fair value is less than its carrying amount before applying the two-step goodwill impairment test. If an entity can support the conclusion that is is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it would not need to perform the two-step impairment test for that reporting unit. The ASU is effective for annual and interim goodwill impairment tests performed in fiscal years beginning after December 15, 2011. Adoption of ASU 2011-08 is not expected to have a significant impact on our financial condition or result 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 managements estimates based on available information.
F-21
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The results of Centers 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 | ||
|
|
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 Centers allowance for loan losses associated with the loans we acquired as the loans were initially recorded at fair value.
F-22
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Acquired Center Financial loans for which at the acquisition date, it was probable that all contractually required payments would not be 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 Companys presence in the primary existing markets in Southern California, expanding the national presence through the addition of Centers offices in Chicago and Seattle, as well as Centers 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. During the year ended December 31, 2011, we incurred $4.7 million in merger and integration expenses related to Center transaction, including $0.3 million in salaries and benefits, $1.0 million in occupancy and equipment, $2.4 million in professional services, and $1.0 million in other noninterest expense. During the year ended December 31, 2010, we incurred $1.0 million in merger related expenses related to Center.
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. Merger and integration expenses incurred by the Company and Center of $7.8 million and $1.7 million for the years ended December 31, 2011 and 2010, 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
F-23
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
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 Centers 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 | ) |
3. SECURITIES AVAILABLE FOR SALE
The following is a summary of securities available for sale at December 31:
2011 | ||||||||||||||||
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Fair Value |
|||||||||||||
(In thousands) | ||||||||||||||||
Debt securities*: |
||||||||||||||||
U.S. Treasury |
$ | 300 | $ | 0 | $ | 0 | $ | 300 | ||||||||
GSE collateralized mortgage obligations |
222,400 | 5,480 | (44 | ) | 227,836 | |||||||||||
GSE mortgage-backed securities |
477,555 | 10,322 | (123 | ) | 487,754 | |||||||||||
Corporate notes |
5,532 | 0 | (1,184 | ) | 4,348 | |||||||||||
Municipal bonds |
5,257 | 507 | 0 | 5,764 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total debt securities |
711,044 | 16,309 | (1,351 | ) | 726,002 | |||||||||||
Mutual funds |
14,710 | 227 | (19 | ) | 14,918 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 725,754 | $ | 16,536 | $ | (1,370 | ) | $ | 740,920 | |||||||
|
|
|
|
|
|
|
|
F-24
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
2010 | ||||||||||||||||
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Fair Value |
|||||||||||||
(In thousands) | ||||||||||||||||
Debt securities*: |
||||||||||||||||
GSE bonds |
$ | 125,429 | $ | 1,059 | $ | (770 | ) | $ | 125,718 | |||||||
GSE collateralized mortgage obligations |
101,312 | 2,146 | (257 | ) | 103,201 | |||||||||||
GSE mortgage-backed securities |
282,205 | 4,628 | (1,999 | ) | 284,834 | |||||||||||
Corporate note |
4,473 | 0 | (765 | ) | 3,708 | |||||||||||
Municipal bonds |
5,258 | 55 | (31 | ) | 5,282 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total debt securities |
518,677 | 7,888 | (3,822 | ) | 522,743 | |||||||||||
Mutual funds |
5,462 | 57 | 0 | 5,519 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 524,139 | $ | 7,945 | $ | (3,822 | ) | $ | 528,262 | |||||||
|
|
|
|
|
|
|
|
* | As of December 31, 2011 and 2010, Government Sponsored Enterprises (GSE) included GNMA, FHLB, FNMA, FHLMC, and FFCB, and are all residential based investments. |
At year-end 2011 and 2010, 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:
2011 | 2010 | 2009 | ||||||||||
(In thousands) | ||||||||||||
Proceeds |
$ | 139,458 | $ | 208,142 | $ | 239,734 | ||||||
Gross gains |
1,219 | 6,296 | 4,413 | |||||||||
Gross losses |
0 | 0 | (3 | ) |
The tax expense related to these net realized gains and losses was $446 thousand, $3.3 million and $2.3 million, respectively.
The proceeds from calls of securities were $83.3 million, $35.3 million and $24.6 million for 2011, 2010 and 2009 with gross gains of $70 thousand, $100 thousand and $17 thousand, respectively. There were no losses on calls.
F-25
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The amortized cost and estimated fair value of debt securities at December 31, 2011, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.
Amortized Cost |
Estimated Fair Value |
|||||||
(In thousands) | ||||||||
Available for sale: |
||||||||
Due within one year |
$ | 300 | $ | 300 | ||||
Due after one year through five years |
340 | 357 | ||||||
Due after five years through ten years |
2,480 | 2,781 | ||||||
Due after ten years |
7,969 | 6,974 | ||||||
GSE collaterized mortgage obligations |
222,400 | 227,836 | ||||||
GSE mortgage-backed securities |
477,555 | 487,754 | ||||||
Mutual funds |
14,710 | 14,918 | ||||||
|
|
|
|
|||||
$ | 725,754 | $ | 740,920 | |||||
|
|
|
|
Securities with carrying values of approximately $425.5 million and $270.3 million at December 31, 2011 and 2010, respectively, were pledged to secure public deposits, various borrowings and for other purposes as required or permitted by law.
The following table shows the gross unrealized losses and fair value of securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2011 and 2010.
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 | ) | 0 | 0 | 0 | 5 | 38,082 | (123 | ) | |||||||||||||||||||||||||
Corporate note |
0 | 0 | 0 | 1 | 3,303 | (1,184 | ) | 1 | 3,303 | (1,184 | ) | |||||||||||||||||||||||||
Municipal bonds |
1 | 5,229 | (19 | ) | 0 | 0 | 0 | 1 | 5,229 | (19 | ) | |||||||||||||||||||||||||
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8 | $ | 46,616 | $ | (170 | ) | 2 | $ | 17,310 | $ | (1,200 | ) | 10 | $ | 63,926 | $ | (1,370 | ) | |||||||||||||||||||
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F-26
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
At December 31, 2010: | 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 bonds |
4 | $ | 65,465 | $ | (770 | ) | 0 | $ | 0 | $ | 0 | 4 | $ | 65,465 | $ | (770 | ) | |||||||||||||||||||
GSE collaterized mortgage obligations |
3 | 9,091 | (187 | ) | 2 | 17,337 | (70 | ) | 5 | 26,428 | (257 | ) | ||||||||||||||||||||||||
GSE mortgage-backed securities |
7 | 99,555 | (1,999 | ) | 0 | 0 | 0 | 7 | 99,555 | (1,999 | ) | |||||||||||||||||||||||||
Corporate note |
0 | 0 | 0 | 1 | 3,708 | (765 | ) | 1 | 3,708 | (765 | ) | |||||||||||||||||||||||||
Municipal bonds |
5 | 1,929 | (31 | ) | 0 | 0 | 0 | 5 | 1,929 | (31 | ) | |||||||||||||||||||||||||
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19 | $ | 176,040 | $ | (2,987 | ) | 3 | $ | 21,045 | $ | (835 | ) | 22 | $ | 197,085 | $ | (3,822 | ) | |||||||||||||||||||
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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 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. In analyzing an issuers 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 issuers financial condition.
The corporate notes at December 31, 2011 and 2010 primarily consists of one bond with an amortized cost of $4.5 million and an unrealized loss of $1.2 million at December 31, 2011. The bond is scheduled to mature in May 2047, with a first call date option in May 2012. Management determined this unrealized loss did not represent other-than-temporary impairment at December 31, 2011 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 managements expectations of their ability to fully recover this investment. Interest on the corporate note has been paid as agreed and management believes this will continue in the future and the bond will be repaid in full as scheduled. For these reasons, no other-than-temporary impairment was recognized on the corporate note at December 31, 2011.
We consider the losses on our investments in an unrealized loss position at December 31, 2011 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 Companys intention not to sell, or it is more likely than not that it will not be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis.
F-27
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:
2011 | 2010 | |||||||
(In thousands) | ||||||||
Loan portfolio composition |
||||||||
Real estate loans: |
||||||||
Residential |
$ | 2,043 | $ | 2,263 | ||||
Commercial & industrial |
2,631,880 | 1,525,687 | ||||||
Construction |
44,756 | 46,900 | ||||||
|
|
|
|
|||||
Total real estate loans |
2,678,679 | 1,574,850 | ||||||
Commercial business |
849,576 | 504,458 | ||||||
Trade finance |
146,684 | 57,430 | ||||||
Consumer and other |
66,631 | 13,268 | ||||||
|
|
|
|
|||||
Total loans outstanding |
3,741,570 | 2,150,006 | ||||||
Less: deferred loan fees |
(2,744 | ) | (2,261 | ) | ||||
|
|
|
|
|||||
Gross loans receivable |
3,738,826 | 2,147,745 | ||||||
Less: allowance for loan losses |
(61,952 | ) | (62,320 | ) | ||||
|
|
|
|
|||||
Loans receivable, net |
$ | 3,676,874 | $ | 2,085,425 | ||||
|
|
|
|
The following table presents the outstanding principal balance and the related carrying amount of the acquired Center Financial loans as of November 2011 included in our Consolidated Statements of Condition at December 31, 2011:
Outstanding principal balance |
$ | 1,458,133 | ||
Carrying amount |
1,347,525 |
The following table presents changes in the accretable discount on the acquired Credit Impaired Loans in the Center merger for the year ended December 31, 2011:
Balance at January 1, 2011 |
$ | 0 | ||
Center merger |
32,872 | |||
Accretion |
(873 | ) | ||
|
|
|||
Balance at December 31, 2011 |
$ | 31,999 | ||
|
|
F-28
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, 2011 is as follows:
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: |
||||||||||||||||||||||||||||||||||||
Balance, beginning of year |
$ | 36,295 | $ | 24,930 | $ | 192 | $ | 903 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 62,320 | ||||||||||||||||||
Provision (credit) for loan losses |
23,604 | 2,067 | 2,714 | (446 | ) | 0 | 0 | 0 | 0 | 27,939 | ||||||||||||||||||||||||||
Loans charged off |
(22,187 | ) | (8,603 | ) | (1,153 | ) | (256 | ) | 0 | 0 | 0 | 0 | (32,199 | ) | ||||||||||||||||||||||
Recoveries of charged offs |
1,328 | 2,287 | 33 | 244 | 0 | 0 | 0 | 0 | 3,892 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Balance, end of year |
$ | 39,040 | $ | 20,681 | $ | 1,786 | $ | 445 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 61,952 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Allowance for loan losses: |
||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment |
$ | 10,525 | $ | 7,168 | $ | 342 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 18,035 | ||||||||||||||||||
Collectively evaluated for impairment |
28,515 | 13,513 | 1,444 | 445 | 0 | 0 | 0 | 0 | 43,917 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total |
$ | 39,040 | $ | 20,681 | $ | 1,786 | $ | 445 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 61,952 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Loans receivable: |
||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment |
$ | 51,752 | $ | 25,150 | $ | 4,997 | $ | 150 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 82,049 | ||||||||||||||||||
Collectively evaluated for impairment |
1,694,483 | 507,841 | 97,013 | 12,660 | 0 | 0 | 0 | 0 | 2,311,997 | |||||||||||||||||||||||||||
Loans acquired from Center |
0 | 0 | 0 | 0 | 932,444 | 316,585 | 44,674 | 53,821 | 1,347,524 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total |
$ | 1,746,235 | $ | 532,991 | $ | 102,010 | $ | 12,810 | $ | 932,444 | $ | 316,585 | $ | 44,674 | $ | 53,821 | $ | 3,741,570 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-29
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, 2010 is as follows:
Legacy | Total | |||||||||||||||||||
Real Estate | Commercial Business |
Trade Finance |
Consumer and Other |
|||||||||||||||||
(In Thousands) | ||||||||||||||||||||
Allowance for loan losses: |
||||||||||||||||||||
Balance, beginning of year |
$ | 41,772 | $ | 15,656 | $ | 410 | $ | 1,586 | $ | 59,424 | ||||||||||
Provision (credit) for loan losses |
53,441 | 30,930 | (218 | ) | 477 | 84,630 | ||||||||||||||
Loans charged off |
(59,689 | ) | (23,607 | ) | 0 | (1,356 | ) | (84,652 | ) | |||||||||||
Recoveries of charged offs |
771 | 1,951 | 0 | 196 | 2,918 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance, end of year |
$ | 36,295 | $ | 24,930 | $ | 192 | $ | 903 | $ | 62,320 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Allowance for loan losses: |
||||||||||||||||||||
Individually evaluated for impairment |
$ | 7,831 | $ | 13,271 | $ | 0 | $ | 0 | $ | 21,102 | ||||||||||
Collectively evaluated for impairment |
28,464 | 11,659 | 192 | 903 | 41,218 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 36,295 | $ | 24,930 | $ | 192 | $ | 903 | $ | 62,320 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Loans receivable: |
||||||||||||||||||||
Individually evaluated for impairment |
$ | 81,140 | $ | 40,990 | $ | 469 | $ | 88 | $ | 122,687 | ||||||||||
Collectively evaluated for impairment |
1,493,710 | 463,468 | 56,961 | 13,180 | 2,027,319 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 1,574,850 | $ | 504,458 | $ | 57,430 | $ | 13,268 | $ | 2,150,006 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Activity in the allowance for loan losses is as follows for the year ended December 31, 2009:
(In Thousands) | ||||
Balance, beginning of year |
$ | 43,419 | ||
Provision for loan losses |
61,023 | |||
Loans charged off |
(45,686 | ) | ||
Recoveries of charge-offs |
668 | |||
|
|
|||
Balance, end of year |
$ | 59,424 | ||
|
|
Individually impaired loans were as follows:
As of and for the Year Ended December 31, |
||||||||
2011 | 2010 | |||||||
(In Thousands) | ||||||||
With Allocated Allowance |
||||||||
Without charge-off |
$ | 67,202 | $ | 63,944 | ||||
With charge-off |
341 | 4,188 | ||||||
With No Allocated Allowance |
||||||||
Without charge-off |
8,123 | 42,015 | ||||||
With charge-off |
6,383 | 12,540 | ||||||
Allowance on Impaired Loans |
(18,035 | ) | (21,102 | ) | ||||
|
|
|
|
|||||
Impaired Loans, net of allowance |
$ | 64,014 | $ | 101,585 | ||||
|
|
|
|
|||||
Average Impaired Loans |
$ | 93,627 | $ | 123,242 | ||||
Interest income recognized during impairment |
$ | 3,121 | $ | 6,188 | ||||
Cash-basis interest income recognized |
$ | 3,021 | $ | 6,135 |
F-30
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The following table details the amount of our legacy impaired loans by class with no related allowance for loan losses, as well as the amount of impaired loans for which there is a related allowance for loan losses as of December 31, 2011 and 2010. Loans with no related allowance for loan losses have adequate collateral securing their carrying value and in some circumstances, have been charged down to their current carrying value, which is based on the fair value of the collateral.
As of December 31, 2011 | ||||||||||||||||
Recorded Investment |
Unpaid Principal Balance |
Related Allowance |
Average Recorded Investment |
|||||||||||||
(In Thousands) | ||||||||||||||||
With Related Allowance: |
||||||||||||||||
Real EstateResidential |
$ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
Real EstateCommercial |
||||||||||||||||
Retail |
1,810 | 1,810 | (668 | ) | 3,475 | |||||||||||
Hotel & Motel |
17,439 | 17,441 | (4,093 | ) | 14,581 | |||||||||||
Gas Station & Car Wash |
2,266 | 2,265 | (550 | ) | 2,825 | |||||||||||
Mixed Use |
2,828 | 2,822 | (128 | ) | 1,953 | |||||||||||
Industrial & Warehouse |
4,262 | 4,242 | (407 | ) | 4,826 | |||||||||||
Other |
14,870 | 14,982 | (4,630 | ) | 6,192 | |||||||||||
Real EstateConstruction |
127 | 128 | (49 | ) | 2,504 | |||||||||||
Commercial Business |
19,413 | 19,416 | (7,168 | ) | 22,929 | |||||||||||
Trade Finance |
4,528 | 4,497 | (342 | ) | 906 | |||||||||||
Consumer and Other |
0 | 0 | 0 | 0 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 67,543 | $ | 67,603 | $ | (18,035 | ) | $ | 60,191 | ||||||||
With No Related Allowance |
||||||||||||||||
Real EstateResidential |
$ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
Real EstateCommercial |
||||||||||||||||
Retail |
1,388 | 1,391 | 0 | 4,485 | ||||||||||||
Hotel & Motel |
0 | 0 | 0 | 3,770 | ||||||||||||
Gas Station & Car Wash |
288 | 287 | 0 | 2,621 | ||||||||||||
Mixed Use |
0 | 0 | 0 | 1,868 | ||||||||||||
Industrial & Warehouse |
2,651 | 2,662 | 0 | 2,380 | ||||||||||||
Other |
2,102 | 2,092 | 0 | 8,934 | ||||||||||||
Real EstateConstruction |
1,721 | 1,710 | 0 | 3,283 | ||||||||||||
Commercial Business |
5,737 | 5,740 | 0 | 5,191 | ||||||||||||
Trade Finance |
469 | 467 | 0 | 759 | ||||||||||||
Consumer and Other |
150 | 150 | 0 | 145 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 14,506 | $ | 14,499 | $ | 0 | $ | 33,436 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 82,049 | $ | 82,102 | $ | (18,035 | ) | $ | 93,627 | |||||||
|
|
|
|
|
|
|
|
F-31
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
As of December 31, 2010 | ||||||||||||||||
Recorded Investment |
Unpaid Principal Balance |
Related Allowance |
Average Recorded Investment |
|||||||||||||
(In Thousands) | ||||||||||||||||
With Related Allowance: |
||||||||||||||||
Real EstateResidential |
$ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
Real EstateCommercial |
||||||||||||||||
Retail |
7,379 | 7,347 | (1,518 | ) | 7,498 | |||||||||||
Hotel & Motel |
5,326 | 5,349 | (987 | ) | 11,439 | |||||||||||
Gas Station & Car Wash |
3,140 | 3,142 | (1,411 | ) | 8,844 | |||||||||||
Mixed Use |
307 | 308 | (53 | ) | 2,334 | |||||||||||
Industrial & Warehouse |
7,549 | 7,539 | (1,729 | ) | 2,453 | |||||||||||
Other |
2,701 | 2,697 | (448 | ) | 5,711 | |||||||||||
Real EstateConstruction |
5,789 | 5,789 | (1,686 | ) | 4,027 | |||||||||||
Commercial Business |
35,926 | 35,961 | (13,270 | ) | 29,753 | |||||||||||
Trade Finance |
0 | 0 | 0 | 0 | ||||||||||||
Consumer and Other |
0 | 0 | 0 | 89 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 68,117 | $ | 68,132 | $ | (21,102 | ) | $ | 72,148 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
With No Related Allowance |
||||||||||||||||
Real EstateResidential |
$ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
Real EstateCommercial |
||||||||||||||||
Retail |
9,121 | 9,127 | 0 | 10,100 | ||||||||||||
Hotel & Motel |
8,626 | 8,619 | 0 | 7,299 | ||||||||||||
Gas Station & Car Wash |
5,205 | 5,197 | 0 | 8,361 | ||||||||||||
Mixed Use |
3,660 | 3,660 | 0 | 4,635 | ||||||||||||
Industrial & Warehouse |
367 | 367 | 2,510 | |||||||||||||
Other |
17,558 | 17,530 | 0 | 10,853 | ||||||||||||
Real EstateConstruction |
4,457 | 4,469 | 0 | 2,481 | ||||||||||||
Commercial Business |
5,018 | 5,029 | 0 | 4,550 | ||||||||||||
Trade Finance |
469 | 469 | 0 | 287 | ||||||||||||
Consumer and Other |
89 | 88 | 0 | 18 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 54,570 | $ | 54,555 | $ | 0 | $ | 51,094 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 122,687 | $ | 122,687 | $ | (21,102 | ) | $ | 123,242 | |||||||
|
|
|
|
|
|
|
|
F-32
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The following table provides nonaccrual loans by class of loans as of December 31, 2011 and 2010:
December 31, 2011 |
December 31, 2010* |
|||||||
(In Thousands) | ||||||||
Real estate loans: |
||||||||
Residential |
$ | 0 | $ | 0 | ||||
Commercial |
||||||||
Retail |
2,612 | 1,615 | ||||||
Hotel & Motel |
482 | 1,187 | ||||||
Gas Station & Car Wash |
1,368 | 3,054 | ||||||
Mixed Use |
822 | 3,968 | ||||||
Industrial & Warehouse |
3,055 | 3,690 | ||||||
Other |
10,865 | 4,834 | ||||||
Construction |
127 | 8,547 | ||||||
|
|
|
|
|||||
Total |
$ | 19,331 | $ | 26,895 | ||||
Commercial business |
11,462 | 15,991 | ||||||
Trade finance |
117 | 469 | ||||||
Consumer and other |
150 | 448 | ||||||
|
|
|
|
|||||
$ | 31,060 | $ | 43,803 | |||||
|
|
|
|
* | Recorded investment, which is net of unpaid principal, accrued interest receivable, deferred loan fees and discounts is not materially different from loan balance in this presentation. Accrued interest receivable on loans is $6.1 million and deferred loan fees on total loans are $(2.3) million at December 31, 2010. |
F-33
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The following table presents the aging of past due loans as of December 31, 2011 and 2010 by class of loans:
As of December 31, 2011 | ||||||||||||||||||||||||||||
30-59 Days Past Due |
60-89 Days Past Due |
Greater than 90 Days Past Due |
Total Past Due |
Non-accrual loans |
Total Delinquent loans |
Greater than 90 days and accruing |
||||||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||||||
Legacy Loans |
||||||||||||||||||||||||||||
Real estateResidential |
$ | 36 | $ | 0 | $ | 0 | $ | 36 | $ | 0 | $ | 36 | $ | 0 | ||||||||||||||
Real estateCommercial |
||||||||||||||||||||||||||||
Retail |
431 | 0 | 0 | 431 | 2,612 | 3,043 | 0 | |||||||||||||||||||||
Hotel & Motel |
0 | 0 | 0 | 0 | 482 | 482 | 0 | |||||||||||||||||||||
Gas Station & Car Wash |
634 | 0 | 0 | 634 | 1,368 | 2,002 | 0 | |||||||||||||||||||||
Mixed Use |
0 | 0 | 0 | 0 | 822 | 822 | 0 | |||||||||||||||||||||
Industrial & Warehouse |
360 | 0 | 0 | 360 | 3,055 | 3,415 | 0 | |||||||||||||||||||||
Other |
0 | 119 | 0 | 119 | 10,865 | 10,984 | 0 | |||||||||||||||||||||
Real estateConstruction |
0 | 0 | 0 | 0 | 127 | 127 | 0 | |||||||||||||||||||||
Commercial business |
1,396 | 392 | 0 | 1,788 | 11,462 | 13,250 | 0 | |||||||||||||||||||||
Trade finance |
0 | 0 | 0 | 0 | 117 | 117 | 0 | |||||||||||||||||||||
Consumer and other |
5 | 0 | 0 | 5 | 150 | 155 | 0 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Subtotal |
$ | 2,862 | $ | 511 | $ | 0 | $ | 3,373 | $ | 31,060 | $ | 34,433 | $ | 0 | ||||||||||||||
Acquired Loans |
||||||||||||||||||||||||||||
Real estateResidential |
$ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||
Real estateCommercial |
||||||||||||||||||||||||||||
Retail |
147 | 64 | 1,675 | 1,886 | 0 | 1,886 | 1,675 | |||||||||||||||||||||
Hotel & Motel |
0 | 45 | 0 | 45 | 0 | 45 | 0 | |||||||||||||||||||||
Gas Station & Car Wash |
2,547 | 177 | 817 | 3,541 | 0 | 3,541 | 817 | |||||||||||||||||||||
Mixed Use |
1,178 | 1,702 | 389 | 3,269 | 0 | 3,269 | 389 | |||||||||||||||||||||
Industrial & Warehouse |
3,393 | 0 | 110 | 3,503 | 0 | 3,503 | 110 | |||||||||||||||||||||
Other |
1,472 | 228 | 4,237 | 5,937 | 0 | 5,937 | 4,237 | |||||||||||||||||||||
Real estateConstruction |
0 | 4,499 | 0 | 4,499 | 0 | 4,499 | 0 | |||||||||||||||||||||
Commercial business |
1,747 | 1,402 | 9,125 | 12,274 | 0 | 12,274 | 9,125 | |||||||||||||||||||||
Trade finance |
0 | 0 | 202 | 202 | 0 | 202 | 202 | |||||||||||||||||||||
Consumer and other |
705 | 370 | 700 | 1,775 | 0 | 1,775 | 700 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Subtotal |
$ | 11,189 | $ | 8,487 | $ | 17,255 | $ | 36,931 | $ | 0 | $ | 36,931 | $ | 17,255 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
TOTAL |
$ | 14,051 | $ | 8,998 | $ | 17,255 | $ | 40,304 | $ | 31,060 | $ | 71,364 | $ | 17,255 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-34
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
As of December 31, 2010 | ||||||||||||||||||||||||||||
30-59 Days Past Due* |
60-89 Days Past Due* |
Greater than 90 Days Past Due |
Total Past Due* |
Non Accrual* |
Total Delinquent Loans* |
Greater than 90 days and accruing |
||||||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||||||
Legacy Loans |
||||||||||||||||||||||||||||
Real estateResidential |
$ | 46 | $ | 0 | $ | 0 | $ | 46 | $ | 0 | $ | 46 | $ | 0 | ||||||||||||||
Real estateCommercial |
||||||||||||||||||||||||||||
Retail |
950 | 188 | 0 | 1,138 | 1,615 | 2,753 | 0 | |||||||||||||||||||||
Hotel & Motel |
455 | 0 | 0 | 455 | 1,187 | 1,642 | 0 | |||||||||||||||||||||
Gas Station & Car Wash |
0 | 0 | 0 | 0 | 3,054 | 3,054 | 0 | |||||||||||||||||||||
Mixed Use |
401 | 0 | 0 | 401 | 3,968 | 4,369 | 0 | |||||||||||||||||||||
Industrial & Warehouse |
133 | 239 | 0 | 372 | 3,690 | 4,062 | 0 | |||||||||||||||||||||
Other |
302 | 0 | 0 | 302 | 4,834 | 5,136 | 0 | |||||||||||||||||||||
Real estateConstruction |
0 | 0 | 0 | 0 | 8,547 | 8,547 | 0 | |||||||||||||||||||||
Commercial business |
684 | 855 | 0 | 1,539 | 15,991 | 17,530 | 0 | |||||||||||||||||||||
Trade finance |
0 | 0 | 0 | 0 | 469 | 469 | 0 | |||||||||||||||||||||
Consumer and other |
41 | 2 | 0 | 43 | 448 | 491 | 0 | |||||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 3,012 | $ | 1,284 | $ | 0 | $ | 4,296 | $ | 43,803 | $ | 48,099 | $ | 0 | ||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|
|
* | Recorded investment, which is net of unpaid principal, accrued interest receivable, deferred loan fees and discounts is not materially different from loan balance in this presentation. Accrued interest receivable on loans is $6.1 million and deferred loan fees on total loans are $(2.3) million at December 31, 2010. |
We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. 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:
| Special Mention: Loans classified as special mention have a potential weakness that deserves managements close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institutions 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: 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. |
F-35
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be Pass-rated loans. As of December 31, 2011 and 2010, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:
As of December 31, 2011 | ||||||||||||||||
Special Mention |
Substandard | Doubtful | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Legacy Loans: |
||||||||||||||||
Real estateResidential |
$ | 0 | $ | 36 | $ | 0 | $ | 36 | ||||||||
Real estateCommercial |
||||||||||||||||
Retail |
3,430 | 13,477 | 0 | 16,907 | ||||||||||||
Hotel & Motel |
5,008 | 17,875 | 0 | 22,883 | ||||||||||||
Gas Station & Car Wash |
3,489 | 2,554 | 0 | 6,043 | ||||||||||||
Mixed Use |
2,279 | 3,026 | 0 | 5,305 | ||||||||||||
Industrial & Warehouse |
3,998 | 7,238 | 404 | 11,640 | ||||||||||||
Other |
5,914 | 15,393 | 0 | 21,307 | ||||||||||||
Real estateConstruction |
0 | 1,848 | 0 | 1,848 | ||||||||||||
Commercial business |
11,357 | 30,114 | 5,994 | 47,465 | ||||||||||||
Trade finance |
274 | 4,997 | 0 | 5,271 | ||||||||||||
Consumer and other |
0 | 1,081 | 0 | 1,081 | ||||||||||||
Subtotal |
$ | 35,749 | $ | 97,639 | $ | 6,398 | $ | 139,786 | ||||||||
Acquired Loans: |
||||||||||||||||
Real estateResidential |
$ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
|
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|
|
|||||||||
Real estateCommercial |
||||||||||||||||
Retail |
11,591 | 11,334 | 0 | 22,925 | ||||||||||||
Hotel & Motel |
13,138 | 16,746 | 0 | 29,884 | ||||||||||||
Gas Station & Car Wash |
5,665 | 5,760 | 0 | 11,425 | ||||||||||||
Mixed Use |
3,532 | 2,829 | 0 | 6,361 | ||||||||||||
Industrial & Warehouse |
2,673 | 3,770 | 0 | 6,443 | ||||||||||||
Other |
6,702 | 12,598 | 0 | 19,300 | ||||||||||||
Real estateConstruction |
0 | 5,489 | 0 | 5,489 | ||||||||||||
Commercial business |
16,096 | 39,630 | 353 | 56,079 | ||||||||||||
Trade finance |
128 | 829 | 0 | 957 | ||||||||||||
Consumer and other |
1,662 | 2,526 | 0 | 4,188 | ||||||||||||
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|||||||||
Subtotal |
$ | 61,187 | $ | 101,511 | $ | 353 | $ | 163,051 | ||||||||
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|
|
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|
|
|||||||||
Total |
$ | 96,936 | $ | 199,150 | $ | 6,751 | $ | 302,837 | ||||||||
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F-36
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
As of December 31, 2010 | ||||||||||||||||
Special Mention |
Substandard | Doubtful | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Real estateResidential |
$ | 0 | $ | 46 | $ | 0 | $ | 46 | ||||||||
Real estateCommercial |
||||||||||||||||
Retail |
1,948 | 18,898 | 0 | 20,846 | ||||||||||||
Hotel & Motel |
10,896 | 15,490 | 0 | 26,386 | ||||||||||||
Gas Station & Car Wash |
8,798 | 8,923 | 0 | 17,721 | ||||||||||||
Mixed Use |
364 | 5,887 | 0 | 6,251 | ||||||||||||
Industrial & Warehouse |
385 | 8,871 | 0 | 9,256 | ||||||||||||
Other |
1,865 | 21,431 | 23,296 | |||||||||||||
Real estateConstruction |
0 | 10,257 | 0 | 10,257 | ||||||||||||
Commercial business |
4,182 | 45,054 | 260 | 49,496 | ||||||||||||
Trade finance |
305 | 469 | 0 | 774 | ||||||||||||
Consumer and other |
830 | 448 | 0 | 1,278 | ||||||||||||
|
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|
|||||||||
Total Watch List Loans |
$ | 29,573 | $ | 135,774 | $ | 260 | $ | 165,607 | ||||||||
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|
The following table presents loans sold during the years ended December 31, 2011 and 2010 by portfolio segment:
Real estate - Commercial |
Real estate - Construction |
Commercial Business |
Total | |||||||||||||
(In Thousands) | ||||||||||||||||
December 31, 2011: |
||||||||||||||||
Sales or reclassification to held for sale |
$ | 25,358 | $ | 5,920 | $ | 193 | $ | 31,471 | ||||||||
December 31, 2010: |
||||||||||||||||
Sales or reclassification to held for sale |
$ | 69,280 | $ | 10,295 | $ | 502 | $ | 80,077 |
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 Banks 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 Banks 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: borrowers 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 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 the most recent 12 quarters 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.
F-37
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
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 $20.4 million at December 31, 2011, compared to $23.9 million at December 31, 2010.
Additionally, in order to systematically quantify the credit risk impact of other trends and changes within the loan portfolio, the Bank utilizes qualitative adjustments to the Migration Analysis within established parameters. The parameters for making adjustments are established under a Credit Risk Matrix that provides seven possible scenarios for each of the factors below. The matrix allows for up to three positive (Major, Moderate, and Minor), three negative (Major, Moderate, and Minor), and one neutral credit risk scenarios within each factor for each loan type pool. Generally, the factors are considered to have no significant impact (neutral) to our historical migration ratios. However, if information exists to warrant adjustment to the Migration Analysis, changes are made in accordance with the established parameters supported by narrative and/or statistical analysis. The Credit Risk Matrix and the nine possible scenarios enable the Bank to qualitatively adjust the Loss Migration Ratio or individual specific reserve allocations by as much as 50 basis points in either direction (positive or negative) for each loan type pool. This matrix considers the following nine factors, which are patterned after the guidelines provided under the FFIEC Interagency Policy Statement on the Allowance for Loan and Lease Losses:
| Changes in lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices. |
| Changes in national and local economic and business conditions and developments, including the condition of various market segments. |
| Changes in the nature and volume of the loan portfolio. |
| Changes in the experience, ability, and depth of lending management and staff. |
| Changes in the trends of the volume and severity of past due and classified loans; and changes in trends in the volume 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 $23.5 million at December 31, 2011 compared to compared to $17.0 million at December 31, 2010.
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 loans effective interest rate; 2) the loans 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 become impaired. The appraisals are based on an as is valuation. To ensure that appraised values remain current, we generally obtain
F-38
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
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.
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 borrowers 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 loans effective interest rate or on the fair value of the loans 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 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, 2011, were $82.1 million , a net decrease of $40.6 million from $122.7 million at
F-39
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
December 31, 2010. This net decrease in impaired loans is due primarily to the sales of 24 impaired loans, totaling $33.1 million, and the return of 34 loans totaling $22.4 million to non-impaired status year-to-date. The return to non-impaired status was based on a review of the current financial information and payment performance.
The following table presents loans by portfolio segment and impairment method at December 31, 2011 and 2010:
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 |
$ | 0 | $ | 49,904 | $ | 1,848 | $ | 25,150 | $ | 4,997 | $ | 150 | $ | 82,049 | ||||||||||||||
Specific allowance |
$ | 0 | $ | 10,476 | $ | 49 | $ | 7,168 | $ | 342 | $ | 0 | $ | 18,035 | ||||||||||||||
Loss coverage ratio |
0.0 | % | 21.0 | % | 2.7 | % | 28.5 | % | 6.8 | % | 0.0 | % | 22.0 | % | ||||||||||||||
Non-impaired loans |
$ | 2,043 | $ | 2,581,976 | $ | 42,908 | $ | 824,426 | $ | 141,687 | $ | 66,482 | $ | 3,659,522 | ||||||||||||||
General allowance |
$ | 9 | $ | 27,831 | $ | 675 | $ | 13,513 | $ | 1,444 | $ | 445 | $ | 43,917 | ||||||||||||||
Loss coverage ratio |
0.4 | % | 1.1 | % | 1.6 | % | 1.6 | % | 1.0 | % | 0.7 | % | 1.2 | % | ||||||||||||||
Total loans |
$ | 2,043 | $ | 2,631,880 | $ | 44,756 | $ | 849,576 | $ | 146,684 | $ | 66,632 | $ | 3,741,571 | ||||||||||||||
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 | % |
As of December 31, 2010 | ||||||||||||||||||||||||||||
Real estate - Residential |
Real estate - Commercial |
Real estate - Construction |
Commercial business |
Trade finance |
Consumer and other |
Total | ||||||||||||||||||||||
(In Thousands) | ||||||||||||||||||||||||||||
Impaired loans* |
$ | 0 | $ | 70,882 | $ | 10,258 | $ | 40,990 | $ | 469 | $ | 88 | $ | 122,687 | ||||||||||||||
Specific allowance |
$ | 0 | $ | 6,145 | $ | 1,686 | $ | 13,271 | $ | 0 | $ | 0 | $ | 21,102 | ||||||||||||||
Loss coverage ratio |
0.0 | % | 8.7 | % | 16.4 | % | 32.4 | % | 0.0 | % | 0.0 | % | 17.2 | % | ||||||||||||||
Non-impaired loans |
$ | 2,263 | $ | 1,453,768 | $ | 36,642 | $ | 450,821 | $ | 56,961 | $ | 13,180 | $ | 2,013,635 | ||||||||||||||
General allowance |
$ | 14 | $ | 26,740 | $ | 1,710 | $ | 11,659 | $ | 192 | $ | 903 | $ | 41,218 | ||||||||||||||
Loss coverage ratio |
0.6 | % | 1.8 | % | 4.7 | % | 2.6 | % | 0.3 | % | 6.9 | % | 2.0 | % | ||||||||||||||
Total loans |
$ | 2,263 | $ | 1,524,650 | $ | 46,900 | $ | 491,811 | $ | 57,430 | $ | 13,268 | $ | 2,136,322 | ||||||||||||||
Total allowance for loan losses |
$ | 14 | $ | 32,885 | $ | 3,396 | $ | 24,930 | $ | 192 | $ | 903 | $ | 62,320 | ||||||||||||||
Loss coverage ratio |
0.6 | % | 2.2 | % | 7.2 | % | 5.1 | % | 0.3 | % | 6.8 | % | 2.9 | % |
* | Recorded investment, which is net of unpaid principal, accrued interest receivable, deferred loan fees and discounts is not materially different from loan balance in this presentation. Accrued interest receivable on loans is $6.1 million and deferred loan fees on total loans are $(2.3) million at December 31, 2010. |
Under certain circumstances, we provide borrowers relief through loan modifications. These modifications are either temporary in nature (temporary modifications), or are more substantive troubled debt restructurings. At December 31, 2011, total modified loans were $32.7 million, compared to $55.6 million at December 31, 2010. 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.
F-40
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Troubled Debt Restructured (TDR) loans are defined by ASC 310-40, Troubled Debt Restructurings by Creditors and ASC 470-60, Troubled Debt Restructurings by Debtors, and evaluated for impairment in accordance with ASC 310-10-35. The concessions may be granted in various forms, including reduction in the stated interest rate, reduction in the amount of principal amortization, forgiveness of a portion of a loan balance or accrued interest, or extension of the maturity date. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed 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, 2011 and 2010 is presented below:
As of December 31, 2011 | ||||||||||||||||||||||||||||||||||||
TDR on accrual | TDR on non-accrual | |||||||||||||||||||||||||||||||||||
(In Thousands) | Real estate - Commercial |
Commercial Business |
Trade Finance |
Total | Real estate - Commercial |
Commercial Business |
Trade Finance and Other |
Total | TOTAL | |||||||||||||||||||||||||||
Payment concession |
$ | 949 | $ | 1,365 | $ | 0 | $ | 2,314 | $ | 3,769 | $ | 3,441 | $ | 0 | $ | 7,210 | $ | 9,524 | ||||||||||||||||||
Maturity / Amortization concession |
0 | 888 | 469 | 1,357 | 1,178 | 1,578 | 150 | 2,906 | 4,263 | |||||||||||||||||||||||||||
Rate concession |
12,384 | 2,740 | 0 | 15,124 | 3,335 | 396 | 0 | 3,731 | 18,855 | |||||||||||||||||||||||||||
Principal forgiveness |
0 | 0 | 0 | 0 | 0 | 78 | 0 | 78 | 78 | |||||||||||||||||||||||||||
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|||||||||||||||||||
$ | 13,333 | $ | 4,993 | $ | 469 | $ | 18,795 | $ | 8,282 | $ | 5,493 | $ | 150 | $ | 13,925 | $ | 32,720 | |||||||||||||||||||
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December 31, 2010 | ||||||||||||||||||||||||||||||||
TDR on accrual | TDR on non-accrual | |||||||||||||||||||||||||||||||
(In Thousands) | Real estate - Commercial |
Commercial Business |
Total | Real estate - Commercial |
Commercial Business |
Trade Finance and Other |
Total | TOTAL | ||||||||||||||||||||||||
Payment concession |
$ | 975 | $ | 8,744 | $ | 9,719 | $ | 3,018 | $ | 2,773 | $ | 0 | $ | 5,791 | $ | 15,510 | ||||||||||||||||
Maturity / Amortization concession |
4,968 | 7,144 | 12,112 | 2,847 | 4,055 | 557 | 7,459 | 19,571 | ||||||||||||||||||||||||
Rate concession |
12,250 | 1,022 | 13,272 | 4,346 | 2,834 | 0 | 7,180 | 20,452 | ||||||||||||||||||||||||
Principal forgiveness |
0 | 0 | 0 | 0 | 91 | 0 | 91 | 91 | ||||||||||||||||||||||||
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|
|||||||||||||||||
$ | 18,193 | $ | 16,910 | $ | 35,103 | $ | 10,211 | $ | 9,753 | $ | 557 | $ | 20,521 | $ | 55,624 | |||||||||||||||||
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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. 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, 2011 were comprised of 6 commercial real estate loans totaling $13.3 million and 19 commercial business loans totaling $5.0 million. TDRs on accrual status at December 31, 2010 were comprised of 17 commercial real estate loans totaling $18.2 million and 43 commercial business loans totaling $16.9 million. We expect that the TDRs on accrual status as of December 31, 2011, which are all performing in accordance with their restructured terms, to
F-41
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
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.
The following table presents loans by class modified as troubled debt restructuring that occurred during the year ended December 31, 2011:
(In thousands) | Number of Loans |
Pre- Modification |
Post- Modification as of December 31, 2011 |
|||||||||
Real estateCommercial |
||||||||||||
Retail |
2 | $ | 2,105 | $ | 1,210 | |||||||
Hotel & Motel |
3 | 8,847 | 8,704 | |||||||||
Gas Station & Car Wash |
0 | 0 | 0 | |||||||||
Mixed Use |
2 | 1,794 | 1,771 | |||||||||
Industrial & Warehouse |
5 | 464 | 456 | |||||||||
Other |
4 | 962 | 880 | |||||||||
Real estateConstruction |
0 | 0 | 0 | |||||||||
Commercial business |
24 | 2,039 | 1,919 | |||||||||
Trade finance |
1 | 500 | 469 | |||||||||
Consumer and other |
1 | 84 | 69 | |||||||||
|
|
|
|
|
|
|||||||
Total |
42 | $ | 16,795 | $ | 15,478 | |||||||
|
|
|
|
|
|
The allowance for loan losses for the troubled debt restructuring described above as of December 31, 2011 was $4.2 million and the charge offs for the year ended December 31, 2011 was $3.2 million.
The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the year ended December 31, 2011:
Number of Loans |
Balance | |||||||
(In thousands) | ||||||||
Real estateCommercial |
||||||||
Retail |
1 | $ | 769 | |||||
Hotel & Motel |
0 | 0 | ||||||
Gas Station & Car Wash |
0 | 0 | ||||||
Industrial & Warehouse |
3 | 139 | ||||||
Other |
1 | 294 | ||||||
Commercial Business |
3 | 284 | ||||||
Consumer and Other |
0 | 0 | ||||||
|
|
|
|
|||||
8 | $ | 1,486 | ||||||
|
|
|
|
A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms. The allowance for loan losses for the troubled debt restructuring described above as of December 31, 2011 was $0.3 million and the charge offs for the year ended December 31, 2011 was $2.0 million.
We have allocated $6.4 million and $15.8 million of specific reserves to TDRs as of December 31, 2011 and December 31, 2010, respectively. As of December 31, 2011 and December 31, 2010, we did not have any outstanding commitments to extend additional funds to these borrowers.
F-42
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
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 $3.6 million at December 31, 2011. These covered nonperforming assets are subject to the loss sharing agreements with the FDIC. The covered nonperforming assets at December 31, 2011 were as follows:
(in thousands) | December 31, 2011 | |||
Covered loans on non-accrual status |
$ | 0 | ||
Covered other real estate owned |
3,575 | |||
|
|
|||
Total covered nonperforming assets |
$ | 3,575 | ||
|
|
|||
Acquired covered loans |
$ | 89,959 | ||
Covered nonperforming assets to net covered loans |
3.97 | % |
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.
5. GOODWILL AND OTHER INTANGIBLE ASSETS
The change in goodwill during the year is as follows:
2011 | 2010 | 2009 | ||||||||||
(In thousands) | ||||||||||||
Beginning of year |
$ | 2,509 | $ | 2,509 | $ | 2,509 | ||||||
Center acquisition |
87,964 | 0 | 0 | |||||||||
Impairment |
0 | 0 | 0 | |||||||||
|
|
|
|
|
|
|||||||
End of year |
$ | 90,473 | $ | 2,509 | $ | 2,509 | ||||||
|
|
|
|
|
|
Goodwill impairment exists when a reporting units carrying value of goodwill exceeds its fair value, which is determined through a two-step impairment test. At December 31, 2011, the Companys reporting unit had positive equity and the Company elected to perform a qualitative assessment to determine if it was more likely than not that the fair value of the reporting unit exceeded its carrying value, including goodwill. The qualitative assessment indicated that goodwill was not impaired at December 31, 2011. At December 31, 2010, the election to perform a qualitative assessment was not available. Therefore, the Company performed Step 1 of the two-step impairment test and determined that goodwill was not impaired.
F-43
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The following table provides information regarding the amortizing intangible assets at December 31, 2011 and 2010:
2011 | 2010 | |||||||||||||||||||
Gross Carrying Amount |
Accumulated Amortization |
Gross Carrying Amount |
Accumulated Amortization |
|||||||||||||||||
Amortization period |
(In thousands) | |||||||||||||||||||
Intangible assets: |
||||||||||||||||||||
Core depositIBKNY acquisition |
10 years | $ | 1,187 | $ | (1,155 | ) | $ | 1,187 | $ | (1,118 | ) | |||||||||
Core depositAsiana Bank acquisition |
10 years | 1,018 | (970 | ) | 1,018 | (898 | ) | |||||||||||||
Core depositKEB, Broadway acquisition |
10 years | 2,726 | (2,581 | ) | 2,726 | (2,381 | ) | |||||||||||||
Core depositCenter Financial Corporation acquisition |
7 years | 4,100 | (49 | ) | 0 | 0 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 9,031 | $ | (4,755 | ) | $ | 4,931 | $ | (4,397 | ) | ||||||||||
|
|
|
|
|
|
|
|
Total amortization expense on deposit premiums was $357 thousand, $508 thousand and $585 thousand for the years ended December 31, 2011, 2010 and 2009, respectively. The estimated future amortization expense over the next five years for identifiable intangible assets is as follows: $1,243 thousand in 2012, $897 thousand in 2013, $720 thousand in 2014, $574 thousand in 2015, and $427 thousand in 2016.
6. DEPOSITS
The aggregate amount of time deposits in denominations of $100,000 or more at December 31, 2011 and 2010 was $759.9 million and $321.5 million, respectively. Included in time deposits of $100,000 or more were $300.0 million and $200.0 million in California State Treasurers deposits at December 31, 2011 and 2010, respectively. The California State Treasurers deposits are subject to withdrawal based on the States periodic evaluations. The Company is required to pledge eligible collateral of at least 110% of outstanding deposits. At December 31, 2011 and 2010, securities with carrying values of approximately $368.6 million and $268.3 million, respectively, were pledged as collateral for the California State Treasurers deposits.
At December 31, 2011, the scheduled maturities for time deposits were as follows:
Year Ended December 31 |
||||
(In thousands) | ||||
2012 |
$ | 1,276,723 | ||
2013 |
230,870 | |||
2014 |
8,969 | |||
2015 |
3,248 | |||
2016 and thereafter |
1,291 | |||
|
|
|||
$ | 1,521,101 | |||
|
|
F-44
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Interest expense on the deposits is summarized as follows:
2011 | 2010 | 2009 | ||||||||||
(In thousands) | ||||||||||||
Money market and other |
$ | 6,322 | $ | 6,374 | $ | 8,948 | ||||||
Savings deposits |
2,945 | 3,274 | 3,948 | |||||||||
Time deposits |
10,978 | 18,234 | 37,740 | |||||||||
|
|
|
|
|
|
|||||||
$ | 20,245 | $ | 27,882 | $ | 50,636 | |||||||
|
|
|
|
|
|
7. BORROWINGS
The Company maintains a secured credit facility with the Federal Home Loan Bank of San Francisco (FHLBSF) against which the Company may take advances. The borrowing capacity is limited to the lower of 30% of the Banks total assets or the Banks collateral capacity, which was $1.3 billion and $543.9 million at December 31, 2011 and 2010, respectively. The terms of this credit facility require the Company to pledge with the FHLB, eligible collateral equal to at least 100% of outstanding advances.
At December 31, 2011 and December 31, 2010, real estate secured loans with a carrying amount of approximately $2.0 billion and $1.1 billion, respectively, were pledged as collateral for borrowings from the FHLB. At December 31, 2011 and 2010, other than FHLB stock, securities totaling $3.0 million and $0 were pledged as collateral for borrowings from the FHLB.
At December 31, 2011 and December 31, 2010, FHLB borrowings were $344.4 million and $350.0 million, had a weighted average interest rate of 1.93% and 3.18%, respectively, and had various maturities through September 2017. At December 31, 2011, $205 million of the advances were putable advances with various putable dates and strike prices. During 2011, the Bank added $135.9 million of additional FHLB advances through the merger with Center, and repaid $141.0 million during the same period. Of $141.0 million, $70 million in higher-rate advances was early retired, which resulted in a prepayment expense of $6.4 million during the month of December 2011. The new advances have a weighted average cost of 0.50% with average remaining maturities of 1.3 years. The cost of FHLB borrowings as of December 31, 2011 ranged between 0.23% and 4.52%. At December 31, 2011, the Company had a remaining borrowing capacity of $930.2 million.
At December 31, 2011, the contractual maturities for FHLB borrowings were as follows:
Contractual Maturities |
Maturity/ Put Date |
|||||||
(In thousand) | ||||||||
Due within one year |
$ | 211,146 | $ | 276,146 | ||||
Due after one year through five years |
109,000 | 64,000 | ||||||
Due after five years through ten years |
20,000 | 0 | ||||||
|
|
|
|
|||||
$ | 340,146 | $ | 340,146 | |||||
|
|
|
|
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 Banks 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, 2011, the principal balance of the qualifying loans were $494.2 million and the collateral value of investment securities were $50.5 million, and no borrowing were outstanding against this line.
F-45
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Secured borrowings of $11.8 million at December 31, 2010 represents the sold portion of SBA loans with 90 days recourse clause. Recognition of these sales is required to be deferred until the end of the 90 day recourse period. As the SBA amended their agreements in February 2011, all loans submitted for secondary market sales on or after February 15, 2011 are treated as sales and they are not recorded as secured borrowings.
8. SUBORDINATED DEBENTURES
At December 31, 2011, five wholly-owned subsidiary grantor trusts established by former Nara Bancorp had issued $38 million of pooled Trust Preferred Securities (trust preferred securities) and one wholly-owned subsidiary grantor trust established by former Center Financial Corporation had issued $18 million of trust preferred securities. 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 Bancorps obligations under the subordinated debentures and related documents, taken together, constitute a full and unconditional guarantee by BBCN Bancorp of the obligations of the trusts. The trust preferred securities are mandatorily redeemable upon the maturity of the Debentures, or upon earlier redemption as provided in the indentures. BBCN Bancorp has the right to redeem the Debentures in whole (but not in part) on or after specific dates, at a redemption price specified in the indentures plus any accrued but unpaid interest to the redemption date. BBCN Bancorp also has a right to defer consecutive payments of interest on the debentures for up to five years.
The following table is a summary of trust preferred securities and debentures at December 31, 2011:
(Dollars in Thousands) | ||||||||||||||||||||||||||||
Issuance Trust |
Issuance Date |
Trust Preferred Security Amount |
Subordinated Debentures Amount |
Rate Type |
Initial Rate |
Rate at 12/31/11 |
Maturity Date |
|||||||||||||||||||||
Nara Bancorp Capital Trust I |
3/28/2001 | $ | 10,000 | $ | 10,400 | Fixed | 10.18 | % | 10.18 | % | 6/8/2031 | |||||||||||||||||
Nara Capital Trust III |
6/5/2003 | 5,000 | 5,155 | Variable | 4.44 | % | 3.70 | % | 6/15/2033 | |||||||||||||||||||
Nara Statutory Trust IV |
12/22/2003 | 5,000 | 5,155 | Variable | 4.02 | % | 3.25 | % | 1/7/2034 | |||||||||||||||||||
Nara Statutory Trust V |
12/17/2003 | 10,000 | 10,310 | Variable | 4.12 | % | 3.51 | % | 12/17/2033 | |||||||||||||||||||
Nara Statutory Trust VI |
3/22/2007 | 8,000 | 8,248 | Variable | 7.00 | % | 2.20 | % | 6/15/2037 | |||||||||||||||||||
Center Capital Trust I |
12/29/2003 | 18,000 | 12,834 | Variable | 3.25 | % | 1/7/2034 | |||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||
TOTAL ISSUANCE |
$ | 56,000 | $ | 52,102 | ||||||||||||||||||||||||
|
|
|
|
The Companys investment in the common trust securities of the issuer trusts of $2.0 million and $1.5 million at December 31, 2011 and 2010, 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. Specifically, under applicable regulatory guidelines, the $56 million of debt issued by the trusts qualify as Tier 1 capital, along with the $119.4 million of our outstanding Fixed Rate Cumulative Perpetual Preferred Stock, net of discount. 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, 2011, all of the $56 million of the trusts debt qualified as Tier 1 capital along with the $119.4 million of preferred stock. In July 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) was signed into law which, among other things, limits to bank holding companies having total assets of more than $15 billion the ability to treat trust preferred security debt issuances as Tier 1 capital. Since the Company had less than $15 billion in assets at December 31, 2011, under the Dodd-Frank Act, it will be able to continue to include its existing trust preferred debt in Tier 1 capital.
F-46
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The Board of Governors of the Federal Reserve System, which is BBCN Bancorps federal banking regulator, has promulgated a modification of the capital regulations affecting trust preferred securities. Under this modification, beginning March 31, 2011, the Company is required to use a more restrictive formula to determine the amount of trust preferred securities that can be included in regulatory Tier I capital. The Company will be allowed to include in Tier I capital an amount of trust preferred securities equal to no more than 25% of the sum of all core capital elements, which is generally defined as stockholders equity less certain intangibles, including core deposit intangibles, net of any related deferred income tax liability. The existing regulations in effect limit the amount of trust preferred securities that can be included in Tier I capital to 25% of the sum of core capital elements without a deduction for permitted intangibles. The adoption of this modification is not expected to have a material impact on the inclusion of our trust preferred securities for purposes of Tier 1 capital.
9. INCOME TAXES
A summary of income tax provision (benefit) follows for the years ended December 31:
Current | Deferred | Total | ||||||||||
(In thousands) | ||||||||||||
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 | ) | |||||
|
|
|
|
|
|
|||||||
2009 |
||||||||||||
Federal |
$ | 469 | $ | (4,497 | ) | $ | (4,028 | ) | ||||
State |
(296 | ) | (1,875 | ) | (2,171 | ) | ||||||
|
|
|
|
|
|
|||||||
$ | 173 | $ | (6,372 | ) | $ | (6,199 | ) | |||||
|
|
|
|
|
|
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:
2011 | 2010 | 2009 | ||||||||||
Statutory tax rate (benefit) |
35 | % | (35 | )% | (35 | )% | ||||||
State taxes (benefit)-net of federal tax effect |
6 | (11 | ) | (12 | ) | |||||||
CRA investment tax credit |
(3 | ) | (4 | ) | (4 | ) | ||||||
Other |
(1 | ) | (2 | ) | (1 | ) | ||||||
|
|
|
|
|
|
|||||||
37 | % | (52 | )% | (52 | )% | |||||||
|
|
|
|
|
|
F-47
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Deferred tax assets and liabilities at December 31, 2011 and 2010 are comprised of the following:
2011 | 2010 | |||||||
(In thousands) | ||||||||
Deferred tax assets: |
||||||||
Purchase accounting fair value adjustment |
$ | 46,957 | $ | 0 | ||||
Statutory bad debt deduction less than financial statement provision |
28,881 | 29,160 | ||||||
Net operating loss carryforward |
6,901 | 6,600 | ||||||
Capital loss carryforward |
53 | 0 | ||||||
Investment security provision |
1,657 | 802 | ||||||
Lease expense |
1,653 | 1,510 | ||||||
State tax deductions |
799 | 1 | ||||||
Accrued compensation |
106 | 469 | ||||||
Deferred compensation |
625 | 452 | ||||||
Mark to market on loans held for sale |
2,158 | 801 | ||||||
Depreciation |
1,180 | 540 | ||||||
Nonaccrual loan interest |
53 | 645 | ||||||
Other real estate owned |
475 | 205 | ||||||
Tax credits |
0 | 1,191 | ||||||
Other |
2,072 | 733 | ||||||
Non-qualified stock option and restricted unit expense |
1,486 | 1,549 | ||||||
Goodwill |
1,126 | 0 | ||||||
Amortization of intangibles |
0 | 324 | ||||||
|
|
|
|
|||||
$ | 96,182 | $ | 44,982 | |||||
|
|
|
|
|||||
Deferred tax liabilities: |
||||||||
FHLB stock dividends |
$ | (1,428 | ) | $ | (490 | ) | ||
Deferred loan costs |
(1,439 | ) | (1,018 | ) | ||||
State taxes deferred and other |
(8,409 | ) | (3,692 | ) | ||||
Prepaid expenses |
(955 | ) | (1,013 | ) | ||||
FDIC loss share receivable |
(3,081 | ) | 0 | |||||
Amortization of intangibles |
(953 | ) | 0 | |||||
Unrealized gain on securities available for sale |
(7,210 | ) | (1,628 | ) | ||||
Unrealized gain on interest rate swaps |
(17 | ) | (35 | ) | ||||
Unrealized gain on interest only strips |
(33 | ) | (34 | ) | ||||
|
|
|
|
|||||
(23,525 | ) | (7,910 | ) | |||||
|
|
|
|
|||||
Valuation allowance on capital loss carryforward |
(53 | ) | 0 | |||||
|
|
|
|
|||||
Net deferred tax assets: |
$ | 72,604 | $ | 37,072 | ||||
|
|
|
|
At December 31, 2011, the Company had capital loss carryforwards of approximately $53 thousand. 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. 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.
F-48
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. In assessing the realization of deferred tax assets, management evaluates both positive and negative evidence, including the existence of any cumulative losses in the current year and the prior two years, the amount of taxes paid in available carry-back years, the forecasts of future income, applicable tax planning strategies, and assessments of current and future economic and business conditions. This analysis is updated quarterly and adjusted as necessary. Based on the analysis, the Company has determined that except for the valuation allowance against the capital loss carryforwards of $53 thousand, a valuation allowance for deferred tax assets was not required as of December 31, 2011.
A summary of the Companys net operating loss carry-forwards is as follows:
FEDERAL | STATE | |||||||||||||||||||||||
Remaining Amount |
Expires | Annual Limitation |
Remaining Amount |
Expires | Annual Limitation |
|||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
2011 |
||||||||||||||||||||||||
Nara Ownership Change |
$ | 0 | N/A | $ | 0 | $ | 124 | 2016 | $ | 83 | ||||||||||||||
Korea First Bank of New York |
3,973 | 2019 | 497 | 0 | N/A | 0 | ||||||||||||||||||
Asiana |
1,146 | 2015 | 348 | 723 | 2014 | 348 | ||||||||||||||||||
Nara Bank Net Operating Loss |
0 | N/A | N/A | 12,539 | 2031 | 12,539 | ||||||||||||||||||
Center Bank Net Operating Loss |
0 | N/A | N/A | 37,394 | 2031 | 13,356 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
$ | 5,119 | $ | 845 | $ | 50,780 | $ | 26,326 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
2010 |
||||||||||||||||||||||||
Nara Ownership Change |
$ | 0 | N/A | $ | 0 | $ | 124 | 2015 | $ | 83 | ||||||||||||||
Korea First Bank of New York |
4,967 | 2019 | 497 | 0 | N/A | 0 | ||||||||||||||||||
Asiana |
1,841 | 2015 | 348 | 723 | 2013 | 348 | ||||||||||||||||||
Nara Bank Net Operating Loss |
8,323 | 2025 | N/A | 11,735 | 2030 | N/A | ||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
$ | 15,131 | $ | 845 | $ | 12,582 | $ | 431 | ||||||||||||||||
|
|
|
|
|
|
|
|
For the 2010 and 2011 tax years, the state of California suspended the utilization of Net Operating Losses (NOLs). Suspended NOLs for 2010 and 2011 will be allowed additional carryover periods of two years and one year, respectively.
The Company and our 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 2007. 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 New York City for the 2007, 2008, and 2009 tax years. While the outcome of the examination is unknown, the Company expects no material adjustments.
F-49
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2011 and 2010 is as follows:
2011 | 2010 | |||||||
(In thousands) | ||||||||
Balance at January 1, |
$ | 276 | $ | 215 | ||||
Additions based on tax positions related to the current year |
101 | 52 | ||||||
Additions based on tax positions related to the prior year |
192 | 9 | ||||||
|
|
|
|
|||||
Balance at December 31, |
$ | 569 | $ | 276 | ||||
|
|
|
|
The total amount of unrecognized tax benefits was $569 thousand at December 31, 2011 and $276 thousand at December 31, 2010 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 $420 thousand and $202 thousand at December 31, 2011 and 2010, respectively. The amount of unrecognized tax benefits increased due to the current year accrual of $101 thousand and additional accrual of $192 thousand for prior years. 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 $77 thousand and $35 thousand for interest and penalties accrued at December 31, 2011 and 2010, respectively.
10. STOCK BASED INCENTIVE PLANS
The Company has a stock based incentive plan, the 2007 BBCN Bancorp Equity Incentive Plan (2007 Plan). The 2007 Plan, which was approved by our stockholders on May 31, 2007 as amended and restated on July 25, 2007 and again on December 1, 2011, 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 Companys success, and (iv) align the interests of Plan participants with those of the Companys 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 Companys 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 less than three years from the grant date for time-based vesting of grants. Compensation expense for awards is recorded over the vesting period.
F-50
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Upon the merger with Center Financial Corporation effective November 30, 2011, the former Centers stock based incentive plan the Center Financial Corporation 2006 Stock Incentive Plan, adopted April 12, 2006, as amended and restated June 13, 2007 (2006 Plan) converted the outstanding share awards of 585,860 shares and 2,443,513 shares available for future grants at November 30, 2011 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 options 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 1/3% per year. All options not exercised generally expire ten years after the date of grant.
The 2007 Plan initially reserved 1,300,000 shares for issuance. Including the 1,907,161 shares available for future grants under the 2006 Plan, 3,128,161 shares were available for future grants as of December 31, 2011.
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, 2011, 15,000 shares of performance unit awards were granted under the 2007 Plan. The fair value of performance unit awards granted is the fair market value of the Companys common stock on the date of grant. In 2011, 2010 and 2009, 0, 0 and 40,000 options were granted, respectively. The fair value of each option granted for the year ended December 31, 2009 was estimated on the date of grant using a Black-Scholes valuation model that uses the assumptions noted in the following table. Expected stock price volatility was based on the historical volatility of our stock. We use historical data to estimate the option exercise and employee terminations within the valuation model. The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
2011 | 2010 | 2009 | ||||||||||
Risk-free interest rate |
0 | 0 | 2.3 | % | ||||||||
Expected option life (years) |
0 | 0 | 6.2 | |||||||||
Expected stock price volatility |
0 | 0 | 51.2 | % | ||||||||
Dividend yield |
0 | 0 | 3.4 | % | ||||||||
Weighted average fair value of options granted during the period |
0 | 0 | $ | 0.44 |
F-51
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
A summary of stock option activity under the Plan for the year ended December 31, 2011 is as follows:
Number of Shares |
Weighted- Average Exercise Price Per Share |
Weighted- Average Remaining Contractual Life (Years) |
Aggregate Intrinsic Value |
|||||||||||||
OutstandingJanuary 1, 2011 |
493,250 | $ | 9.82 | |||||||||||||
Granted |
0 | 0 | ||||||||||||||
Converted upon the merger |
445,761 | 20.81 | ||||||||||||||
Exercised |
(109,000 | ) | 5.02 | |||||||||||||
Forfeited/canceled |
0 | 0 | ||||||||||||||
|
|
|||||||||||||||
OutstandingDecember 31, 2011 |
830,011 | $ | 16.35 | 6.37 | $ | 309,000 | ||||||||||
|
|
|
|
|||||||||||||
Options exercisableDecember 31, 2011 |
782,297 | $ | 14.80 | 5.16 | $ | 243,000 | ||||||||||
Unvested options expected to vest after December 31, 2011 |
47,714 | $ | 19.78 | 9.92 | $ | 66,000 |
A summary of restricted unit activity under the Plan for the year ended December 31, 2011 was as follows:
Number of Shares |
Weighted- Average Grant Date Fair Value |
Weighted- Average Remaining Contractual Life (Years) |
||||||||||
OutstandingJanuary 1, 2011 |
36,200 | $ | 8.25 | |||||||||
Granted |
15,000 | 8.97 | ||||||||||
Converted upon the merger |
11,480 | 9.27 | ||||||||||
Vested |
(10,200 | ) | 11.18 | |||||||||
Forfeited/canceled |
0 | 0 | ||||||||||
|
|
|||||||||||
OutstandingDecember 31, 2011 |
52,480 | $ | 7.42 | 8.98 | ||||||||
|
|
|
|
The total fair value of performance units vested for the years ended December 31, 2011, 2010 and 2009 was $96 thousand, $100 thousand and $586 thousand, respectively.
The amount charged against income, before income tax benefit of $16 thousand, $124 thousand and $562 thousand, in relation to the stock-based payment arrangements was $103 thousand, $376 thousand and $1.5 million for 2011, 2010 and 2009, respectively. At December 31, 2011, unrecognized compensation expense related to non-vested stock option grants and restricted units aggregated $263 thousand, and is expected to be recognized over a weighted average period of 2.54 years.
F-52
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The estimated annual stock-based compensation as of December 31, 2011 for each of the succeeding years is indicated in the table below:
Stock Based Compensation Expense |
||||
(in thousands) | ||||
For the year ended December 31: |
||||
2012 |
$ | 69 | ||
2013 |
68 | |||
2014 |
63 | |||
2015 |
42 | |||
2016 |
21 | |||
|
|
|||
Total |
$ | 263 | ||
|
|
11. EMPLOYEE BENEFIT PLANS
Deferred Compensation PlanIn 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, 2011 and 2010 amounted to $1.5 million and $1.1 million, respectively, which are included in other liabilities in the accompanying consolidated statement of financial condition. Interest expense recognized under the deferred compensation plan totaled $54 thousand, $42 thousand and $58 thousand for 2011, 2010 and 2009, 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 two NEO are currently participating in the LTIP. The Company accrued $70 thousand in 2011 and $0 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 PlanIn 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 $591 thousand, $0 and $360 thousand for 2011, 2010 and 2009, respectively. Effective September 7, 2009, the
F-53
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Company had amended the Plan to discontinue the safe harbor employer matching contributions. The 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 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 Companys 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 11,638, 10,259 and 0 shares of its common stock for the ESOP in 2011, 2010 and 2009, respectively. The Companys contribution and expense to the ESOP was approximately $100 thousand, $100 thousand and $0 for 2011, 2010 and 2009, respectively. As of December 31, 2011 and 2010, the ESOP held 152,358 and 162,773 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 2011, 2010 and 2009, shares withdrawn from the ESOP by participants who terminated their employment with the Company amounted to 22,053, 5,843 and 18,289 shares, respectively. During 2011, 2010 and 2009, no shares were added to the ESOP plan from dividend reinvestments.
12. COMMITMENTS AND CONTINGENCIES
The Company leases its premises under non-cancelable operating leases, and at December 31, 2011, the future minimum rental commitments under these leases are as follows:
(In thousands) | ||||
2012 |
$ | 8,399 | ||
2013 |
7,639 | |||
2014 |
6,904 | |||
2015 |
6,219 | |||
2016 |
5,183 | |||
Thereafter |
13,386 | |||
|
|
|||
$ | 47,730 | |||
|
|
Operating lease expense recorded under such leases in 2011, 2010 and 2009 amounted to approximately $8.6 million, $6.6 million and $6.3 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, 2011, and has taken into consideration the views of such counsel as to the outcome of the claims. In managements 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, 2011 and 2010, the Company recorded an accrued liability of $400,000 and $0, 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
F-54
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
financial condition. The Companys 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 customers 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 managements 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, 2011 and 2010 are summarized as follows:
2011 | 2010 | |||||||
(In thousands) | ||||||||
Commitments to extend credit |
$ | 458,096 | $ | 205,752 | ||||
Standby letters of credit |
29,028 | 9,777 | ||||||
Other commercial letters of credit |
49,457 | 30,180 | ||||||
|
|
|
|
|||||
$ | 536,581 | $ | 245,709 | |||||
|
|
|
|
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 Companys 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 Companys officers and directors under which the Company may be required to indemnify such persons for liabilities arising out of their employment relationship. 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, 2011 and 2010.
13. FAIR VALUE
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 a reporting entitys own assumptions about the assumptions that market participants would use in pricing an asset or liability.
F-55
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
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 mathematical 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 loans collateral (if the loan is collateral dependent). Fair value of the loans collateral, when the loan is dependent on collateral, is determined by appraisals or independent valuation, which is then adjusted for the cost related to liquidation of the collateral. These are considered Level 3 inputs.
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 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 3 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 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, 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 2 inputs) or may be assessed based upon the fair value of the collateral which is obtained from recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in Level 3 classification of the inputs for determining fair value.
F-56
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Assets and liabilities measured at fair value on a recurring basis are summarized below:
Fair Value Measurements Using | ||||||||||||||||
At December 31, 2011 | Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
(In thousands) | ||||||||||||||||
Assets: |
||||||||||||||||
Securities available for sale: |
||||||||||||||||
U.S. Treasury |
$ | 300 | $ | 0 | $ | 300 | $ | 0 | ||||||||
GSE collateralized mortgage obligations |
227,836 | 0 | 227,836 | 0 | ||||||||||||
GSE mortgage-backed securities |
487,754 | 0 | 487,754 | 0 | ||||||||||||
Corporate note |
4,348 | 0 | 4,348 | 0 | ||||||||||||
Municipal bonds |
5,764 | 0 | 5,764 | 0 | ||||||||||||
Mutual funds |
14,918 | 14,918 | 0 | 0 | ||||||||||||
DerivativesInterest rate caps |
9 | 0 | 9 | 0 |
There were no significant transfers between Level 1 and 2 during 2011.
Fair Value Measurements Using | ||||||||||||||||
At December 31, 2010 | 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 bonds |
$ | 125,718 | $ | 0 | $ | 125,718 | $ | 0 | ||||||||
GSE collateralized mortgage obligations |
103,201 | 0 | 103,201 | 0 | ||||||||||||
GSE mortgage-backed securities |
284,834 | 0 | 284,834 | 0 | ||||||||||||
Corporate note |
3,708 | 0 | 3,708 | 0 | ||||||||||||
Municipal bonds |
5,258 | 0 | 5,258 | 0 | ||||||||||||
Mutual funds |
5,519 | 5,519 | 0 | 0 | ||||||||||||
DerivativesInterest rate caps |
167 | 0 | 167 | 0 |
Fair value adjustments for interest rate caps resulted in a net expense of $157 thousand and $901 thousand for 2011 and 2010, respectively.
F-57
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 Using | ||||||||||||||||
At 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 |
$ | 15,456 | $ | 0 | $ | 0 | $ | 15,456 | ||||||||
Commercial business |
4,245 | 0 | 0 | 4,245 | ||||||||||||
Loans held for sale, net |
24,408 | 0 | 24,408 | 0 | ||||||||||||
Other real estate owned* |
6,505 | 0 | 0 | 6,505 |
* | The balance consists of real estate portfolio segment only. |
Fair Value Measurements at Using | ||||||||||||||||
At December 31, 2010 | 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 |
$ | 35,009 | $ | 0 | $ | 0 | $ | 35,009 | ||||||||
Commercial business |
6,611 | 0 | 0 | 6,611 | ||||||||||||
Loans held for sale, net |
3,225 | 0 | 3,225 | 0 | ||||||||||||
Other real estate owned* |
675 | 0 | 0 | 675 |
* | The balance consists of real estate portfolio segment only. |
Impaired loans, which are measured for impairment using the fair value of the loan collateral, had a carrying amount of $30.4 million at December 31, 2011, after partial charge-offs of $7.3 million. In addition, these loans had a specific valuation allowance of $8.2 million at December 31, 2011. Of this $30.4 million, $28.0 million were carried at their fair value of $19.7 million as a result of the aforementioned charge-offs and specific valuation allowances. The remaining $2.4 million were carried at cost at December 31, 2011, as the fair value of the collateral on these loans exceeded the book value for each individual credit. The Company also has impaired loans totaling $51.7 million at December 31, 2011 which are measured based on the present value of expected cash flows and are not included in the above table as this is not a measurement of fair value. Of these, $45.8 million were carried below cost as a result of charge-offs or assigned specific reserves of $9.9 million at December 31, 2011. The remaining $5.9 million of impaired loans measured based on the present value of expected cash flows are carried at cost. Charge-offs and changes in specific valuation allowances during 2011 on impaired loans carried at the fair value of loan collateral at December 31, 2011 resulted in additional provision for loan losses of $19.6 million.
F-58
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Impaired loans, which are measured for impairment using the fair value of the loan collateral, had a loan principal balance $94.6 million at December 31, 2010, after partial charge-offs of $20.0 million. In addition, these loans had a specific valuation allowance of $11.2 million at December 31, 2010. Of this $94.6 million, $52.8 million were carried at their fair value of $41.6 million as a result of the aforementioned charge-offs and specific valuation allowances. The remaining $41.8 million were carried at cost at December 31, 2010, as the fair value of the collateral on these loans exceeded the book value for each individual credit. The Company also has impaired loans totaling $28.1 million at December 31, 2010 which are measured based on the present value of expected cash flows and are not included in the above table as this is not a measurement of fair value. Of these, $27.8 million were carried below cost as a result of charge-offs of $4.1 million or assigned specific reserves of $9.9 million at December 31, 2010. The remaining $231 thousand of impaired loans measured based on the present value of expected cash flows are carried at cost. Charge-offs and changes in specific valuation allowances during 2010 on impaired loans carried at the fair value of loan collateral at December 31, 2010 resulted in additional provision for loan losses of $ 43.2 million.
Other real estate owned carried at its fair value had a carrying amount of $6.5 million at December 31, 2011, which is made up of an outstanding balance of $7.5 million, with a valuation allowance of $1.0 million. Changes in the valuation allowance on other real estate owned outstanding at December 31, 2011 resulted in a write-down of $3.2 million during 2011.
Other real estate owned carried at its fair value had a carrying amount of $675 thousand at December 31, 2010, which is made up of an outstanding balance of $1.1 million, with a valuation allowance of $439 thousand. Changes in the valuation allowance on other real estate owned outstanding at December 31, 2010 resulted in a write-down of $2.2 million during 2010.
Loans held for sale, which were carried at their fair value, approximated $24.4 million, after partial charge-offs of $3.0 million and a valuation allowance of $0. Total charge-offs on loans held for sale were $16.1 million during 2011.
Loans held for sale, which were carried at their fair value, approximated $3.2 million, after partial charge-offs of $1.3 million and a valuation allowance of $100 thousand. Total charge-offs on loans held for sale were $33.8 million during 2010.
F-59
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Fair Value of Financial Instruments
Carrying amounts and estimated fair values of financial instruments, not previously presented, at years ended December 31 were as follows:,
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 |
18,000 | 19,374 | ||||||
Loans receivablenet |
3,657,173 | 3,909,721 | ||||||
Federal Home Loan Bank stock |
27,373 | N/A | ||||||
Accrued interest receivable |
13,439 | 13,439 | ||||||
Customers liabilities on acceptances |
10,515 | 10,515 | ||||||
FDIC loss share receivable |
10,819 | 10,819 | ||||||
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 | ) | ||||
Banks liabilities on acceptances outstanding |
(10,515 | ) | (10,515 | ) |
December 31, 2010 | ||||||||
Carrying Amount |
Estimated Fair Value |
|||||||
(In thousands) | ||||||||
Financial Assets: |
||||||||
Cash and cash equivalents |
$ | 172,331 | $ | 172,331 | ||||
Loans held for sale |
23,702 | 25,364 | ||||||
Loans receivablenet |
2,043,806 | 2,076,384 | ||||||
Federal Reserve Bank stock |
6,367 | N/A | ||||||
Federal Home Loan Bank stock |
17,717 | N/A | ||||||
Accrued interest receivable |
8,648 | 8,648 | ||||||
Customers liabilities on acceptances |
11,528 | 11,528 | ||||||
Financial Liabilities: |
||||||||
Noninterest-bearing deposits |
$ | (388,731 | ) | $ | (388,731 | ) | ||
Saving and other interest bearing demand deposits |
(814,848 | ) | (814,848 | ) | ||||
Time deposits |
(972,535 | ) | (977,762 | ) | ||||
Borrowings from Federal Home Loan Bank |
(350,000 | ) | (365,167 | ) | ||||
Subordinated debentures |
(39,268 | ) | (39,649 | ) | ||||
Secured borrowing |
(11,758 | ) | (11,758 | ) | ||||
Accrued interest payable |
(4,830 | ) | (4,830 | ) | ||||
Banks liabilities on acceptances outstanding |
(11,528 | ) | (11,528 | ) |
F-60
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, customers and Banks 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 loans held for sale is based on market quotes. The fair value of the FDIC loss share receivable is based on the discounted value of expected future cash flows under the loss sharing agreement with the FDIC. 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 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 Companys and the Banks 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, 2011 and 2010, the Company and the Bank met all capital adequacy requirements to which they are subject.
As of December 31, 2011 and 2010, 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 Banks 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. The preferred stock will pay 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.
Upon the merger with Center Financial, 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 Financial under the Treasury Departments TARP
F-61
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
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 Financials 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.
Prior to the earlier of the third anniversary of the closing date and the date on which the preferred shares have been redeemed in whole or the investor has transferred all of the preferred shares to third parties which are not affiliates of the investor, neither the Company nor any Company subsidiary shall, without the consent of the investor, declare or pay any dividend or make any distribution on its common stock (other than (A) regular quarterly cash dividends of not more than $0.0275, which was the amount of the last quarterly cash dividend per share declared or, if lower, publicly announced an intention to declare, on the common stock prior to October 14, 2008, as adjusted for any stock split, stock dividend, reverse stock split, reclassification or similar transaction, (B) dividends payable solely in shares of common stock and (C) dividends or distributions of rights or junior stock in connection with a stockholders rights plan).
The preferred stock issued qualifies as Tier 1 capital.
In conjunction with the purchase of the Companys preferred stock, the U.S. Treasury received a warrant to purchase 1,042,531 shares of the Companys common stock at $9.64 per share. The term of the warrant is ten years. On December 3, 2009, US Treasury approved the Companys request for an adjustment to the Companys warrant share position due to a qualified equity offering in November 2009, which is discussed below. The adjusted number of warrant is 521,266, or 50% of original issuance of 1,042,531. Upon the merger with Center Financial, the ten-year warrant to purchase Center Financial common stock in connection with Center Financials sale of its Series A Preferred Stock to the Treasury Department was converted into a warrant to purchase BBCN Bancorp common stock. Based on the merger exchange ratio of 0.7805, the warrant entitled 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 $59.9 million, net proceeds after underwriting fees and offering expenses, through a public offering of 8.7 million shares of our common stock at a price of $7.25 per share.
F-62
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The Companys and the Banks actual capital amounts and ratios are presented in the table below (It should be noted that the following capital ratios are higher than those estimated in the previously released earnings press release. The change was the result of further analysis of the purchase accounting adjustments used to determine the amount of deferred tax asset that could be included as capital):
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 | % |
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, 2010: |
||||||||||||||||||||||||
Total capital |
||||||||||||||||||||||||
(to risk-weighted assets): |
||||||||||||||||||||||||
Company |
$ | 403,298 | 17.7 | % | $ | 182,389 | 8.0 | % | N/A | N/A | ||||||||||||||
Bank |
$ | 393,292 | 17.3 | % | $ | 182,065 | 8.0 | % | $ | 227,581 | 10.0 | % | ||||||||||||
Tier I capital |
||||||||||||||||||||||||
(to risk-weighted assets): |
||||||||||||||||||||||||
Company |
$ | 374,353 | 16.4 | % | $ | 91,194 | 4.0 | % | N/A | N/A | ||||||||||||||
Bank |
$ | 364,397 | 16.0 | % | $ | 91,032 | 4.0 | % | $ | 136,549 | 6.0 | % | ||||||||||||
Tier I capital (to average assets): |
||||||||||||||||||||||||
Company |
$ | 374,353 | 12.6 | % | $ | 118,718 | 4.0 | % | N/A | N/A | ||||||||||||||
Bank |
$ | 364,397 | 12.3 | % | $ | 118,742 | 4.0 | % | $ | 148,427 | 5.0 | % |
Under federal banking law, dividends declared by the Bank in any calendar year may not, without the approval of the regulatory agency, exceed its net income for that year combined with its retained income from the preceding two years. However, the regulatory agency has previously issued a bulletin to all banks outlining guidelines limiting the circumstances under which banks may pay dividends even if the banks are otherwise statutorily authorized to pay dividends. The limitations impose a requirement or in some cases suggest that prior approval of the regulatory agency should be obtained before a dividend is paid if a bank is the subject of administrative action or if the payment could be viewed by the regulatory agency as unsafe or unusual.
F-63
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
15. EARNINGS PER SHARE
EPS information is as follows for the years ended December 31:
Income (Numerator) |
Shares (Denominator) |
Per Share Amount |
||||||||||
(In thousands, except share and per share data) | ||||||||||||
2011 |
||||||||||||
Net Income as reported |
$ | 27,115 | ||||||||||
Less: preferred stock dividends and accretion of preferred stock discount |
(4,568 | ) | ||||||||||
|
|
|||||||||||
Basic EPScommon stock |
$ | 22,547 | 42,187,110 | $ | 0.53 | |||||||
|
|
|||||||||||
Effect of dilutive securities: |
||||||||||||
Stock options |
0 | 23,490 | ||||||||||
|
|
|
|
|
|
|||||||
Diluted EPScommon stock |
$ | 22,547 | 42,210,600 | $ | 0.53 | |||||||
|
|
|
|
|
|
|||||||
2010 |
||||||||||||
Net loss as reported |
$ | (7,239 | ) | |||||||||
Less: preferred stock dividends and accretion of preferred stock discount |
(4,291 | ) | ||||||||||
|
|
|||||||||||
Basic EPScommon stock |
$ | (11,530 | ) | 37,919,340 | $ | (0.30 | ) | |||||
|
|
|||||||||||
Effect of dilutive securities: |
||||||||||||
Stock options |
0 | 0 | ||||||||||
|
|
|
|
|||||||||
Diluted EPScommon stock |
$ | (11,530 | ) | 37,919,340 | $ | (0.30 | ) | |||||
|
|
|
|
|
|
|||||||
2009 |
||||||||||||
Net loss as reported |
$ | (5,723 | ) | |||||||||
Less: preferred stock dividends and accretion of preferred stock discount |
(4,276 | ) | ||||||||||
|
|
|||||||||||
Basic EPScommon stock |
$ | (9,999 | ) | 28,359,496 | $ | (0.35 | ) | |||||
|
|
|||||||||||
Effect of dilutive securities: |
||||||||||||
Stock options |
0 | 0 | ||||||||||
|
|
|
|
|||||||||
Diluted EPScommon stock |
$ | (9,999 | ) | 28,359,496 | $ | (0.35 | ) | |||||
|
|
|
|
|
|
Basic EPS excludes dilution 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, 2011, 2010 and 2009, stock options and restricted shares awards for approximately 414,000, 533,000 and 1,092,000 shares of common stock were excluded in computing diluted earnings per common share because they were antidilutive. Additionally, warrants to purchase 858,746, 521,266 and 521,266 shares of common stock were also antidilutive for years ended December 31, 2011, 2010 and 2009, respectively.
F-64
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
16. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) components and related tax effects were as follows:
2011 | 2010 | 2009 | ||||||||||
(In thousands) | ||||||||||||
Net income (loss) |
$ | 27,115 | $ | (7,239 | ) | $ | (5,723 | ) | ||||
Unrealized holding gains on securities available-for sale and interest only strips |
12,337 | 5,773 | 11,401 | |||||||||
Reclassification adjustments for gains realized in income |
(1,289 | ) | (6,396 | ) | (4,427 | ) | ||||||
|
|
|
|
|
|
|||||||
Net unrealized gain (loss) |
11,048 | (623 | ) | 6,974 | ||||||||
Tax expense (benefit) |
4,666 | (269 | ) | 2,771 | ||||||||
|
|
|
|
|
|
|||||||
Net of tax amount |
$ | 6,382 | $ | (354 | ) | $ | 4,203 | |||||
Change in fair value of the effective portion of derivatives used for cash flow hedges |
$ | 0 | $ | 0 | $ | 0 | ||||||
Reclassification adjustment for gains realized for the ineffective portion of swaps and caps and discontinued hedge positions |
(44 | ) | (44 | ) | (140 | ) | ||||||
Reclassification adjustments for losses realized in income for swaps and caps |
0 | 0 | 0 | |||||||||
|
|
|
|
|
|
|||||||
Net unrealized loss |
(44 | ) | (44 | ) | (140 | ) | ||||||
Tax benefit |
(18 | ) | (18 | ) | (56 | ) | ||||||
|
|
|
|
|
|
|||||||
Net of tax amount |
$ | (26 | ) | $ | (26 | ) | $ | (84 | ) | |||
|
|
|
|
|
|
|||||||
Total other comprehensive income (loss) |
$ | 6,356 | $ | (380 | ) | $ | 4,119 | |||||
|
|
|
|
|
|
|||||||
Comprehensive income (loss) |
$ | 33,471 | $ | (7,619 | ) | $ | (1,604 | ) | ||||
|
|
|
|
|
|
The following is a summary of the accumulated other comprehensive income balances, net of tax:
Balance at 12/31/2010 |
Current Period Change |
Balance at 12/31/2011 |
||||||||||
(In thousands) | ||||||||||||
Unrealized gains (losses) on securities available for sale |
$ | 2,496 | $ | 6,382 | $ | 8,878 | ||||||
Unrealized gains (losses) on interest only strips |
48 | 5 | 53 | |||||||||
Unrealized gains (losses) on interest rate swaps |
53 | (26 | ) | 27 | ||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 2,597 | $ | 6,361 | $ | 8,958 | ||||||
|
|
|
|
|
|
17. 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 third quarter of 2009, the Company entered into two two-year interest rate cap agreements with an aggregate notional amount of $50 million. Under these cap agreements, the Company receives quarterly payments from the counterparty when the quarterly resetting 3 Month London-Interbank Offered Rate (3 Mo. LIBOR) exceeds the strike level of 2.00%. The upfront fee paid to the counterparty in entering into these two interest rate cap agreements was $359 thousand. During the third quarter of 2011, these two two-year interest rate cap agreements with an aggregate notional amount of $50 million have matured.
F-65
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
During the first quarter of 2010, the Company entered into a three-year interest rate cap agreement with an aggregate notional amount of $50 million. Under this cap agreement, the Company receives quarterly payments from the counterparty when the quarterly resetting 3 Month London-Interbank Offered Rate exceeds the strike level of 2.00%. The upfront fee paid to the counterparty in entering into this interest rate cap agreement was $890 thousand.
These interest rate cap agreements are considered free-standing due to non-designation of a hedge relationship to any of the Companys 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, 2011, the aggregate fair value of the outstanding interest rate caps was $9 thousand and we recognized mark-to-market losses on valuation of $157 thousand in 2011. As of December 31, 2011, we did not have any outstanding interest rate swap agreements at December 31, 2011.
At December 31, 2011, summary information about these interest-rate caps is as follows:
Notional amounts |
$50.0 million | |
Weighted average pay rates |
N/A | |
Weighted average receive rates |
N/A | |
Weighted average maturity |
1.16 years | |
Fair value of combined interest rate caps |
$9 thousand |
The effect of derivative instruments on the Consolidated Statement of Income for 2011 and 2010 are as follows:
2011 | 2010 | |||||||||||
(In thousands) | ||||||||||||
Location of Gain or (Loss) Recognized in Income on Derivatives |
Amount of Gain or (Loss) Recognized in Income on Derivatives |
|||||||||||
(In thousand) | ||||||||||||
Derivatives not designated as hedging instruments under FASB ASC 815: |
||||||||||||
Interest rate contracts (1) |
Other income | $ | (157 | ) | $ | (901 | ) | |||||
|
|
|
|
(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. |
F-66
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized unaudited quarterly financial data follows for the three months ended:
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 |
March 31 | June 30 | September 30 | December 31 | |||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||
2010 |
||||||||||||||||
Interest income |
$ | 38,661 | $ | 36,593 | $ | 37,130 | $ | 38,052 | ||||||||
Interest expense |
13,418 | 9,785 | 9,520 | 9,329 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net interest income before provision for loan losses |
25,243 | 26,808 | 27,610 | 28,723 | ||||||||||||
Provision for loan losses |
25,407 | 42,323 | 11,100 | 5,800 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net interest income after provision for loan losses |
(164 | ) | (15,515 | ) | 16,510 | 22,923 | ||||||||||
Non-interest income |
9,384 | 3,460 | 7,339 | 4,298 | ||||||||||||
Non-interest expense |
14,184 | 15,967 | 15,693 | 17,530 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) before income tax provision |
(4,964 | ) | (28,022 | ) | 8,156 | 9,691 | ||||||||||
Income tax provision (benefit) |
(2,432 | ) | (12,145 | ) | 3,056 | 3,621 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) |
$ | (2,532 | ) | $ | (15,877 | ) | $ | 5,100 | $ | 6,070 | ||||||
|
|
|
|
|
|
|
|
|||||||||
Dividends and discount accretion on preferred stock |
$ | (1,071 | ) | $ | (1,073 | ) | $ | (1,073 | ) | $ | (1,074 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) available to common stockholders |
$ | (3,603 | ) | $ | (16,950 | ) | $ | 4,027 | $ | 4,996 | ||||||
|
|
|
|
|
|
|
|
|||||||||
Basic earnings (loss) per common share |
$ | (0.10 | ) | $ | (0.45 | ) | $ | 0.11 | $ | 0.13 | ||||||
Diluted earnings (loss) per common share |
$ | (0.10 | ) | $ | (0.45 | ) | $ | 0.11 | $ | 0.13 |
The net loss in the second quarter was primarily due to the higher provision for loan losses related $63.3 million of problem assets being marketed for sale to improve the asset quality.
F-67
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
19. 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:
STATEMENTS OF FINANCIAL CONDITION
December 31, | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
ASSETS: |
||||||||
Cash and cash equivalents |
$ | 66,491 | $ | 11,750 | ||||
Other assets |
5,553 | 4,197 | ||||||
Investment in bank subsidiary |
778,234 | 382,976 | ||||||
|
|
|
|
|||||
TOTAL ASSETS |
$ | 850,278 | $ | 398,923 | ||||
|
|
|
|
|||||
LIABILITIES: |
||||||||
Other borrowings |
$ | 52,102 | $ | 39,268 | ||||
Accounts payable and other liabilities |
2,236 | 1,092 | ||||||
|
|
|
|
|||||
Total liabilities |
54,338 | 40,360 | ||||||
STOCKHOLDERS EQUITY |
795,940 | 358,563 | ||||||
|
|
|
|
|||||
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
$ | 850,278 | $ | 398,923 | ||||
|
|
|
|
STATEMENTS OF INCOME
Years Ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
(In thousands) | ||||||||||||
Interest income |
$ | 0 | $ | 13 | $ | 50 | ||||||
Interest expense |
1,906 | 1,851 | 2,022 | |||||||||
Dividends from bank subsidiary |
0 | 0 | 1,200 | |||||||||
Other operating expense |
5,024 | 2,263 | 1,530 | |||||||||
Equity in undistributed earnings (losses) of bank subsidiary |
31,508 | (5,574 | ) | (5,242 | ) | |||||||
|
|
|
|
|
|
|||||||
Income (loss) before income tax benefit |
24,578 | (9,675 | ) | (7,544 | ) | |||||||
Income tax benefit |
(2,537 | ) | (2,436 | ) | (1,821 | ) | ||||||
|
|
|
|
|
|
|||||||
Net income (loss) |
$ | 27,115 | $ | (7,239 | ) | $ | (5,723 | ) | ||||
|
|
|
|
|
|
F-68
BBCN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
STATEMENTS OF CASH FLOWS
Years Ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
(In thousands) | ||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||||
Net income (loss) |
$ | 27,115 | $ | (7,239 | ) | $ | (5,723 | ) | ||||
Adjustments to reconcile net income to net cash from operating activities: |
||||||||||||
Amortization |
20 | 20 | 21 | |||||||||
Stock-based compensation expense |
8 | 52 | 479 | |||||||||
Change in other assets |
(1,276 | ) | (730 | ) | 2,758 | |||||||
Change in accounts payable and other liabilities |
(238 | ) | 479 | (89 | ) | |||||||
Equity in undistributed loss (earnings) of bank subsidiary |
(31,508 | ) | 5,574 | 5,242 | ||||||||
|
|
|
|
|
|
|||||||
Net cash from operating activities |
(5,879 | ) | (1,844 | ) | 2,688 | |||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||||
Cash and cash equivalents acquired through the merger |
3,438 | 0 | 0 | |||||||||
Investment in bank subsidiary |
0 | 0 | (65,600 | ) | ||||||||
|
|
|
|
|
|
|||||||
Net cash from investing activities |
3,438 | 0 | (65,600 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||
Issuance of additional common stock |
59,869 | 0 | 81,972 | |||||||||
Issuance of additional stock pursuant to various stock plans |
524 | 1,150 | 0 | |||||||||
Tax effect on issuance of shares from stock plan |
139 | 35 | (463 | ) | ||||||||
Payments of cash dividends |
(3,350 | ) | (3,351 | ) | (4,015 | ) | ||||||
|
|
|
|
|
|
|||||||
Net cash from financing activities |
57,182 | (2,166 | ) | 77,494 | ||||||||
|
|
|
|
|
|
|||||||
NET CHANGE IN CASH AND CASH EQUIVALENTS |
54,741 | (4,010 | ) | 14,582 | ||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |
11,750 | 15,760 | 1,178 | |||||||||
|
|
|
|
|
|
|||||||
CASH AND CASH EQUIVALENTS, END OF YEAR |
$ | 66,491 | $ | 11,750 | $ | 15,760 | ||||||
|
|
|
|
|
|
F-69
Exhibit 4.20
Center Financial Corporation
as Issuer
INDENTURE
Dated as of December 30, 2003
WELLS FARGO BANK, NATIONAL ASSOCIATION
As Trustee
JUNIOR SUBORDINATED DEBT SECURITIES
DUE January 7, 2034
TABLE OF CONTENTS
Page | ||||
ARTICLE I | ||||
DEFINITIONS | ||||
SECTION 1.01. Definitions |
1 | |||
Additional Interest |
1 | |||
Additional Provisions |
1 | |||
Authenticating Agent |
1 | |||
Bankruptcy Law |
2 | |||
Board of Directors |
2 | |||
Board Resolution |
2 | |||
Business Day |
2 | |||
Calculation Agent |
2 | |||
Capital Securities |
2 | |||
Capital Securities Guarantee |
2 | |||
Capital Treatment Event |
2 | |||
Certificate |
3 | |||
Common Securities |
3 | |||
Company |
3 | |||
Debt Security |
3 | |||
Debt Security Register |
3 | |||
Declaration |
3 | |||
Default |
3 | |||
Defaulted Interest |
3 | |||
Deferred Interest |
3 | |||
Depositary |
3 | |||
Depositary Participant |
3 | |||
DTC |
3 | |||
Event of Default |
3 | |||
Extension Period |
4 | |||
Federal Reserve |
4 | |||
Global Debenture |
4 | |||
Indenture |
4 |
-i-
TABLE OF CONTENTS
(CONTINUED)
Page | ||||
Initial Purchaser |
4 | |||
Institutional Trustee |
4 | |||
Interest Payment Date |
4 | |||
Interest Rate |
4 | |||
Investment Company Event |
4 | |||
LIBOR |
4 | |||
LIBOR Banking Day |
4 | |||
LIBOR Business Day |
4 | |||
LIBOR Determination Date |
4 | |||
Liquidation Amount |
4 | |||
Maturity Date |
4 | |||
Notice |
4 | |||
Officers Certificate |
4 | |||
Opinion of Counsel |
5 | |||
OTS |
5 | |||
Outstanding |
5 | |||
Paying Agent |
5 | |||
Person |
5 | |||
Predecessor Security |
5 | |||
Principal Office of the Trustee |
5 | |||
Redemption Date |
6 | |||
Redemption Price |
6 | |||
Responsible Officer |
6 | |||
Securityholder |
6 | |||
Senior Indebtedness |
6 | |||
Special Event |
6 | |||
Special Redemption Date |
6 | |||
Special Redemption Price |
7 | |||
Subsidiary |
7 | |||
Tax Event |
7 | |||
Trust |
7 |
-ii-
TABLE OF CONTENTS
(CONTINUED)
Page | ||||
Trust Indenture Act |
7 | |||
Trust Securities |
8 | |||
Trustee |
8 | |||
United States |
8 | |||
U.S. Person |
8 |
ARTICLE II |
| |||||
DEBT SECURITIES |
| |||||
SECTION 2.01. |
Authentication and Dating |
8 | ||||
SECTION 2.02. |
Form of Trustees Certificate of Authentication |
8 | ||||
SECTION 2.03. |
Form and Denomination of Debt Securities |
9 | ||||
SECTION 2.04. |
Execution of Debt Securities |
9 | ||||
SECTION 2.05. |
Exchange and Registration of Transfer of Debt Securities |
9 | ||||
SECTION 2.06. |
Mutilated, Destroyed, Lost or Stolen Debt Securities |
13 | ||||
SECTION 2.07. |
Temporary Debt Securities |
13 | ||||
SECTION 2.08. |
Payment of Interest |
14 | ||||
SECTION 2.09. |
Cancellation of Debt Securities Paid, etc |
15 | ||||
SECTION 2.10. |
Computation of Interest |
16 | ||||
SECTION 2.11. |
Extension of Interest Payment Period |
17 | ||||
SECTION 2.12. |
CUSIP Numbers |
18 | ||||
SECTION 2.13. |
Global Debentures |
18 | ||||
ARTICLE III |
| |||||
PARTICULAR COVENANTS OF THE COMPANY |
| |||||
SECTION 3.01. |
Payment of Principal, Premium and Interest; Agreed Treatment of the Debt Securities |
20 | ||||
SECTION 3.02. |
Offices for Notices and Payments, etc |
21 | ||||
SECTION 3.03. |
Appointments to Fill Vacancies in Trustees Office |
22 | ||||
SECTION 3.04. |
Provision as to Paying Agent |
22 | ||||
SECTION 3.05. |
Certificate to Trustee |
23 | ||||
SECTION 3.06. |
Additional Interest |
23 | ||||
SECTION 3.07. |
Compliance with Consolidation Provisions |
23 | ||||
SECTION 3.08. |
Limitation on Dividends |
23 | ||||
SECTION 3.09. |
Covenants as to the Trust |
24 |
-iii-
TABLE OF CONTENTS
(CONTINUED)
Page | ||||||
ARTICLE IV | ||||||
LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE | ||||||
SECTION 4.01. |
Securityholders Lists |
25 | ||||
SECTION 4.02. |
Preservation and Disclosure of Lists |
25 | ||||
ARTICLE V |
| |||||
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS UPON AN EVENT OF DEFAULT |
| |||||
SECTION 5.01. |
Events of Default |
26 | ||||
SECTION 5.02. |
Payment of Debt Securities on Default; Suit Therefor |
28 | ||||
SECTION 5.03. |
Application of Moneys Collected by Trustee |
29 | ||||
SECTION 5.04. |
Proceedings by Securityholders |
30 | ||||
SECTION 5.05. |
Proceedings by Trustee |
30 | ||||
SECTION 5.06. |
Remedies Cumulative and Continuing |
31 | ||||
SECTION 5.07. |
Direction of Proceedings and Waiver of Defaults by Majority of Securityholders |
31 | ||||
SECTION 5.08. |
Notice of Defaults |
32 | ||||
SECTION 5.09. |
Undertaking to Pay Costs |
32 | ||||
ARTICLE VI |
| |||||
CONCERNING THE TRUSTEE |
| |||||
SECTION 6.01. |
Duties and Responsibilities of Trustee |
32 | ||||
SECTION 6.02. |
Reliance on Documents, Opinions, etc |
34 | ||||
SECTION 6.03. |
No Responsibility for Recitals, etc |
35 | ||||
SECTION 6.04. |
Trustee, Authenticating Agent, Paying Agents, Transfer Agents or Registrar May Own Debt Securities |
35 | ||||
SECTION 6.05. |
Moneys to be Held in Trust |
35 | ||||
SECTION 6.06. |
Compensation and Expenses of Trustee |
35 | ||||
SECTION 6.07. |
Officers Certificate as Evidence |
36 | ||||
SECTION 6.08. |
Eligibility of Trustee |
36 | ||||
SECTION 6.09. |
Resignation or Removal of Trustee, Calculation Agent, Paying Agent or Debt Security Registrar |
37 | ||||
SECTION 6.10. |
Acceptance by Successor |
38 | ||||
SECTION 6.11. |
Succession by Merger, etc |
39 | ||||
SECTION 6.12. |
Authenticating Agents |
39 |
-iv-
TABLE OF CONTENTS
(CONTINUED)
Page | ||||||
ARTICLE VII | ||||||
CONCERNING THE SECURITYHOLDERS | ||||||
SECTION 7.01. |
Action by Securityholders |
41 | ||||
SECTION 7.02. |
Proof of Execution by Securityholders |
41 | ||||
SECTION 7.03. |
Who Are Deemed Absolute Owners |
42 | ||||
SECTION 7.04. |
Debt Securities Owned by Company Deemed Not Outstanding |
42 | ||||
SECTION 7.05. |
Revocation of Consents; Future Holders Bound |
42 | ||||
ARTICLE VIII |
| |||||
SECURITYHOLDERS MEETINGS |
| |||||
SECTION 8.01. |
Purposes of Meetings |
43 | ||||
SECTION 8.02. |
Call of Meetings by Trustee |
43 | ||||
SECTION 8.03. |
Call of Meetings by Company or Securityholders |
43 | ||||
SECTION 8.04. |
Qualifications for Voting |
44 | ||||
SECTION 8.05. |
Regulations |
44 | ||||
SECTION 8.06. |
Voting |
44 | ||||
SECTION 8.07. |
Quorum; Actions |
45 | ||||
ARTICLE IX |
| |||||
SUPPLEMENTAL INDENTURES |
| |||||
SECTION 9.01. |
Supplemental Indentures without Consent of Securityholders |
46 | ||||
SECTION 9.02. |
Supplemental Indentures with Consent of Securityholders |
47 | ||||
SECTION 9.03. |
Effect of Supplemental Indentures |
48 | ||||
SECTION 9.04. |
Notation on Debt Securities |
48 | ||||
SECTION 9.05. |
Evidence of Compliance of Supplemental Indenture to be Furnished to Trustee |
48 | ||||
ARTICLE X |
| |||||
REDEMPTION OF SECURITIES |
| |||||
SECTION 10.01. |
Optional Redemption |
49 | ||||
SECTION 10.02. |
Special Event Redemption |
49 | ||||
SECTION 10.03. |
Notice of Redemption; Selection of Debt Securities |
49 | ||||
SECTION 10.04. |
Payment of Debt Securities Called for Redemption |
50 | ||||
ARTICLE XI |
| |||||
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE |
| |||||
SECTION 11.01. |
Company May Consolidate, etc., on Certain Terms |
50 |
-v-
TABLE OF CONTENTS
(CONTINUED)
Page | ||||||
SECTION 11.02. |
Successor Entity to be Substituted |
51 | ||||
SECTION 11.03. |
Opinion of Counsel to be Given to Trustee |
51 | ||||
ARTICLE XII |
| |||||
SATISFACTION AND DISCHARGE OF INDENTURE |
| |||||
SECTION 12.01. |
Discharge of Indenture |
52 | ||||
SECTION 12.02. |
Deposited Moneys to be Held in Trust by Trustee |
52 | ||||
SECTION 12.03. |
Paying Agent to Repay Moneys Held |
53 | ||||
SECTION 12.04. |
Return of Unclaimed Moneys |
53 | ||||
ARTICLE XIII |
| |||||
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS |
| |||||
SECTION 13.01. |
Indenture and Debt Securities Solely Corporate Obligations |
53 | ||||
ARTICLE XIV |
| |||||
MISCELLANEOUS PROVISIONS |
| |||||
SECTION 14.01. |
Successors |
53 | ||||
SECTION 14.02. |
Official Acts by Successor Entity |
54 | ||||
SECTION 14.03. |
Surrender of Company Powers |
54 | ||||
SECTION 14.04. |
Addresses for Notices, etc |
54 | ||||
SECTION 14.05. |
Governing Law |
54 | ||||
SECTION 14.06. |
Evidence of Compliance with Conditions Precedent |
54 | ||||
SECTION 14.07. |
Non-Business Days |
55 | ||||
SECTION 14.08. |
Table of Contents, Headings, etc |
55 | ||||
SECTION 14.09. |
Execution in Counterparts |
55 | ||||
SECTION 14.10. |
Separability |
55 | ||||
SECTION 14.11. |
Assignment |
56 | ||||
SECTION 14.12. |
Acknowledgment of Rights |
56 | ||||
ARTICLE XV |
| |||||
SUBORDINATION OF DEBT SECURITIES |
| |||||
SECTION 15.01. |
Agreement to Subordinate |
56 | ||||
SECTION 15.02. |
Default on Senior Indebtedness |
57 | ||||
SECTION 15.03. |
Liquidation; Dissolution; Bankruptcy |
57 | ||||
SECTION 15.04. |
Subrogation |
58 | ||||
SECTION 15.05. |
Trustee to Effectuate Subordination |
59 |
-vi-
TABLE OF CONTENTS
(CONTINUED)
Page | ||||||
SECTION 15.06. |
Notice by the Company |
59 | ||||
SECTION 15.07. |
Rights of the Trustee, Holders of Senior Indebtedness |
60 | ||||
SECTION 15.08. |
Subordination May Not Be Impaired |
60 | ||||
EXHIBITS |
||||||
EXHIBIT A |
FORM OF DEBT SECURITY |
-vii-
THIS INDENTURE, dated as of December 30, 2003, between Center Financial Corporation, a bank holding company incorporated in California (hereinafter sometimes called the Company), and Wells Fargo Bank, National Association, a national banking association with its principal place of business in the State of Delaware, as trustee (hereinafter sometimes called the Trustee).
W I T N E S S E T H:
WHEREAS, for its lawful corporate purposes, the Company has duly authorized the issuance of its Junior Subordinated Debt Securities due January 7, 2034 (the Debt Securities) under this Indenture and to provide, among other things, for the execution and authentication, delivery and administration thereof, the Company has duly authorized the execution of this Indenture.
NOW, THEREFORE, in consideration of the premises, and the purchase of the Debt Securities by the holders thereof, the Company covenants and agrees with the Trustee for the equal and proportionate benefit of the respective holders from time to time of the Debt Securities as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions.
The terms defined in this Section 1.01 (except as herein otherwise expressly provided or unless the context otherwise requires) for all purposes of this Indenture and of any indenture supplemental hereto shall have the respective meanings specified in this Section 1.01. All accounting terms used herein and not expressly defined shall have the meanings assigned to such terms in accordance with generally accepted accounting principles and the term generally accepted accounting principles means such accounting principles as are generally accepted in the United States at the time of any computation. The words herein, hereof and hereunder and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision.
Additional Interest shall have the meaning set forth in Section 3.06.
Additional Provisions shall have the meaning set forth in Section 15.01.
Applicable Depository Procedures means, with respect to any transfer or transaction involving a Global Debenture or beneficial interest therein, the rules and procedures of the Depositary for such Debenture, in each case to the extent applicable to such transaction and as in effect from time to time.
Authenticating Agent means any agent or agents of the Trustee which at the time shall be appointed and acting pursuant to Section 6.12.
Bankruptcy Law means Title 11, U.S. Code, or any similar federal or state law for the relief of debtors.
Board of Directors means the board of directors or the executive committee or any other duly authorized designated officers of the Company.
Board Resolution means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification and delivered to the Trustee.
Business Day means any day other than a Saturday, Sunday or any other day on which banking institutions in Wilmington, Delaware, New York City or are permitted or required by any applicable law or executive order to close.
Calculation Agent means the Person identified as Trustee in the first paragraph hereof with respect to the Debt Securities and the Institutional Trustee with respect to the Trust Securities.
Capital Securities means undivided beneficial interests in the assets of the Trust which are designated as TP Securities and rank pari passu with Common Securities issued by the Trust; provided, however, that if an Event of Default (as defined in the Declaration) has occurred and is continuing, the rights of holders of such Common Securities to payment in respect of distributions and payments upon liquidation, redemption and otherwise are subordinated to the rights of holders of such Capital Securities.
Capital Securities Guarantee means the guarantee agreement that the Company will enter into with Wells Fargo Bank, National Association or other Persons that operates directly or indirectly for the benefit of holders of Capital Securities of the Trust.
Capital Treatment Event means the receipt by the Company and the Trust of an Opinion of Counsel experienced in such matters to the effect that, as a result of any amendment to, or change in, the laws, rules or regulations of the United States or any political subdivision thereof or therein, or as the result of any official or administrative pronouncement or action or decision interpreting or applying such laws, rules or regulations, which amendment or change is effective or which pronouncement, action or decision is announced on or after the date of original issuance of the Debt Securities, there is more than an insubstantial risk that the Company will not, within 90 days of the date of such opinion, be entitled to treat an amount equal to the aggregate Liquidation Amount of the Capital Securities as Tier 1 Capital (or the then equivalent thereof) for purposes of the capital adequacy guidelines of the Federal Reserve (or any successor regulatory authority with jurisdiction over bank holding companies), as then in effect and applicable to the Company (or if the Company is not a bank holding company, such guidelines applied to the Company as if the Company were subject to such guidelines); provided, however, that the inability of the Company to treat all or any portion of the liquidation amount of the Debentures as Tier 1 Capital shall not constitute the basis for a
-2-
Capital Treatment Event, if such inability results from the Company having cumulative preferred stock, minority interests in consolidated subsidiaries, or any other class of security or interest which the Federal Reserve or OTS, as applicable, may now or hereafter accord Tier 1 Capital treatment in excess of the amount which may now or hereafter qualify for treatment as Tier 1 Capital under applicable capital adequacy guidelines; provided further, however, that the distribution of the Debt Securities in connection with the liquidation of the Trust by the Company shall not in and of itself constitute a Capital Treatment Event unless such liquidation shall have occurred in connection with a Tax Event or an Investment Company Event.
Certificate means a certificate signed by any one of the principal executive officer, the principal financial officer or the principal accounting officer of the Company.
Common Securities means undivided beneficial interests in the assets of the Trust which are designated as Common Securities and rank pari passu with Capital Securities issued by the Trust; provided, however, that if an Event of Default (as defined in the Declaration) has occurred and is continuing, the rights of holders of such Common Securities to payment in respect of distributions and payments upon liquidation, redemption and otherwise are subordinated to the rights of holders of such Capital Securities.
Company means Center Financial Corporation, a bank holding company incorporated in California, and, subject to the provisions of Article XI, shall include its successors and assigns.
Debt Security or Debt Securities has the meaning stated in the first recital of this Indenture.
Debt Security Register has the meaning specified in Section 2.05.
Declaration means the Amended and Restated Declaration of Trust of the Trust dated as of December 30, 2003, as amended or supplemented from time to time.
Default means any event, act or condition that with notice or lapse of time, or both, would constitute an Event of Default.
Defaulted Interest has the meaning set forth in Section 2.08.
Deferred Interest has the meaning set forth in Section 2.11.
Depositary means an organization registered as a clearing agency under the Exchange Act that is designated as Depositary by the Company or any successor thereto. DTC will be the initial Depositary.
-3-
Depositary Participant means a broker, dealer, bank, other financial institution or other Person for whom from time to time the Depositary effects book-entry transfers and pledges of securities deposited with the Depositary.
DTC means The Depository Trust Company, a New York corporation.
Event of Default means any event specified in Section 5.01, which has continued for the period of time, if any, and after the giving of the notice, if any, therein designated.
Extension Period has the meaning set forth in Section 2.11.
Federal Reserve means the Board of Governors of the Federal Reserve System.
Global Debenture means a security that evidences all or part of the Debentures, the ownership and transfers of which shall be made through book entries by a Depositary.
Indenture means this instrument as originally executed or, if amended or supplemented as herein provided, as so amended or supplemented, or both.
Initial Purchaser means the initial purchaser of the Capital Securities.
Institutional Trustee has the meaning set forth in the Declaration.
Interest Payment Date means January 7, April 7, July 7 and October 7 of each year, commencing on April 7, 2004, during the term of this Indenture.
Interest Rate means a per annum rate of interest, reset quarterly, equal to LIBOR, as determined on the LIBOR Determination Date immediately preceding each Interest Payment Date, plus 2.85%.
Investment Company Event means the receipt by the Company and the Trust of an Opinion of Counsel experienced in such matters to the effect that, as a result of a change in law or regulation or written change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority, there is more than an insubstantial risk that the Trust is or, within 90 days of the date of such opinion will be, considered an investment company that is required to be registered under the Investment Company Act of 1940, as amended, which change or prospective change becomes effective or would become effective, as the case may be, on or after the date of the original issuance of the Debt Securities.
-4-
LIBOR means the London Interbank Offered Rate for U.S. Dollar deposits in Europe as determined by the Calculation Agent according to Section 2.10(b).
LIBOR Banking Day has the meaning set forth in Section 2.10(b)(1).
LIBOR Business Day has the meaning set forth in Section 2.10(b)(1).
LIBOR Determination Date has the meaning set forth in Section 2.10(b).
Liquidation Amount means the stated amount of $1,000 per Trust Security.
Maturity Date means January 7, 2034.
Notice has the meaning set forth in Section 2.11.
Officers Certificate means a certificate signed by the Chairman of the Board, the Vice Chairman, the President or any Vice President, and by the Chief Financial Officer, the Treasurer, an Assistant Treasurer, the Comptroller, an Assistant Comptroller, the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. Each such certificate shall include the statements provided for in Section 14.06 if and to the extent required by the provisions of such Section.
Opinion of Counsel means an opinion in writing signed by legal counsel, who may be an employee of or counsel to the Company, or may be other counsel reasonably satisfactory to the Trustee. Each such opinion shall include the statements provided for in Section 14.06 if and to the extent required by the provisions of such Section.
OTS means the Office of Thrift Supervision and any successor federal agency that is primarily responsible for regulating the activities of savings and loan holding companies.
The term outstanding, when used with reference to Debt Securities, subject to the provisions of Section 7.04, means, as of any particular time, all Debt Securities authenticated and delivered by the Trustee or the Authenticating Agent under this Indenture, except
(a) Debt Securities theretofore canceled by the Trustee or the Authenticating Agent or delivered to the Trustee for cancellation;
(b) Debt Securities, or portions thereof, for the payment or redemption of which moneys in the necessary amount shall have been deposited in trust with the Trustee or with any Paying Agent (other than the Company) or shall have been set aside and segregated in
-5-
trust by the Company (if the Company shall act as its own Paying Agent); provided, that, if such Debt Securities, or portions thereof, are to be redeemed prior to maturity thereof, notice of such redemption shall have been given as provided in Articles X and XIV or provision satisfactory to the Trustee shall have been made for giving such notice; and
(c) Debt Securities paid pursuant to Section 2.06 or in lieu of or in substitution for which other Debt Securities shall have been authenticated and delivered pursuant to the terms of Section 2.06 unless proof satisfactory to the Company and the Trustee is presented that any such Debt Securities are held by bona fide holders in due course.
Paying Agent has the meaning set forth in Section 3.04(e).
Person means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.
Predecessor Security of any particular Debt Security means every previous Debt Security evidencing all or a portion of the same debt as that evidenced by such particular Debt Security; and, for the purposes of this definition, any Debt Security authenticated and delivered under Section 2.06 in lieu of a lost, destroyed or stolen Debt Security shall be deemed to evidence the same debt as the lost, destroyed or stolen Debt Security.
Principal Office of the Trustee means the office of the Trustee, at which at any particular time its corporate trust business shall be principally administered, which at all times shall be located within the United States and at the time of the execution of this Indenture shall be 919 Market Street, Suite 700, Wilmington, DE 19801.
Redemption Date has the meaning set forth in Section 10.01.
Redemption Price means 100% of the principal amount of the Debt Securities being redeemed plus accrued and unpaid interest on such Debt Securities to the Redemption Date or, in the case of a redemption due to the occurrence of a Special Event, to the Special Redemption Date if such Special Redemption Date is on or after January 7, 2009.
Responsible Officer means, with respect to the Trustee, any officer within the Principal Office of the Trustee with direct responsibility for the administration of the Indenture, including any vice-president, any assistant vice-president, any secretary, any assistant secretary, the treasurer, any assistant treasurer, any trust officer or other officer of the Principal Office of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officers knowledge of and familiarity with the particular subject.
-6-
Securityholder, holder of Debt Securities or other similar terms, means any Person in whose name at the time a particular Debt Security is registered on the Debt Security Register.
Senior Indebtedness means, with respect to the Company, (i) the principal, premium, if any, and interest in respect of (A) indebtedness of the Company for money borrowed and (B) indebtedness evidenced by securities, debentures, notes, bonds or other similar instruments issued by the Company; (ii) all capital lease obligations of the Company; (iii) all obligations of the Company issued or assumed as the deferred purchase price of property, all conditional sale obligations of the Company and all obligations of the Company under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business); (iv) all obligations of the Company for the reimbursement of any letter of credit, any bankers acceptance, any security purchase facility, any repurchase agreement or similar arrangement, any interest rate swap, any other hedging arrangement, any obligation under options or any similar credit or other transaction; (v) all obligations of the type referred to in clauses (i) through (iv) above of other Persons for the payment of which the Company is responsible or liable as obligor, guarantor or otherwise; and (vi) all obligations of the type referred to in clauses (i) through (v) above of other Persons secured by any lien on any property or asset of the Company (whether or not such obligation is assumed by the Company), whether incurred on or prior to the date of this Indenture or thereafter incurred, unless, with the prior approval of the Federal Reserve if not otherwise generally approved, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such obligations are not superior or are pari passu in right of payment to the Debt Securities.
Special Event means any of a Tax Event, an Investment Company Event or a Capital Treatment Event.
Special Redemption Date has the meaning set forth in Section 10.02.
Special Redemption Price means (1) if the Special Redemption Date is before January 7, 2009, One Hundred Five Percent (105%) of the principal amount to be redeemed plus any accrued and unpaid interest thereon to the date of such redemption and (2) if the Special Redemption Date is on or after January 7, 2009, the Redemption Price for such Special Redemption Date.
Subsidiary means, with respect to any Person, (i) any corporation, at least a majority of the outstanding voting stock of which is owned, directly or indirectly, by such Person or by one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries, (ii) any general partnership, joint venture or similar entity, at least a majority of the outstanding partnership or similar interests of which shall at the time be owned by such Person, or by one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries, and (iii) any limited partnership of which such Person or any of its Subsidiaries is a general partner. For the purposes of this definition, voting stock means shares, interests, participations or other equivalents in the equity interest (however designated) in such Person having ordinary voting power for the election of a majority of the directors (or the equivalent) of such Person, other than shares, interests, participations or other equivalents having such power only by reason of the occurrence of a contingency.
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Tax Event means the receipt by the Company and the Trust of an Opinion of Counsel experienced in such matters to the effect that, as a result of any amendment to or change (including any announced prospective change) in the laws or any regulations thereunder of the United States or any political subdivision or taxing authority thereof or therein, or as a result of any official administrative pronouncement (including any private letter ruling, technical advice memorandum, regulatory procedure, notice or announcement (an Administrative Action)) or judicial decision interpreting or applying such laws or regulations, regardless of whether such Administrative Action or judicial decision is issued to or in connection with a proceeding involving the Company or the Trust and whether or not subject to review or appeal, which amendment, clarification, change, Administrative Action or decision is enacted, promulgated or announced, in each case on or after the date of original issuance of the Debt Securities, there is more than an insubstantial risk that: (i) the Trust is, or will be within 90 days of the date of such opinion, subject to United States federal income tax with respect to income received or accrued on the Debt Securities; (ii) interest payable by the Company on the Debt Securities is not, or within 90 days of the date of such opinion, will not be, deductible by the Company, in whole or in part, for United States federal income tax purposes; or (iii) the Trust is, or will be within 90 days of the date of such opinion, subject to or otherwise required to pay, or required to withhold from distributions to holders of Trust Securities, more than a de minimis amount of other taxes (including withholding taxes), duties, assessments or other governmental charges.
Trust means Center Capital Trust I, the Delaware statutory trust, or any other similar trust created for the purpose of issuing Capital Securities in connection with the issuance of Debt Securities under this Indenture, of which the Company is the sponsor.
Trust Indenture Act means the Trust Indenture Act of 1939, as amended from time-to-time, or any successor legislation.
Trust Securities means Common Securities and Capital Securities of Center Capital Trust I.
Trustee means the Person identified as Trustee in the first paragraph hereof, and, subject to the provisions of Article VI hereof, shall also include its successors and assigns as Trustee hereunder.
United States means the United States of America and the District of Columbia.
U.S. Person has the meaning given to United States Person as set forth in Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended.
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ARTICLE II
DEBT SECURITIES
SECTION 2.01. Authentication and Dating.
Upon the execution and delivery of this Indenture, or from time to time thereafter, Debt Securities in an aggregate principal amount not in excess of $18,557,000 may be executed and delivered by the Company to the Trustee for authentication, and the Trustee shall thereupon authenticate and make available for delivery said Debt Securities to or upon the written order of the Company, signed by its Chairman of the Board of Directors, Vice Chairman, President or Chief Financial Officer or one of its Vice Presidents, without any further action by the Company hereunder. In authenticating such Debt Securities, and accepting the additional responsibilities under this Indenture in relation to such Debt Securities, the Trustee shall be entitled to receive, and (subject to Section 6.01) shall be fully protected in relying upon a copy of any Board Resolution or Board Resolutions relating thereto and, if applicable, an appropriate record of any action taken pursuant to such resolution, in each case certified by the Secretary or an Assistant Secretary or other officers with appropriate delegated authority of the Company as the case may be.
The Trustee shall have the right to decline to authenticate and deliver any Debt Securities under this Section if the Trustee, being advised by counsel, determines that such action may not lawfully be taken or if a Responsible Officer of the Trustee in good faith shall determine that such action would expose the Trustee to personal liability to existing Securityholders.
The definitive Debt Securities shall be typed, printed, lithographed or engraved on steel engraved borders or may be produced in any other manner, all as determined by the officers executing such Debt Securities, as evidenced by their execution of such Debt Securities.
SECTION 2.02. Form of Trustees Certificate of Authentication.
The Trustees certificate of authentication on all Debt Securities shall be in substantially the following form:
This is one of the Debt Securities referred to in the within-mentioned Indenture.
WELLS FARGO BANK, NATIONAL ASSOCIATION, not in its individual capacity but solely as trustee
By | ||
Authorized Officer |
SECTION 2.03. Form and Denomination of Debt Securities.
The Debt Securities shall be substantially in the form of Exhibit A hereto. The Debt Securities shall be in registered, certificated form without coupons and in minimum denominations of $100,000 and any multiple of $1,000 in excess thereof. The Debt Securities shall be numbered, lettered, or otherwise distinguished in such manner or in accordance with such plans as the officers executing the same may determine with the approval of the Trustee as evidenced by the execution and authentication thereof.
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SECTION 2.04. Execution of Debt Securities.
The Debt Securities shall be signed in the name and on behalf of the Company by the manual or facsimile signature of its Chairman of the Board of Directors, Vice Chairman, President or Chief Financial Officer or one of its Executive Vice Presidents, Senior Vice Presidents or Vice Presidents, under its corporate seal which may be affixed thereto or printed, engraved or otherwise reproduced thereon, by facsimile or otherwise, and which need not be attested. Only such Debt Securities as shall bear thereon a certificate of authentication substantially in the form herein before recited, executed by the Trustee or the Authenticating Agent by the manual signature of an authorized officer, shall be entitled to the benefits of this Indenture or be valid or obligatory for any purpose. Such certificate by the Trustee or the Authenticating Agent upon any Debt Security executed by the Company shall be conclusive evidence that the Debt Security so authenticated has been duly authenticated and delivered hereunder and that the holder is entitled to the benefits of this Indenture.
In case any officer of the Company who shall have signed any of the Debt Securities shall cease to be such officer before the Debt Securities so signed shall have been authenticated and delivered by the Trustee or the Authenticating Agent, or disposed of by the Company, such Debt Securities nevertheless may be authenticated and delivered or disposed of as though the Person who signed such Debt Securities had not ceased to be such officer of the Company; and any Debt Security may be signed on behalf of the Company by such Persons as, at the actual date of the execution of such Debt Security, shall be the proper officers of the Company, although at the date of the execution of this Indenture any such person was not such an officer.
Every Debt Security shall be dated the date of its authentication.
SECTION 2.05. Exchange and Registration of Transfer of Debt Securities.
The Company shall cause to be kept, at the office or agency maintained for the purpose of registration of transfer and for exchange as provided in Section 3.02, a register (the Debt Security Register) for the Debt Securities issued hereunder in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration and transfer of all Debt Securities as provided in this Article II. Such register shall be in written form or in any other form capable of being converted into written form within a reasonable time.
Debt Securities to be exchanged may be surrendered at the Principal Office of the Trustee or at any office or agency to be maintained by the Company for such purpose as provided in Section 3.02, and the Company shall execute, the Company or the Trustee shall register and the Trustee or the Authenticating Agent shall authenticate and make available for delivery in exchange therefor the Debt Security or Debt Securities which the Securityholder making the exchange shall be entitled to receive. Upon due presentment for registration of transfer of any Debt Security at the Principal Office of the Trustee or at any office or agency of the Company maintained for such purpose as provided in Section 3.02, the Company shall
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execute, the Company or the Trustee shall register and the Trustee or the Authenticating Agent shall authenticate and make available for delivery in the name of the transferee or transferees a new Debt Security for a like aggregate principal amount. Registration or registration of transfer of any Debt Security by the Trustee or by any agent of the Company appointed pursuant to Section 3.02, and delivery of such Debt Security, shall be deemed to complete the registration or registration of transfer of such Debt Security.
All Debt Securities presented for registration of transfer or for exchange or payment shall (if so required by the Company or the Trustee or the Authenticating Agent) be duly endorsed by, or be accompanied by, a written instrument or instruments of transfer in form satisfactory to the Company and either the Trustee or the Authenticating Agent duly executed by, the holder or such holders attorney duly authorized in writing.
No service charge shall be made for any exchange or registration of transfer of Debt Securities, but the Company or the Trustee may require payment of a sum sufficient to cover any tax, fee or other governmental charge that may be imposed in connection therewith.
The Company or the Trustee shall not be required to exchange or register a transfer of any Debt Security for a period of 15 days immediately preceding the date of selection of Debt Securities for redemption.
Notwithstanding the foregoing, Debt Securities may not be transferred except in compliance with the restricted securities legend set forth below, unless otherwise determined by the Company in accordance with applicable law, which legend shall be placed on each Debt Security:
[If the Capital Security is to be Global Capital Security THIS CAPITAL SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE DECLARATION HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY (DTC) OR A NOMINEE OF DTC. THIS CAPITAL SECURITY IS EXCHANGEABLE FOR CAPITAL SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN DTC OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE DECLARATION, AND NO TRANSFER OF THIS CAPITAL SECURITY (OTHER THAN A TRANSFER OF THIS CAPITAL SECURITY AS A WHOLE BY DTC TO A NOMINEE OF DTC OR BY A NOMINEE OF DTC TO DTC OR ANOTHER NOMINEE OF DTC) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.
UNLESS THIS CAPITAL SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF DTC TO Center Capital Trust I OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CAPITAL SECURITY ISSUED IS REGISTERED AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
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THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY ONLY (A) TO THE COMPANY, (B) PURSUANT TO RULE 144A UNDER THE SECURITIES ACT (RULE 144A), TO A PERSON THE HOLDER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (C) PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT TO AN ACCREDITED INVESTOR WITHIN THE MEANING OF SUBPARAGRAPH (a) (1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF AN ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (D) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANYS RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (C) OR (D) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO IT IN ACCORDANCE WITH THE INDENTURE, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES THAT IT WILL COMPLY WITH THE FOREGOING RESTRICTIONS.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES, REPRESENTS AND WARRANTS THAT IT WILL NOT ENGAGE IN HEDGING TRANSACTIONS INVOLVING THIS SECURITY UNLESS SUCH TRANSACTIONS ARE IN COMPLIANCE WITH THE SECURITIES ACT.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF ALSO AGREES, REPRESENTS AND WARRANTS THAT IT IS NOT AN EMPLOYEE BENEFIT, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER PLAN OR ARRANGEMENT SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (ERISA), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE CODE), (EACH A PLAN), OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF ANY PLANS INVESTMENT IN THE ENTITY AND NO PERSON INVESTING PLAN ASSETS OF ANY PLAN MAY ACQUIRE OR HOLD THIS SECURITY OR ANY INTEREST THEREIN, UNLESS SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR THE EXEMPTIVE RELIEF AVAILABLE UNDER U.S. DEPARTMENT OF LABOR
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PROHIBITED TRANSACTION CLASS EXEMPTION 96-23,95-60,91-38,90-1 OR 84-14 OR ANOTHER APPLICABLE EXEMPTION OR ITS PURCHASE AND HOLDING OF THIS SECURITY IS NOT PROHIBITED BY SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE WITH RESPECT TO SUCH PURCHASE OR HOLDING. ANY PURCHASER OR HOLDER OF THIS SECURITY OR ANY INTEREST THEREIN WILL BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND HOLDING THEREOF THAT EITHER (i) IT IS NOT AN EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF SECTION 3(3) OF ERISA, OR A PLAN TO WHICH SECTION 4975 OF THE CODE IS APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF AN EMPLOYEE BENEFIT PLAN OR PLAN, OR ANY OTHER PERSON OR ENTITY USING THE ASSETS OF ANY EMPLOYEE BENEFIT PLAN OR PLAN TO FINANCE SUCH PURCHASE, OR (ii) SUCH PURCHASE WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE FOR WHICH THERE IS NO APPLICABLE STATUTORY OR ADMINISTRATIVE EXEMPTION.
IN CONNECTION WITH ANY TRANSFER, THE HOLDER OF THIS SECURITY WILL DELIVER TO THE COMPANY AND TRUSTEE SUCH CERTIFICATES AND OTHER INFORMATION AS MAY BE REQUIRED BY THE INDENTURE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS.
THIS SECURITY WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN BLOCKS HAVING A PRINCIPAL AMOUNT OF NOT LESS THAN $100,000 AND MULTIPLES OF $1,000 IN EXCESS THEREOF. ANY ATTEMPTED TRANSFER OF THIS SECURITY IN A BLOCK HAVING A PRINCIPAL AMOUNT OF LESS THAN $100,000 SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. ANY SUCH PURPORTED TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER OF THIS SECURITY FOR ANY PURPOSE, INCLUDING, BUT NOT LIMITED TO, THE RECEIPT OF DISTRIBUTIONS ON THIS SECURITY, AND SUCH PURPORTED TRANSFEREE SHALL BE DEEMED TO HAVE NO INTEREST WHATSOEVER IN THIS SECURITY.
THIS OBLIGATION IS NOT A DEPOSIT AND IS NOT INSURED BY THE UNITED STATES OR ANY AGENCY OR FUND OF THE UNITED STATES, INCLUDING THE FEDERAL DEPOSIT INSURANCE CORPORATION (THE FDIC). THIS OBLIGATION IS SUBORDINATED TO THE CLAIMS OF DEPOSITORS AND THE CLAIMS OF GENERAL AND SECURED CREDITORS OF THE COMPANY, IS INELIGIBLE AS COLLATERAL FOR A LOAN BY THE COMPANY OR ANY OF ITS SUBSIDIARIES AND IS NOT SECURED.
SECTION 2.06. Mutilated, Destroyed, Lost or Stolen Debt Securities.
In case any Debt Security shall become mutilated or be destroyed, lost or stolen, the Company shall execute, and upon its written request the Trustee shall authenticate and deliver, a new Debt Security bearing a number not contemporaneously outstanding, in exchange and substitution for the mutilated Debt Security, or in lieu of and in substitution for the Debt Security so destroyed, lost or stolen. In every case the applicant for a substituted Debt Security shall furnish to the Company and the Trustee such security or indemnity as may be required by
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them to save each of them harmless, and, in every case of destruction, loss or theft, the applicant shall also furnish to the Company and the Trustee evidence to their satisfaction of the destruction, loss or theft of such Debt Security and of the ownership thereof.
The Trustee may authenticate any such substituted Debt Security and deliver the same upon the written request or authorization of any officer of the Company. Upon the issuance of any substituted Debt Security, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses connected therewith. In case any Debt Security which has matured or is about to mature or has been called for redemption in full shall become mutilated or be destroyed, lost or stolen, the Company may, instead of issuing a substitute Debt Security, pay or authorize the payment of the same (without surrender thereof except in the case of a mutilated Debt Security) if the applicant for such payment shall furnish to the Company and the Trustee such security or indemnity as may be required by them to save each of them harmless and, in case of destruction, loss or theft, evidence satisfactory to the Company and to the Trustee of the destruction, loss or theft of such Security and of the ownership thereof.
Every substituted Debt Security issued pursuant to the provisions of this Section 2.06 by virtue of the fact that any such Debt Security is destroyed, lost or stolen shall constitute an additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Debt Security shall be found at any time, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Debt Securities duly issued hereunder. All Debt Securities shall be held and owned upon the express condition that, to the extent permitted by applicable law, the foregoing provisions are exclusive with respect to the replacement or payment of mutilated, destroyed, lost or stolen Debt Securities and shall preclude any and all other rights or remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment of negotiable instruments or other securities without their surrender.
SECTION 2.07. Temporary Debt Securities.
Pending the preparation of definitive Debt Securities, the Company may execute and the Trustee shall authenticate and make available for delivery temporary Debt Securities that are typed, printed or lithographed. Temporary Debt Securities shall be issuable in any authorized denomination, and substantially in the form of the definitive Debt Securities but with such omissions, insertions and variations as may be appropriate for temporary Debt Securities, all as may be determined by the Company. Every such temporary Debt Security shall be executed by the Company and be authenticated by the Trustee upon the same conditions and in substantially the same manner, and with the same effect, as the definitive Debt Securities. Without unreasonable delay, the Company will execute and deliver to the Trustee or the Authenticating Agent definitive Debt Securities and thereupon any or all temporary Debt Securities may be surrendered in exchange therefor, at the Principal Office of the Trustee or at any office or agency maintained by the Company for such purpose as provided in Section 3.02, and the Trustee or the Authenticating Agent shall authenticate and make available for delivery in exchange for such temporary Debt Securities a like aggregate principal amount of such definitive Debt Securities. Such exchange shall be made by the Company at its own expense and without any charge therefor except that in case of any such exchange involving a registration of transfer the
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Company may require payment of a sum sufficient to cover any tax, fee or other governmental charge that may be imposed in relation thereto. Until so exchanged, the temporary Debt Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Debt Securities authenticated and delivered hereunder.
SECTION 2.08. Payment of Interest.
Each Debt Security will bear interest at the then applicable Interest Rate from and including each Interest Payment Date or, in the case of the first interest period, the original date of issuance of such Debt Security to, but excluding, the next succeeding Interest Payment Date or, in the case of the last interest period, the Redemption Date, Special Redemption Date or Maturity Date, as applicable, on the principal thereof, on any overdue principal and (to the extent that payment of such interest is enforceable under applicable law) on Deferred Interest and on any overdue installment of interest (including Defaulted Interest), payable (subject to the provisions of Article XII) on each Interest Payment Date commencing on April 7, 2004, 2003. Interest and any Deferred Interest on any Debt Security that is payable, and is punctually paid or duly provided for by the Company, on any Interest Payment Date shall be paid to the Person in whose name said Debt Security (or one or more Predecessor Securities) is registered at the close of business on the regular record date for such interest installment, except that interest and any Deferred Interest payable on the Maturity Date shall be paid to the Person to whom principal is paid. In the event that any Debt Security or portion thereof is called for redemption and the redemption date is subsequent to a regular record date with respect to any Interest Payment Date and prior to such Interest Payment Date, interest on such Debt Security will be paid upon presentation and surrender of such Debt Security.
Any interest on any Debt Security, other than Deferred Interest, that is payable, but is not punctually paid or duly provided for by the Company, on any Interest Payment Date (herein called Defaulted Interest) shall forthwith cease to be payable to the registered holder on the relevant regular record date by virtue of having been such holder, and such Defaulted Interest shall be paid by the Company to the Persons in whose names such Debt Securities (or their respective Predecessor Securities) are registered at the close of business on a special record date for the payment of such Defaulted Interest, which shall be fixed in the following manner: the Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each such Debt Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements reasonably satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a special record date for the payment of such Defaulted Interest which shall not be more than fifteen nor less than ten days prior to the date of the proposed payment and not less than ten days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such special record date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the special record date therefor to be mailed, first class postage prepaid, to each Securityholder at his or her address as it appears in the Debt Security Register, not less than ten days prior to such special record date. Notice of the proposed payment of such Defaulted Interest and the special record date therefor having been
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mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in whose names such Debt Securities (or their respective Predecessor Securities) are registered on such special record date and thereafter the Company shall have no further payment obligation in respect of the Defaulted Interest.
Any interest scheduled to become payable on an Interest Payment Date occurring during an Extension Period shall not be Defaulted Interest and shall be payable on such other date as may be specified in the terms of such Debt Securities.
The term regular record date as used in this Section shall mean the fifteenth day prior to an Interest Payment Date whether or not such date is a Business Day.
Subject to the foregoing provisions of this Section, each Debt Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Debt Security shall carry the rights to interest accrued and unpaid, and to accrue, that were carried by such other Debt Security.
SECTION 2.09. Cancellation of Debt Securities Paid, etc.
All Debt Securities surrendered for the purpose of payment, redemption, exchange or registration of transfer, shall, if surrendered to the Company or any Paying Agent, be surrendered to the Trustee and promptly canceled by it, or, if surrendered to the Trustee or any Authenticating Agent, shall be promptly canceled by it, and no Debt Securities shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Indenture. All Debt Securities canceled by any Authenticating Agent shall be delivered to the Trustee. The Trustee shall destroy all canceled Debt Securities unless the Company otherwise directs the Trustee in writing, in which case the Trustee shall dispose of such Debt Securities as directed by the Company. If the Company shall acquire any of the Debt Securities, however, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Debt Securities unless and until the same are surrendered to the Trustee for cancellation.
SECTION 2.10. Computation of Interest.
(a) The amount of interest payable for any interest period will be computed on the basis of a 360-day year and the actual number of days elapsed in the relevant interest period; provided, however, that upon the occurrence of a Special Event Redemption pursuant to Section 10.02 the amounts payable pursuant to this Indenture shall be calculated as set forth in the definition of Special Redemption Price.
(b) LIBOR shall be determined by the Calculation Agent in accordance with the following provisions:
(1) On the second LIBOR Business Day (provided, that on such day commercial banks are open for business (including dealings in foreign currency deposits) in London (a LIBOR Banking Day), and otherwise the next preceding LIBOR Business Day that is also a LIBOR Banking Day) prior to January 15, April 15, July 15 and October 15 (except, with respect to the first interest payment period, on December 29, 2003), (each such day, a LIBOR Determination Date),
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LIBOR shall equal the rate, as obtained by the Calculation Agent for three-month U.S. Dollar deposits in Europe, which appears on Telerate Page 3750 (as defined in the International Swaps and Derivatives Association, Inc. 1991 Interest Rate and Currency Exchange Definitions) or such other page as may replace such Telerate Page 3750, as of 11:00 a.m. (London time) on such LIBOR Determination Date, as reported by Bloomberg Financial Markets Commodities News. LIBOR Business Day means any day that is not a Saturday, Sunday or other day on which commercial banking institutions in New York, New York or Wilmington, Delaware are authorized or obligated by law or executive order to be closed. If such rate is superseded on Telerate Page 3750 by a corrected rate before 12:00 noon (London time) on the same LIBOR Determination Date, the corrected rate as so substituted will be the applicable LIBOR for that LIBOR Determination Date.
(2) If, on any LIBOR Determination Date, such rate does not appear on Telerate Page 3750 as reported by Bloomberg Financial Markets Commodities News or such other page as may replace such Telerate Page 3750, the Calculation Agent shall determine the arithmetic mean of the offered quotations of the Reference Banks (as defined below) to leading banks in the London Interbank market for three-month U.S. Dollar deposits in Europe (in an amount determined by the Calculation Agent) by reference to requests for quotations as of approximately 11:00 a.m. (London time) on the LIBOR Determination Date made by the Calculation Agent to the Reference Banks. If, on any LIBOR Determination Date, at least two of the Reference Banks provide such quotations, LIBOR shall equal the arithmetic mean of such quotations. If, on any LIBOR Determination Date, only one or none of the Reference Banks provide such a quotation, LIBOR shall be deemed to be the arithmetic mean of the offered quotations that at least two leading banks in the City of New York (as selected by the Calculation Agent) are quoting on the relevant LIBOR Determination Date for three-month U.S. Dollar deposits in Europe at approximately 11:00 a.m. (London time) (in an amount determined by the Calculation Agent). As used herein, Reference Banks means four major banks in the London Interbank market selected by the Calculation Agent.
(3) If the Calculation Agent is required but is unable to determine a rate in accordance with at least one of the procedures provided above, LIBOR shall be LIBOR in effect on the previous LIBOR Determination Date (whether or not LIBOR for such period was in fact determined on such LIBOR Determination Date).
(c) All percentages resulting from any calculations on the Debt Securities will be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point, with five one-millionths of a percentage point rounded upward (e.g., 9.876545% (or .09876545) being rounded to 9.87655% (or .0987655)), and all dollar amounts used in or resulting from such calculation will be rounded to the nearest cent (with one-half cent being rounded upward).
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(d) On each LIBOR Determination Date, the Calculation Agent shall notify, in writing, the Company and the Paying Agent of the applicable Interest Rate in effect for the related Interest Payment Date. The Calculation Agent shall, upon the request of the holder of any Debt Securities, provide the Interest Rate then in effect. All calculations made by the Calculation Agent in the absence of manifest error shall be conclusive for all purposes and binding on the Company and the Holders of the Debt Securities. The Paying Agent shall be entitled to rely on information received from the Calculation Agent or the Company as to the Interest Rate. The Company shall, from time to time, provide any necessary information to the Paying Agent relating to any original issue discount and interest on the Debt Securities that is included in any payment and reportable for taxable income calculation purposes.
SECTION 2.11. Extension of Interest Payment Period.
So long as no Event of Default has occurred and is continuing, the Company shall have the right, from time to time and without causing an Event of Default, to defer payments of interest on the Debt Securities by extending the interest payment period on the Debt Securities at any time and from time to time during the term of the Debt Securities, for up to twenty consecutive quarterly periods (each such extended interest payment period, an Extension Period), during which Extension Period no interest shall be due and payable (except any Additional Interest that may be due and payable). No Extension Period may end on a date other than an Interest Payment Date. During any Extension Period, interest will continue to accrue on the Debt Securities, and interest on such accrued interest (such accrued interest and interest thereon referred to herein as Deferred Interest) will accrue at an annual rate equal to the Interest Rate in effect for such Extension Period, compounded quarterly from the date such Deferred Interest would have been payable were it not for the Extension Period, to the extent permitted by law. No interest or Deferred Interest shall be due and payable during an Extension Period, except at the end thereof. At the end of any such Extension Period the Company shall pay all Deferred Interest then accrued and unpaid on the Debt Securities; provided, however, that no Extension Period may extend beyond the Maturity Date; and provided further, however, that during any such Extension Period, the Company shall be subject to the restrictions set forth in Section 3.08 of this Indenture. Prior to the termination of any Extension Period, the Company may further extend such period, provided, that such period together with all such previous and further consecutive extensions thereof shall not exceed twenty consecutive quarterly periods, or extend beyond the Maturity Date. Upon the termination of any Extension Period and upon the payment of all Deferred Interest, the Company may commence a new Extension Period, subject to the foregoing requirements. The Company must give the Trustee notice of its election to begin such Extension Period (Notice) at least one Business Day prior to the earlier of (i) the next succeeding date on which interest on the Debt Securities would have been payable except for the election to begin such Extension Period or (ii) the date such interest is payable, but in any event not later than the related regular record date. The Notice shall describe, in reasonable detail, why the company has elected to begin an Extension Period. The Notice shall acknowledge and affirm the Companys understanding that it is prohibited from issuing dividends and other distributions during the Extension Period. Upon receipt of the Notice, the Initial Purchaser or Initial Purchaser, as applicable, has the right, at its sole discretion, to disclose the name of the Company, the fact that the Company has elected to begin an Extension Period and other information that the Initial Purchaser, or Initial Purchaser, as applicable, at is sole discretion, deems relevant to the companys election to begin an Extension Period. The Trustee shall give notice of the Companys election to begin a new Extension Period to the Securityholders.
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SECTION 2.12. CUSIP Numbers.
The Company in issuing the Debt Securities may use a CUSIP number (if then generally in use), and, if so, the Trustee shall use a CUSIP number in notices of redemption as a convenience to Securityholders; provided, that any such notice may state that no representation is made as to the correctness of such number either as printed on the Debt Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Debt Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee in writing of any change in the CUSIP number.
SECTION 2.13. Global Debentures.
(a) Upon the election of the holder of Outstanding Debentures, which election need not be in writing, the Debentures owned by such holder shall be issued in the form of one or more Global Debentures registered in the name of the Depositary or its nominee. Each Global Debenture issued under this Indenture shall be registered in the name of the Depositary designated by the Company for such Global Debenture or a nominee thereof and delivered to such Depositary or a nominee thereof or custodian therefor, and each such Global Debenture shall constitute a single Debenture for all purposes of this Indenture.
(b) Notwithstanding any other provision in this Indenture, no Global Debenture may be exchanged in whole or in part for Debentures registered, and no transfer of a Global Debenture in whole or in part may be registered, in the name of any Person other than the Depositary for such Global Debenture or a nominee thereof unless (i) such Depositary advises the Trustee and the Company in writing that such Depositary is no longer willing or able to properly discharge its responsibilities as Depositary with respect to such Global Debenture, and no qualified successor is appointed by the Company within ninety (90) days of receipt by the Company of such notice, (ii) such Depositary ceases to be a clearing agency registered under the Exchange Act and no successor is appointed by the Company within ninety (90) days after obtaining knowledge of such event, (iii) the Company executes and delivers to the Trustee a Company Order stating that the Company elects to terminate the book-entry system through the Depositary or (iv) an Event of Default shall have occurred and be continuing. Upon the occurrence of any event specified in clause (i), (ii), (iii) or (iv) above, the Trustee shall notify the Depositary and instruct the Depositary to notify all owners of beneficial interests in such Global Debenture of the occurrence of such event and of the availability of Debentures to such owners of beneficial interests requesting the same. Upon the issuance of such Debentures and the registration in the Debenture Register of such Debentures in the names of the Holders of the beneficial interests therein, the Trustee shall recognize such holders of beneficial interests as Holders.
(c) If any Global Debenture is to be exchanged for other Debentures or canceled in part, or if another Debenture is to be exchanged in whole or in part for a beneficial interest in any Global Debenture, then either (i) such Global Debenture shall be so surrendered
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for exchange or cancellation as provided in this Article II or (ii) the principal amount thereof shall be reduced or increased by an amount equal to the portion thereof to be so exchanged or canceled, or equal to the principal amount of such other Debenture to be so exchanged for a beneficial interest therein, as the case may be, by means of an appropriate adjustment made on the records of the Debenture registrar, whereupon the Trustee, in accordance with the Applicable Depository Procedures, shall instruct the Depositary or its authorized representative to make a corresponding adjustment to its records. Upon any such surrender or adjustment of a Global Debenture by the Depositary, accompanied by registration instructions, the Company shall execute and the Trustee shall authenticate and deliver any Debentures issuable in exchange for such Global Debenture (or any portion thereof) in accordance with the instructions of the Depositary. The Trustee shall not be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be fully protected in relying on, such instructions.
(d) Every Debenture authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, a Global Debenture or any portion thereof shall be authenticated and delivered in the form of, and shall be, a Global Debenture, unless such Debenture is registered in the name of a Person other than the Depositary for such Global Debenture or a nominee thereof.
(e) Debentures distributed to holders of Book-Entry Capital Securities (as defined in the Trust Agreement) upon the dissolution of the Trust shall be distributed in the form of one or more Global Debentures registered in the name of a Depositary or its nominee, and deposited with the Debentures registrar, as custodian for such Depositary, or with such Depositary, for credit by the Depositary to the respective accounts of the beneficial owners of the Debentures represented thereby (or such other accounts as they may direct). Debentures distributed to holders of Capital Securities other than Book-Entry Capital Securities upon the dissolution of the Trust shall not be issued in the form of a Global Debenture or any other form intended to facilitate book-entry trading in beneficial interests in such Debentures.
(f) The Depositary or its nominee, as the registered owner of a Global Debenture, shall be the Holder of such Global Debenture for all purposes under this Indenture and the Debentures, and owners of beneficial interests in a Global Debenture shall hold such interests pursuant to the Applicable Depository Procedures. Accordingly, any such owners beneficial interest in a Global Debenture shall be shown only on, and the transfer of such interest shall be effected only through, records maintained by the Depositary or its nominee or its Depositary Participants. The Debentures registrar and the Trustee shall be entitled to deal with the Depositary for all purposes of this Indenture relating to a Global Debenture (including the payment of principal and interest thereon and the giving of instructions or directions by owners of beneficial interests therein and the giving of notices) as the sole Holder of the Debenture and shall have no obligations to the owners of beneficial interests therein. Neither the Trustee nor the Debentures registrar shall have any liability in respect of any transfers affected by the Depositary.
(g) The rights of owners of beneficial interests in a Global Debenture shall be exercised only through the Depositary and shall be limited to those established by law and agreements between such owners and the Depositary and/or its Depositary Participants.
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(h) No holder of any beneficial interest in any Global Debenture held on its behalf by a Depositary shall have any rights under this Indenture with respect to such Global Debenture, and such Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the owner of such Global Debenture for all purposes whatsoever. None of the Company, the Trustee nor any agent of the Company or the Trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a Global Debenture or maintaining, supervising or reviewing any records relating to such beneficial ownership interests. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by a Depositary or impair, as between a Depositary and such holders of beneficial interests, the operation of customary practices governing the exercise of the rights of the Depositary (or its nominee) as holder of any Debenture.
ARTICLE III
PARTICULAR COVENANTS OF THE COMPANY
SECTION 3.01. Payment of Principal, Premium and Interest; Agreed Treatment of the Debt Securities.
(a) The Company covenants and agrees that it will duly and punctually pay or cause to be paid all payments due on the Debt Securities at the place, at the respective times and in the manner provided in this Indenture and the Debt Securities. At the option of the Company, each installment of interest on the Debt Securities may be paid (i) by mailing checks for such interest payable to the order of the holders of Debt Securities entitled thereto as they appear on the Debt Security Register or (ii) by wire transfer to any account with a banking institution located in the United States designated by such Person to the Paying Agent no later than the related record date.
(b) The Company will treat the Debt Securities as indebtedness, and the interest payable in respect of such Debt Securities as interest, for all U.S. federal income tax purposes. All payments in respect of such Debt Securities will be made free and clear of U.S. withholding tax to any beneficial owner thereof that has provided an Internal Revenue Service Form W-8 BEN (or any substitute or successor form) establishing its non-U.S. status for U.S. federal income tax purposes.
(c) As of the date of this Indenture, the Company has no intention to exercise its right under Section 2.11 to defer payments of interest on the Debt Securities by commencing an Extension Period.
(d) As of the date of this Indenture, the Company believes that the likelihood that it would exercise its right under Section 2.11 to defer payments of interest on the Debt Securities by commencing an Extension Period at any time during which the Debt Securities are outstanding is remote because of the restrictions that would be imposed on the Companys ability to declare or pay dividends or distributions on, or to redeem, purchase or make a liquidation payment with respect to, any of its outstanding equity and on the Companys ability to make any payments of principal of or interest on, or repurchase or redeem, any of its debt securities that rank pari passu in all respects with (or junior in interest to) the Debt Securities.
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SECTION 3.02. Offices for Notices and Payments, etc.
So long as any of the Debt Securities remain outstanding, the Company will maintain in Wilmington, Delaware or in an office or agency where the Debt Securities may be presented for payment, an office or agency where the Debt Securities may be presented for registration of transfer and for exchange as provided in this Indenture and an office or agency where notices and demands to or upon the Company in respect of the Debt Securities or of this Indenture may be served. The Company will give to the Trustee written notice of the location of any such office or agency and of any change of location thereof. Until otherwise designated from time to time by the Company in a notice to the Trustee, or specified as contemplated by Section 2.05, such office or agency for all of the above purposes shall be the Principal Office of the Trustee. In case the Company shall fail to maintain any such office or agency in Wilmington, Delaware or shall fail to give such notice of the location or of any change in the location thereof, presentations and demands may be made and notices may be served at the Principal Office of the Trustee.
In addition to any such office or agency, the Company may from time to time designate one or more offices or agencies outside Wilmington, Delaware or where the Debt Securities may be presented for registration of transfer and for exchange in the manner provided in this Indenture, and the Company may from time to time rescind such designation, as the Company may deem desirable or expedient; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain any such office or agency in Wilmington, Delaware for the purposes above mentioned. The Company will give to the Trustee prompt written notice of any such designation or rescission thereof.
SECTION 3.03. Appointments to Fill Vacancies in Trustees Office.
The Company, whenever necessary to avoid or fill a vacancy in the office of Trustee, will appoint, in the manner provided in Section 6.09, a Trustee, so that there shall at all times be a Trustee hereunder.
SECTION 3.04. Provision as to Paying Agent.
(a) If the Company shall appoint a Paying Agent other than the Trustee, it will cause such Paying Agent to execute and deliver to the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provision of this Section 3.04:;
(1) that it will hold all sums held by it as such agent for the payment of all payments due on the Debt Securities (whether such sums have been paid to it by the Company or by any other obligor on the Debt Securities) in trust for the benefit of the holders of the Debt Securities;
(2) that it will give the Trustee prompt written notice of any failure by the Company (or by any other obligor on the Debt Securities) to make any payment on the Debt Securities when the same shall be due and payable; and
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(3) that it will, at any time during the continuance of any Event of Default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent.
(b) If the Company shall act as its own Paying Agent, it will, on or before each due date of the payments due on the Debt Securities, set aside, segregate and hold in trust for the benefit of the holders of the Debt Securities a sum sufficient to pay such payments so becoming due and will notify the Trustee in writing of any failure to take such action and of any failure by the Company (or by any other obligor under the Debt Securities) to make any payment on the Debt Securities when the same shall become due and payable.
Whenever the Company shall have one or more Paying Agents for the Debt Securities, it will, on or prior to each due date of the payments on the Debt Securities, deposit with a Paying Agent a sum sufficient to pay all payments so becoming due, such sum to be held in trust for the benefit of the Persons entitled thereto and (unless such Paying Agent is the Trustee) the Company shall promptly notify the Trustee in writing of its action or failure to act.
(c) Anything in this Section 3.04 to the contrary notwithstanding, the Company may, at any time, for the purpose of obtaining a satisfaction and discharge with respect to the Debt Securities, or for any other reason, pay, or direct any Paying Agent to pay to the Trustee all sums held in trust by the Company or any such Paying Agent, such sums to be held by the Trustee upon the same terms and conditions herein contained.
(d) Anything in this Section 3.04 to the contrary notwithstanding, the agreement to hold sums in trust as provided in this Section 3.04 is subject to Sections 12.03 and 12.04.
(e) The Company hereby initially appoints the Trustee to act as Paying Agent (the Paying Agent).
SECTION 3.05. Certificate to Trustee.
The Company will deliver to the Trustee on or before 120 days after the end of each fiscal year, so long as Debt Securities are outstanding hereunder, a Certificate stating that in the course of the performance by the signers of their duties as officers of the Company they would normally have knowledge of any default by the Company in the performance of any covenants of the Company contained herein, stating whether or not they have knowledge of any such default and, if so, specifying each such default of which the signers have knowledge and the nature thereof.
SECTION 3.06. Additional Interest.
If and for so long as the Trust is the holder of all Debt Securities and is subject to or otherwise required to pay, or is required to withhold from distributions to holders of Trust Securities, any additional taxes (including withholding taxes), duties, assessments or other governmental charges as a result of a Tax Event, the Company will pay such additional amounts (the Additional Interest) on the Debt Securities as shall be required so that the net amounts received and retained by the Trust for distribution to holders of Trust Securities after paying all
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taxes (including withholding taxes on distributions to holders of Trust Securities), duties, assessments or other governmental charges will be equal to the amounts the Trust would have received and retained for distribution to holders of Trust Securities after paying all taxes (including withholding taxes on distributions to holders of Trust Securities), duties, assessments or other governmental charges if no such additional taxes, duties, assessments or other governmental charges had been imposed. Whenever in this Indenture or the Debt Securities there is a reference in any context to the payment of principal of or interest on the Debt Securities, such mention shall be deemed to include mention of payments of the Additional Interest provided for in this paragraph to the extent that, in such context, Additional Interest is, was or would be payable in respect thereof pursuant to the provisions of this paragraph and express mention of the payment of Additional Interest (if applicable) in any provisions hereof shall not be construed as excluding Additional Interest in those provisions hereof where such express mention is not made, provided, however, that the deferral of the payment of interest during an Extension Period pursuant to Section 2.11 shall not defer the payment of any Additional Interest that may be due and payable.
SECTION 3.07. Compliance with Consolidation Provisions.
The Company will not, while any of the Debt Securities remain outstanding, consolidate with, or merge into any other Person, or merge into itself, or sell or convey all or substantially all of its property to any other Person unless the provisions of Article XI hereof are complied with.
SECTION 3.08. Limitation on Dividends.
If Debt Securities are initially issued to the Trust or a trustee of such Trust in connection with the issuance of Trust Securities by the Trust (regardless of whether Debt Securities continue to be held by such Trust) and (i) there shall have occurred and be continuing an Event of Default, (ii) the Company shall be in default with respect to its payment of any obligations under the Capital Securities Guarantee or (iii) the Company shall have given notice of its election to defer payments of interest on the Debt Securities by extending the interest payment period as provided herein and such period, or any extension thereof, shall have commenced and be continuing, then the Company may not (A) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Companys capital stock or (B) make any payment of principal of or interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company that rank pari passu in all respects with or junior in interest to the Debt Securities (other than (a) repurchases, redemptions or other acquisitions of shares of capital stock of the Company (I) in connection with any employment contract, benefit plan or other similar arrangement with or for the benefit of one or more employees, officers, directors or consultants, (II) in connection with a dividend reinvestment or stockholder stock purchase plan or (III) in connection with the issuance of capital stock of the Company (or securities convertible into or exercisable for such capital stock), as consideration in an acquisition transaction entered into prior to the occurrence of (i), (ii) or (iii) above, (b) as a result of any exchange or conversion of any class or series of the Companys capital stock (or any capital stock of a subsidiary of the Company) for any class or series of the Companys capital stock or of any class or series of the Companys indebtedness for any class or series of the Companys capital stock, (c) the purchase of fractional interests in
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shares of the Companys capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged, (d) any declaration of a dividend in connection with any stockholders rights plan, or the issuance of rights, stock or other property under any stockholders rights plan, or the redemption or repurchase of rights pursuant thereto, or (e) any dividend in the form of stock, warrants, options or other rights where the dividend stock or the stock issuable upon exercise of such warrants, options or other rights is the same stock as that on which the dividend is being paid or ranks pari passu with or junior to such stock and any cash payments in lieu of fractional shares issued in connection therewith, or (f) payments under the Capital Securities Guarantee).
SECTION 3.09. Covenants as to the Trust.
For so long as such Trust Securities remain outstanding, the Company shall maintain 100% ownership of the Common Securities; provided, however, that any permitted successor of the Company under this Indenture that is a U.S. Person may succeed to the Companys ownership of such Common Securities. The Company, as owner of the Common Securities, shall use commercially reasonable efforts to cause the Trust (a) to remain a statutory trust, except in connection with a distribution of Debt Securities to the holders of Trust Securities in liquidation of the Trust, the redemption of all of the Trust Securities or certain mergers, consolidations or amalgamations, each as permitted by the Declaration, (b) to otherwise continue to be classified as a grantor trust for United States federal income tax purposes and (c) to cause each holder of Trust Securities to be treated as owning an undivided beneficial interest in the Debt Securities.
ARTICLE IV
LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE
SECTION 4.01. Securityholders Lists.
The Company covenants and agrees that it will furnish or cause to be furnished to the Trustee:
(a) on each regular record date for an Interest Payment Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Securityholders of the Debt Securities as of such record date; and
(b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished;
(c) except that no such lists need be furnished under this Section 4.01 so long as the Trustee is in possession thereof by reason of its acting as Debt Security registrar.
SECTION 4.02. Preservation and Disclosure of Lists.
(a) The Trustee shall preserve, in as current a form as is reasonably practicable, all information as to the names and addresses of the holders of Debt Securities (1)
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contained in the most recent list furnished to it as provided in Section 4.01 or (2) received by it in the capacity of Debt Securities registrar (if so acting) hereunder. The Trustee may destroy any list furnished to it as provided in Section 4.01 upon receipt of a new list so furnished.
(b) In case three or more holders of Debt Securities (hereinafter referred to as applicants) apply in writing to the Trustee and furnish to the Trustee reasonable proof that each such applicant has owned a Debt Security for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other holders of Debt Securities with respect to their rights under this Indenture or under such Debt Securities and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Trustee shall within five Business Days after the receipt of such application, at its election, either:
(1) afford such applicants access to the information preserved at the time by the Trustee in accordance with the provisions of subsection (a) of this Section 4.02, or
(2) inform such applicants as to the approximate number of holders of Debt Securities whose names and addresses appear in the information preserved at the time by the Trustee in accordance with the provisions of subsection (a) of this Section 4.02, and as to the approximate cost of mailing to such Securityholders the form of proxy or other communication, if any, specified in such application.
If the Trustee shall elect not to afford such applicants access to such information, the Trustee shall, upon the written request of such applicants, mail to each Securityholder of Debt Securities whose name and address appear in the information preserved at the time by the Trustee in accordance with the provisions of subsection (a) of this Section 4.02 a copy of the form of proxy or other communication which is specified in such request with reasonable promptness after a tender to the Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing, unless within five days after such tender, the Trustee shall mail to such applicants and file with the Securities and Exchange Commission, if permitted or required by applicable law, together with a copy of the material to be mailed, a written statement to the effect that, in the opinion of the Trustee, such mailing would be contrary to the best interests of the holders of all Debt Securities, as the case may be, or would be in violation of applicable law. Such written statement shall specify the basis of such opinion. If said Commission, as permitted or required by applicable law, after opportunity for a hearing upon the objections specified in the written statement so filed, shall enter an order refusing to sustain any of such objections or if, after the entry of an order sustaining one or more of such objections, said Commission shall find, after notice and opportunity for hearing, that all the objections so sustained have been met and shall enter an order so declaring, the Trustee shall mail copies of such material to all such Securityholders with reasonable promptness after the entry of such order and the renewal of such tender; otherwise the Trustee shall be relieved of any obligation or duty to such applicants respecting their application.
(c) Each and every holder of Debt Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor
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any Paying Agent shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the holders of Debt Securities in accordance with the provisions of subsection (b) of this Section 4.02, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under said subsection (b).
ARTICLE V
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS UPON AN EVENT OF
DEFAULT
SECTION 5.01. Events of Default.
(a) The following events shall be Events of Default with respect to Debt Securities:
(b) the Company defaults in the payment of any interest upon any Debt Security when it becomes due and payable, and continuance of such default for a period of 30 days; for the avoidance of doubt, an extension of any interest payment period by the Company in accordance with Section 2.11 of this Indenture shall not constitute a default under this clause 5.01(a); or
(c) the Company defaults in the payment of all or any part of the principal of (or premium, if any, on) any Debt Securities as and when the same shall become due and payable either at maturity, upon redemption, by declaration of acceleration pursuant to Section 5.01 of this Indenture or otherwise; or
(d) the Company defaults in the performance of, or breaches, any of its covenants or agreements in Sections 3.06, 3.07, 3.08 or 3.09 of this Indenture (other than a covenant or agreement a default in whose performance or whose breach is elsewhere in this Section specifically dealt with), and continuance of such default or breach for a period of 90 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the holders of not less than 25% in aggregate principal amount of the outstanding Debt Securities, a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a Notice of Default hereunder; or
(e) a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Company in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appoints a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or for any substantial part of its property, or orders the winding-up or liquidation of its affairs and such decree or order shall remain unstayed and in effect for a period of 90 consecutive days; or
(f) the Company shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, shall consent to the entry of an order for relief in an involuntary case under any such law, or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of the Company or of any substantial part of its property, or shall make any general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due; or
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(g) the Trust shall have voluntarily or involuntarily liquidated, dissolved, wound-up its business or otherwise terminated its existence except in connection with (1) the distribution of the Debt Securities to holders of the Trust Securities in liquidation of their interests in the Trust, (2) the redemption of all of the outstanding Trust Securities or (3) certain mergers, consolidations or amalgamations, each as permitted by the Declaration.
If an Event of Default occurs and is continuing with respect to the Debt Securities, then, and in each and every such case, unless the principal of the Debt Securities shall have already become due and payable, either the Trustee or the holders of not less than 25% in aggregate principal amount of the Debt Securities then outstanding hereunder, by notice in writing to the Company (and to the Trustee if given by Securityholders), may declare the entire principal of the Debt Securities and the interest accrued, but unpaid, thereon, if any, to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable.
The foregoing provisions, however, are subject to the condition that if, at any time after the principal of the Debt Securities shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered as hereinafter provided, (i) the Company shall pay or shall deposit with the Trustee a sum sufficient to pay all matured installments of interest upon all the Debt Securities and all payments on the Debt Securities which shall have become due otherwise than by acceleration (with interest upon all such payments and Deferred Interest, to the extent permitted by law) and such amount as shall be sufficient to cover reasonable compensation to the Trustee and each predecessor Trustee, their respective agents, attorneys and counsel, and all other amounts due to the Trustee pursuant to Section 6.06, if any, and (ii) all Events of Default under this Indenture, other than the non-payment of the payments on Debt Securities which shall have become due by acceleration, shall have been cured, waived or otherwise remedied as provided herein, then and in every such case the holders of a majority in aggregate principal amount of the Debt Securities then outstanding, by written notice to the Company and to the Trustee, may waive all defaults and rescind and annul such declaration and its consequences, but no such waiver or rescission and annulment shall extend to or shall affect any subsequent default or shall impair any right consequent thereon.
In case the Trustee shall have proceeded to enforce any right under this Indenture and such proceedings shall have been discontinued or abandoned because of such rescission or annulment or for any other reason or shall have been determined adversely to the Trustee, then and in every such case the Company, the Trustee and the holders of the Debt Securities shall be restored respectively to their several positions and rights hereunder, and all rights, remedies and powers of the Company, the Trustee and the holders of the Debt Securities shall continue as though no such proceeding had been taken.
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SECTION 5.02. Payment of Debt Securities on Default; Suit Therefor.
The Company covenants that upon the occurrence of an Event of Default pursuant to clause 5.01(a) or 5.01(b) and upon demand of the Trustee, the Company will pay to the Trustee, for the benefit of the holders of the Debt Securities, the whole amount that then shall have become due and payable on all Debt Securities including Deferred Interest accrued on the Debt Securities; and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including a reasonable compensation to the Trustee, its agents, attorneys and counsel, and any other amounts due to the Trustee under Section 6.06. In case the Company shall fail forthwith to pay such amounts upon such demand, the Trustee, in its own name and as trustee of an express trust, shall be entitled and empowered to institute any actions or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such judgment or final decree against the Company or any other obligor on such Debt Securities and collect in the manner provided by law out of the property of the Company or any other obligor on such Debt Securities wherever situated the moneys adjudged or decreed to be payable.
In case there shall be pending proceedings for the bankruptcy or for the reorganization of the Company or any other obligor on the Debt Securities under Bankruptcy Law, or in case a receiver or trustee shall have been appointed for the property of the Company or such other obligor, or in the case of any other similar judicial proceedings relative to the Company or other obligor upon the Debt Securities, or to the creditors or property of the Company or such other obligor, the Trustee, irrespective of whether the principal of the Debt Securities shall then be due and payable as therein expressed or by declaration of acceleration or otherwise and irrespective of whether the Trustee shall have made any demand pursuant to the provisions of this Section 5.02, shall be entitled and empowered, by intervention in such proceedings or otherwise, to file and prove a claim or claims for the whole amount of principal and interest owing and unpaid in respect of the Debt Securities and, in case of any judicial proceedings, to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for reasonable compensation to the Trustee and each predecessor Trustee, and their respective agents, attorneys and counsel, and for reimbursement of all other amounts due to the Trustee under Section 6.06) and of the Securityholders allowed in such judicial proceedings relative to the Company or any other obligor on the Debt Securities, or to the creditors or property of the Company or such other obligor, unless prohibited by applicable law and regulations, to vote on behalf of the holders of the Debt Securities in any election of a trustee or a standby trustee in arrangement, reorganization, liquidation or other bankruptcy or insolvency proceedings or Person performing similar functions in comparable proceedings, and to collect and receive any moneys or other property payable or deliverable on any such claims, and to distribute the same after the deduction of its charges and expenses; and any receiver, assignee or trustee in bankruptcy or reorganization is hereby authorized by each of the Securityholders to make such payments to the Trustee, and, in the event that the Trustee shall consent to the making of such payments directly to the Securityholders, to pay to the Trustee such amounts as shall be sufficient to cover reasonable compensation to the Trustee, each predecessor Trustee and their respective agents, attorneys and counsel, and all other amounts due to the Trustee under Section 6.06.
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Nothing herein contained shall be construed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Securityholder any plan of reorganization, arrangement, adjustment or composition affecting the Debt Securities or the rights of any holder thereof or to authorize the Trustee to vote in respect of the claim of any Securityholder in any such proceeding.
All rights of action and of asserting claims under this Indenture, or under any of the Debt Securities, may be enforced by the Trustee without the possession of any of the Debt Securities, or the production thereof at any trial or other proceeding relative thereto, and any such suit or proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall be for the ratable benefit of the holders of the Debt Securities.
In any proceedings brought by the Trustee (and also any proceedings involving the interpretation of any provision of this Indenture to which the Trustee shall be a party) the Trustee shall be held to represent all the holders of the Debt Securities, and it shall not be necessary to make any holders of the Debt Securities parties to any such proceedings.
SECTION 5.03. Application of Moneys Collected by Trustee.
Any moneys collected by the Trustee shall be applied in the following order, at the date or dates fixed by the Trustee for the distribution of such moneys, upon presentation of the several Debt Securities in respect of which moneys have been collected, and stamping thereon the payment, if only partially paid, and upon surrender thereof if fully paid:
First: To the payment of costs and expenses incurred by, and reasonable fees of, the Trustee, its agents, attorneys and counsel, and of all other amounts due to the Trustee under Section 6.06;
Second: To the payment of all Senior Indebtedness of the Company if and to the extent required by Article XV;
Third: To the payment of the amounts then due and unpaid upon Debt Securities, in respect of which or for the benefit of which money has been collected, ratably, without preference or priority of any kind, according to the amounts due on such Debt Securities; and
Fourth: The balance, if any, to the Company.
SECTION 5.04. Proceedings by Securityholders.
No holder of any Debt Security shall have any right to institute any suit, action or proceeding for any remedy hereunder, unless such holder previously shall have given to the Trustee written notice of an Event of Default with respect to the Debt Securities and unless the holders of not less than 25% in aggregate principal amount of the Debt Securities then outstanding shall have given the Trustee a written request to institute such action, suit or proceeding and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred thereby, and the Trustee for 60 days after its receipt of such notice, request and offer of indemnity shall have failed to institute any such
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action, suit or proceeding; provided, that no holder of Debt Securities shall have any right to prejudice the rights of any other holder of Debt Securities, obtain priority or preference over any other such holder or enforce any right under this Indenture except in the manner herein provided and for the equal, ratable and common benefit of all holders of Debt Securities.
Notwithstanding any other provisions in this Indenture, however, the right of any holder of any Debt Security to receive payment of the principal of, premium, if any, and interest on such Debt Security when due, or to institute suit for the enforcement of any such payment, shall not be impaired or affected without the consent of such holder. For the protection and enforcement of the provisions of this Section, each and every Securityholder and the Trustee shall be entitled to such relief as can be given either at law or in equity.
SECTION 5.05. Proceedings by Trustee.
In case of an Event of Default hereunder the Trustee may in its discretion proceed to protect and enforce the rights vested in it by this Indenture by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any of such rights, either by suit in equity or by action at law or by proceeding in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of the exercise of any power granted in this Indenture, or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law.
SECTION 5.06. Remedies Cumulative and Continuing.
Except as otherwise provided in Section 2.06, all powers and remedies given by this Article V to the Trustee or to the Securityholders shall, to the extent permitted by law, be deemed cumulative and not exclusive of any other powers and remedies available to the Trustee or the holders of the Debt Securities, by judicial proceedings or otherwise, to enforce the performance or observance of the covenants and agreements contained in this Indenture or otherwise established with respect to the Debt Securities, and no delay or omission of the Trustee or of any holder of any of the Debt Securities to exercise any right or power accruing upon any Event of Default occurring and continuing as aforesaid shall impair any such right or power, or shall be construed to be a waiver of any such default or an acquiescence therein; and, subject to the provisions of Section 5.04, every power and remedy given by this Article V or by law to the Trustee or to the Securityholders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the Securityholders.
SECTION 5.07. Direction of Proceedings and Waiver of Defaults by Majority of Securityholders.
The holders of a majority in aggregate principal amount of the Debt Securities affected (voting as one class) at the time outstanding shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee with respect to such Debt Securities; provided, however, that (subject to the provisions of Section 6.01) the Trustee shall have the right to decline to follow any such direction if the Trustee shall determine that the action so directed would be unjustly prejudicial to the holders not taking part in such direction or if the
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Trustee being advised by counsel determines that the action or proceeding so directed may not lawfully be taken or if a Responsible Officer of the Trustee shall determine that the action or proceedings so directed would involve the Trustee in personal liability. Prior to any declaration accelerating the maturity of the Debt Securities, the holders of a majority in aggregate principal amount of the Debt Securities at the time outstanding may on behalf of the holders of all of the Debt Securities waive (or modify any previously granted waiver of) any past default or Event of Default and its consequences, except a default (a) in the payment of principal of, premium, if any, or interest on any of the Debt Securities, (b) in respect of covenants or provisions hereof which cannot be modified or amended without the consent of the holder of each Debt Security affected, or (c) in respect of the covenants contained in Section 3.09; provided, however, that if the Debt Securities are held by the Trust or a trustee of such trust, such waiver or modification to such waiver shall not be effective until the holders of a majority in liquidation preference of the Trust Securities of the Trust shall have consented to such waiver or modification to such waiver; provided, further, that if the consent of the holder of each outstanding Debt Security is required, such waiver shall not be effective until each holder of the Trust Securities of the Trust shall have consented to such waiver. Upon any such waiver, the default covered thereby shall be deemed to be cured for all purposes of this Indenture and the Company, the Trustee and the holders of the Debt Securities shall be restored to their former positions and rights hereunder, respectively; but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. Whenever any default or Event of Default hereunder shall have been waived as permitted by this Section 5.07, said default or Event of Default shall for all purposes of the Debt Securities and this Indenture be deemed to have been cured and to be not continuing.
SECTION 5.08. Notice of Defaults.
The Trustee shall, within 90 days after a Responsible Officer of the Trustee shall have actual knowledge or received written notice of the occurrence of a default with respect to the Debt Securities, mail to all Securityholders, as the names and addresses of such holders appear upon the Debt Security Register, notice of all defaults with respect to the Debt Securities known to the Trustee, unless such defaults shall have been cured before the giving of such notice (the term defaults for the purpose of this Section 5.08 being hereby defined to be the events specified in subsections (a), (b), (c), (d) and (e) of Section 5.01, not including periods of grace, if any, provided for therein); provided, that, except in the case of default in the payment of the principal of, premium, if any, or interest on any of the Debt Securities, the Trustee shall be protected in withholding such notice if and so long as a Responsible Officer of the Trustee in good faith determines that the withholding of such notice is in the interests of the Securityholders.
SECTION 5.09. Undertaking to Pay Costs.
All parties to this Indenture agree, and each holder of any Debt Security by such holders acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys fees and expenses, against any party litigant in such suit, having due regard to the merits and good faith of the claims or
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defenses made by such party litigant; but the provisions of this Section 5.09 shall not apply to any suit instituted by the Trustee, to any suit instituted by any Securityholder, or group of Securityholders, holding in the aggregate more than 10% in principal amount of the Debt Securities outstanding, or to any suit instituted by any Securityholder for the enforcement of the payment of the principal of (or premium, if any) or interest on any Debt Security against the Company on or after the same shall have become due and payable.
ARTICLE VI
CONCERNING THE TRUSTEE
SECTION 6.01. Duties and Responsibilities of Trustee.
With respect to the holders of Debt Securities issued hereunder, the Trustee, prior to the occurrence of an Event of Default with respect to the Debt Securities and after the curing or waiving of all Events of Default which may have occurred, with respect to the Debt Securities, undertakes to perform such duties and only such duties as are specifically set forth in this Indenture. In case an Event of Default with respect to the Debt Securities has occurred (which has not been cured or waived) the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such persons own affairs.
No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that:
(a) prior to the occurrence of an Event of Default with respect to the Debt Securities and after the curing or waiving of all Events of Default which may have occurred
(1) the duties and obligations of the Trustee with respect to the Debt Securities shall be determined solely by the express provisions of this Indenture, and the Trustee shall not be liable except for the performance of such duties and obligations with respect to the Debt Securities as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but, in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform on their face to the requirements of this Indenture;
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(b) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer or Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts;
(c) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith, in accordance with the direction of the Securityholders pursuant to Section 5.07, relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture;
(d) the Trustee shall not be charged with knowledge of any Default or Event of Default with respect to the Debt Securities unless either (1) a Responsible Officer shall have actual knowledge of such Default or Event of Default or (2) written notice of such Default or Event of Default shall have been given to the Trustee by the Company or any other obligor on the Debt Securities or by any holder of the Debt Securities, except with respect to an Event of Default pursuant to Sections 5.01 (a) or 5.01 (b) hereof (other than an Event of Default resulting from the default in the payment of Additional Interest or premium, if any, if the Trustee does not have actual knowledge or written notice that such payment is due and payable), of which the Trustee shall be deemed to have knowledge; and
(e) in the absence of bad faith on the part of the Trustee, the Trustee may seek and rely on reasonable instructions from the Company.
None of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers.
SECTION 6.02. Reliance on Documents, Opinions, etc.
Except as otherwise provided in Section 6.01:
(a) the Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, note, debenture or other paper or document believed by it in good faith to be genuine and to have been signed or presented by the proper party or parties;
(b) any request, direction, order or demand of the Company mentioned herein shall be sufficiently evidenced by an Officers Certificate (unless other evidence in respect thereof be herein specifically prescribed); and any Board Resolution may be evidenced to the Trustee by a copy thereof certified by the Secretary or an Assistant Secretary of the Company;
(c) the Trustee may consult with counsel of its selection and any advice or Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with such advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the
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Securityholders, pursuant to the provisions of this Indenture, unless such Securityholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby;
(e) the Trustee shall not be liable for any action taken or omitted by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; nothing contained herein shall, however, relieve the Trustee of the obligation, upon the occurrence of an Event of Default with respect to the Debt Securities (that has not been cured or waived) to exercise with respect to the Debt Securities such of the rights and powers vested in it by this Indenture, and to use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such persons own affairs;
(f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, debenture, coupon or other paper or document, unless requested in writing to do so by the holders of not less than a majority in principal amount of the outstanding Debt Securities affected thereby; provided, however, that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require reasonable indemnity against such expense or liability as a condition to so proceeding; and
(g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents (including any Authenticating Agent) or attorneys, and the Trustee shall not be responsible for any misconduct or negligence on the part of any such agent or attorney appointed by it with due care.
SECTION 6.03. No Responsibility for Recitals, etc.
The recitals contained herein and in the Debt Securities (except in the certificate of authentication of the Trustee or the Authenticating Agent) shall be taken as the statements of the Company and the Trustee and the Authenticating Agent assume no responsibility for the correctness of the same. The Trustee and the Authenticating Agent make no representations as to the validity or sufficiency of this Indenture or of the Debt Securities. The Trustee and the Authenticating Agent shall not be accountable for the use or application by the Company of any Debt Securities or the proceeds of any Debt Securities authenticated and delivered by the Trustee or the Authenticating Agent in conformity with the provisions of this Indenture.
SECTION 6.04. Trustee, Authenticating Agent, Paying Agents, Transfer Agents or Registrar May Own Debt Securities.
The Trustee or any Authenticating Agent or any Paying Agent or any transfer agent or any Debt Security registrar, in its individual or any other capacity, may become the owner or pledgee of Debt Securities with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, transfer agent or Debt Security registrar.
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SECTION 6.05. Moneys to be Held in Trust.
Subject to the provisions of Section 12.04, all moneys received by the Trustee or any Paying Agent shall, until used or applied as herein provided, be held in trust for the purpose for which they were received, but need not be segregated from other funds except to the extent required by law. The Trustee and any Paying Agent shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company. So long as no Event of Default shall have occurred and be continuing, all interest allowed on any such moneys, if any, shall be paid from time to time to the Company upon the written order of the Company, signed by the Chairman of the Board of Directors, the President, the Chief Operating Officer, a Vice President, the Treasurer or an Assistant Treasurer of the Company.
SECTION 6.06. Compensation and Expenses of Trustee.
The Company covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, such compensation as shall be agreed to in writing between the Company and the Trustee (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust), and the Company will pay or reimburse the Trustee upon its written request for all documented reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any of the provisions of this Indenture (including the reasonable compensation and the reasonable expenses and disbursements of its counsel and of all Persons not regularly in its employ) except any such expense, disbursement or advance that arises from its negligence or bad faith. The Company also covenants to indemnify each of the Trustee (including in its individual capacity) and any predecessor Trustee (and its officers, agents, directors and employees) for, and to hold it harmless against, any and all loss, damage, claim, liability or expense including taxes (other than taxes based on the income of the Trustee), except to the extent such loss, damage, claim, liability or expense results from the negligence or bad faith of such indemnitee, arising out of or in connection with the acceptance or administration of this Trust, including the costs and expenses of defending itself against any claim or liability in the premises. The obligations of the Company under this Section 6.06 to compensate and indemnify the Trustee and to pay or reimburse the Trustee for documented expenses, disbursements and advances shall constitute additional indebtedness hereunder. Such additional indebtedness shall be secured by a lien prior to that of the Debt Securities upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the holders of particular Debt Securities.
Without prejudice to any other rights available to the Trustee under applicable law, when the Trustee incurs expenses or renders services in connection with an Event of Default specified in subsections (d), (e) or (f) of Section 5.01, the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable federal or state bankruptcy, insolvency or other similar law.
The provisions of this Section shall survive the resignation or removal of the Trustee and the defeasance or other termination of this Indenture.
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SECTION 6.07. Officers Certificate as Evidence.
Except as otherwise provided in Sections 6.01 and 6.02, whenever in the administration of the provisions of this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or omitting any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of negligence or bad faith on the part of the Trustee, be deemed to be conclusively proved and established by an Officers Certificate delivered to the Trustee, and such certificate, in the absence of negligence or bad faith on the part of the Trustee, shall be full warrant to the Trustee for any action taken or omitted by it under the provisions of this Indenture upon the faith thereof.
SECTION 6.08. Eligibility of Trustee.
The Trustee hereunder shall at all times be a U.S. Person that is a banking corporation or national association organized and doing business under the laws of the United States of America or any state thereof or of the District of Columbia and authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least fifty million U.S. dollars ($50,000,000) and subject to supervision or examination by federal, state, or District of Columbia authority. If such corporation or national association publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section 6.08 the combined capital and surplus of such corporation or national association shall be deemed to be its combined capital and surplus as set forth in its most recent records of condition so published.
The Company may not, nor may any Person directly or indirectly controlling, controlled by, or under common control with the Company, serve as Trustee, notwithstanding that such corporation or national association shall be otherwise eligible and qualified under this Article.
In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 6.08, the Trustee shall resign immediately in the manner and with the effect specified in Section 6.09.
If the Trustee has or shall acquire any conflicting interest within the meaning of § 310(b) of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to this Indenture.
SECTION 6.09. Resignation or Removal of Trustee, Calculation Agent, Paying Agent or Debt Security Registrar.
(a) The Trustee, or any trustee or trustees hereafter appointed, the Calculation Agent, the Paying Agent and any Debt Security Registrar may at any time resign by giving written notice of such resignation to the Company and by mailing notice thereof, at the Companys expense, to the holders of the Debt Securities at their addresses as they shall appear on the Debt Security Register. Upon receiving such notice of resignation, the Company shall promptly appoint a successor or successors by written instrument, in duplicate, executed by order of its Board of Directors, one copy of which instrument shall be delivered to the resigning party
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and one copy to the successor. If no successor shall have been so appointed and have accepted appointment within 30 days after the mailing of such notice of resignation to the affected Securityholders, the resigning party may petition any court of competent jurisdiction for the appointment of a successor, or any Securityholder who has been a bona fide holder of a Debt Security or Debt Securities for at least six months may, subject to the provisions of Section 5.09, on behalf of himself or herself and all others similarly situated, petition any such court for the appointment of a successor. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, appoint a successor.
(b) In case at any time any of the following shall occur -
(1) the Trustee shall fail to comply with the provisions of the last paragraph of Section 6.08 after written request therefor by the Company or by any Securityholder who has been a bona fide holder of a Debt Security or Debt Securities for at least six months,
(2) the Trustee shall cease to be eligible in accordance with the provisions of Section 6.08 and shall fail to resign after written request therefor by the Company or by any such Securityholder, or
(3) the Trustee shall become incapable of acting, or shall be adjudged bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation,
then, in any such case, the Company may remove the Trustee and appoint a successor Trustee by written instrument, in duplicate, executed by order of the Board of Directors, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor Trustee, or, subject to the provisions of Section 5.09, if no successor Trustee shall have been so appointed and have accepted appointment within 30 days of the occurrence of any of (1), (2) or (3) above, any Securityholder who has been a bona fide holder of a Debt Security or Debt Securities for at least six months may, on behalf of himself or herself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor Trustee.
(c) Upon prior written notice to the Company and the Trustee, the holders of a majority in aggregate principal amount of the Debt Securities at the time outstanding may at any time remove the Trustee and nominate a successor Trustee, which shall be deemed appointed as successor Trustee unless within ten Business Days after such nomination the Company objects thereto, in which case or in the case of a failure by such holders to nominate a successor Trustee, the Trustee so removed or any Securityholder, upon the terms and conditions and otherwise as in subsection (a) of this Section 6.09 provided, may petition any court of competent jurisdiction for an appointment of a successor.
(d) Any resignation or removal of the Trustee, the Calculation Agent, the Paying Agent and any Debt Security Registrar and appointment of a successor pursuant to any of the provisions of this Section 6.09 shall become effective upon acceptance of appointment by the successor as provided in Section 6.10.
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SECTION 6.10. Acceptance by Successor.
Any successor Trustee, Calculation Agent, Paying Agent or Debt Security Registrar appointed as provided in Section 6.09 shall execute, acknowledge and deliver to the Company and to its predecessor an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the retiring party shall become effective and such successor, without any further act, deed or conveyance, shall become vested with all the rights, powers, duties and obligations with respect to the Debt Securities of its predecessor hereunder, with like effect as if originally named herein; but, nevertheless, on the written request of the Company or of the successor, the party ceasing to act shall, upon payment of the amounts then due it pursuant to the provisions of Section 6.06, execute and deliver an instrument transferring to such successor all the rights and powers of the party so ceasing to act and shall duly assign, transfer and deliver to such successor all property and money held by such retiring party hereunder. Upon request of any such successor, the Company shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor all such rights and powers. Any party ceasing to act shall, nevertheless, retain a lien upon all property or funds held or collected to secure any amounts then due it pursuant to the provisions of Section 6.06.
If a successor Trustee is appointed, the Company, the retiring Trustee and the successor Trustee shall execute and deliver an indenture supplemental hereto which shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Debt Securities as to which the predecessor Trustee is not retiring shall continue to be vested in the predecessor Trustee, and shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the Trust hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be Trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee.
No successor Trustee shall accept appointment as provided in this Section 6.10 unless at the time of such acceptance such successor Trustee shall be eligible and qualified under the provisions of Section 6.08.
In no event shall a retiring Trustee, Calculation Agent, Paying Agent or Debt Security Registrar be liable for the acts or omissions of any successor hereunder.
Upon acceptance of appointment by a successor Trustee, Calculation Agent, Paying Agent or Debt Security Registrar as provided in this Section 6.10, the Company shall mail notice of the succession to the holders of Debt Securities at their addresses as they shall appear on the Debt Security Register. If the Company fails to mail such notice within ten Business Days after the acceptance of appointment by the successor, the successor shall cause such notice to be mailed at the expense of the Company.
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SECTION 6.11. Succession by Merger, etc.
Any Person into which the Trustee may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any Person succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder without the execution or filing of any paper or any further act on the part of any of the parties hereto; provided, that such Person shall be otherwise eligible and qualified under this Article.
In case at the time such successor to the Trustee shall succeed to the trusts created by this Indenture any of the Debt Securities shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor Trustee, and deliver such Debt Securities so authenticated; and in case at that time any of the Debt Securities shall not have been authenticated, any successor to the Trustee may authenticate such Debt Securities either in the name of any predecessor hereunder or in the name of the successor Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Debt Securities or in this Indenture provided that the certificate of the Trustee shall have; provided, however, that the right to adopt the certificate of authentication of any predecessor Trustee or authenticate Debt Securities in the name of any predecessor Trustee shall apply only to its successor or successors by merger, conversion or consolidation.
SECTION 6.12. Authenticating Agents.
There may be one or more Authenticating Agents appointed by the Trustee upon the request of the Company with power to act on its behalf and subject to its direction in the authentication and delivery of Debt Securities issued upon exchange or registration of transfer thereof as fully to all intents and purposes as though any such Authenticating Agent had been expressly authorized to authenticate and deliver Debt Securities; provided, that the Trustee shall have no liability to the Company for any acts or omissions of the Authenticating Agent with respect to the authentication and delivery of Debt Securities. Any such Authenticating Agent shall at all times be a Person organized and doing business under the laws of the United States or of any state or territory thereof or of the District of Columbia authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of at least $50,000,000 and being subject to supervision or examination by federal, state, territorial or District of Columbia authority. If such Person publishes reports of condition at least annually pursuant to law or the requirements of such authority, then for the purposes of this Section 6.12 the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect herein specified in this Section.
Any Person into which any Authenticating Agent may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, consolidation or conversion to which any Authenticating Agent shall be a party, or any Person succeeding to all or substantially all of the corporate trust business of any Authenticating Agent, shall be the successor of such Authenticating Agent hereunder, if such successor Person is otherwise eligible under this Section 6.12 without the execution or filing of any paper or any further act on the part of the parties hereto or such Authenticating Agent.
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Any Authenticating Agent may at any time resign by giving written notice of resignation to the Trustee and to the Company. The Trustee may at any time terminate the agency of any Authenticating Agent with respect to the Debt Securities by giving written notice of termination to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time any Authenticating Agent shall cease to be eligible under this Section 6.12, the Trustee may, and upon the request of the Company shall, promptly appoint a successor Authenticating Agent eligible under this Section 6.12, shall give written notice of such appointment to the Company and shall mail notice of such appointment to all holders of Debt Securities as the names and addresses of such holders appear on the Debt Security Register. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all rights, powers, duties and responsibilities with respect to the Debt Securities of its predecessor hereunder, with like effect as if originally named as Authenticating Agent herein.
The Company agrees to pay to any Authenticating Agent from time to time reasonable compensation for its services. Any Authenticating Agent shall have no responsibility or liability for any action taken by it as such in accordance with the directions of the Trustee and shall receive such reasonable indemnity as it may require against the costs, expenses and liabilities incurred in furtherance of its duties under this Section 6.12.
ARTICLE VII
CONCERNING THE SECURITYHOLDERS
SECTION 7.01. Action by Securityholders.
Whenever in this Indenture it is provided that the holders of a specified percentage in aggregate principal amount of the Debt Securities may take any action (including the making of any demand or request, the giving of any notice, consent or waiver or the taking of any other action), the fact that at the time of taking any such action the holders of such specified percentage have joined therein may be evidenced (a) by any instrument or any number of instruments of similar tenor executed by such Securityholders in person or by agent or proxy appointed in writing, or (b) by the record of such holders of Debt Securities voting in favor thereof at any meeting of such Securityholders duly called and held in accordance with the provisions of Article VIII, or (c) by a combination of such instrument or instruments and any such record of such a meeting of such Securityholders, or (d) by any other method the Trustee deems satisfactory.
If the Company shall solicit from the Securityholders any request, demand, authorization, direction, notice, consent, waiver or other action or revocation of the same, the Company may, at its option, as evidenced by an Officers Certificate, fix in advance a record date for such Debt Securities for the determination of Securityholders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other action or revocation of the same, but the Company shall have no obligation to do so. If such a record date is fixed, such
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request, demand, authorization, direction, notice, consent, waiver or other action or revocation of the same may be given before or after the record date, but only the Securityholders of record at the close of business on the record date shall be deemed to be Securityholders for the purposes of determining whether Securityholders of the requisite proportion of outstanding Debt Securities have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other action or revocation of the same, and for that purpose the outstanding Debt Securities shall be computed as of the record date; provided, however, that no such authorization, agreement or consent by such Securityholders on the record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than six months after the record date.
SECTION 7.02. Proof of Execution by Securityholders.
Subject to the provisions of Sections 6.01, 6.02 and 8.05, proof of the execution of any instrument by a Securityholder or such Securityholders agent or proxy shall be sufficient if made in accordance with such reasonable rules and regulations as may be prescribed by the Trustee or in such manner as shall be satisfactory to the Trustee. The ownership of Debt Securities shall be proved by the Debt Security Register or by a certificate of the Debt Security Registrar. The Trustee may require such additional proof of any matter referred to in this Section as it shall deem necessary.
The record of any Securityholders meeting shall be proved in the manner provided in Section 8.06.
SECTION 7.03. Who Are Deemed Absolute Owners.
Prior to due presentment for registration of transfer of any Debt Security, the Company, the Trustee, any Authenticating Agent, any Paying Agent, any transfer agent and any Debt Security registrar may deem the Person in whose name such Debt Security shall be registered upon the Debt Security Register to be, and may treat such Person as, the absolute owner of such Debt Security (whether or not such Debt Security shall be overdue) for the purpose of receiving payment of or on account of the principal of, premium, if any, and interest on such Debt Security and for all other purposes; and neither the Company nor the Trustee nor any Authenticating Agent nor any Paying Agent nor any transfer agent nor any Debt Security registrar shall be affected by any notice to the contrary. All such payments so made to any holder for the time being or upon such holders order shall be valid, and, to the extent of the sum or sums so paid, effectual to satisfy and discharge the liability for moneys payable upon any such Debt Security.
SECTION 7.04. Debt Securities Owned by Company Deemed Not Outstanding.
In determining whether the holders of the requisite aggregate principal amount of Debt Securities have concurred in any direction, consent or waiver under this Indenture, Debt Securities which are owned by the Company or any other obligor on the Debt Securities or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any other obligor on the Debt Securities shall be disregarded and deemed not to be outstanding for the purpose of any such determination; provided, that for the
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purposes of determining whether the Trustee shall be protected in relying on any such direction, consent or waiver, only Debt Securities which a Responsible Officer of the Trustee actually knows are so owned shall be so disregarded. Debt Securities so owned which have been pledged in good faith may be regarded as outstanding for the purposes of this Section 7.04 if the pledgee shall establish to the satisfaction of the Trustee the pledgees right to vote such Debt Securities and that the pledgee is not the Company or any such other obligor or Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any such other obligor. In the case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee.
SECTION 7.05. Revocation of Consents; Future Holders Bound.
At any time prior to (but not after) the evidencing to the Trustee, as provided in Section 7.01, of the taking of any action by the holders of the percentage in aggregate principal amount of the Debt Securities specified in this Indenture in connection with such action, any holder (in cases where no record date has been set pursuant to Section 7.01) or any holder as of an applicable record date (in cases where a record date has been set pursuant to Section 7.01) of a Debt Security (or any Debt Security issued in whole or in part in exchange or substitution therefor) the serial number of which is shown by the evidence to be included in the Debt Securities the holders of which have consented to such action may, by filing written notice with the Trustee at the Principal Office of the Trustee and upon proof of holding as provided in Section 7.02, revoke such action so far as concerns such Debt Security (or so far as concerns the principal amount represented by any exchanged or substituted Debt Security). Except as aforesaid any such action taken by the holder of any Debt Security shall be conclusive and binding upon such holder and upon all future holders and owners of such Debt Security, and of any Debt Security issued in exchange or substitution therefor or on registration of transfer thereof, irrespective of whether or not any notation in regard thereto is made upon such Debt Security or any Debt Security issued in exchange or substitution therefor.
ARTICLE VIII
SECURITYHOLDERS MEETINGS
SECTION 8.01. Purposes of Meetings.
A meeting of Securityholders may be called at any time and from time to time pursuant to the provisions of this Article VIII for any of the following purposes:
(a) to give any notice to the Company or to the Trustee, or to give any directions to the Trustee, or to consent to the waiving of any default hereunder and its consequences, or to take any other action authorized to be taken by Securityholders pursuant to any of the provisions of Article V;
(b) to remove the Trustee and nominate a successor trustee pursuant to the provisions of Article VI;
(c) to consent to the execution of an indenture or indentures supplemental hereto pursuant to the provisions of Section 9.02; or
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(d) to take any other action authorized to be taken by or on behalf of the holders of any specified aggregate principal amount of such Debt Securities under any other provision of this Indenture or under applicable law.
SECTION 8.02. Call of Meetings by Trustee.
The Trustee may at any time call a meeting of Securityholders to take any action specified in Section 8.01, to be held at such time and at such place in New York or Wilmington, Delaware, as the Trustee shall determine. Notice of every meeting of the Securityholders, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be mailed to holders of Debt Securities affected at their addresses as they shall appear on the Debt Securities Register. Such notice shall be mailed not less than 20 nor more than 180 days prior to the date fixed for the meeting.
SECTION 8.03. Call of Meetings by Company or Securityholders.
In case at any time the Company pursuant to a Board Resolution, or the holders of at least 10% in aggregate principal amount of the Debt Securities, as the case may be, then outstanding, shall have requested the Trustee to call a meeting of Securityholders, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed the notice of such meeting within 20 days after receipt of such request, then the Company or such Securityholders may determine the time and the place in for such meeting and may call such meeting to take any action authorized in Section 8.01, by mailing notice thereof as provided in Section 8.02.
SECTION 8.04. Qualifications for Voting.
To be entitled to vote at any meeting of Securityholders a Person shall be (a) a holder of one or more Debt Securities with respect to which the meeting is being held or (b) a Person appointed by an instrument in writing as proxy by a holder of one or more such Debt Securities. The only Persons who shall be entitled to be present or to speak at any meeting of Securityholders shall be the Persons entitled to vote at such meeting and their counsel and any representatives of the Trustee and its counsel and any representatives of the Company and its counsel.
SECTION 8.05. Regulations.
Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Securityholders, in regard to proof of the holding of Debt Securities and of the appointment of proxies, and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall deem appropriate.
The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by Securityholders as provided in Section 8.03, in which case the Company or the Securityholders calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by majority vote at the meeting.
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Subject to the provisions of Section 7.04, at any meeting each holder of Debt Securities with respect to which such meeting is being held or proxy therefor shall be entitled to one vote for each $1,000 principal amount of Debt Securities held or represented by such holder; provided, however, that no vote shall be cast or counted at any meeting in respect of any Debt Security challenged as not outstanding and ruled by the chairman of the meeting to be not outstanding. The chairman of the meeting shall have no right to vote other than by virtue of Debt Securities held by such chairman or instruments in writing as aforesaid duly designating such chairman as the Person to vote on behalf of other Securityholders. Any meeting of Securityholders duly called pursuant to the provisions of Section 8.02 or 8.03 may be adjourned from time to time by a majority of those present, whether or not constituting a quorum, and the meeting may be held as so adjourned without further notice.
SECTION 8.06. Voting.
The vote upon any resolution submitted to any meeting of holders of Debt Securities with respect to which such meeting is being held shall be by written ballots on which shall be subscribed the signatures of such holders or of their representatives by proxy and the serial number or numbers of the Debt Securities held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in triplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of Securityholders shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more Persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was mailed as provided in Section 8.02. The record shall show the serial numbers of the Debt Securities voting in favor of or against any resolution. The record shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one of the duplicates shall be delivered to the Company and the other to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated.
SECTION 8.07. Quorum; Actions.
The Persons entitled to vote a majority in outstanding principal amount of the Debt Securities shall constitute a quorum for a meeting of Securityholders; provided, however, that if any action is to be taken at such meeting with respect to a consent, waiver, request, demand, notice, authorization, direction or other action which may be given by the holders of not less than a specified percentage in outstanding principal amount of the Debt Securities, the Persons holding or representing such specified percentage in outstanding principal amount of the Debt Securities will constitute a quorum. In the absence of a quorum within 30 minutes of the time appointed for any such meeting, the meeting shall, if convened at the request of Securityholders, be dissolved. In any other case the meeting may be adjourned for a period of not less than 10 days as determined by the permanent chairman of the meeting prior to the
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adjournment of such meeting. In the absence of a quorum at any such adjourned meeting, such adjourned meeting may be further adjourned for a period of not less than 10 days as determined by the permanent chairman of the meeting prior to the adjournment of such adjourned meeting. Notice of the reconvening of any adjourned meeting shall be given as provided in Section 8.02, except that such notice need be given only once not less than five days prior to the date on which the meeting is scheduled to be reconvened. Notice of the reconvening of an adjourned meeting shall state expressly the percentage, as provided above, of the outstanding principal amount of the Debt Securities which shall constitute a quorum.
Except as limited by the proviso in the first paragraph of Section 9.02, any resolution presented to a meeting or adjourned meeting duly reconvened at which a quorum is present as aforesaid may be adopted by the affirmative vote of the holders of not less than a majority in outstanding principal amount of the Debt Securities; provided, however, that, except as limited by the proviso in the first paragraph of Section 9.02, any resolution with respect to any consent, waiver, request, demand, notice, authorization, direction or other action that this Indenture expressly provides may be given by the holders of not less than a specified percentage in outstanding principal amount of the Debt Securities may be adopted at a meeting or an adjourned meeting duly reconvened and at which a quorum is present as aforesaid only by the affirmative vote of the holders of not less than such specified percentage in outstanding principal amount of the Debt Securities.
Any resolution passed or decision taken at any meeting of holders of Debt Securities duly held in accordance with this Section shall be binding on all the Securityholders, whether or not present or represented at the meeting.
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.01. Supplemental Indentures without Consent of Securityholders.
The Company, when authorized by a Board Resolution, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto, without the consent of the Securityholders, for one or more of the following purposes:
(a) to evidence the succession of another Person to the Company, or successive successions, and the assumption by the successor Person of the covenants, agreements and obligations of the Company, pursuant to Article XI hereof;
(b) to add to the covenants of the Company such further covenants, restrictions or conditions for the protection of the holders of Debt Securities as the Board of Directors shall consider to be for the protection of the holders of such Debt Securities, and to make the occurrence, or the occurrence and continuance, of a default in any of such additional covenants, restrictions or conditions a default or an Event of Default permitting the enforcement of all or any of the several remedies provided in this Indenture as herein set forth; provided, however, that in respect of any such additional covenant, restriction or condition such supplemental indenture may provide for a particular period of grace after default (which period
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may be shorter or longer than that allowed in the case of other defaults) or may provide for an immediate enforcement upon such default or may limit the remedies available to the Trustee upon such default;
(c) to cure any ambiguity or to correct or supplement any provision contained herein or in any supplemental indenture which may be defective or inconsistent with any other provision contained herein or in any supplemental indenture, or to make such other provisions in regard to matters or questions arising under this Indenture; provided, that any such action shall not adversely affect the interests of the holders of the Debt Securities;
(d) to add to, delete from, or revise the terms of Debt Securities, including, without limitation, any terms relating to the issuance, exchange, registration or transfer of Debt Securities, including to provide for transfer procedures and restrictions substantially similar to those applicable to the Capital Securities, as required by Section 2.05 (for purposes of assuring that no registration of Debt Securities is required under the Securities Act of 1933, as amended); provided, that any such action shall not adversely affect the interests of the holders of the Debt Securities then outstanding (it being understood, for purposes of this proviso, that transfer restrictions on Debt Securities substantially similar to those applicable to Capital Securities shall not be deemed to adversely affect the holders of the Debt Securities);
(e) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Debt Securities and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 6.10;
(f) to make any change (other than as elsewhere provided in this paragraph) that does not adversely affect the rights of any Securityholder in any material respect; or
(g) to provide for the issuance of and establish the form and terms and conditions of the Debt Securities, to establish the form of any certifications required to be furnished pursuant to the terms of this Indenture or the Debt Securities, or to add to the rights of the hollers of Debt Securities.
The Trustee is hereby authorized to join with the Company in the execution of any such supplemental indenture, to make any further appropriate agreements and stipulations which may be therein contained and to accept the conveyance, transfer and assignment of any property thereunder, but the Trustee shall not be obligated to, but may in its discretion, enter into any such supplemental indenture which affects the Trustees own rights, duties or immunities under this Indenture or otherwise.
Any supplemental indenture authorized by the provisions of this Section 9.01 may be executed by the Company and the Trustee without the consent of the holders of any of the Debt Securities at the time outstanding, notwithstanding any of the provisions of Section 9.02.
SECTION 9.02. Supplemental Indentures with Consent of Securityholders.
With the consent (evidenced as provided in Section 7.01) of the holders of not less than a majority in aggregate principal amount of the Debt Securities at the time outstanding
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affected by such supplemental indenture (voting as a class), the Company, when authorized by a Board Resolution, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto (which shall conform to the provisions of the Trust Indenture Act, then in effect, applicable to indentures qualified thereunder) for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any supplemental indenture or of modifying in any manner the rights of the holders of the Debt Securities; provided, however, that no such supplemental indenture shall without such consent of the holders of each Debt Security then outstanding and affected thereby (i) extend the fixed maturity of any Debt Security, or reduce the principal amount thereof or any premium thereon, or reduce the rate or extend the time of payment of interest thereon, or reduce any amount payable on redemption thereof or make the principal thereof or any interest or premium thereon payable in any coin or currency other than that provided in the Debt Securities, or impair or affect the right of any Securityholder to institute suit for payment thereof or impair the right of repayment, if any, at the option of the holder, or (ii) reduce the aforesaid percentage of Debt Securities the holders of which are required to consent to any such supplemental indenture; and provided, further, that if the Debt Securities are held by the Trust or a trustee of such trust, such supplemental indenture shall not be effective until the holders of a majority in liquidation preference of the Trust Securities shall have consented to such supplemental indenture; provided, further, that if the consent of the Securityholder of each outstanding Debt Security is required, such supplemental indenture shall not be effective until each holder of the Trust Securities shall have consented to such supplemental indenture.
Upon the request of the Company accompanied by a Board Resolution authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of Securityholders as aforesaid, the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustees own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture.
Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of this Section, the Trustee shall transmit by mail, first class postage prepaid, a notice, prepared by the Company, setting forth in general terms the substance of such supplemental indenture, to the Securityholders as their names and addresses appear upon the Debt Security Register. Any failure of the Trustee to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture.
It shall not be necessary for the consent of the Securityholders under this Section 9.02 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof.
SECTION 9.03. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture pursuant to the provisions of this Article IX, this Indenture shall be and be deemed to be modified and amended in accordance therewith and the respective rights, limitations of rights, obligations, duties and immunities under
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this Indenture of the Trustee, the Company and the holders of Debt Securities shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments and all the terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes.
SECTION 9.04. Notation on Debt Securities.
Debt Securities authenticated and delivered after the execution of any supplemental indenture pursuant to the provisions of this Article IX may bear a notation as to any matter provided for in such supplemental indenture. If the Company or the Trustee shall so determine, new Debt Securities so modified as to conform, in the opinion of the Board of Directors of the Company, to any modification of this Indenture contained in any such supplemental indenture may be prepared and executed by the Company, authenticated by the Trustee or the Authenticating Agent and delivered in exchange for the Debt Securities then outstanding.
SECTION 9.05. Evidence of Compliance of Supplemental Indenture to be furnished to Trustee.
The Trustee, subject to the provisions of Sections 6.01 and 6.02, shall, in addition to the documents required by Section 14.06, receive an Officers Certificate and an Opinion of Counsel as conclusive evidence that any supplemental indenture executed pursuant hereto complies with the requirements of this Article IX. The Trustee shall receive an Opinion of Counsel as conclusive evidence that any supplemental indenture executed pursuant to this Article IX is authorized or permitted by, and conforms to, the terms of this Article IX and that it is proper for the Trustee under the provisions of this Article IX to join in the execution thereof.
ARTICLE X
REDEMPTION OF SECURITIES
SECTION 10.01. Optional Redemption.
At any time the Company shall have the right, subject to the receipt by the Company of prior approval from the Federal Reserve, if then required under applicable capital guidelines or policies of the Federal Reserve, to redeem the Debt Securities, in whole or in part, on any January 7, April 7, July 7 or October 7 on or after January 7, 2009 (the Redemption Date), at the Redemption Price.
SECTION 10.02. Special Event Redemption.
If a Special Event shall occur and be continuing, the Company shall have the right, subject to the receipt by the Company of prior approval from the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve, to redeem the Debt Securities, in whole or in part, at any time within 90 days following the occurrence of such Special Event (the Special Redemption Date), at the Special Redemption Price.
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SECTION 10.03. Notice of Redemption; Selection of Debt Securities.
In case the Company shall desire to exercise the right to redeem all, or, as the case may be, any part of the Debt Securities, it shall fix a date for redemption and shall mail a notice of such redemption at least 30 and not more than 60 days prior to the date fixed for redemption to the holders of Debt Securities so to be redeemed as a whole or in part at their last addresses as the same appear on the Debt Security Register. Such mailing shall be by first class mail. The notice if mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the holder receives such notice. In any case, failure to give such notice by mail or any defect in the notice to the holder of any Debt Security designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any other Debt Security.
Each such notice of redemption shall specify the CUSIP number, if any, of the Debt Securities to be redeemed, the date fixed for redemption, the redemption price at which Debt Securities are to be redeemed, the place or places of payment, that payment will be made upon presentation and surrender of such Debt Securities, that interest accrued to the date fixed for redemption will be paid as specified in said notice, and that on and after said date interest thereon or on the portions thereof to be redeemed will cease to accrue. If less than all the Debt Securities are to be redeemed the notice of redemption shall specify the numbers of the Debt Securities to be redeemed. In case the Debt Securities are to be redeemed in part only, the notice of redemption shall state the portion of the principal amount thereof to be redeemed and shall state that on and after the date fixed for redemption, upon surrender of such Debt Security, a new Debt Security or Debt Securities in principal amount equal to the unredeemed portion thereof will be issued.
Prior to 10:00 a.m. New York City time on the Redemption Date or the Special Redemption Date specified in the notice of redemption given as provided in this Section, the Company will deposit with the Trustee or with one or more Paying Agents an amount of money sufficient to redeem on the redemption date all the Debt Securities so called for redemption at the appropriate redemption price, together with accrued interest to the date fixed for redemption.
The Company will give the Trustee notice not less than 45 nor more than 60 days prior to the redemption date as to the redemption price at which the Debt Securities are to be redeemed and the aggregate principal amount of Debt Securities to be redeemed and the Trustee shall select, in such manner as in its sole discretion it shall deem appropriate and fair, the Debt Securities or portions thereof (in integral multiples of $1,000) to be redeemed.
SECTION 10.04. Payment of Debt Securities Called for Redemption.
If notice of redemption has been given as provided in Section 10.03, the Debt Securities or portions of Debt Securities with respect to which such notice has been given shall become due and payable on the Redemption Date or the Special Redemption Date (as the case may be) and at the place or places stated in such notice at the applicable redemption price, together with interest accrued to the date fixed for redemption, and on and after said Redemption Date or the Special Redemption Date (unless the Company shall default in the payment of such Debt Securities at the redemption price, together with interest accrued to said date) interest on
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the Debt Securities or portions of Debt Securities so called for redemption shall cease to accrue. On presentation and surrender of such Debt Securities at a place of payment specified in said notice, such Debt Securities or the specified portions thereof shall be paid and redeemed by the Company at the applicable redemption price, together with interest accrued thereon to the Redemption Date or the Special Redemption Date (as the case may be).
Upon presentation of any Debt Security redeemed in part only, the Company shall execute and the Trustee shall authenticate and make available for delivery to the holder thereof, at the expense of the Company, a new Debt Security or Debt Securities of authorized denominations in principal amount equal to the unredeemed portion of the Debt Security so presented.
ARTICLE XI
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE
SECTION 11.01. Company May Consolidate, etc., on Certain Terms.
Nothing contained in this Indenture or in the Debt Securities shall prevent any consolidation or merger of the Company with or into any other corporation or corporations (whether or not affiliated with the Company) or successive consolidations or mergers in which the Company or its successor or successors shall be a party or parties, or shall prevent any sale, conveyance, transfer or other disposition of the property or capital stock of the Company or its successor or successors as an entirety, or substantially as an entirety, to any other corporation (whether or not affiliated with the Company, or its successor or successors) authorized to acquire and operate the same; provided, however, that the Company hereby covenants and agrees that, upon any such consolidation, merger (where the Company is not the surviving corporation), sale, conveyance, transfer or other disposition, the due and punctual payment of all payments due on all of the Debt Securities in accordance with their terms, according to their tenor, and the due and punctual performance and observance of all the covenants and conditions of this Indenture to be kept or performed by the Company, shall be expressly assumed by supplemental indenture reasonably satisfactory in form to the Trustee executed and delivered to the Trustee by the entity formed by such consolidation, or into which the Company shall have been merged, or by the entity which shall have acquired such property or capital stock.
SECTION 11.02. Successor Entity to be Substituted.
In case of any such consolidation, merger, sale, conveyance, transfer or other disposition and upon the assumption by the successor entity, by supplemental indenture, executed and delivered to the Trustee and reasonably satisfactory in form to the Trustee, of the due and punctual payment of the principal of and premium, if any, and interest on all of the Debt Securities and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed or observed by the Company, such successor entity shall succeed to and be substituted for the Company, with the same effect as if it had been named herein as the Company, and thereupon the predecessor entity shall be relieved of any further liability or obligation hereunder or upon the Debt Securities. Such successor entity thereupon may cause to be signed, and may issue either in its own name or in the name of the Company,
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any or all of the Debt Securities issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee or the Authenticating Agent; and, upon the order of such successor entity instead of the Company and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee or the Authenticating Agent shall authenticate and deliver any Debt Securities which previously shall have been signed and delivered by the officers of the Company, to the Trustee or the Authenticating Agent for authentication, and any Debt Securities which such successor entity thereafter shall cause to be signed and delivered to the Trustee or the Authenticating Agent for that purpose. All the Debt Securities so issued shall in all respects have the same legal rank and benefit under this Indenture as the Debt Securities theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Debt Securities had been issued at the date of the execution hereof.
SECTION 11.03. Opinion of Counsel to be Given to Trustee.
The Trustee, subject to the provisions of Sections 6.01 and 6.02, shall receive, in addition to the Opinion of Counsel required by Section 9.05, an Opinion of Counsel as conclusive evidence that any consolidation, merger, sale, conveyance, transfer or other disposition, and any assumption, permitted or required by the terms of this Article XI complies with the provisions of this Article XI.
ARTICLE XII
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 12.01. Discharge of Indenture.
When (a) the Company shall deliver to the Trustee for cancellation all Debt Securities theretofore authenticated (other than any Debt Securities which shall have been destroyed, lost or stolen and which shall have been replaced or paid as provided in Section 2.06) and not theretofore canceled, or (b) all the Debt Securities not theretofore canceled or delivered to the Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within one year or are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption, and the Company shall deposit with the Trustee, in trust, funds, which shall be immediately due and payable, sufficient to pay at maturity or upon redemption all of the Debt Securities (other than any Debt Securities which shall have been destroyed, lost or stolen and which shall have been replaced or paid as provided in Section 2.06) not theretofore canceled or delivered to the Trustee for cancellation, including principal and premium, if any, and interest due or to become due to such date of maturity or redemption date, as the case may be, but excluding, however, the amount of any moneys for the payment of principal of, and premium, if any, or interest on the Debt Securities (1) theretofore repaid to the Company in accordance with the provisions of Section 12.04, or (2) paid to any state or to the District of Columbia pursuant to its unclaimed property or similar laws, and if in the case of either clause (a) or clause (b) the Company shall also pay or cause to be paid all other sums payable hereunder by the Company, then this Indenture shall cease to be of further effect except for the provisions of Sections 2.05, 2.06, 3.01, 3.02, 3.04, 6.06, 6.09 and 12.04 hereof, which shall survive until such Debt Securities shall mature or are
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redeemed, as the case may be, and are paid. Thereafter, Sections 6.06, 6.09 and 12.04 shall survive, and the Trustee, on demand of the Company accompanied by an Officers Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with, and at the cost and expense of the Company, shall execute proper instruments acknowledging satisfaction of and discharging this Indenture, the Company, however, hereby agreeing to reimburse the Trustee for any costs or expenses thereafter reasonably and properly incurred by the Trustee in connection with this Indenture or the Debt Securities.
SECTION 12.02. Deposited Moneys to be Held in Trust by Trustee.
Subject to the provisions of Section 12.04, all moneys deposited with the Trustee pursuant to Section 12.01 shall be held in trust and applied by it to the payment, either directly or through any Paying Agent (including the Company if acting as its own Paying Agent), to the holders of the particular Debt Securities for the payment of which such moneys have been deposited with the Trustee, of all sums due and to become due thereon for principal, and premium, if any, and interest.
SECTION 12.03. Paying Agent to Repay Moneys Held.
Upon the satisfaction and discharge of this Indenture, all moneys then held by any Paying Agent of the Debt Securities (other than the Trustee) shall, upon demand of the Company, be repaid to the Company or paid to the Trustee, and thereupon such Paying Agent shall be released from all further liability with respect to such moneys.
SECTION 12.04. Return of Unclaimed Moneys.
Any moneys deposited with or paid to the Trustee or any Paying Agent for payment of the principal of, and premium, if any, or interest on Debt Securities and not applied but remaining unclaimed by the holders of Debt Securities for two years after the date upon which the principal of, and premium, if any, or interest on such Debt Securities, as the case may be, shall have become due and payable, shall be repaid to the Company by the Trustee or such Paying Agent on written demand; and the holder of any of the Debt Securities shall thereafter look only to the Company for any payment which such holder may be entitled to collect and all liability of the Trustee or such Paying Agent with respect to such moneys shall thereupon cease.
ARTICLE XIII
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS
SECTION 13.01. Indenture and Debt Securities Solely Corporate Obligations.
No recourse for the payment of the principal of or premium, if any, or interest on any Debt Security, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Company in this Indenture or in any supplemental indenture, or in any such Debt Security, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, officer, director, employee or agent, as such, past, present or future, of the Company or of any
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predecessor or successor corporation of the Company, either directly or through the Company or any successor corporation of the Company, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that all such liability is hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of the Debt Securities.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
SECTION 14.01. Successors.
All the covenants, stipulations, promises and agreements of the Company contained in this Indenture shall bind its successors and assigns whether so expressed or not.
SECTION 14.02. Official Acts by Successor Entity.
Any act or proceeding by any provision of this Indenture authorized or required to be done or performed by any board, committee or officer of the Company shall and may be done and performed with like force and effect by the like board, committee, officer or other authorized Person of any entity that shall at the time be the lawful successor of the Company.
SECTION 14.03. Surrender of Company Powers.
The Company by instrument in writing executed by authority of 2/3 (two-thirds) of its Board of Directors and delivered to the Trustee may surrender any of the powers reserved to the Company and thereupon such power so surrendered shall terminate both as to the Company and as to any permitted successor.
SECTION 14.04. Addresses for Notices, etc.
Any notice or demand which by any provision of this Indenture is required or permitted to be given or served by the Trustee or by the Securityholders on the Company may be given or served in writing by being deposited postage prepaid by registered or certified mail in a post office letter box addressed (until another address is filed by the Company with the Trustee for such purpose) to the Company at:
Center Financial Corporation
3435 Wilshire Boulevard, Suite 700
Los Angeles, CA 90010
Attention: Yong Hwa Kim, Chief Financial Officer
Any notice, direction, request or demand by any Securityholder or the Company to or upon the Trustee shall be deemed to have been sufficiently given or made, for all purposes, if given or made in writing at the office of Wells Fargo Bank, National Association at:
919 Market Street
Suite 700
Wilmington, DE 19801
Attention: Corporate Trust Division
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SECTION 14.05. Governing Law.
This Indenture and each Debt Security shall be deemed to be a contract made under the law of the State of New York, and for all purposes shall be governed by and construed in accordance with the law of said State, without regard to conflict of laws principles thereof.
SECTION 14.06. Evidence of Compliance with Conditions Precedent.
Upon any application or demand by the Company to the Trustee to take any action under any of the provisions of this Indenture, the Company shall furnish to the Trustee an Officers Certificate stating that in the opinion of the signers all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with (except that no such Opinion of Counsel is required to be furnished to the Trustee in connection with the authentication and issuance of Debt Securities issued on the date of this Indenture).
Each certificate or opinion provided for in this Indenture and delivered to the Trustee with respect to compliance with a condition or covenant provided for in this Indenture (except certificates delivered pursuant to Section 3.05) shall include (a) a statement that the person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with.
SECTION 14.07. Non-Business Days.
Notwithstanding anything to the contrary contained herein, if any Interest Payment Date, other than on the Maturity Date, any Redemption Date or the Special Redemption Date, falls on a day that is not a Business Day, then any interest payable will be paid on, and such Interest Payment Date will be moved to, the next succeeding Business Day, and additional interest will accrue for each day that such payment is delayed as a result thereof. If the Maturity Date, any Redemption Date or the Special Redemption date falls on a day that is not a Business Day, then the principal, premium, if any, and/or interest payable on such date will be paid on the next succeeding Business Day, and no additional interest will accrue in respect of such payment made on such next succeeding Business Day.
SECTION 14.08. Table of Contents, Headings, etc.
The table of contents and the titles and headings of the articles and sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof.
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SECTION 14.09. Execution in Counterparts.
This Indenture may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument.
SECTION 14.10. Separability.
In case any one or more of the provisions contained in this Indenture or in the Debt Securities shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Indenture or of such Debt Securities, but this Indenture and such Debt Securities shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein or therein.
SECTION 14.11. Assignment.
Subject to Article XI, the Company will have the right at all times to assign any of its rights or obligations under this Indenture to a direct or indirect wholly owned Subsidiary of the Company, provided, that, in the event of any such assignment, the Company will remain liable for all such obligations. Subject to the foregoing, this Indenture is binding upon and inures to the benefit of the parties hereto and their respective successors and assigns. This Indenture may not otherwise be assigned by the parties thereto.
SECTION 14.12. Acknowledgment of Rights.
The Company acknowledges that, with respect to any Debt Securities held by the Trust or the Institutional Trustee of the Trust, if the Institutional Trustee of the Trust fails to enforce its rights under this Indenture as the holder of Debt Securities held as the assets of the Trust after the holders of a majority in Liquidation Amount of the Capital Securities of the Trust have so directed in writing such Institutional Trustee, a holder of record of such Capital Securities may to the fullest extent permitted by law institute legal proceedings directly against the Company to enforce such Institutional Trustees rights under this Indenture without first instituting any legal proceedings against such Institutional Trustee or any other Person. Notwithstanding the foregoing, if an Event of Default has occurred and is continuing and such event is attributable to the failure of the Company to pay interest (or premium, if any) or principal on the Debt Securities on the date such interest (or premium, if any) or principal is otherwise due and payable (or in the case of redemption, on the redemption date), the Company acknowledges that a holder of record of Capital Securities of the Trust may directly institute a proceeding against the Company for enforcement of payment to such holder directly of the principal of (or premium, if any) or interest on the Debt Securities having an aggregate principal amount equal to the aggregate Liquidation Amount of the Capital Securities of such holder on or after the respective due date specified in the Debt Securities.
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ARTICLE XV
SUBORDINATION OF DEBT SECURITIES
SECTION 15.01. Agreement to Subordinate.
The Company covenants and agrees, and each holder of Debt Securities issued hereunder and under any supplemental indenture (the Additional Provisions) by such Securityholders acceptance thereof likewise covenants and agrees, that all Debt Securities shall be issued subject to the provisions of this Article XV; and each holder of a Debt Security, whether upon original issue or upon transfer or assignment thereof, accepts and agrees to be bound by such provisions.
The payment by the Company of the payments due on all Debt Securities issued hereunder and under any Additional Provisions shall, to the extent and in the manner hereinafter set forth, be subordinated and junior in right of payment to the prior payment in full of all Senior Indebtedness of the Company, whether outstanding at the date of this Indenture or thereafter incurred.
No provision of this Article XV shall prevent the occurrence of any default or Event of Default hereunder.
SECTION 15.02. Default on Senior Indebtedness.
In the event and during the continuation of any default by the Company in the payment of principal, premium, interest or any other payment due on any Senior Indebtedness of the Company following any applicable grace period, or in the event that the maturity of any Senior Indebtedness of the Company has been accelerated because of a default, and such acceleration has not been rescinded or canceled and such Senior Indebtedness has not been paid in full, then, in either case, no payment shall be made by the Company with respect to the payments due on the Debt Securities.
In the event that, notwithstanding the foregoing, any payment shall be received by the Trustee when such payment is prohibited by the preceding paragraph of this Section 15.02, such payment shall, subject to Section 15.06, be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Indebtedness or their respective representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Indebtedness may have been issued, as their respective interests may appear, but only to the extent that the holders of the Senior Indebtedness (or their representative or representatives or a trustee) notify the Trustee in writing within 90 days of such payment of the amounts then due and owing on the Senior Indebtedness and only the amounts specified in such notice to the Trustee shall be paid to the holders of Senior Indebtedness.
SECTION 15.03. Liquidation; Dissolution; Bankruptcy.
Upon any payment by the Company or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding- up or liquidation or reorganization of the Company, whether voluntary or involuntary
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or in bankruptcy, insolvency, receivership or other proceedings, all amounts due upon all Senior Indebtedness of the Company shall first be paid in full, or payment thereof provided for in money in accordance with its terms, before any payment is made by the Company on the Debt Securities; and upon any such dissolution or winding-up or liquidation or reorganization, any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the Securityholders or the Trustee would be entitled to receive from the Company, except for the provisions of this Article XV, shall be paid by the Company, or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the Securityholders or by the Trustee under this Indenture if received by them or it, directly to the holders of Senior Indebtedness of the Company (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders, as calculated by the Company) or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Senior Indebtedness may have been issued, as their respective interests may appear, to the extent necessary to pay such Senior Indebtedness in full, in money or moneys worth, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness, before any payment or distribution is made to the Securityholders.
In the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, prohibited by the foregoing, shall be received by the Trustee before all Senior Indebtedness of the Company is paid in full, or provision is made for such payment in money in accordance with its terms, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered to the holders of such Senior Indebtedness or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Senior Indebtedness may have been issued, as their respective interests may appear, as calculated by the Company, for application to the payment of all Senior Indebtedness of the Company remaining unpaid to the extent necessary to pay such Senior Indebtedness in full in money in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the benefit of the holders of such Senior Indebtedness.
For purposes of this Article XV, the words cash, property or securities shall not be deemed to include shares of stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment, the payment of which is subordinated at least to the extent provided in this Article XV with respect to the Debt Securities to the payment of all Senior Indebtedness of the Company, that may at the time be outstanding, provided, that (a) such Senior Indebtedness is assumed by the new corporation, if any, resulting from any such reorganization or readjustment, and (b) the rights of the holders of such Senior Indebtedness are not, without the consent of such holders, altered by such reorganization or readjustment. The consolidation of the Company with, or the merger of the Company into, another corporation or the liquidation or dissolution of the Company following the conveyance or transfer of its property as an entirety, or substantially as an entirety, to another corporation upon the terms and conditions provided for in Article IX of this Indenture shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 15.03 if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Article IX of this Indenture. Nothing in Section 15.02 or in this Section 15.03 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 6.06 of this Indenture.
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SECTION 15.04. Subrogation.
Subject to the payment in full of all Senior Indebtedness of the Company, the Securityholders shall be subrogated to the rights of the holders of such Senior Indebtedness to receive payments or distributions of cash, property or securities of the Company applicable to such Senior Indebtedness until all payments due on the Debt Securities shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the holders of such Senior Indebtedness of any cash, property or securities to which the Securityholders or the Trustee would be entitled except for the provisions of this Article XV, and no payment over pursuant to the provisions of this Article XV to or for the benefit of the holders of such Senior Indebtedness by Securityholders or the Trustee, shall, as between the Company, its creditors other than holders of Senior Indebtedness of the Company, and the holders of the Debt Securities be deemed to be a payment or distribution by the Company to or on account of such Senior Indebtedness. It is understood that the provisions of this Article XV are and are intended solely for the purposes of defining the relative rights of the holders of the Debt Securities, on the one hand, and the holders of such Senior Indebtedness, on the other hand.
Nothing contained in this Article XV or elsewhere in this Indenture, any Additional Provisions or in the Debt Securities is intended to or shall impair, as between the Company, its creditors other than the holders of Senior Indebtedness of the Company, and the holders of the Debt Securities, the obligation of the Company, which is absolute and unconditional, to pay to the holders of the Debt Securities all payments on the Debt Securities as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the holders of the Debt Securities and creditors of the Company, other than the holders of Senior Indebtedness of the Company, nor shall anything herein or therein prevent the Trustee or the holder of any Debt Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article XV of the holders of such Senior Indebtedness in respect of cash, property or securities of the Company received upon the exercise of any such remedy.
Upon any payment or distribution of assets of the Company referred to in this Article XV, the Trustee, subject to the provisions of Article VI of this Indenture, and the Securityholders shall be entitled to conclusively rely upon any order or decree made by any court of competent jurisdiction in which such dissolution, winding- up, liquidation or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidation trustee, agent or other Person making such payment or distribution, delivered to the Trustee or to the Securityholders, for the purposes of ascertaining the Persons entitled to participate in such distribution, the holders of Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article XV.
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SECTION 15.05. Trustee to Effectuate Subordination.
Each Securityholder by such Securityholders acceptance thereof authorizes and directs the Trustee on such Securityholders behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article XV and appoints the Trustee such Securityholders attorney-in-fact for any and all such purposes.
SECTION 15.06. Notice by the Company.
The Company shall give prompt written notice to a Responsible Officer of the Trustee at the Principal Office of the Trustee of any fact known to the Company that would prohibit the making of any payment of moneys to or by the Trustee in respect of the Debt Securities pursuant to the provisions of this Article XV. Notwithstanding the provisions of this Article XV or any other provision of this Indenture or any Additional Provisions, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment of moneys to or by the Trustee in respect of the Debt Securities pursuant to the provisions of this Article XV, unless and until a Responsible Officer of the Trustee at the Principal Office of the Trustee shall have received written notice thereof from the Company or a holder or holders of Senior Indebtedness or from any trustee therefor; and before the receipt of any such written notice, the Trustee, subject to the provisions of Article VI of this Indenture, shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall not have received the notice provided for in this Section 15.06 at least two Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of (or premium, if any) or interest on any Debt Security), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purposes for which they were received, and shall not be affected by any notice to the contrary that may be received by it within two Business Days prior to such date.
The Trustee, subject to the provisions of Article VI of this Indenture, shall be entitled to conclusively rely on the delivery to it of a written notice by a Person representing himself or herself to be a holder of Senior Indebtedness of the Company (or a trustee or representative on behalf of such holder) to establish that such notice has been given by a holder of such Senior Indebtedness or a trustee or representative on behalf of any such holder or holders. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of such Senior Indebtedness to participate in any payment or distribution pursuant to this Article XV, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of such Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article XV, and, if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment.
SECTION 15.07. Rights of the Trustee, Holders of Senior Indebtedness.
The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article XV in respect of any Senior Indebtedness at any time held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture or any Additional Provisions shall deprive the Trustee of any of its rights as such holder.
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With respect to the holders of Senior Indebtedness of the Company, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article XV, and no implied covenants or obligations with respect to the holders of such Senior Indebtedness shall be read into this Indenture or any Additional Provisions against the Trustee. The Trustee shall not owe or be deemed to owe any fiduciary duty to the holders of such Senior Indebtedness and, subject to the provisions of Article VI of this Indenture, the Trustee shall not be liable to any holder of such Senior Indebtedness if it shall pay over or deliver to Securityholders, the Company or any other Person money or assets to which any holder of such Senior Indebtedness shall be entitled by virtue of this Article XV or otherwise.
Nothing in this Article XV shall apply to claims of, or payments to, the Trustee under or pursuant to Section 6.06.
SECTION 15.08. Subordination May Not Be Impaired.
No right of any present or future holder of any Senior Indebtedness of the Company to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company, or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company, with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof that any such holder may have or otherwise be charged with.
Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Indebtedness of the Company may, at any time and from time to time, without the consent of or notice to the Trustee or the Securityholders, without incurring responsibility to the Securityholders and without impairing or releasing the subordination provided in this Article XV or the obligations hereunder of the holders of the Debt Securities to the holders of such Senior Indebtedness, do any one or more of the following: (a) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, such Senior Indebtedness, or otherwise amend or supplement in any manner such Senior Indebtedness or any instrument evidencing the same or any agreement under which such Senior Indebtedness is outstanding; (b) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing such Senior Indebtedness; (c) release any Person liable in any manner for the collection of such Senior Indebtedness; and (d) exercise or refrain from exercising any rights against the Company, and any other Person.
Wells Fargo Bank, National Association, in its capacity as Trustee, hereby accepts the trusts in this Indenture declared and provided, upon the terms and conditions herein above set forth.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed by their respective officers thereunto duly authorized, as of the day and year first above written.
Center Financial Corporation | ||
By: | ||
Name: |
Yong Hwa Kim | |
Title: |
Chief Financial Officer |
Wells Fargo Bank, National Association, as Trustee | ||
By: | ||
Name: |
||
Title: |
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EXHIBIT A
FORM OF JUNIOR SUBORDINATED DEBT SECURITY
DUE 2034
[FORM OF FACE OF SECURITY]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY ONLY (A) TO THE COMPANY, (B) PURSUANT TO RULE 144A UNDER THE SECURITIES ACT (RULE 144A), TO A PERSON THE HOLDER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (C) PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT TO AN ACCREDITED INVESTOR WITHIN THE MEANING OF SUBPARAGRAPH (a) (1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF AN ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (D) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANYS RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (C) OR (D) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO IT IN ACCORDANCE WITH THE INDENTURE, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES THAT IT WILL COMPLY WITH THE FOREGOING RESTRICTIONS.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES, REPRESENTS AND WARRANTS THAT IT WILL NOT ENGAGE IN HEDGING TRANSACTIONS INVOLVING THIS SECURITY UNLESS SUCH TRANSACTIONS ARE IN COMPLIANCE WITH THE SECURITIES ACT.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF ALSO AGREES, REPRESENTS AND WARRANTS THAT IT IS NOT AN EMPLOYEE BENEFIT, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER PLAN OR ARRANGEMENT
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SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (ERISA), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE CODE), (EACH A PLAN), OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF ANY PLANS INVESTMENT IN THE ENTITY AND NO PERSON INVESTING PLAN ASSETS OF ANY PLAN MAY ACQUIRE OR HOLD THIS SECURITY OR ANY INTEREST THEREIN, UNLESS SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR THE EXEMPTIVE RELIEF AVAILABLE UNDER U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION 96-23,95-60,91-38,90-1 OR 84-14 OR ANOTHER APPLICABLE EXEMPTION OR ITS PURCHASE AND HOLDING OF THIS SECURITY IS NOT PROHIBITED BY SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE WITH RESPECT TO SUCH PURCHASE OR HOLDING. ANY PURCHASER OR HOLDER OF THIS SECURITY OR ANY INTEREST THEREIN WILL BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND HOLDING THEREOF THAT EITHER (i) IT IS NOT AN EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF SECTION 3(3) OF ERISA, OR A PLAN TO WHICH SECTION 4975 OF THE CODE IS APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF AN EMPLOYEE BENEFIT PLAN OR PLAN, OR ANY OTHER PERSON OR ENTITY USING THE ASSETS OF ANY EMPLOYEE BENEFIT PLAN OR PLAN TO FINANCE SUCH PURCHASE, OR (ii) SUCH PURCHASE WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE FOR WHICH THERE IS NO APPLICABLE STATUTORY OR ADMINISTRATIVE EXEMPTION.
IN CONNECTION WITH ANY TRANSFER, THE HOLDER OF THIS SECURITY WILL DELIVER TO THE COMPANY AND TRUSTEE SUCH CERTIFICATES AND OTHER INFORMATION AS MAY BE REQUIRED BY THE INDENTURE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS.
THIS SECURITY WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN BLOCKS HAVING A PRINCIPAL AMOUNT OF NOT LESS THAN $100,000 AND MULTIPLES OF $1,000 IN EXCESS THEREOF. ANY ATTEMPTED TRANSFER OF THIS SECURITY IN A BLOCK HAVING A PRINCIPAL AMOUNT OF LESS THAN $100,000 SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. ANY SUCH PURPORTED TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER OF THIS SECURITY FOR ANY PURPOSE, INCLUDING, BUT NOT LIMITED TO, THE RECEIPT OF DISTRIBUTIONS ON THIS SECURITY, AND SUCH PURPORTED TRANSFEREE SHALL BE DEEMED TO HAVE NO INTEREST WHATSOEVER IN THIS SECURITY.
THIS OBLIGATION IS NOT A DEPOSIT AND IS NOT INSURED BY THE UNITED STATES OR ANY AGENCY OR FUND OF THE UNITED STATES, INCLUDING THE FEDERAL DEPOSIT INSURANCE CORPORATION (THE FDIC). THIS OBLIGATION IS SUBORDINATED TO THE CLAIMS OF DEPOSITORS AND THE CLAIMS OF GENERAL AND SECURED CREDITORS OF THE COMPANY, IS INELIGIBLE AS COLLATERAL FOR A LOAN BY THE COMPANY OR ANY OF ITS SUBSIDIARIES AND IS NOT SECURED.
A-2
Form of Junior Subordinated Debt Security due 2034
of
Center Financial Corporation
Center Financial Corporation, a bank holding company incorporated in California (the Company), for value received promises to pay to Wells Fargo Bank, National Association, not in its individual capacity but solely as Institutional Trustee for Center Capital Trust I, a Delaware statutory trust (the Holder), or registered assigns, the principal sum of Eighteen Million Five Hundred Fifty Seven Thousand Dollars on January 7, 2034 and to pay interest on said principal sum from December 30, 2003, or from the most recent interest payment date (each such date, an Interest Payment Date) to which interest has been paid or duly provided for, quarterly (subject to deferral as set forth herein) in arrears on January 7, April 7, July 7 and October 7 of each year commencing April 7, 2004, at a variable per annum rate equal to LIBOR (as defined in the Indenture) plus 2.85% (the Interest Rate) until the principal hereof shall have become due and payable, and on any overdue principal and (without duplication and to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at an annual rate equal to the Interest Rate in effect for each such Extension Period compounded quarterly. The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360-day year and the actual number of days elapsed in the relevant interest period. Notwithstanding anything to the contrary contained herein, if any Interest Payment Date, other than on the Maturity Date, any Redemption Date or the Special Redemption Date, falls on a day that is not a Business Day, then any interest payable will be paid on, and such Interest Payment Date will be moved to, the next succeeding Business Day, and additional interest will accrue for each day that such payment is delayed as a result thereof. If the Maturity Date, any Redemption Date or the Special Redemption date falls on a day that is not a Business Day, then the principal, premium, if any, and/or interest payable on such date will be paid on the next succeeding Business Day, and no additional interest will accrue in respect of such payment made on such next succeeding Business Day. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Debt Security (or one or more Predecessor Securities, as defined in said Indenture) is registered at the close of business on the regular record date for such interest installment, except that interest and any Deferred Interest payable on the Maturity Date shall be paid to the Person to whom principal is paid. Any such interest installment not punctually paid or duly provided for shall forthwith cease to be payable to the registered holders on such regular record date and may be paid to the Person in whose name this Debt Security (or one or more Predecessor Debt Securities) is registered at the close of business on a special record date to be fixed by the Trustee for the payment of such defaulted interest, notice whereof shall be given to the registered holders of the Debt Securities not less than 10 days prior to such special record date, all as more fully provided in the Indenture. The principal of and interest on this Debt Security shall be payable at the office or agency of the Trustee (or other Paying Agent appointed by the Company) maintained for that purpose in any coin or currency of the United States of America that at the time of payment is legal tender for payment of public and private debts; provided, however, that payment of interest may be made at the option of the Company by check mailed to the registered holder at such address as shall appear in the Debt Security Register or by wire transfer to an account appropriately designated by the holder hereof. Notwithstanding the
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foregoing, so long as the holder of this Debt Security is the Institutional Trustee, the payment of the principal of and interest on this Debt Security will be made in immediately available funds at such place and to such account as may be designated by the Trustee.
Upon submission of Notice (as defined in the Indenture) and so long as no Event of Default has occurred and is continuing, the Company shall have the right, from time to time and without causing an Event of Default, to defer payments of interest on the Debt Securities by extending the interest payment period on the Debt Securities at any time and from time to time during the term of the Debt Securities, for up to 20 consecutive quarterly periods (each such extended interest payment period, an Extension Period), during which Extension Period no interest shall be due and payable (except any Additional Interest that may be due and payable). During any Extension Period, interest will continue to accrue on the Debt Securities, and interest on such accrued interest (such accrued interest and interest thereon referred to herein as Deferred Interest) will accrue at an annual rate equal to the Interest Rate in effect for each such Extension Period, compounded quarterly from the date such Deferred Interest would have been payable were it not for the Extension Period, to the extent permitted by law. No Extension Period may end on a date other than an Interest Payment Date. At the end of any such Extension Period the Company shall pay all Deferred Interest then accrued and unpaid on the Debt Securities; provided, however, that no Extension Period may extend beyond the Maturity Date and provided, further, however, during any such Extension Period, the Company may not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Companys capital stock or (ii) make any payment on or repay, repurchase or redeem any debt securities of the Company that rank pari passu in all respects with or junior in interest to the Debt Securities (other than (a) repurchases, redemptions or other acquisitions of shares of capital stock of the Company (A) in connection with any employment contract, benefit plan or other similar arrangement with or for the benefit of one or more employees, officers, directors or consultants, (B) in connection with a dividend reinvestment or stockholder stock purchase plan or (C) in connection with the issuance of capital stock of the Company (or securities convertible into or exercisable for such capital stock), as consideration in an acquisition transaction entered into prior to the applicable Extension Period, (b) as a result of any exchange or conversion of any class or series of the Companys capital stock (or any capital stock of a subsidiary of the Company) for any class or series of the Companys capital stock or of any class or series of the Companys indebtedness for any class or series of the Companys capital stock, (c) the purchase of fractional interests in shares of the Companys capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged, (d) any declaration of a dividend in connection with any stockholders rights plan, or the issuance of rights, stock or other property under any stockholders rights plan, or the redemption or repurchase of rights pursuant thereto, or (e) any dividend in the form of stock, warrants, options or other rights where the dividend stock or the stock issuable upon exercise of such warrants, options or other rights is the same stock as that on which the dividend is being paid or ranks pari passu with or junior to such stock). Prior to the termination of any Extension Period, the Company may further extend such period, provided, that such period together with all such previous and further consecutive extensions thereof shall not exceed 20 consecutive quarterly periods, or extend beyond the Maturity Date. Upon the termination of any Extension Period and upon the payment of all Deferred Interest, the Company may commence a new Extension Period, subject to the foregoing requirements. No interest or Deferred Interest shall be due and payable during an Extension Period, except at the end thereof,
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but Deferred Interest shall accrue upon each installment of interest that would otherwise have been due and payable during such Extension Period until such installment is paid. The Company must give the Trustee notice of its election to begin such Extension Period at least one Business Day prior to the earlier of (i) the next succeeding date on which interest on the Debt Securities would have been payable except for the election to begin such Extension Period or (ii) the date such interest is payable, but in any event not later than the related regular record date.
The indebtedness evidenced by this Debt Security is, to the extent provided in the Indenture, subordinate and junior in right of payment to the prior payment in full of all Senior Indebtedness, and this Debt Security is issued subject to the provisions of the Indenture with respect thereto. Each holder of this Debt Security, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on such holders behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination so provided and (c) appoints the Trustee such holders attorney-in-fact for any and all such purposes. Each holder hereof, by such holders acceptance hereof, hereby waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Indebtedness, whether now outstanding or hereafter incurred, and waives reliance by each such holder upon said provisions.
The Company waives demand, presentment for payment, notice of nonpayment, notice of protest, and all other notices.
This Debt Security shall not be entitled to any benefit under the Indenture hereinafter referred to and shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been signed by or on behalf of the Trustee.
The provisions of this Debt Security are continued on the reverse side hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place.
A-5
IN WITNESS WHEREOF, the Company has duly executed this certificate.
Center Financial Corporation | ||
By: | ||
Name: | ||
Title: |
Dated: , 2003
CERTIFICATE OF AUTHENTICATION
This is one of the Debt Securities referred to in the within-mentioned Indenture.
Wells Fargo Bank, National Association, not in its individual capacity but solely as the Trustee | ||
By: | ||
Authorized Officer |
Dated: , 2003
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[FORM OF REVERSE OF SECURITY]
This Debt Security is one of a duly authorized series of Debt Securities of the Company, all issued or to be issued pursuant to an Indenture (the Indenture), dated as of December 30, 2003, duly executed and delivered between the Company and Wells Fargo Bank, National Association, as Trustee (the Trustee), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the Debt Securities (referred to herein as the Debt Securities) of which this Debt Security is a part. The summary of the terms of this Debt Security contained herein does not purport to be complete and is qualified by reference to the Indenture.
Upon the occurrence and continuation of a Tax Event, an Investment Company Event or a Capital Treatment Event (each a Special Event), this Debt Security may become due and payable, in whole or in part, at any time, within 90 days following the occurrence of such Tax Event, Investment Company Event or Capital Treatment Event (the Special Redemption Date), as the case may be, at the Special Redemption Price. The Company shall also have the right to redeem this Debt Security at the option of the Company, in whole or in part, on any January 7, April 7, July 7 or October 7 on or after January 7, 2009 (a Redemption Date), at the Redemption Price.
Any redemption pursuant to the preceding paragraph will be made, subject to the receipt by the Company of prior approval from the Board of Governors of the Federal Reserve System (the Federal Reserve) if then required under applicable capital guidelines or policies of the Federal Reserve, upon not less than 30 days nor more than 60 days notice. If the Debt Securities are only partially redeemed by the Company, the Debt Securities will be redeemed pro rata or by lot or by any other method utilized by the Trustee.
Redemption Price means 100% of the principal amount of the Debt Securities being redeemed plus accrued and unpaid interest on such Debt Securities to the Redemption Date or, in the case of a redemption due to the occurrence of a Special Event, to the Special Redemption Date if such Special Redemption Date is on or after January 7, 2009.
Special Redemption Price means (1) if the Special Redemption Date is before January 7, 2009, One Hundred Five Percent (105%) of the principal amount to be redeemed plus any accrued and unpaid interest thereon to the date of such redemption and (2) if the Special Redemption Date is on or after January 7, 2009 the Redemption Price for such Special Redemption Date.
In the event of redemption of this Debt Security in part only, a new Debt Security or Debt Securities for the unredeemed portion hereof will be issued in the name of the holder hereof upon the cancellation hereof.
In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of all of the Debt Securities may be declared due and payable, and upon such declaration of acceleration shall become due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture.
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The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of the Debt Securities at the time outstanding affected thereby, as specified in the Indenture, to execute supplemental indentures for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or of modifying in any manner the rights of the holders of the Debt Securities; provided, however, that no such supplemental indenture shall, among other things, without the consent of the holders of each Debt Security then outstanding and affected thereby (i) extend the fixed maturity of the Debt Securities, or reduce the principal amount thereof or any redemption premium thereon, or reduce the rate or extend the time of payment of interest thereon, or make payments due on the Debt Securities payable in any coin or currency other than that provided in the Debt Securities, or impair or affect the right of any holder of Debt Securities to institute suit for the payment thereof, or (ii) reduce the aforesaid percentage of Debt Securities, the holders of which are required to consent to any such supplemental indenture. The Indenture also contains provisions permitting the holders of a majority in aggregate principal amount of the Debt Securities at the time outstanding, on behalf of all of the holders of the Debt Securities, to waive any past default in the performance of any of the covenants contained in the Indenture, or established pursuant to the Indenture, and its consequences, except a default in payments due on any of the Debt Securities. Any such consent or waiver by the registered holder of this Debt Security (unless revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders and owners of this Debt Security and of any Debt Security issued in exchange herefor or in place hereof (whether by registration of transfer or otherwise), irrespective of whether or not any notation of such consent or waiver is made upon this Debt Security.
No reference herein to the Indenture and no provision of this Debt Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay all payments due on this Debt Security at the time and place and at the rate and in the money herein prescribed.
As provided in the Indenture and subject to certain limitations herein and therein set forth, this Debt Security is transferable by the registered holder hereof on the Debt Security Register of the Company, upon surrender of this Debt Security for registration of transfer at the office or agency of the Trustee in Wilmington, Delaware accompanied by a written instrument or instruments of transfer in form satisfactory to the Company or the Trustee duly executed by the registered holder hereof or such holders attorney duly authorized in writing, and thereupon one or more new Debt Securities of authorized denominations and for the same aggregate principal amount will be issued to the designated transferee or transferees. No service charge will be made for any such registration of transfer, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in relation thereto.
Prior to due presentment for registration of transfer of this Debt Security, the Company, the Trustee, any Authenticating Agent, any Paying Agent, any transfer agent and the Debt Security registrar may deem and treat the registered holder hereof as the absolute owner hereof (whether or not this Debt Security shall be overdue and notwithstanding any notice of ownership or writing hereon) for the purpose of receiving payment of or on account of the principal hereof and interest due hereon and for all other purposes, and neither the Company nor the Trustee nor any Authenticating Agent nor any Paying Agent nor any transfer agent nor any Debt Security registrar shall be affected by any notice to the contrary.
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No recourse shall be had for the payment of the principal of or the interest on this Debt Security, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture, against any incorporator, stockholder, officer or director, past, present or future, as such, of the Company or of any predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issuance hereof, expressly waived and released.
The Debt Securities are issuable only in registered certificated form without coupons. As provided in the Indenture and subject to certain limitations herein and therein set forth, Debt Securities are exchangeable for a like aggregate principal amount of Debt Securities of a different authorized denomination, as requested by the holder surrendering the same.
All terms used in this Debt Security that are defined in the Indenture shall have the meanings assigned to them in the Indenture.
THE LAW OF THE STATE OF NEW YORK SHALL GOVERN THE INDENTURE AND THE DEBT SECURITIES, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF.
A-9
Exhibit 4.21
AMENDED AND RESTATED DECLARATION
OF TRUST
Center Capital Trust I
Dated as of December 30, 2003
TABLE OF CONTENTS
Page | ||||||
ARTICLE I | ||||||
INTERPRETATION AND DEFINITIONS | ||||||
SECTION 1.1. | Definitions | 1 | ||||
ARTICLE II | ||||||
ORGANIZATION | ||||||
SECTION 2.1. | Name | 8 | ||||
SECTION 2.2. | Office | 9 | ||||
SECTION 2.3. | Purpose | 9 | ||||
SECTION 2.4. | Authority | 9 | ||||
SECTION 2.5. | Title to Property of the Trust | 9 | ||||
SECTION 2.6. | Powers and Duties of the Trustees and the Administrators | 9 | ||||
SECTION 2.7. | Prohibition of Actions by the Trust and the Trustees | 14 | ||||
SECTION 2.8. | Powers and Duties of the Institutional Trustee | 15 | ||||
SECTION 2.9. | Certain Duties and Responsibilities of the Trustees and the Administrators | 16 | ||||
SECTION 2.10. | Certain Rights of Institutional Trustee18 | |||||
SECTION 2.11. | Delaware Trustee | 21 | ||||
SECTION 2.12. | Execution of Documents | 21 | ||||
SECTION 2.13. | Not Responsible for Recitals or Issuance of Securities | 21 | ||||
SECTION 2.14. | Duration of Trust | 21 | ||||
SECTION 2.15. | Mergers | 21 | ||||
ARTICLE III | ||||||
SPONSOR | ||||||
SECTION 3.1. | Sponsors Purchase of Common Securities | 23 | ||||
SECTION 3.2. | Responsibilities of the Sponsor | 23 |
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TABLE OF CONTENTS
(continued)
Page | ||||||
ARTICLE IV | ||||||
TRUSTEES AND ADMINISTRATORS | ||||||
SECTION 4.1. | Number of Trustees | 24 | ||||
SECTION 4.2. | Delaware Trustee | 24 | ||||
SECTION 4.3. | Institutional Trustee; Eligibility | 24 | ||||
SECTION 4.4. | Certain Qualifications of the Delaware Trustee Generally | 25 | ||||
SECTION 4.5. | Administrators | 25 | ||||
SECTION 4.6. | Initial Delaware Trustee | 25 | ||||
SECTION 4.7. | Appointment, Removal and Resignation of the Trustees and the Administrators | 25 | ||||
SECTION 4.8. | Vacancies Among Trustees | 27 | ||||
SECTION 4.9. | Effect of Vacancies | 27 | ||||
SECTION 4.10. | Meetings of the Trustees and the Administrators | 27 | ||||
SECTION 4.11. | Delegation of Power | 28 | ||||
SECTION 4.12. | Merger, Conversion, Consolidation or Succession to Business | 28 | ||||
ARTICLE V | ||||||
DISTRIBUTIONS |
||||||
SECTION 5.1. | Distributions | 28 | ||||
ARTICLE VI | ||||||
ISSUANCE OF SECURITIES | ||||||
SECTION 6.1. | General Provisions Regarding Securities | 29 | ||||
SECTION 6.2. | Paying Agent, Transfer Agent, Calculation Agent and Registrar | 30 | ||||
SECTION 6.3. | Form and Dating | 30 | ||||
SECTION 6.4. | Book-Entry Capital Securities | 31 | ||||
SECTION 6.5. | Mutilated, Destroyed, Lost or Stolen Certificates | 33 | ||||
SECTION 6.6. | Temporary Securities | 33 |
ii
TABLE OF CONTENTS
(continued)
Page | ||||||
SECTION 6.7. | Cancellation | 33 | ||||
SECTION 6.8. | Rights of Holders; Waivers of Past Defaults | 34 | ||||
ARTICLE VII | ||||||
DISSOLUTION AND TERMINATION OF TRUST | ||||||
SECTION 7.1. | Dissolution and Termination of Trust | 35 | ||||
ARTICLE VIII | ||||||
TRANSFER OF INTERESTS | ||||||
SECTION 8.1. | General | 36 | ||||
SECTION 8.2. | Transfer Procedures and Restrictions | 37 | ||||
SECTION 8.3. | Deemed Security Holders | 41 | ||||
ARTICLE IX | ||||||
LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, TRUSTEES OR OTHERS | ||||||
SECTION 9.1. | Liability | 41 | ||||
SECTION 9.2. | Exculpation | 41 | ||||
SECTION 9.3. | Fiduciary Duty | 42 | ||||
SECTION 9.4. | Indemnification | 42 | ||||
SECTION 9.5. | Outside Businesses | 45 | ||||
SECTION 9.6. | Compensation; Fee | 46 | ||||
ARTICLE X | ||||||
ACCOUNTING | ||||||
SECTION 10.1. | Fiscal Year | 46 | ||||
SECTION 10.2. | Certain Accounting Matters | 46 | ||||
SECTION 10.3. | Banking | 47 | ||||
SECTION 10.4. | Withholding | 47 |
iii
TABLE OF CONTENTS
(continued)
Page | ||||||
ARTICLE XI |
||||||
AMENDMENTS AND MEETINGS |
||||||
SECTION 11.1. |
Amendments |
47 | ||||
SECTION 11.2. |
Meetings of the Holders of the Securities; Action by Written Consent |
49 | ||||
ARTICLE XII |
||||||
REPRESENTATIONS OF INSTITUTIONAL TRUSTEE AND DELAWARE TRUSTEE |
||||||
SECTION 12.1. |
Representations and Warranties of Institutional Trustee |
51 | ||||
SECTION 12.2. |
Representations and Warranties of Delaware Trustee |
52 | ||||
ARTICLE XIII |
||||||
MISCELLANEOUS |
||||||
SECTION 13.1. |
Notices |
52 | ||||
SECTION 13.2. |
Governing Law |
54 | ||||
SECTION 13.3. |
Submission to Jurisdiction |
54 | ||||
SECTION 13.4. |
Intention of the Parties |
54 | ||||
SECTION 13.5. |
Headings |
54 | ||||
SECTION 13.6. |
Successors and Assigns |
54 | ||||
SECTION 13.7. |
Partial Enforceability |
55 | ||||
SECTION 13.8. |
Counterparts |
55 |
iv
TABLE OF CONTENTS
(continued)
Page | ||||
ANNEXES AND EXHIBITS |
||||
ANNEX I |
Terms of TP Securities and Common Securities |
|||
EXHIBIT A-1 |
Form of Capital Security Certificate |
|||
EXHIBIT A-2 |
Form of Common Security Certificate |
|||
EXHIBIT B |
Form of Transferee Certificate to be Executed by Transferees Other than QIBs |
|||
EXHIBIT C |
Form of Transferor Certificate to be Executed for QIBs |
-v-
AMENDED AND RESTATED DECLARATION OF TRUST
OF
Center Capital Trust I
December 30, 2003
AMENDED AND RESTATED DECLARATION OF TRUST (this Declaration), dated and effective as of December 30, 2003, by the Trustees (as defined herein), the Administrators (as defined herein), the Sponsor (as defined herein) and the holders from time to time of undivided beneficial interests in the assets of the Trust (as defined herein) to be issued pursuant to this Declaration.
WHEREAS, certain of the Trustees, the Administrators and the Sponsor established Center Capital Trust I (the Trust), a statutory trust under the Statutory Trust Act (as defined herein), pursuant to a Declaration of Trust, dated as of December 29, 2003, (the Original Declaration), and a Certificate of Trust filed with the Secretary of State of the State of Delaware on December 29, 2003, for the sole purpose of issuing and selling certain securities representing undivided beneficial interests in the assets of the Trust and investing the proceeds thereof in certain debentures of the Debenture Issuer (as defined herein) in connection with the Bear, Stearns Securities Corp. transaction;
WHEREAS, as of the date hereof, no interests in the assets of the Trust have been issued; and
WHEREAS, all of the Trustees, the Administrators and the Sponsor, by this Declaration, amend and restate each and every term and provision of the Original Declaration.
NOW, THEREFORE, it being the intention of the parties hereto to continue the Trust as a statutory trust under the Statutory Trust Act and that this Declaration constitutes the governing instrument of such statutory trust, and that all assets contributed to the Trust will be held in trust for the benefit of the holders, from time to time, of the securities representing undivided beneficial interests in the assets of the Trust issued hereunder, subject to the provisions of this Declaration, and, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties, intending to be legally bound hereby, amend and restate in its entirety the Original Declaration and agree as follows:
ARTICLE I
INTERPRETATION AND DEFINITIONS
SECTION 1.1. Definitions. Unless the context otherwise requires:
(a) capitalized terms used in this Declaration but not defined in the preamble above or elsewhere herein have the respective meanings assigned to them in this Section 1.1 or, if not defined in this Section 1.1 or elsewhere herein, in the Indenture;
(b) a term defined anywhere in this Declaration has the same meaning throughout;
(c) all references to the Declaration or this Declaration are to this Declaration as modified, supplemented or amended from time to time;
(d) all references in this Declaration to Articles and Sections and Annexes and Exhibits are to Articles and Sections of and Annexes and Exhibits to this Declaration unless otherwise specified;
(e) a term defined in the Trust Indenture Act (as defined herein) has the same meaning when used in this Declaration unless otherwise defined in this Declaration or unless the context otherwise requires; and
(f) a reference to the singular includes the plural and vice versa.
Additional Interest has the meaning set forth in Section 3.06 of the Indenture.
Administrative Action has the meaning set forth in paragraph 4(a) of Annex I.
Administrators means each of Yong Hwa Kim and Richard Koh, solely in such Persons capacity as Administrator of the Trust continued hereunder and not in such Persons individual capacity, or such Administrators successor in interest in such capacity, or any successor appointed as herein provided.
Affiliate has the same meaning as given to that term in Rule 405 of the Securities Act or any successor rule thereunder.
Applicable Depositary Procedures means, with respect to any transfer or transaction involving a Book-Entry Capital Security, the rules and procedures of the Depositary for such Book-Entry Capital Security, in each case to the extent applicable to such transaction and as in effect from time to time.
Authorized Officer of a Person means any Person that is authorized to bind such Person.
Bankruptcy Event means, with respect to any Person:
(a) a court having jurisdiction in the premises enters a decree or order for relief in respect of such Person in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appoints a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of such Person or for any substantial part of its property, or orders the winding-up or liquidation of its affairs, and such decree, appointment or order remains unstayed and in effect for a period of 90 consecutive days; or
(b) such Person commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, consents to the entry of an order for relief in an involuntary case under any such law, or consents to the appointment of or
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taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of such Person of any substantial part of its property, or makes any general assignment for the benefit of creditors, or fails generally to pay its debts as they become due.
Book-Entry Capital Security means a Capital Security, the ownership and transfers of which shall be made through book entries by a Depositary.
Business Day means any day other than Saturday, Sunday or any other day on which banking institutions in Wilmington, Delaware, New York City or are permitted or required by any applicable law or executive order to close.
Calculation Agent has the meaning set forth in Section 1.01 of the Indenture.
Capital Securities has the meaning set forth in Section 6.1(a).
Capital Security Certificate means a definitive Certificate registered in the name of the Holder representing a Capital Security substantially in the form of Exhibit A 1.
Capital Treatment Event has the meaning set forth in paragraph 4(a) of Annex I.
Certificate means any certificate evidencing Securities.
Certificate of Trust means the certificate of trust filed with the Secretary of State of the State of Delaware with respect to the Trust, as amended and restated from time to time.
Closing Date has the meaning set forth in the Purchase Agreement.
Code means the Internal Revenue Code of 1986, as amended from time to time, or any successor legislation.
Commission means the United States Securities and Exchange Commission.
Common Securities has the meaning set forth in Section 6.1(a).
Common Security Certificate means a definitive Certificate registered in the name of the Holder representing a Common Security substantially in the form of Exhibit A-2.
Company Indemnified Person means (a) any Administrator; (b) any Affiliate of any Administrator; (c) any officers, directors, shareholders, members, partners, employees, representatives or agents of any Administrator; or (d) any officer, employee or agent of the Trust or its Affiliates.
Corporate Trust Office means the office of the Institutional Trustee at which the corporate trust business of the Institutional Trustee shall, at any particular time, be principally administered, which office shall at all times be located in the United States and at the date of execution of this Declaration is located at 919 Market Street Suite 700 Wilmington, DE 19801, Attention: Corporate Trust Division.
Coupon Rate has the meaning set forth in paragraph 2(a) of Annex I.
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Covered Person means: (a) any Administrator, officer, director, shareholder, partner, member, representative, employee or agent of (i) the Trust or (ii) the Trusts Affiliates; and (b) any Holder of Securities.
Debenture Issuer means Center Financial Corporation, a bank holding company incorporated in California, in its capacity as issuer of the Debentures under the Indenture.
Debenture Trustee means Wells Fargo Bank, National Association, a national banking association with its principal place of business in the State of Delaware, not in its individual capacity but solely as trustee under the Indenture until a successor is appointed thereunder, and thereafter means such successor trustee.
Debentures means the Junior Subordinated Debt Securities due January 7, 2034 to be issued by the Debenture Issuer under the Indenture.
Deferred Interest means any interest on the Debentures that would have been overdue and unpaid for more than one Distribution Payment Date but for the imposition of an Extension Period, and the interest that shall accrue (to the extent that the payment of such interest is legally enforceable) on such interest at the Coupon Rate in effect for each such Extension Period, compounded quarterly from the date on which such Deferred Interest would otherwise have been due and payable until paid or made available for payment.
Definitive Capital Securities means any Capital Securities in definitive form issued by the Trust.
Depositary means an organization registered as a clearing agency under the Exchange Act that is designated as Depositary by the Sponsor or any successor thereto. DTC will be the initial Depositary.
Depositary Participant means a broker, dealer, bank, other financial institution or other Person for whom from time to time the Depositary effects book-entry transfers and pledges of securities deposited with the Depositary.
Delaware Trustee has the meaning set forth in Section 4.2.
Direct Action has the meaning set forth in Section 2.8(e).
Distribution means a distribution payable to Holders of Securities in accordance with Section 5.1.
Distribution Payment Date has the meaning set forth in paragraph 2(e) of Annex I.
DTC means The Depository Trust Company or any successor thereto.
Event of Default means the occurrence of an Indenture Event of Default.
Exchange Act means the Securities Exchange Act of 1934, as amended from time to time, or any successor legislation.
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Extension Period has the meaning set forth in paragraph 2(e) of Annex I.
Federal Reserve has the meaning set forth in paragraph 3 of Annex I.
Fiduciary Indemnified Person shall mean each of the Institutional Trustee (including in its individual capacity), the Delaware Trustee (including in its individual capacity), any Affiliate of the Institutional Trustee or the Delaware Trustee, and any officers, directors, shareholders, members, partners, employees, representatives, custodians, nominees or agents of the Institutional Trustee or the Delaware Trustee.
Fiscal Year has the meaning set forth in Section 10.1.
Global Capital Security means a Capital Securities Certificate evidencing ownership of Book-Entry Capital Securities.
Guarantee means the Guarantee Agreement, dated as of December 30, 2003, of the Sponsor in respect of the Capital Securities.
Holder means a Person in whose name a Certificate representing a Security is registered on the register maintained by or on behalf of the Registrar, such Person being a beneficial owner within the meaning of the Statutory Trust Act.
Indemnified Person means a Company Indemnified Person or a Fiduciary Indemnified Person.
Indenture means the Indenture, dated as of December 30, 2003, among the Debenture Issuer and the Debenture Trustee, and any indenture supplemental thereto pursuant to which the Debentures are to be issued.
Indenture Event of Default means an Event of Default as defined in the Indenture.
Initial Purchaser means the initial purchaser of the Capital Securities.
Institutional Trustee means the Trustee meeting the eligibility requirements set forth in Section 4.3.
Investment Company means an investment company as defined in the Investment Company Act.
Investment Company Act means the Investment Company Act of 1940, as amended from time to time, or any successor legislation.
Investment Company Event has the meaning set forth in paragraph 4(a) of Annex I.
Legal Action has the meaning set forth in Section 2.8(e).
LIBOR means the London Interbank Offered Rate for U.S. Dollar deposits in Europe as determined by the Calculation Agent according to paragraph 2(b) of Annex I.
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LIBOR Banking Day has the meaning set forth in paragraph 2(b)(1) of Annex I.
LIBOR Business Day has the meaning set forth in paragraph 2(b)(1) of Annex I.
LIBOR Determination Date has the meaning set forth in paragraph 2(b)(1) of Annex I.
Liquidation has the meaning set forth in paragraph 3 of Annex I.
Liquidation Distribution has the meaning set forth in paragraph 3 of Annex I.
Majority in liquidation amount of the Securities means Holders of outstanding Securities voting together as a single class or, as the context may require, Holders of outstanding Capital Securities or Holders of outstanding Common Securities voting separately as a class, who are the record owners of more than 50% of the aggregate liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to the date upon which the voting percentages are determined) of all outstanding Securities of the relevant class.
Notice has the meaning set forth in Section 2.11 of the Indenture.
Officers Certificate means, with respect to any Person, a certificate signed by two Authorized Officers of such Person. Any Officers Certificate delivered with respect to compliance with a condition or covenant provided for in this Declaration shall include:
(c) a statement that each officer signing the Officers Certificate has read the covenant or condition and the definitions relating thereto;
(d) a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Officers Certificate;
(e) a statement that each such officer has made such examination or investigation as, in such officers opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and
(f) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with.
Owner means each Person who is the beneficial owner of Book-Entry Capital Securities as reflected in the records of the Depositary or, if a Depositary Participant is not the beneficial owner, then the beneficial owner as reflected in the records of the Depositary Participant.
Paying Agent has the meaning set forth in Section 6.2.
Payment Amount has the meaning set forth in Section 5.1.
Person means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature.
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Purchase Agreement means the Purchase Agreement relating to the offering and sale of Capital Securities.
PORTAL has the meaning set forth in Section 2.6(a)(í).
Property Account has the meaning set forth in Section 2.8(c).
Pro Rata has the meaning set forth in paragraph 8 of Annex I.
QIB means a qualified institutional buyer as defined under Rule 144A.
Quorum means a majority of the Administrators or, if there are only two Administrators, both of them.
Redemption/Distribution Notice has the meaning set forth in paragraph 4(e) of Annex I.
Redemption Price has the meaning set forth in paragraph 4(a) of Annex I.
Registrar has the meaning set forth in Section 6.2.
Relevant Trustee has the meaning set forth in Section 4.7(a).
Responsible Officer means, with respect to the Institutional Trustee, any officer within the Corporate Trust Office of the Institutional Trustee with direct responsibility for the administration of this Declaration, including any vice-president, any assistant vice-president, any secretary, any assistant secretary, the treasurer, any assistant treasurer, any trust officer or other officer of the Corporate Trust Office of the Institutional Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officers knowledge of and familiarity with the particular subject.
Restricted Securities Legend has the meaning set forth in Section 8.2(c). Rule 144A means Rule 144A under the Securities Act.
Rule 3a-5 means Rule 3a-5 under the Investment Company Act. Rule 3a-7 means Rule 3a-7 under the Investment Company Act. Securities means the Common Securities and the Capital Securities.
Securities Act means the Securities Act of 1933, as amended from time to time, or any successor legislation.
Sponsor means Center Financial Corporation, a bank holding company that is a U.S. Person incorporated in California, or any successor entity in a merger, consolidation or amalgamation that is a U.S. Person, in its capacity as sponsor of the Trust.
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Statutory Trust Act means Chapter 38 of Title 12 of the Delaware Code, 12 Del. Code § 3801 et seq., as it may be amended from time to time, or any successor legislation.
Successor Delaware Trustee has the meaning set forth in Section 4.7(e).
Successor Entity has the meaning set forth in Section 2.15(b).
Successor Institutional Trustee has the meaning set forth in Section 4.7(b).
Successor Securities has the meaning set forth in Section 2.15(b).
Super Majority has the meaning set forth in paragraph 5(b) of Annex I.
Tax Event has the meaning set forth in paragraph 4(a) of Annex I.
10% in liquidation amount of the Securities means Holders of outstanding Securities voting together as a single class or, as the context may require, Holders of outstanding Capital Securities or Holders of outstanding Common Securities voting separately as a class, who are the record owners of 10% or more of the aggregate liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to the date upon which the voting percentages are determined) of all outstanding Securities of the relevant class.
Transfer Agent has the meaning set forth in Section 6.2.
Trust Indenture Act means the Trust Indenture Act of 1939, as amended from time-to-time, or any successor legislation.
Trustee or Trustees means each Person who has signed this Declaration as a trustee, so long as such Person shall continue in office in accordance with the terms hereof, and all other Persons who may from time to time be duly appointed, qualified and serving as Trustees in accordance with the provisions hereof, and references herein to a Trustee or the Trustees shall refer to such Person or Persons solely in their capacity as trustees hereunder.
Trust Property means (a) the Debentures, (b) any cash on deposit in, or owing to, the Property Account and (c) all proceeds and rights in respect of the foregoing and any other property and assets for the time being held or deemed to be held by the Institutional Trustee pursuant to the trusts of this Declaration.
U.S. Person means a United States Person as defined in Section 7701(a)(30) of the Code.
ARTICLE II
ORGANIZATION
SECTION 2.1. Name. The Trust is named Center Capital Trust I, as such name may be modified from time to time by the Administrators following written notice to the Institutional Trustee and the Holders of the Securities. The Trusts activities may be conducted under the name of the Trust or any other name deemed advisable by the Administrators.
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SECTION 2.2. Office. The address of the principal office of the Trust, which shall be in a state of the United States or the District of Columbia, is 3435 Wilshire Boulevard, Suite 700, Los Angeles, CA 90010. On ten Business Days written notice to the Institutional Trustee and the Holders of the Securities, the Administrators may designate another principal office, which shall be in a state of the United States or the District of Columbia.
SECTION 2.3. Purpose. The exclusive purposes and functions of the Trust are (a) to issue and sell the Securities representing undivided beneficial interests in the assets of the Trust, (b) to invest the gross proceeds from such sale to acquire the Debentures, (c) to facilitate direct investment in the assets of the Trust through issuance of the Common Securities and the Capital Securities and (d) except as otherwise limited herein, to engage in only those other activities incidental thereto that are deemed necessary or advisable by the Institutional Trustee, including, without limitation, those activities specified in this Declaration. The Trust shall not borrow money, issue debt or reinvest proceeds derived from investments, pledge any of its assets, or otherwise undertake (or permit to be undertaken) any activity that would cause the Trust not to be classified for United States federal income tax purposes as a grantor trust.
SECTION 2.4. Authority. Except as specifically provided in this Declaration, the Institutional Trustee shall have exclusive and complete authority to carry out the purposes of the Trust. An action taken by a Trustee on behalf of the Trust and in accordance with such Trustees powers shall constitute the act of and serve to bind the Trust. In dealing with the Trustees acting on behalf of the Trust, no Person shall be required to inquire into the authority of the Trustees to bind the Trust. Persons dealing with the Trust are entitled to rely conclusively on the power and authority of the Trustees as set forth in this Declaration. The Administrators shall have only those ministerial duties set forth herein with respect to accomplishing the purposes of the Trust and are not intended to be trustees or fiduciaries with respect to the Trust or the Holders. The Institutional Trustee shall have the right, but shall not be obligated except as provided in Section 2.6, to perform those duties assigned to the Administrators.
SECTION 2.5. Title to Property of the Trust. Except as provided in Section 2.6(g) and Section 2.8 with respect to the Debentures and the Property Account or as otherwise provided in this Declaration, legal title to all assets of the Trust shall be vested in the Trust. The Holders shall not have legal title to any part of the assets of the Trust, but shall have an undivided beneficial interest in the assets of the Trust.
SECTION 2.6. Powers and Duties of the Trustees and the Administrators.
(a) The Trustees and the Administrators shall conduct the affairs of the Trust in accordance with the terms of this Declaration. Subject to the limitations set forth in paragraph (b) of this Section, and in accordance with the following provisions (i) and (ii), the Administrators and, at the direction of the Administrators, the Trustees, shall have the authority to enter into all transactions and agreements determined by the Administrators to be appropriate in exercising the authority, express or implied, otherwise granted to the Trustees or the Administrators, as the case may be, under this Declaration, and to perform all acts in furtherance thereof, including without limitation, the following:
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(i) Each Administrator shall have the power, duty and authority, and is hereby authorized, to act on behalf of the Trust with respect to the following matters:
(A) the issuance and sale of the Securities;
(B) to acquire the Debentures with the proceeds of the sale of the Securities; provided, however, that the Administrators shall cause legal title to the Debentures to be held of record in the name of the Institutional Trustee for the benefit of the Holders;
(C) to cause the Trust to enter into, and to execute, deliver and perform on behalf of the Trust, such agreements as may be necessary or desirable in connection with the purposes and function of the Trust, including agreements with the Paying Agent, a Debenture subscription agreement between the Trust and the Sponsor and a Common Securities subscription agreement between the Trust and the Sponsor;
(D) ensuring compliance with the Securities Act and applicable state securities or blue sky laws;
(E) if and at such time determined solely by the Sponsor at the request of the Holders, assisting in the designation of the Capital Securities for trading in the Private Offering, Resales and Trading through the Automatic Linkages (PORTAL) system if available;
(F) the sending of notices (other than notices of default) and other information regarding the Securities and the Debentures to the Holders in accordance with this Declaration, including notice of any notice received from the Debenture Issuer of its election to defer payments of interest on the Debentures by extending the interest payment period under the Indenture;
(G) the appointment of a Paying Agent, Transfer Agent and Registrar in accordance with this Declaration;
(H) execution and delivery of the Securities in accordance with this Declaration;
(I) execution and delivery of closing certificates pursuant to the Purchase Agreement and the application for a taxpayer identification number;
(J) unless otherwise determined by the Holders of a Majority in liquidation amount of the Securities or as otherwise required by the
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Statutory Trust Act, to execute on behalf of the Trust (either acting alone or together with any or all of the Administrators) any documents that the Administrators have the power to execute pursuant to this Declaration;
(K) the taking of any action incidental to the foregoing as the Sponsor or an Administrator may from time to time determine is necessary or advisable to give effect to the terms of this Declaration for the benefit of the Holders (without consideration of the effect of any such action on any particular Holder);
(L) to establish a record date with respect to all actions to be taken hereunder that require a record date be established, including Distributions, voting rights, redemptions and exchanges, and to issue relevant notices to the Holders of Capital Securities and Holders of Common Securities as to such actions and applicable record dates;
(M) to duly prepare and file on behalf of the Trust all applicable tax returns and tax information reports that are required to be filed with respect to the Trust;
(N) to negotiate the terms of, and the execution and delivery of, the Purchase Agreement providing for the sale of the Capital Securities;
(O) to employ or otherwise engage employees, agents (who may be designated as officers with titles), managers, contractors, advisors, attorneys and consultants and pay reasonable compensation for such services;
(P) to incur expenses that are necessary or incidental to carry out any of the purposes of the Trust;
(Q) to give the certificate required by § 314(a)(4) of the Trust Indenture Act to the Institutional Trustee, which certificate may be executed by an Administrator; and
(R) to take all action that may be necessary or appropriate for the preservation and the continuation of the Trusts valid existence, rights, franchises and privileges as a statutory trust under the laws of each jurisdiction (other than the State of Delaware) in which such existence is necessary to protect the limited liability of the Holders of the Capital Securities or to enable the Trust to effect the purposes for which the Trust was created.
(ii) As among the Trustees and the Administrators, the Institutional Trustee shall have the power, duty and authority, and is hereby authorized, to act on behalf of the Trust with respect to the following matters:
(A) the establishment of the Property Account;
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(B) the receipt of the Debentures;
(C) the collection of interest, principal and any other payments made in respect of the Debentures in the Property Account;
(D) the distribution through the Paying Agent of amounts owed to the Holders in respect of the Securities;
(E) the exercise of all of the rights, powers and privileges of a holder of the Debentures;
(F) the sending of notices of default and other information regarding the Securities and the Debentures to the Holders in accordance with this Declaration;
(G) the distribution of the Trust Property in accordance with the terms of this Declaration;
(H) to the extent provided in this Declaration, the winding up of the affairs of and liquidation of the Trust and the preparation, execution and filing of the certificate of cancellation with the Secretary of State of the State of Delaware;
(I) after any Event of Default (of which the Institutional Trustee has knowledge (as provided in Section 2.10(m) hereof)) (provided, that such Event of Default is not by or with respect to the Institutional Trustee), the taking of any action incidental to the foregoing as the Institutional Trustee may from time to time determine is necessary or advisable to give effect to the terms of this Declaration and protect and conserve the Trust Property for the benefit of the Holders (without consideration of the effect of any such action on any particular Holder);
(J) to take all action that may be necessary or appropriate for the preservation and the continuation of the Trusts valid existence, rights, franchises and privileges as a statutory trust under the laws of the State of Delaware to protect the limited liability of the Holders of the Capital Securities or to enable the Trust to effect the purposes for which the Trust was created; and
(K) to undertake any actions set forth in § 317(a) of the Trust Indenture Act.
(iii) The Institutional Trustee shall have the power and authority, and is hereby authorized, to act on behalf of the Trust with respect to any of the duties, liabilities, powers or the authority of the Administrators set forth in Section 2.6(a)(i)(E) and (F) herein but shall not have a duty to do any such act unless specifically requested to do so in writing by the Sponsor, and shall then be fully protected in acting pursuant to such written request; and in the event of a conflict between the action of the Administrators and the action of the Institutional Trustee, the action of the Institutional Trustee shall prevail.
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(b) So long as this Declaration remains in effect, the Trust (or the Trustees or Administrators acting on behalf of the Trust) shall not undertake any business, activities or transaction except as expressly provided herein or contemplated hereby. In particular, neither the Trustees nor the Administrators may cause the Trust to (i) acquire any investments or engage in any activities not authorized by this Declaration, (ii) sell, assign, transfer, exchange, mortgage, pledge, set-off or otherwise dispose of any of the Trust Property or interests therein, including to Holders, except as expressly provided herein, (iii) take any action that would cause (or in the case of the Institutional Trustee, to the actual knowledge of a Responsible Officer would cause) the Trust to fail or cease to qualify as a grantor trust for United States federal income tax purposes, (iv) incur any indebtedness for borrowed money or issue any other debt or (v) take or consent to any action that would result in the placement of a lien on any of the Trust Property. The Institutional Trustee shall, at the sole cost and expense of the Trust, defend all claims and demands of all Persons at any time claiming any lien on any of the Trust Property adverse to the interest of the Trust or the Holders in their capacity as Holders.
(c) In connection with the issuance and sale of the Capital Securities, the Sponsor shall have the right and responsibility to assist the Trust with respect to, or effect on behalf of the Trust, the following (and any actions taken by the Sponsor in furtherance of the following prior to the date of this Declaration are hereby ratified and confirmed in all respects):
(i) the taking of any action necessary to obtain an exemption from the Securities Act;
(ii) the determination of the States in which to take appropriate action to qualify or register for sale all or part of the Capital Securities and the determination of any and all such acts, other than actions which must be taken by or on behalf of the Trust, and the advisement of and direction to the Trustees of actions they must take on behalf of the Trust, and the preparation for execution and filing of any documents to be executed and filed by the Trust or on behalf of the Trust, as the Sponsor deems necessary or advisable in order to comply with the applicable laws of any such States in connection with the sale of the Capital Securities; and
(iii) the taking of any other actions necessary or desirable to carry out any of the foregoing activities.
(d) Notwithstanding anything herein to the contrary, the Administrators, the Institutional Trustee and the Holders of a Majority in liquidation amount of the Common Securities are authorized and directed to conduct the affairs of the Trust and to operate the Trust so that (i) the Trust will not be deemed to be an investment company required to be registered under the Investment Company Act (in the case of the Institutional Trustee, to the actual knowledge of a Responsible Officer), and (ii) the Trust will not fail to be classified as a grantor trust for United States federal income tax purposes (in the case of the Institutional Trustee, to the actual knowledge of a Responsible Officer) and (iii) the Trust will not take any action
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inconsistent with the treatment of the Debentures as indebtedness of the Debenture Issuer for United States federal income tax purposes (in the case of the Institutional Trustee, to the actual knowledge of a Responsible Officer). In this connection, the Institutional Trustee, the Administrators and the Holders of a Majority in liquidation amount of the Common Securities are authorized to take any action, not inconsistent with applicable laws or this Declaration, as amended from time to time, that each of the Institutional Trustee, the Administrators and such Holders determine in their discretion to be necessary or desirable for such purposes, even if such action adversely affects the interests of the Holders of the Capital Securities.
(e) All expenses incurred by the Administrators or the Trustees pursuant to this Section 2.6 shall be reimbursed by the Sponsor, and the Trustees shall have no obligations with respect to such expenses.
(f) The assets of the Trust shall consist of the Trust Property.
(g) Legal title to all Trust Property shall be vested at all times in the Institutional Trustee (in its capacity as such) and shall be held and administered by the Institutional Trustee for the benefit of the Trust in accordance with this Declaration.
(h) If the Institutional Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Declaration and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Institutional Trustee or to such Holder, then and in every such case the Sponsor, the Institutional Trustee and the Holders shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Institutional Trustee and the Holders shall continue as though no such proceeding had been instituted.
SECTION 2.7. Prohibition of Actions by the Trust and the Trustees. The Trust shall not, and the Institutional Trustee and the Administrators shall not, and the Administrators shall cause the Trust not to, engage in any activity other than as required or authorized by this Declaration. In particular, the Trust shall not, and the Institutional Trustee and the Administrators shall not cause the Trust to:
(a) invest any proceeds received by the Trust from holding the Debentures, but shall distribute all such proceeds to Holders of the Securities pursuant to the terms of this Declaration and of the Securities;
(b) acquire any assets other than as expressly provided herein;
(c) possess Trust Property for other than a Trust purpose;
(d) make any loans or incur any indebtedness other than loans represented by the Debentures;
(e) possess any power or otherwise act in such a way as to vary the Trust Property or the terms of the Securities;
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(f) issue any securities or other evidences of beneficial ownership of, or beneficial interest in, the Trust other than the Securities; or
(g) other than as provided in this Declaration (including Annex I), (i) direct the time, method and place of exercising any trust or power conferred upon the Debenture Trustee with respect to the Debentures, (ii) waive any past default that is waivable under the Indenture, (iii) exercise any right to rescind or annul any declaration that the principal of all the Debentures shall be due and payable, or (iv) consent to any amendment, modification or termination of the Indenture or the Debentures where such consent shall be required unless the Trust shall have received a written opinion of counsel experienced in such matters to the effect that such amendment, modification or termination will not cause the Trust to cease to be classified as a grantor trust for United States federal income tax purposes.
SECTION 2.8. Powers and Duties of the Institutional Trustee.
(a) The legal title to the Debentures shall be owned by and held of record in the name of the Institutional Trustee in trust for the benefit of the Trust. The right, title and interest of the Institutional Trustee to the Debentures shall vest automatically in each Person who may hereafter be appointed as Institutional Trustee in accordance with Section 4.7. Such vesting and cessation of title shall be effective whether or not conveyancing documents with regard to the Debentures have been executed and delivered.
(b) The Institutional Trustee shall not transfer its right, title and interest in the Debentures to the Administrators or to the Delaware Trustee.
(c) The Institutional Trustee shall:
(i) establish and maintain a segregated non-interest bearing trust account (the Property Account) in the United States (as defined in Treasury Regulations § 301.7701-7), in the name of and under the exclusive control of the Institutional Trustee, and maintained in the Institutional Trustees trust department, on behalf of the Holders of the Securities and, upon the receipt of payments of funds made in respect of the Debentures held by the Institutional Trustee, deposit such funds into the Property Account and make payments to the Holders of the Capital Securities and Holders of the Common Securities from the Property Account in accordance with Section 5.1. Funds in the Property Account shall be held uninvested until disbursed in accordance with this Declaration;
(ii) engage in such ministerial activities as shall be necessary or appropriate to effect the redemption of the Capital Securities and the Common Securities to the extent the Debentures are redeemed or mature; and
(iii) upon written notice of distribution issued by the Administrators in accordance with the terms of the Securities, engage in such ministerial activities as shall be necessary or appropriate to effect the distribution of the Debentures to Holders of Securities upon the occurrence of certain circumstances pursuant to the terms of the Securities.
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(d) The Institutional Trustee shall take all actions and perform such duties as may be specifically required of the Institutional Trustee pursuant to the terms of the Securities.
(e) The Institutional Trustee may bring or defend, pay, collect, compromise, arbitrate, resort to legal action with respect to, or otherwise adjust claims or demands of or against, the Trust (a Legal Action) which arise out of or in connection with an Event of Default of which a Responsible Officer of the Institutional Trustee has actual knowledge or the Institutional Trustees duties and obligations under this Declaration or the Trust Indenture Act; provided, however, that if an Event of Default has occurred and is continuing and such event is attributable to the failure of the Debenture Issuer to pay interest or principal on the Debentures on the date such interest or principal is otherwise payable (or in the case of redemption, on the redemption date), then a Holder of the Capital Securities may directly institute a proceeding for enforcement of payment to such Holder of the principal of or interest on the Debentures having a principal amount equal to the aggregate liquidation amount of the Capital Securities of such Holder (a Direct Action) on or after the respective due date specified in the Debentures. In connection with such Direct Action, the rights of the Holders of the Common Securities will be subrogated to the rights of such Holder of the Capital Securities to the extent of any payment made by the Debenture Issuer to such Holder of the Capital Securities in such Direct Action; provided, however, that a Holder of the Common Securities may exercise such right of subrogation only if no Event of Default with respect to the Capital Securities has occurred and is continuing.
(f) The Institutional Trustee shall continue to serve as a Trustee until either:
(i) the Trust has been completely liquidated and the proceeds of the liquidation distributed to the Holders of the Securities pursuant to the terms of the Securities and this Declaration (including Annex I); or
(ii) a Successor Institutional Trustee has been appointed and has accepted that appointment in accordance with Section 4.7.
(g) The Institutional Trustee shall have the legal power to exercise all of the rights, powers and privileges of a holder of the Debentures under the Indenture and, if an Event of Default occurs and is continuing, the Institutional Trustee may, for the benefit of Holders of the Securities, enforce its rights as holder of the Debentures subject to the rights of the Holders pursuant to this Declaration (including Annex I) and the terms of the Securities.
(h) The Institutional Trustee must exercise the powers set forth in this Section 2.8 in a manner that is consistent with the purposes and functions of the Trust set out in Section 2.3, and the Institutional Trustee shall not take any action that is inconsistent with the purposes and functions of the Trust set out in Section 2.3.
SECTION 2.9. Certain Duties and Responsibilities of the Trustees and the Administrators.
(a) The Institutional Trustee, before the occurrence of any Event of Default (of which the Institutional Trustee has knowledge (as provided in Section 2.10(m) hereof)) and after the curing of all Events of Default that may have occurred, shall undertake to perform only
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such duties as are specifically set forth in this Declaration and no implied covenants shall be read into this Declaration against the Institutional Trustee. In case an Event of Default (of which the Institutional Trustee has knowledge (as provided in Section 2.10(m) hereof)), has occurred (that has not been cured or waived pursuant to Section 6.8), the Institutional Trustee shall exercise such of the rights and powers vested in it by this Declaration, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs.
(b) The duties and responsibilities of the Trustees and the Administrators shall be as provided by this Declaration and, in the case of the Institutional Trustee, by the Trust Indenture Act. Notwithstanding the foregoing, no provision of this Declaration shall require any Trustee or Administrator to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity satisfactory to it against such risk or liability is not reasonably assured to it. Whether or not therein expressly so provided, every provision of this Declaration relating to the conduct or affecting the liability of or affording protection to the Trustees or the Administrators shall be subject to the provisions of this Article. Nothing in this Declaration shall be construed to release a Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct. Nothing in this Declaration shall be construed to release an Administrator from liability for its own gross negligent action, its own gross negligent failure to act, or its own willful misconduct. To the extent that, at law or in equity, a Trustee or an Administrator has duties and liabilities relating to the Trust or to the Holders, such Trustee or Administrator shall not be liable to the Trust or to any Holder for such Trustees or Administrators good faith reliance on the provisions of this Declaration. The provisions of this Declaration, to the extent that they restrict the duties and liabilities of the Administrators or the Trustees otherwise existing at law or in equity, are agreed by the Sponsor and the Holders to replace such other duties and liabilities of the Administrators or the Trustees.
(c) All payments made by the Institutional Trustee or a Paying Agent in respect of the Securities shall be made only from the revenue and proceeds from the Trust Property and only to the extent that there shall be sufficient revenue or proceeds from the Trust Property to enable the Institutional Trustee or a Paying Agent to make payments in accordance with the terms hereof. Each Holder, by its acceptance of a Security, agrees that it will look solely to the revenue and proceeds from the Trust Property to the extent legally available for distribution to it as herein provided and that the Trustees and the Administrators are not personally liable to it for any amount distributable in respect of any Security or for any other liability in respect of any Security. This Section 2.9(c) does not limit the liability of the Trustees expressly set forth elsewhere in this Declaration or, in the case of the Institutional Trustee, in the Trust Indenture Act.
(d) No provision of this Declaration shall be construed to relieve the Institutional Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct with respect to matters that are within the authority of the Institutional Trustee under this Declaration, except that:
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(i) the Institutional Trustee shall not be liable for any error or judgment made in good faith by an Authorized Officer of the Institutional Trustee, unless it shall be proved that the Institutional Trustee was negligent in ascertaining the pertinent facts;
(ii) the Institutional Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a Majority in liquidation amount of the Capital Securities or the Common Securities, as applicable, relating to the time, method and place of conducting any proceeding for any remedy available to the Institutional Trustee, or exercising any trust or power conferred upon the Institutional Trustee under this Declaration;
(iii) the Institutional Trustees sole duty with respect to the custody, safe keeping and physical preservation of the Debentures and the Property Account shall be to deal with such property in a similar manner as the Institutional Trustee deals with similar property for its own account, subject to the protections and limitations on liability afforded to the Institutional Trustee under this Declaration and the Trust Indenture Act;
(iv) the Institutional Trustee shall not be liable for any interest on any money received by it except as it may otherwise agree in writing with the Sponsor; and money held by the Institutional Trustee need not be segregated from other funds held by it except in relation to the Property Account maintained by the Institutional Trustee pursuant to Section 2.8(c)(í) and except to the extent otherwise required by law; and
(v) the Institutional Trustee shall not be responsible for monitoring the compliance by the Administrators or the Sponsor with their respective duties under this Declaration, nor shall the Institutional Trustee be liable for any default or misconduct of the Administrators or the Sponsor.
SECTION 2.10. Certain Rights of Institutional Trustee. Subject to the provisions of Section 2.9.
(a) the Institutional Trustee may conclusively rely and shall fully be protected in acting or refraining from acting in good faith upon any resolution, written opinion of counsel, certificate, written representation of a Holder or transferee, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, appraisal, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed, sent or presented by the proper party or parties;
(b) if (i) in performing its duties under this Declaration, the Institutional Trustee is required to decide between alternative courses of action, (ii) in construing any of the provisions of this Declaration, the Institutional Trustee finds the same ambiguous or inconsistent with any other provisions contained herein, or (iii) the Institutional Trustee is unsure of the
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application of any provision of this Declaration, then, except as to any matter as to which the Holders of Capital Securities are entitled to vote under the terms of this Declaration, the Institutional Trustee may deliver a notice to the Sponsor requesting the Sponsors opinion as to the course of action to be taken and the Institutional Trustee shall take such action, or refrain from taking such action, as the Institutional Trustee in its sole discretion shall deem advisable and in the best interests of the Holders, in which event the Institutional Trustee shall have no liability except for its own negligence or willful misconduct;
(c) any direction or act of the Sponsor or the Administrators contemplated by this Declaration shall be sufficiently evidenced by an Officers Certificate;
(d) whenever in the administration of this Declaration, the Institutional Trustee shall deem it desirable that a matter be proved or established before undertaking, suffering or omitting any action hereunder, the Institutional Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an Officers Certificate which, upon receipt of such request, shall be promptly delivered by the Sponsor or the Administrators;
(e) the Institutional Trustee shall have no duty to see to any recording, filing or registration of any instrument (including any financing or continuation statement or any filing under tax or securities laws) or any rerecording, refiling or reregistration thereof;
(f) the Institutional Trustee may consult with counsel of its selection (which counsel may be counsel to the Sponsor or any of its Affiliates) and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon and in accordance with such advice; the Institutional Trustee shall have the right at any time to seek instructions concerning the administration of this Declaration from any court of competent jurisdiction;
(g) the Institutional Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Declaration at the request or direction of any of the Holders pursuant to this Declaration, unless such Holders shall have offered to the Institutional Trustee security or indemnity reasonably satisfactory to it against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; provided, that nothing contained in this Section 2.10(g) shall be taken to relieve the Institutional Trustee, upon the occurrence of an Event of Default (of which the Institutional Trustee has knowledge (as provided in Section 2.10(m) hereof)) that has not been cured or waived, of its obligation to exercise the rights and powers vested in it by this Declaration;
(h) the Institutional Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, debenture, note or other evidence of indebtedness or other paper or document, unless requested in writing to do so by one or more Holders, but the Institutional Trustee may make such further inquiry or investigation into such facts or matters as it may see fit;
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(i) the Institutional Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through its agents or attorneys and the Institutional Trustee shall not be responsible for any misconduct or negligence on the part of, or for the supervision of, any such agent or attorney appointed with due care by it hereunder;
(j) whenever in the administration of this Declaration the Institutional Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Institutional Trustee (i) may request instructions from the Holders of the Common Securities and the Capital Securities, which instructions may be given only by the Holders of the same proportion in liquidation amount of the Common Securities and the Capital Securities as would be entitled to direct the Institutional Trustee under the terms of the Common Securities and the Capital Securities in respect of such remedy, right or action, (ii) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (iii) shall be fully protected in acting in accordance with such instructions;
(k) except as otherwise expressly provided in this Declaration, the Institutional Trustee shall not be under any obligation to take any action that is discretionary under the provisions of this Declaration;
(l) when the Institutional Trustee incurs expenses or renders services in connection with a Bankruptcy Event, such expenses (including the fees and expenses of its counsel) and the compensation for such services are intended to constitute expenses of administration under any bankruptcy law or law relating to creditors rights generally;
(m) the Institutional Trustee shall not be charged with knowledge of an Event of Default unless a Responsible Officer of the Institutional Trustee has actual knowledge of such event or the Institutional Trustee receives written notice of such event from any Holder, except with respect to an Event of Default pursuant to Sections 5.01 (a) or 5.01 (b) of the Indenture (other than an Event of Default resulting from the default in the payment of Additional Interest or premium, if any, if the Institutional Trustee does not have actual knowledge or written notice that such payment is due and payable), of which the Institutional Trustee shall be deemed to have knowledge;
(n) any action taken by the Institutional Trustee or its agents hereunder shall bind the Trust and the Holders of the Securities, and the signature of the Institutional Trustee or its agents alone shall be sufficient and effective to perform any such action and no third party shall be required to inquire as to the authority of the Institutional Trustee to so act or as to its compliance with any of the terms and provisions of this Declaration, both of which shall be conclusively evidenced by the Institutional Trustees or its agents taking such action; and
(o) no provision of this Declaration shall be deemed to impose any duty or obligation on the Institutional Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it, in any jurisdiction in which it shall be illegal, or in which the Institutional Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts, or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Institutional Trustee shall be construed to be a duty.
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SECTION 2.11. Delaware Trustee. Notwithstanding any other provision of this Declaration other than Section 4.2, the Delaware Trustee shall not be entitled to exercise any powers, nor shall the Delaware Trustee have any of the duties and responsibilities of any of the Trustees or the Administrators described in this Declaration (except as may be required under the Statutory Trust Act). Except as set forth in Section 4.2, the Delaware Trustee shall be a Trustee for the sole and limited purpose of fulfilling the requirements of § 3807 of the Statutory Trust Act.
SECTION 2.12. Execution of Documents. Unless otherwise determined in writing by the Institutional Trustee, and except as otherwise required by the Statutory Trust Act, the Institutional Trustee, or any one or more of the Administrators, as the case may be, is authorized to execute and deliver on behalf of the Trust any documents, agreements, instruments or certificates that the Trustees or the Administrators, as the case may be, have the power and authority to execute pursuant to Section 2.6.
SECTION 2.13. Not Responsible for Recitals or Issuance of Securities. The recitals contained in this Declaration and the Securities shall be taken as the statements of the Sponsor, and the Trustees do not assume any responsibility for their correctness. The Trustees make no representations as to the value or condition of the property of the Trust or any part thereof. The Trustees make no representations as to the validity or sufficiency of this Declaration, the Debentures or the Securities.
SECTION 2.14. Duration of Trust. The Trust, unless dissolved pursuant to the provisions of Article VII hereof, shall have existence for thirty-five (35) years from the Closing Date.
SECTION 2.15. Mergers.
(a) The Trust may not consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any corporation or other Person, except as described in this Section 2.15 and except with respect to the distribution of Debentures to Holders of Securities pursuant to Section 7.1(a)(iv) of the Declaration or Section 4 of Annex I.
(b) The Trust may, with the consent of the Administrators (which consent will not be unreasonably withheld) and without the consent of the Institutional Trustee, the Delaware Trustee or the Holders of the Capital Securities, consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets as an entirety or substantially as an entirety to a trust organized as such under the laws of any state; provided, that:
(i) if the Trust is not the survivor, such successor entity (the Successor Entity) either:
(A) expressly assumes all of the obligations of the Trust under the Securities; or
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(B) substitutes for the Securities other securities having substantially the same terms as the Securities (the Successor Securities) so that the Successor Securities rank the same as the Securities rank with respect to Distributions and payments upon Liquidation, redemption and otherwise;
(ii) the Sponsor expressly appoints, as the holder of the Common Securities, a trustee of the Successor Entity that possesses the same powers and duties as the Institutional Trustee;
(iii) the Capital Securities or any Successor Securities (excluding any securities substituted for the Common Securities) are listed or quoted, or any Successor Securities will be listed or quoted upon notification of issuance, on any national securities exchange or with another organization on which the Capital Securities are then listed or quoted, if any;
(iv) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not cause the Capital Securities (including any Successor Securities) to be downgraded by any nationally recognized statistical rating organization, if the Capital Securities are then rated;
(v) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the Holders of the Securities (including any Successor Securities) in any material respect (other than with respect to any dilution of such Holders interests in the Successor Entity as a result of such merger, consolidation, amalgamation or replacement);
(vi) such Successor Entity has a purpose substantially identical to that of the Trust;
(vii) prior to such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Trust has received a written opinion of a nationally recognized independent counsel to the Trust experienced in such matters to the effect that:
(A) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the Holders of the Securities (including any Successor Securities) in any material respect (other than with respect to any dilution of the Holders interests in the Successor Entity);
(B) following such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, neither the Trust nor the Successor Entity will be required to register as an Investment Company; and
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(C) following such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Trust (or the Successor Entity) will continue to be classified as a grantor trust for United States federal income tax purposes;
(viii) the Sponsor guarantees the obligations of such Successor Entity under the Successor Securities to the same extent provided by the Guarantee, the Debentures and this Declaration; and
(ix) prior to such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Institutional Trustee shall have received an Officers Certificate of the Administrators and an opinion of counsel, each to the effect that all conditions precedent of this paragraph (b) to such transaction have been satisfied.
(c) Notwithstanding Section 2.15(b), the Trust shall not, except with the consent of Holders of 100% in liquidation amount of the Securities, consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets as an entirety or substantially as an entirety to, any other Person or permit any other Person to consolidate, amalgamate, merge with or into, or replace it if such consolidation, amalgamation, merger, replacement, conveyance, transfer or lease would cause the Trust or Successor Entity to be classified as other than a grantor trust for United States federal income tax purposes.
ARTICLE III
SPONSOR
SECTION 3.1. Sponsors Purchase of Common Securities. On the Closing Date, the Sponsor will purchase all of the Common Securities issued by the Trust, in an amount at least equal to 3% of the capital of the Trust, at the same time as the Capital Securities are sold.
SECTION 3.2. Responsibilities of the Sponsor. In connection with the issue and sale of the Capital Securities, the Sponsor shall have the exclusive right and responsibility and sole decision to engage in, or direct the Administrators to engage in, the following activities:
(a) to determine the States in which to take appropriate action to qualify or register for sale of all or part of the Capital Securities and to do any and all such acts, other than actions which must be taken by the Trust, and advise the Trust of actions it must take, and prepare for execution and filing any documents to be executed and filed by the Trust, as the Sponsor deems necessary or advisable in order to comply with the applicable laws of any such States;
(b) to prepare for filing and request the Administrators to cause the filing by the Trust, as may be appropriate, of an application to the PORTAL system, for listing or quotation upon notice of issuance of any Capital Securities, as requested by the Holders of not less than a Majority in liquidation amount of the Capital Securities; and
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(c) to negotiate the terms of and/or execute and deliver on behalf of the Trust, the Purchase Agreement and other related agreements providing for the sale of the Capital Securities.
ARTICLE IV
TRUSTEES AND ADMINISTRATORS
SECTION 4.1. Number of Trustees. The number of Trustees initially shall be two, and:
(a) at any time before the issuance of any Securities, the Sponsor may, by written instrument, increase or decrease the number of Trustees; and
(b) after the issuance of any Securities, the number of Trustees may be increased or decreased by vote of the Holder of a Majority in liquidation amount of the Common Securities voting as a class at a meeting of the Holder of the Common Securities; provided, however, that there shall be a Delaware Trustee if required by Section 4.2; and there shall always be one Trustee who shall be the Institutional Trustee, and such Trustee may also serve as Delaware Trustee if it meets the applicable requirements, in which case Section 2.11 shall have no application to such entity in its capacity as Institutional Trustee.
SECTION 4.2. Delaware Trustee. If required by the Statutory Trust Act, one Trustee (the Delaware Trustee) shall be:
(a) a natural person who is a resident of the State of Delaware; or
(b) if not a natural person, an entity which is organized under the laws of the United States or any state thereof or the District of Columbia, has its principal place of business in the State of Delaware, and otherwise meets the requirements of applicable law, including §3807 of the Statutory Trust Act.
SECTION 4.3. Institutional Trustee; Eligibility.
(a) There shall at all times be one Trustee which shall act as Institutional Trustee which shall:
(i) not be an Affiliate of the Sponsor;
(ii) not offer or provide credit or credit enhancement to the Trust; and
(iii) be a banking corporation or national association organized and doing business under the laws of the United States of America or any state thereof or of the District of Columbia and authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least fifty million U.S. dollars ($50,000,000), and subject to supervision or examination by federal, state or District of Columbia authority. If such corporation or national association publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then for the purposes of this Section 4.3(a)(iii), the combined capital and surplus of such corporation or national association shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published.
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(b) If at any time the Institutional Trustee shall cease to be eligible to so act under Section 4.3(a), the Institutional Trustee shall immediately resign in the manner and with the effect set forth in Section 4.7.
(c) If the Institutional Trustee has or shall acquire any conflicting interest within the meaning of § 310(b) of the Trust Indenture Act, the Institutional Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to this Declaration.
(d) The initial Institutional Trustee shall be Wells Fargo Bank, National Association.
SECTION 4.4. Certain Qualifications of the Delaware Trustee Generally. The Delaware Trustee shall be a U.S. Person and either a natural person who is at least 21 years of age or a legal entity that shall act through one or more Authorized Officers.
SECTION 4.5. Administrators. Each Administrator shall be a U.S. Person.
There shall at all times be at least one Administrator. Except where a requirement for action by a specific number of Administrators is expressly set forth in this Declaration and except with respect to any action the taking of which is the subject of a meeting of the Administrators, any action required or permitted to be taken by the Administrators may be taken by, and any power of the Administrators may be exercised by, or with the consent of, any one such Administrator acting alone.
SECTION 4.6. Initial Delaware Trustee. The initial Delaware Trustee shall be Wells Fargo Delaware Trust Company.
SECTION 4.7. Appointment, Removal and Resignation of the Trustees and the Administrators.
(a) No resignation or removal of any Trustee (the Relevant Trustee) and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of this Section 4.7.
(b) Subject to Section 4.7(a), a Relevant Trustee may resign at any time by giving written notice thereof to the Holders of the Securities and by appointing a successor Relevant Trustee. Upon the resignation of the Institutional Trustee, the Institutional Trustee shall appoint a successor by requesting from at least three Persons meeting the eligibility requirements their expenses and charges to serve as the successor Institutional Trustee on a form provided by the Administrators, and selecting the Person who agrees to the lowest expense and charges (the Successor Institutional Trustee). If the instrument of acceptance by the successor Relevant Trustee required by this Section 4.7 shall not have been delivered to the Relevant Trustee within 60 days after the giving of such notice of resignation or delivery of the instrument of removal,
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the Relevant Trustee may petition, at the expense of the Trust, any federal, state or District of Columbia court of competent jurisdiction for the appointment of a successor Relevant Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Relevant Trustee. The Institutional Trustee shall have no liability for the selection of such successor pursuant to this Section 4.7.
(c) Unless an Event of Default shall have occurred and be continuing, any Trustee may be removed at any time by an act of the Holders of a Majority in liquidation amount of the Common Securities. If any Trustee shall be so removed, the Holders of the Common Securities, by act of the Holders of a Majority in liquidation amount of the Common Securities delivered to the Relevant Trustee, shall promptly appoint a successor Relevant Trustee, and such successor Trustee shall comply with the applicable requirements of this Section 4.7. If an Event of Default shall have occurred and be continuing, the Institutional Trustee or the Delaware Trustee, or both of them, may be removed by the act of the Holders of a Majority in liquidation amount of the Capital Securities, delivered to the Relevant Trustee (in its individual capacity and on behalf of the Trust). If any Trustee shall be so removed, the Holders of Capital Securities, by act of the Holders of a Majority in liquidation amount of the Capital Securities then outstanding delivered to the Relevant Trustee, shall promptly appoint a successor Relevant Trustee or Trustees, and such successor Trustee shall comply with the applicable requirements of this Section 4.7. If no successor Relevant Trustee shall have been so appointed by the Holders of a Majority in liquidation amount of the Capital Securities and accepted appointment in the manner required by this Section 4.7 within 30 days after delivery of an instrument of removal, the Relevant Trustee or any Holder who has been a Holder of the Securities for at least six months may, on behalf of himself and all others similarly situated, petition any federal, state or District of Columbia court of competent jurisdiction for the appointment of a successor Relevant Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a successor Relevant Trustee or Trustees.
(d) The Institutional Trustee shall give notice of each resignation and each removal of a Trustee and each appointment of a successor Trustee to all Holders and to the Sponsor. Each notice shall include the name of the successor Relevant Trustee and the address of its Corporate Trust Office if it is the Institutional Trustee.
(e) Notwithstanding the foregoing or any other provision of this Declaration, in the event a Delaware Trustee who is a natural person dies or is adjudged by a court to have become incompetent or incapacitated, the vacancy created by such death, incompetence or incapacity may be filled by the Institutional Trustee (provided the Institutional Trustee satisfies the requirements of a Delaware Trustee as set forth in Section 4.2) following the procedures in this Section 4.7 (with the successor being a Person who satisfies the eligibility requirement for a Delaware Trustee set forth in this Declaration) (the Successor Delaware Trustee).
(f) In case of the appointment hereunder of a successor Relevant Trustee, the retiring Relevant Trustee and each successor Relevant Trustee with respect to the Securities shall execute and deliver an amendment hereto wherein each successor Relevant Trustee shall accept such appointment and which (a) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Relevant Trustee all the rights, powers, trusts and duties of the retiring Relevant Trustee with respect to the Securities and the Trust and
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(b) shall add to or change any of the provisions of this Declaration as shall be necessary to provide for or facilitate the administration of the Trust by more than one Relevant Trustee, it being understood that nothing herein or in such amendment shall constitute such Relevant Trustees co-trustees and upon the execution and delivery of such amendment the resignation or removal of the retiring Relevant Trustee shall become effective to the extent provided therein and each such successor Relevant Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Relevant Trustee; but, on request of the Trust or any successor Relevant Trustee, such retiring Relevant Trustee shall duly assign, transfer and deliver to such successor Relevant Trustee all Trust Property, all proceeds thereof and money held by such retiring Relevant Trustee hereunder with respect to the Securities and the Trust subject to the payment of all unpaid fees, expenses and indemnities of such retiring Relevant Trustee.
(g) No Institutional Trustee or Delaware Trustee shall be liable for the acts or omissions to act of any Successor Institutional Trustee or Successor Delaware Trustee, as the case may be.
(h) The Holders of the Capital Securities will have no right to vote to appoint, remove or replace the Administrators, which voting rights are vested exclusively in the Holders of the Common Securities.
(i) Any successor Delaware Trustee shall file an amendment to the Certificate of Trust with the Secretary of State of the State of Delaware identifying the name and principal place of business of such Delaware Trustee in the State of Delaware.
SECTION 4.8. Vacancies Among Trustees. If a Trustee ceases to hold office for any reason and the number of Trustees is not reduced pursuant to Section 4.1, or if the number of Trustees is increased pursuant to Section 4.1, a vacancy shall occur. A resolution certifying the existence of such vacancy by the Trustees or, if there are more than two, a majority of the Trustees shall be conclusive evidence of the existence of such vacancy. The vacancy shall be filled with a Trustee appointed in accordance with Section 4.7.
SECTION 4.9. Effect of Vacancies. The death, resignation, retirement, removal, bankruptcy, dissolution, liquidation, incompetence or incapacity to perform the duties of a Trustee shall not operate to dissolve, terminate or annul the Trust or terminate this Declaration. Whenever a vacancy in the number of Trustees shall occur, until such vacancy is filled by the appointment of a Trustee in accordance with Section 4.7, the Institutional Trustee shall have all the powers granted to the Trustees and shall discharge all the duties imposed upon the Trustees by this Declaration.
SECTION 4.10. Meetings of the Trustees and the Administrators. Meetings of the Trustees or the Administrators shall be held from time to time upon the call of any Trustee or Administrator, as applicable. Regular meetings of the Trustees and the Administrators, respectively, may be in person in the United States or by telephone, at a place (if applicable) and time fixed by resolution of the Trustees or the Administrators, as applicable. Notice of any in-person meetings of the Trustees or the Administrators shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than
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48 hours before such meeting. Notice of any telephonic meetings of the Trustees or the Administrators or any committee thereof shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than 24 hours before a meeting. Notices shall contain a brief statement of the time, place and anticipated purposes of the meeting. The presence (whether in person or by telephone) of a Trustee or an Administrator, as the case may be, at a meeting shall constitute a waiver of notice of such meeting except where a Trustee or an Administrator, as the case may be, attends a meeting for the express purpose of objecting to the transaction of any activity on the ground that the meeting has not been lawfully called or convened. Unless provided otherwise in this Declaration, any action of the Trustees or the Administrators, as the case may be, may be taken at a meeting by vote of a majority of the Trustees or the Administrators present (whether in person or by telephone) and eligible to vote with respect to such matter; provided, that, in the case of the Administrators, a Quorum is present, or without a meeting by the unanimous written consent of the Trustees or the Administrators, as the case may be. Meetings of the Trustees and the Administrators together shall be held from time to time upon the call of any Trustee or Administrator.
SECTION 4.11. Delegation of Power.
(a) Any Trustee or any Administrator, as the case may be, may, by power of attorney consistent with applicable law, delegate to any other natural person over the age of 21 that is a U.S. Person his or her power for the purpose of executing any documents, instruments or other writings contemplated in Section 2.6.
(b) The Trustees shall have power to delegate from time to time to such of their number or to any officer of the Trust that is a U.S. Person, the doing of such things and the execution of such instruments or other writings either in the name of the Trust or the names of the Trustees or otherwise as the Trustees may deem expedient, to the extent such delegation is not prohibited by applicable law or contrary to the provisions of the Trust, as set forth herein.
SECTION 4.12. Merger, Conversion, Consolidation or Succession to Business. Any Person into which the Institutional Trustee or the Delaware Trustee, as the case maybe, may be merged or converted or with which either may be consolidated, or any Person resulting from any merger, conversion or consolidation to which the Institutional Trustee or the Delaware Trustee, as the case may be, shall be a party, or any Person succeeding to all or substantially all the corporate trust business of the Institutional Trustee or the Delaware Trustee, as the case may be, shall be the successor of the Institutional Trustee or the Delaware Trustee, as the case may be, hereunder, without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided such Person shall be otherwise qualified and eligible under this Article and, provided, further, that such Person shall file an amendment to the Certificate of Trust with the Secretary of State of the State of Delaware as contemplated in Section 4.7(i).
ARTICLE V
DISTRIBUTIONS
SECTION 5.1. Distributions. Holders shall receive Distributions in accordance with the applicable terms of the relevant Holders Securities. Distributions shall be made on the Capital
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Securities and the Common Securities in accordance with the preferences set forth in their respective terms. If and to the extent that the Debenture Issuer makes a payment of interest (including any Additional Interest or Deferred Interest) and/or principal on the Debentures held by the Institutional Trustee (the amount of any such payment being a Payment Amount), the Institutional Trustee shall and is directed, to the extent funds are available in the Property Account for that purpose, to make a distribution (a Distribution) of the Payment Amount to Holders. For the avoidance of doubt, funds in the Property Account shall not be distributed to Holders to the extent of any taxes payable by the Trust, in the case of withholding taxes, as determined by the Institutional Trustee or any Paying Agent and, in the case of taxes other than withholding tax taxes, as determined by the Administrators in a written notice to the Institutional Trustee.
ARTICLE VI
ISSUANCE OF SECURITIES
SECTION 6.1. General Provisions Regarding Securities.
(a) The Administrators shall on behalf of the Trust issue one series of capital securities, evidenced by a certificate substantially in the form of Exhibit A-1, representing undivided beneficial interests in the assets of the Trust and having such terms as are set forth in Annex I (the Capital Securities), and one series of common securities, evidenced by a certificate substantially in the form of Exhibit A-2, representing undivided beneficial interests in the assets of the Trust and having such terms as are set forth in Annex I (the Common Securities). The Trust shall issue no securities or other interests in the assets of the Trust other than the Capital Securities and the Common Securities. The Capital Securities rank pari passu and payment thereon shall be made Pro Rata with the Common Securities except that, where an Event of Default has occurred and is continuing, the rights of Holders of the Common Securities to payment in respect of Distributions and payments upon liquidation, redemption and otherwise are subordinated to the rights to payment of the Holders of the Capital Securities.
(b) The Certificates shall be signed on behalf of the Trust by one or more Administrators. Such signature shall be the facsimile or manual signature of any Administrator. In case any Administrator of the Trust who shall have signed any of the Securities shall cease to be such Administrator before the Certificates so signed shall be delivered by the Trust, such Certificates nevertheless may be delivered as though the person who signed such Certificates had not ceased to be such Administrator. Any Certificate may be signed on behalf of the Trust by such person who, at the actual date of execution of such Security, shall be an Administrator of the Trust, although at the date of the execution and delivery of the Declaration any such person was not such an Administrator. A Capital Security shall not be valid until authenticated by the manual signature of an Authorized Officer of the Institutional Trustee. Such signature shall be conclusive evidence that the Capital Security has been authenticated under this Declaration. Upon written order of the Trust signed by one Administrator, the Institutional Trustee shall authenticate the Capital Securities for original issue. The Institutional Trustee may appoint an authenticating agent that is a U.S. Person acceptable to the Trust to authenticate the Capital Securities. A Common Security need not be so authenticated and shall be valid upon execution by one or more Administrators.
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(c) The Capital Securities issued pursuant to Regulations of the Securities Act or to QIBs shall be, except as provided in Section 6.4, Book-Entry Capital Securities issued in the form of one or more Global Capital Securities registered in the name of the Depositary, or its nominee and deposited with the Depositary or a custodian for the Depositary for credit by the Depositary to the respective accounts of the Depositary Participants thereof (or such other accounts as they may direct).
(d) The consideration received by the Trust for the issuance of the Securities shall constitute a contribution to the capital of the Trust and shall not constitute a loan to the Trust.
(e) Upon issuance of the Securities as provided in this Declaration, the Securities so issued shall be deemed to be validly issued, fully paid and non-assessable, and each Holder thereof shall be entitled to the benefits provided by this Declaration.
(f) Every Person, by virtue of having become a Holder in accordance with the terms of this Declaration, shall be deemed to have expressly assented and agreed to the terms of, and shall be bound by, this Declaration and the Guarantee.
SECTION 6.2. Paying Agent, Transfer Agent, Calculation Agent and Registrar.
(a) The Trust shall maintain in Wilmington, Delaware, an office or agency where the Securities may be presented for payment (the Paying Agent), and an office or agency where Securities may be presented for registration of transfer or exchange (the Transfer Agent). The Trust shall keep or cause to be kept at such office or agency a register for the purpose of registering Securities and transfers and exchanges of Securities, such register to be held by a registrar (the Registrar). The Administrators may appoint the Paying Agent, the Registrar and the Transfer Agent, and may appoint one or more additional Paying Agents, one or more co-Registrars, or one or more co-Transfer Agents in such other locations as it shall determine. The term Paying Agent includes any additional Paying Agent, the term Registrar includes any additional Registrar or co-Registrar and the term Transfer Agent includes any additional Transfer Agent or co-Transfer Agent. The Administrators may change any Paying Agent, Transfer Agent or Registrar at any time without prior notice to any Holder. The Administrators shall notify the Institutional Trustee of the name and address of any Paying Agent, Transfer Agent and Registrar not a party to this Declaration. The Administrators hereby initially appoint the Institutional Trustee to act as Paying Agent, Transfer Agent and Registrar for the Capital Securities and the Common Securities at its Corporate Trust Office. The Institutional Trustee or any of its Affiliates in the United States may act as Paying Agent, Transfer Agent or Registrar.
(b) The Trust shall also appoint a Calculation Agent, which shall determine the Coupon Rate in accordance with the terms of the Securities. The Trust initially appoints the Institutional Trustee as Calculation Agent.
SECTION 6.3. Form and Dating.
(a) The Capital Securities and the Institutional Trustees certificate of authentication thereon shall be substantially in the form of Exhibit A-1, and the Common
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Securities shall be substantially in the form of Exhibit A-2, each of which is hereby incorporated in and expressly made a part of this Declaration. Certificates may be typed, printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Administrators, as conclusively evidenced by their execution thereof. The Securities may have letters, numbers, notations or other marks of identification or designation and such legends or endorsements required by law, stock exchange rule, agreements to which the Trust is subject, if any, or usage (provided, that any such notation, legend or endorsement is in a form acceptable to the Sponsor). The Trust at the direction of the Sponsor shall furnish any such legend not contained in Exhibit A-1 to the Institutional Trustee in writing. Each Capital Security shall be dated the date of its authentication. The terms and provisions of the Securities set forth in Annex I and the forms of Securities set forth in Exhibits A-1 and A-2 are part of the terms of this Declaration and to the extent applicable, the Institutional Trustee, the Delaware Trustee, the Administrators and the Sponsor, by their execution and delivery of this Declaration, expressly agree to such terms and provisions and to be bound thereby. Capital Securities will be issued only in blocks having a stated liquidation amount of not less than $100,000.
(b) The Capital Securities are being offered and sold by the Trust pursuant to the Purchase Agreement in definitive form, registered in the name of the Holder thereof, without coupons and with the Restricted Securities Legend.
SECTION 6.4. Book-Entry Capital Securities. Unless the Capital Security is to be issued in definitive form at the sole discretion of the Initial Purchaser:
(a) A Global Capital Security may be exchanged, in whole or in part, for Definitive Capital Securities Certificates registered in the names of Owners only if such exchange complies with Article VIII and (i) the Depositary advises the Administrators and the Institutional Trustee in writing that the Depositary is no longer willing or able properly to discharge its responsibilities with respect to the Global Capital Security, and no qualified successor is appointed by the Administrators within ninety (90) days of receipt of such notice, (ii) the Depositary ceases to be a clearing agency registered under the Exchange Act and the Administrators fail to appoint a qualified successor within ninety (90) days of obtaining knowledge of such event, (iii) the Administrators at their option advise the Institutional Trustee in writing that the Trust elects to terminate the book-entry system through the Depositary or (iv) an Indenture Event of Default has occurred and is continuing. Upon the occurrence of any event specified in clause (i), (ii), (iii) or (iv) above, the Administrators shall notify the Depositary and instruct the Depositary to notify all Owners of Book-Entry Capital Securities and the Institutional Trustee of the occurrence of such event and of the availability of Definitive Capital Securities Certificates to Owners of the Capital Securities requesting the same. Upon the issuance of Definitive Capital Securities Certificates, the Administrators and the Institutional Trustee shall recognize the Holders of the Definitive Capital Securities Certificates as Holders. Notwithstanding the foregoing, if an Owner of a beneficial interest in a Global Capital Security wishes at any time to transfer an interest in such Global Capital Security to a Person other than a QIB, such transfer shall be effected, subject to the Applicable Depository Procedures, in accordance with the provisions of this Section 6.4 and Article VIII, and the transferee shall receive a Definitive Capital Securities Certificate in connection with such transfer. A holder of a Definitive Capital Securities Certificate that is a QIB may upon request, and in accordance with the provisions of this Section 6.4 and Article VIII, exchange such Definitive Capital Securities Certificate for a beneficial interest in a Global Capital Security.
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(b) If any Global Capital Security is to be exchanged for Definitive Capital Securities Certificates or canceled in part, or if any Definitive Capital Securities Certificate is to be exchanged in whole or in part for any Global Capital Security, then either (i) such Global Capital Security shall be so surrendered for exchange or cancellation as provided in this Section 6.4 and Article VIII or (ii) the aggregate liquidation amount represented by such Global Capital Security shall be reduced, subject to Section 6.3, or increased by an amount equal to the liquidation amount represented by that portion of the Global Capital Security to be so exchanged or canceled, or equal to the liquidation amount represented by such Definitive Capital Securities Certificates to be so exchanged for any Global Capital Security, as the case may be, by means of an appropriate adjustment made on the records of the Securities Registrar, whereupon the Institutional Trustee, in accordance with the Applicable Depositary Procedures, shall instruct the Depositary or its authorized representative to make a corresponding adjustment to its records. Upon any such surrender to the Administrators or the Registrar of any Global Capital Security or Securities by the Depositary, accompanied by registration instructions, the Administrators, or any one of them, shall execute the Definitive Capital Securities Certificates in accordance with the instructions of the Depositary. None of the Registrar, Administrators, or the Institutional Trustee shall be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be fully protected in relying on, such instructions.
(c) Every Definitive Capital Securities Certificate executed and delivered upon registration or transfer of, or in exchange for or in lieu of, a Global Capital Security or any portion thereof shall be executed and delivered in the form of, and shall be, a Global Capital Security, unless such Definitive Capital Securities Certificate is registered in the name of a Person other than the Depositary for such Global Capital Security or a nominee thereof.
(d) The Depositary or its nominee, as registered owner of a Global Capital Security, shall be the Holder of such Global Capital Security for all purposes under this Declaration and the Global Capital Security, and Owners with respect to a Global Capital Security shall hold such interests pursuant to the Applicable Depositary Procedures. The Registrar, the Administrators and the Institutional Trustee shall be entitled to deal with the Depositary for all purposes of this Declaration relating to the Global Capital Securities (including the payment of the liquidation amount of and Distributions on the Book-Entry Capital Securities represented thereby and the giving of instructions or directions by Owners of Book-Entry Capital Securities represented thereby and the giving of notices) as the sole Holder of the Book-Entry Capital Securities represented thereby and shall have no obligations to the Owners thereof. None of the Administrators, the Institutional Trustee nor the Registrar shall have any liability in respect of any transfers effected by the Depositary.
(e) The rights of the Owners of the Book-Entry Capital Securities shall be exercised only through the Depositary and shall be limited to those established by law, the Applicable Depositary Procedures and agreements between such Owners and the Depositary and/or the Depositary Participants; provided, solely for the purpose of determining whether the Holders of the requisite amount of Capital Securities have voted on any matter provided for in this Declaration, to the extent that Capital Securities are represented by a Global Capital
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Security, the Administrators and the Institutional Trustee may conclusively rely on, and shall be fully protected in relying on, any written instrument (including a proxy) delivered to the Institutional Trustee by the Depositary setting forth the Owners votes or assigning the right to vote on any matter to any other Persons either in whole or in part. To the extent that Capital Securities are represented by a Global Capital Security, the initial Depositary will make book-entry transfers among the Depositary Participants and receive and transmit payments on the Capital Securities that are represented by a Global Capital Security to such Depositary Participants, and none of the Sponsor, the Administrators or the Institutional Trustee shall have any responsibility or obligation with respect thereto.
(f) To the extent that a notice or other communication to the Holders is required under this Declaration, for so long as Capital Securities are represented by a Global Capital Security, the Administrator and the Institutional Trustee shall give all such notices and communications to the Depositary, and shall have no obligations to the Owners.
SECTION 6.5. Mutilated, Destroyed, Lost or Stolen Certificates. If:
(a) any mutilated Certificates should be surrendered to the Registrar, or if the Registrar shall receive evidence to its satisfaction of the destruction, loss or theft of any Certificate; and
(b) there shall be delivered to the Registrar, the Administrators and the Institutional Trustee such security or indemnity as may be required by them to keep each of them harmless; then, in the absence of notice that such Certificate shall have been acquired by a bona fide purchaser, an Administrator on behalf of the Trust shall execute (and in the case of a Capital Security Certificate, the Institutional Trustee shall authenticate) and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like denomination. In connection with the issuance of any new Certificate under this Section 6.5, the Registrar or the Administrators may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Certificate issued pursuant to this Section shall constitute conclusive evidence of an ownership interest in the relevant Securities, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time.
SECTION 6.6. Temporary Securities. Until definitive Securities are ready for delivery, the Administrators may prepare and, in the case of the Capital Securities, the Institutional Trustee shall authenticate, temporary Securities. Temporary Securities shall be substantially in form of definitive Securities but may have variations that the Administrators consider appropriate for temporary Securities. Without unreasonable delay, the Administrators shall prepare and, in the case of the Capital Securities, the Institutional Trustee shall authenticate definitive Securities in exchange for temporary Securities.
SECTION 6.7. Cancellation. The Administrators at any time may deliver Securities to the Institutional Trustee for cancellation. The Registrar shall forward to the Institutional Trustee any Securities surrendered to it for registration of transfer, redemption or payment. The Institutional Trustee shall promptly cancel all Securities surrendered for registration of transfer, payment, replacement or cancellation and shall dispose of such canceled Securities as the Administrators direct. The Administrators may not issue new Securities to replace Securities that have been paid or that have been delivered to the Institutional Trustee for cancellation.
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SECTION 6.8. Rights of Holders; Waivers of Past Defaults.
(a) The legal title to the Trust Property is vested exclusively in the Institutional Trustee (in its capacity as such) in accordance with Section 2.5, and the Holders shall not have any right or title therein other than the undivided beneficial interest in the assets of the Trust conferred by their Securities and they shall have no right to call for any partition or division of property, profits or rights of the Trust except as described below. The Securities shall be personal property giving only the rights specifically set forth therein and in this Declaration. The Securities shall have no, and the issuance of the Securities shall not be subject to, preemptive or other similar rights and when issued and delivered to Holders against payment of the purchase price therefor, the Securities will be fully paid and nonassessable by the Trust.
(b) For so long as any Capital Securities remain outstanding, if, upon an Indenture Event of Default, the Debenture Trustee fails or the holders of not less than 25% in principal amount of the outstanding Debentures fail to declare the principal of all of the Debentures to be immediately due and payable, the Holders of not less than a Majority in liquidation amount of the Capital Securities then outstanding shall have the right to make such declaration by a notice in writing to the Institutional Trustee, the Sponsor and the Debenture Trustee.
(c) At any time after a declaration of acceleration with respect to the Debentures has been made and before a judgment or decree for payment of the money due has been obtained by the Debenture Trustee as provided in the Indenture, if the Institutional Trustee, subject to the provisions hereof, fails to annul any such declaration and waive such default, the Holders of not less than a Majority in liquidation amount of the Capital Securities, by written notice to the Institutional Trustee, the Sponsor and the Debenture Trustee, may rescind and annul such declaration and its consequences if:
(i) the Sponsor has paid or deposited with the Debenture Trustee a sum sufficient to pay
(A) all overdue installments of interest on all of the Debentures;
(B) any accrued Deferred Interest on all of the Debentures;
(C) all payments on any Debentures that have become due otherwise than by such declaration of acceleration and interest and Deferred Interest thereon at the rate borne by the Debentures; and
(D) all sums paid or advanced by the Debenture Trustee under the Indenture and the reasonable compensation, documented expenses, disbursements and advances of the Debenture Trustee and the Institutional Trustee, their agents and counsel; and
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(ii) all Events of Default with respect to the Debentures, other than the non-payment of the principal of the Debentures that has become due solely by such acceleration, have been cured or waived as provided in Section 5.07 of the Indenture.
(d) The Holders of not less than a Majority in liquidation amount of the Capital Securities may, on behalf of the Holders of all the Capital Securities, waive any past default or Event of Default, except a default or Event of Default in the payment of principal or interest (unless such default or Event of Default has been cured and a sum sufficient to pay all matured installments of interest and principal due otherwise than by acceleration has been deposited with the Debenture Trustee) or a default or Event of Default in respect of a covenant or provision that under the Indenture cannot be modified or amended without the consent of the holder of each outstanding Debenture. No such rescission shall affect any subsequent default or impair any right consequent thereon.
(e) Upon receipt by the Institutional Trustee of written notice declaring such an acceleration, or rescission and annulment thereof, by Holders of any part of the Capital Securities, a record date shall be established for determining Holders of outstanding Capital Securities entitled to join in such notice, which record date shall be at the close of business on the day the Institutional Trustee receives such notice. The Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to join in such notice, whether or not such Holders remain Holders after such record date; provided, that, unless such declaration of acceleration, or rescission and annulment, as the case may be, shall have become effective by virtue of the requisite percentage having joined in such notice prior to the day that is 90 days after such record date, such notice of declaration of acceleration, or rescission and annulment, as the case may be, shall automatically and without further action by any Holder be canceled and of no further effect. Nothing in this paragraph shall prevent a Holder, or a proxy of a Holder, from giving, after expiration of such 90-day period, a new written notice of declaration of acceleration, or rescission and annulment thereof, as the case may be, that is identical to a written notice that has been canceled pursuant to the proviso to the preceding sentence, in which event a new record date shall be established pursuant to the provisions of this Section 6.8.
(f) Except as otherwise provided in this Section 6.8, the Holders of not less than a Majority in liquidation amount of the Capital Securities may, on behalf of the Holders of all the Capital Securities, waive any past default or Event of Default and its consequences. Upon such waiver, any such default or Event of Default shall cease to exist, and any default or Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Declaration, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon.
ARTICLE VII
DISSOLUTION AND TERMINATION OF TRUST
SECTION 7.1. Dissolution and Termination of Trust.
(a) The Trust shall dissolve on the first to occur of
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(i) unless earlier dissolved, on April 17, 2039, the expiration of the term of the Trust;
(ii) a Bankruptcy Event with respect to the Sponsor, the Trust or the Debenture Issuer;
(iii) (other than in connection with a merger, consolidation or similar transaction not prohibited by the Indenture, this Declaration or the Guarantee, as the case may be) the filing of a certificate of dissolution or its equivalent with respect to the Sponsor or upon the revocation of the charter of the Sponsor and the expiration of 90 days after the date of revocation without a reinstatement thereof;
(iv) the distribution of the Debentures to the Holders of the Securities, upon exercise of the right of the Holders of all of the outstanding Common Securities to dissolve the Trust as provided in Annex I hereto;
(v) the entry of a decree of judicial dissolution of any Holder of the Common Securities, the Sponsor, the Trust or the Debenture Issuer;
(vi) when all of the Securities shall have been called for redemption and the amounts necessary for redemption thereof shall have been paid to the Holders in accordance with the terms of the Securities; or
(vii) before the issuance of any Securities, with the consent of all of the Trustees and the Sponsor.
(b) As soon as is practicable after the occurrence of an event referred to in Section 7.1(a), and after satisfaction of liabilities to creditors of the Trust as required by applicable law, including Section 3808 of the Statutory Trust Act, and subject to the terms set forth in Annex I, the Institutional Trustee shall terminate the Trust by filing a certificate of cancellation with the Secretary of State of the State of Delaware.
(c) The provisions of Section 2.9 and Article IX shall survive the termination of the Trust.
ARTICLE VIII
TRANSFER OF INTERESTS
SECTION 8.1. General.
(a) Subject to Section 6.4 and Section 8.1(c), where Capital Securities are presented to the Registrar with a request to register a transfer or to exchange them for an equal number of Capital Securities represented by different Certificates, the Registrar shall register the transfer or make the exchange if its requirements for such transactions are met. To permit registrations of transfers and exchanges, the Trust shall issue and the Institutional Trustee shall authenticate Capital Securities at the Registrars request.
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(b) Upon issuance of the Common Securities, the Sponsor shall acquire and retain beneficial and record ownership of the Common Securities and, for so long as the Securities remain outstanding, the Sponsor shall maintain 100% ownership of the Common Securities; provided, however, that any permitted successor of the Sponsor under the Indenture that is a U.S. Person may succeed to the Sponsors ownership of the Common Securities.
(c) Capital Securities may only be transferred, in whole or in part, in accordance with the terms and conditions set forth in this Declaration and in the terms of the Capital Securities. To the fullest extent permitted by applicable law, any transfer or purported transfer of any Security not made in accordance with this Declaration shall be null and void and will be deemed to be of no legal effect whatsoever and any such transferee shall be deemed not to be the holder of such Capital Securities for any purpose, including but not limited to the receipt of Distributions on such Capital Securities, and such transferee shall be deemed to have no interest whatsoever in such Capital Securities.
(d) The Registrar shall provide for the registration of Securities and of transfers of Securities, which will be effected without charge but only upon payment (with such indemnity as the Registrar may require) in respect of any tax or other governmental charges that may be imposed in relation to it. Upon surrender for registration of transfer of any Securities, the Registrar shall cause one or more new Securities to be issued in the name of the designated transferee or transferees. Any Security issued upon any registration of transfer or exchange pursuant to the terms of this Declaration shall evidence the same Security and shall be entitled to the same benefits under this Declaration as the Security surrendered upon such registration of transfer or exchange. Every Security surrendered for registration of transfer shall be accompanied by a written instrument of transfer in form satisfactory to the Registrar duly executed by the Holder or such Holders attorney duly authorized in writing. Each Security surrendered for registration of transfer shall be canceled by the Institutional Trustee pursuant to Section 6.7. A transferee of a Security shall be entitled to the rights and subject to the obligations of a Holder hereunder upon the receipt by such transferee of a Security. By acceptance of a Security, each transferee shall be deemed to have agreed to be bound by this Declaration.
(e) Neither the Trust nor the Registrar shall be required (i) to issue, register the transfer of, or exchange any Securities during a period beginning at the opening of business 15 days before the day of any selection of Securities for redemption and ending at the close of business on the earliest date on which the relevant notice of redemption is deemed to have been given to all Holders of the Securities to be redeemed, or (ii) to register the transfer or exchange of any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part.
SECTION 8.2. Transfer Procedures and Restrictions.
(a) The Capital Securities shall bear the Restricted Securities Legend (as defined below), which shall not be removed unless there is delivered to the Trust such satisfactory evidence, which may include an opinion of counsel reasonably acceptable to the Institutional Trustee, as may be reasonably required by the Trust, that neither the legend nor the restrictions on transfer set forth therein are required to ensure that transfers thereof comply with the provisions of the Securities Act or that such Securities are not restricted within the meaning
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of Rule 144 under the Securities Act. Upon provision of such satisfactory evidence, the Institutional Trustee, at the written direction of the Trust, shall authenticate and deliver Capital Securities that do not bear the Restricted Securities Legend.
(b) When Capital Securities are presented to the Registrar (x) to register the transfer of such Capital Securities, or (y) to exchange such Capital Securities for an equal number of Capital Securities represented by different Certificates, the Registrar shall register the transfer or make the exchange as requested if its reasonable requirements for such transaction are met; provided, however, that the Capital Securities surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written instrument of transfer in form reasonably satisfactory to the Trust and the Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing.
(c) Except as permitted by Section 8.2(a), each Capital Security shall bear a legend (the Restricted Securities Legend) in substantially the following form:
[If the Capital Security is to be Global Capital Security THIS CAPITAL SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE DECLARATION HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY (DTC) OR A NOMINEE OF DTC. THIS CAPITAL SECURITY IS EXCHANGEABLE FOR CAPITAL SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN DTC OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE DECLARATION, AND NO TRANSFER OF THIS CAPITAL SECURITY (OTHER THAN A TRANSFER OF THIS CAPITAL SECURITY AS A WHOLE BY DTC TO A NOMINEE OF DTC OR BY A NOMINEE OF DTC TO DTC OR ANOTHER NOMINEE OF DTC) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.
UNLESS THIS CAPITAL SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF DTC TO Center Capital Trust I OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CAPITAL SECURITY ISSUED IS REGISTERED AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY
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ONLY (A) TO THE DEBENTURE ISSUER OR THE TRUST, (B) PURSUANT TO RULE 144A UNDER THE SECURITIES ACT (RULE 144A), TO A PERSON THE HOLDER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (C) PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT TO AN ACCREDITED INVESTOR WITHIN THE MEANING OF SUBPARAGRAPH (a) (1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF AN ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (D) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE DEBENTURE ISSUERS AND THE TRUSTS RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (C) OR (D) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM IN ACCORDANCE WITH THE AMENDED AND RESTATED DECLARATION OF TRUST, A COPY OF WHICH MAY BE OBTAINED FROM THE DEBENTURE ISSUER OR THE TRUST. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES THAT IT WILL COMPLY WITH THE FOREGOING RESTRICTIONS.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES, REPRESENTS AND WARRANTS THAT IT WILL NOT ENGAGE IN HEDGING TRANSACTIONS INVOLVING THIS SECURITY UNLESS SUCH TRANSACTIONS ARE IN COMPLIANCE WITH THE SECURITIES ACT.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF ALSO AGREES, REPRESENTS AND WARRANTS THAT IT IS NOT AN EMPLOYEE BENEFIT, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER PLAN OR ARRANGEMENT SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (ERISA), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE CODE), (EACH A PLAN), OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF ANY PLANS INVESTMENT IN THE ENTITY AND NO PERSON INVESTING PLAN ASSETS OF ANY PLAN MAY ACQUIRE OR HOLD THIS SECURITY OR ANY INTEREST THEREIN, UNLESS SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR THE EXEMPTION RELIEF AVAILABLE UNDER U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION 96-23,95-60,91-38,90-1 OR 84-14 OR ANOTHER APPLICABLE EXEMPTION OR ITS PURCHASE AND HOLDING OF THIS SECURITY IS NOT PROHIBITED BY SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE WITH RESPECT TO SUCH PURCHASE OR HOLDING. ANY PURCHASER OR HOLDER OF THIS SECURITY OR ANY INTEREST THEREIN WILL BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND HOLDING THEREOF THAT EITHER (i) IT IS NOT AN EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF SECTION 3(3) OF ERISA, OR A PLAN TO WHICH SECTION 4975 OF THE CODE IS APPLICABLE, A
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TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF AN EMPLOYEE BENEFIT PLAN OR PLAN, OR ANY OTHER PERSON OR ENTITY USING THE ASSETS OF ANY EMPLOYEE BENEFIT PLAN OR PLAN TO FINANCE SUCH PURCHASE, OR (ii) SUCH PURCHASE WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE FOR WHICH THERE IS NO APPLICABLE STATUTORY OR ADMINISTRATIVE EXEMPTION.
IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS MAY BE REQUIRED BY THE AMENDED AND RESTATED DECLARATION OF TRUST TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS.
THIS SECURITY WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN BLOCKS HAVING A LIQUIDATION AMOUNT OF NOT LESS THAN $100,000 AND MULTIPLES OF $1,000 IN EXCESS THEREOF. ANY ATTEMPTED TRANSFER OF THIS SECURITY IN A BLOCK HAVING A LIQUIDATION AMOUNT OF LESS THAN $100,000 SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. ANY SUCH PURPORTED TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER OF THIS SECURITY FOR ANY PURPOSE, INCLUDING, BUT NOT LIMITED TO, THE RECEIPT OF DISTRIBUTIONS ON THIS SECURITY, AND SUCH PURPORTED TRANSFEREE SHALL BE DEEMED TO HAVE NO INTEREST WHATSOEVER IN THIS SECURITY.
(d) Capital Securities may only be transferred in minimum blocks of $100,000 aggregate liquidation amount (100 Capital Securities) and multiples of $1,000 in excess thereof. Any attempted transfer of Capital Securities in a block having an aggregate liquidation amount of less than $100,000 shall be deemed to be void and of no legal effect whatsoever. Any such purported transferee shall be deemed not to be a Holder of such Capital Securities for any purpose, including, but not limited to, the receipt of Distributions on such Capital Securities, and such purported transferee shall be deemed to have no interest whatsoever in such Capital Securities.
(e) Each party hereto understands and hereby agrees that the Initial Purchaser is intended solely to be an interim holder of the Capital Securities and is purchasing such securities to facilitate consummation of the transactions contemplated herein and in the documents ancillary hereto. Notwithstanding any provision in this Declaration to the contrary, the Initial Purchaser shall have the right upon notice (a Transfer Notice) to the Institutional Trustee and the Sponsor to transfer title in and to the Capital Securities, provided the Initial Purchaser shall take reasonable steps to ensure that such transfer is exempt from registration under the Securities Act of 1933, as amended, and rules promulgated thereunder. Any Transfer Notice delivered to the Institutional Trustee and Sponsor pursuant to the preceding sentence shall indicate the aggregate liquidation amount of Capital Securities being transferred, the name and address of the transferee thereof (the Transferee) and the date of such transfer. Notwithstanding any provision in this Declaration to the contrary, the transfer by the Initial Purchaser of title in and to the Capital Securities pursuant to a Transfer Notice shall not be subject to any requirement relating to Opinions of Counsel, Certificates of Transfer or any other Opinion or Certificate applicable to transfers hereunder and relating to Capital Securities.
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SECTION 8.3. Deemed Security Holders. The Trust, the Administrators, the Trustees, the Paying Agent, the Transfer Agent or the Registrar may treat the Person in whose name any Certificate shall be registered on the books and records of the Trust as the sole holder of such Certificate and of the Securities represented by such Certificate for purposes of receiving Distributions and for all other purposes whatsoever and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Certificate or in the Securities represented by such Certificate on the part of any Person, whether or not the Trust, the Administrators, the Trustees, the Paying Agent, the Transfer Agent or the Registrar shall have actual or other notice thereof.
ARTICLE IX
LIMITATION OF LIABILITY OF HOLDERS
OF SECURITIES, TRUSTEES OR OTHERS
SECTION 9.1. Liability.
(a) Except as expressly set forth in this Declaration, the Guarantee and the terms of the Securities, the Sponsor shall not be:
(i) personally liable for the return of any portion of the capital contributions (or any return thereon) of the Holders of the Securities which shall be made solely from assets of the Trust; and
(ii) required to pay to the Trust or to any Holder of the Securities any deficit upon dissolution of the Trust or otherwise.
(b) The Holder of the Common Securities shall be liable for all of the debts and obligations of the Trust (other than with respect to the Securities) to the extent not satisfied out of the Trusts assets.
(c) Pursuant to § 3803(a) of the Statutory Trust Act, the Holders of the Securities shall be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware, except as otherwise specifically set forth herein.
SECTION 9.2. Exculpation.
(a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Trust or any Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Declaration or by law, except that an Indemnified Person (other than an Administrator) shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Persons negligence or willful misconduct with respect to such acts or omissions and except that an Administrator shall be liable for any such loss, damage or claim incurred by reason of such Administrators gross negligence or willful misconduct with respect to such acts or omissions.
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(b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Trust and upon such information, opinions, reports or statements presented to the Trust by any Person as to matters the Indemnified Person reasonably believes are within such other Persons professional or expert competence and, if selected by such Indemnified Person, has been selected by such Indemnified Person with reasonable care by or on behalf of the Trust, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Securities might properly be paid.
SECTION 9.3. Fiduciary Duty.
(a) To the extent that, at law or in equity, an Indemnified Person has duties (including fiduciary duties) and liabilities relating thereto to the Trust or to any other Covered Person, an Indemnified Person acting under this Declaration shall not be liable to the Trust or to any other Covered Person for its good faith reliance on the provisions of this Declaration. The provisions of this Declaration, to the extent that they restrict the duties and liabilities of an Indemnified Person otherwise existing at law or in equity (other than the duties imposed on the Institutional Trustee under the Trust Indenture Act), are agreed by the parties hereto to replace such other duties and liabilities of the Indemnified Person.
(b) Whenever in this Declaration an Indemnified Person is permitted or required to make a decision:
(i) in its discretion or under a grant of similar authority, the Indemnified Person shall be entitled to consider such interests and factors as it desires, including its own interests, and shall have no duty or obligation to give any consideration to any interest of or factors affecting the Trust or any other Person; or
(ii) in its good faith or under another express standard, the Indemnified Person shall act under such express standard and shall not be subject to any other or different standard imposed by this Declaration or by applicable law.
SECTION 9.4. Indemnification. (a) (i) The Sponsor shall indemnify, to the fullest extent permitted by law, any Indemnified Person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Trust) by reason of the fact that such Person is or was an Indemnified Person against expenses (including attorneys fees and expenses), judgments, fines and amounts paid in settlement actually and reasonably incurred by such Person in connection with such action, suit or proceeding if such Person acted in good faith and in a manner such Person reasonably believed to be in or not opposed to the best interests of the Trust, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such conduct was unlawful. The termination of any action, suit or proceeding by
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judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the Indemnified Person did not act in good faith and in a manner which such Person reasonably believed to be in or not opposed to the best interests of the Trust, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such conduct was unlawful.
(ii) The Sponsor shall indemnify, to the fullest extent permitted by law, any Indemnified Person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Trust to procure a judgment in its favor by reason of the fact that such Person is or was an Indemnified Person against expenses (including attorneys fees and expenses) actually and reasonably incurred by such Person in connection with the defense or settlement of such action or suit if such Person acted in good faith and in a manner such Person reasonably believed to be in or not opposed to the best interests of the Trust and except that no such indemnification shall be made in respect of any claim, issue or matter as to which such Indemnified Person shall have been adjudged to be liable to the Trust unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such Person is fairly and reasonably entitled to indemnity for such expenses which such Court of Chancery or such other court shall deem proper.
(iii) To the extent that an Indemnified Person shall be successful on the merits or otherwise (including dismissal of an action without prejudice or the settlement of an action without admission of liability) in defense of any action, suit or proceeding referred to in paragraphs (i) and (ii) of this Section 9.4(a), or in defense of any claim, issue or matter therein, such Person shall be indemnified, to the fullest extent permitted by law, against expenses (including attorneys fees and expenses) actually and reasonably incurred by such Person in connection therewith.
(iv) Any indemnification of an Administrator under paragraphs (i) and (ii) of this Section 9.4(a) (unless ordered by a court) shall be made by the Sponsor only as authorized in the specific case upon a determination that indemnification of the Indemnified Person is proper in the circumstances because such Person has met the applicable standard of conduct set forth in paragraphs (i) and (ii). Such determination shall be made (A) by the Administrators by a majority vote of a Quorum consisting of such Administrators who were not parties to such action, suit or proceeding, (B) if such a Quorum is not obtainable, or, even if obtainable, if a Quorum of disinterested Administrators so directs, by independent legal counsel in a written opinion, or (C) by the Common Security Holder of the Trust.
(v) To the fullest extent permitted by law, expenses (including attorneys fees and expenses) incurred by an Indemnified Person in defending a civil, criminal, administrative or investigative action, suit or proceeding referred to in paragraphs (i) and (ii) of this Section 9.4(a) shall be paid by the Sponsor in
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advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such Indemnified Person to repay such amount if it shall ultimately be determined that such Person is not entitled to be indemnified by the Sponsor as authorized in this Section 9.4(a). Notwithstanding the foregoing, no advance shall be made by the Sponsor if a determination is reasonably and promptly made (1) in the case of a Company Indemnified Person (A) by the Administrators by a majority vote of a Quorum of disinterested Administrators, (B) if such a Quorum is not obtainable, or, even if obtainable, if a Quorum of disinterested Administrators so directs, by independent legal counsel in a written opinion or (C) by the Common Security Holder of the Trust, that, based upon the facts known to the Administrators, counsel or the Common Security Holder at the time such determination is made, such Indemnified Person acted in bad faith or in a manner that such Person either believed to be opposed to or did not believe to be in the best interests of the Trust, or, with respect to any criminal proceeding, that such Indemnified Person believed or had reasonable cause to believe such conduct was unlawful, or (2) in the case of a Fiduciary Indemnified Person, by independent legal counsel in a written opinion that, based upon the facts known to the counsel at the time such determination is made, such Indemnified Person acted in bad faith or in a manner that such Indemnified Person either believed to be opposed to or did not believe to be in the best interests of the Trust, or, with respect to any criminal proceeding, that such Indemnified Person believed or had reasonable cause to believe such conduct was unlawful. In no event shall any advance be made (i) to a Company Indemnified Person in instances where the Administrators, independent legal counsel or the Common Security Holder reasonably determine that such Person deliberately breached such Persons duty to the Trust or its Common or Capital Security Holders or (ii) to a Fiduciary Indemnified Person in instances where independent legal counsel promptly and reasonably determines in a written opinion that such Person deliberately breached such Persons duty to the Trust or its Common or Capital Security Holders.
(b) The Sponsor shall indemnify, to the fullest extent permitted by applicable law, each Indemnified Person from and against any and all loss, damage, liability, tax (other than taxes based on the income of such Indemnified Person), penalty, expense or claim of any kind or nature whatsoever incurred by such Indemnified Person arising out of or in connection with or by reason of the creation, administration or termination of the Trust, or any act or omission of such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of authority conferred on such Indemnified Person by this Declaration, except that no Indemnified Person shall be entitled to be indemnified in respect of any loss, damage, liability, tax, penalty, expense or claim incurred by such Indemnified Person by reason of negligence or willful misconduct with respect to such acts or omissions.
(c) The indemnification and advancement of expenses provided by, or granted pursuant to, the other paragraphs of this Section 9.4 shall not be deemed exclusive of any other rights to which those seeking indemnification and advancement of expenses may be entitled under any agreement, vote of stockholders or disinterested directors of the Sponsor or Capital
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Security Holders of the Trust or otherwise, both as to action in such Persons official capacity and as to action in another capacity while holding such office. All rights to indemnification under this Section 9.4 shall be deemed to be provided by a contract between the Sponsor and each Indemnified Person who serves in such capacity at any time while this Section 9.4 is in effect. Any repeal or modification of this Section 9.4 shall not affect any rights or obligations then existing.
(d) The Sponsor or the Trust may purchase and maintain insurance on behalf of any Person who is or was an Indemnified Person against any liability asserted against such Person and incurred by such Person in any such capacity, or arising out of such Persons status as such, whether or not the Sponsor would have the power to indemnify such Person against such liability under the provisions of this Section 9.4.
(e) For purposes of this Section 9.4, references to the Trust shall include, in addition to the resulting or surviving entity, any constituent entity (including any constituent of a constituent) absorbed in a consolidation or merger, so that any Person who is or was a director, trustee, officer or employee of such constituent entity, or is or was serving at the request of such constituent entity as a director, trustee, officer, employee or agent of another entity, shall stand in the same position under the provisions of this Section 9.4 with respect to the resulting or surviving entity as such Person would have with respect to such constituent entity if its separate existence had continued.
(f) The indemnification and advancement of expenses provided by, or granted pursuant to, this Section 9.4 shall, unless otherwise provided when authorized or ratified, continue as to a Person who has ceased to be an Indemnified Person and shall inure to the benefit of the heirs, executors and administrators of such a Person.
(g) The provisions of this Section 9.4 shall survive the termination of this Declaration or the earlier resignation or removal of the Institutional Trustee. The obligations of the Sponsor under this Section 9.4 to compensate and indemnify the Trustees and to pay or reimburse the Trustees for expenses, disbursements and advances shall constitute additional indebtedness hereunder. Such additional indebtedness shall be secured by a lien prior to that of the Securities upon all property and funds held or collected by the Trustees as such, except funds held in trust for the benefit of the holders of particular Capital Securities, provided, that the Sponsor is the holder of the Common Securities.
SECTION 9.5. Outside Businesses. Any Covered Person, the Sponsor, the Delaware Trustee and the Institutional Trustee (subject to Section 4.3(c)) may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Trust, and the Trust and the Holders of Securities shall have no rights by virtue of this Declaration in and to such independent ventures or the income or profits derived therefrom, and the pursuit of any such venture, even if competitive with the business of the Trust, shall not be deemed wrongful or improper. None of any Covered Person, the Sponsor, the Delaware Trustee or the Institutional Trustee shall be obligated to present any particular investment or other opportunity to the Trust even if such opportunity is of a character that, if presented to the Trust, could be taken by the Trust, and any Covered Person, the Sponsor, the Delaware Trustee and the Institutional Trustee shall have the right to take for its own account
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(individually or as a partner or fiduciary) or to recommend to others any such particular investment or other opportunity. Any Covered Person, the Delaware Trustee and the Institutional Trustee may engage or be interested in any financial or other transaction with the Sponsor or any Affiliate of the Sponsor, or may act as depositary for, trustee or agent for, or act on any committee or body of holders of, securities or other obligations of the Sponsor or its Affiliates.
SECTION 9.6. Compensation; Fee.
(a) The Sponsor agrees:
(i) to pay to the Trustees from time to time such compensation for all services rendered by them hereunder as the parties shall agree in writing from time to time (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); and
(ii) except as otherwise expressly provided herein, to reimburse the Trustees upon request for all reasonable, documented expenses, disbursements and advances incurred or made by the Trustees in accordance with any provision of this Declaration (including the reasonable compensation and the expenses and disbursements of their respective agents and counsel), except any such expense, disbursement or advance attributable to their negligence or willful misconduct.
(b) The provisions of this Section 9.6 shall survive the dissolution of the Trust and the termination of this Declaration and the removal or resignation of any Trustee.
ARTICLE X
ACCOUNTING
SECTION 10.1. Fiscal Year. The fiscal year (the Fiscal Year) of the Trust shall be the calendar year, or such other year as is required by the Code.
SECTION 10.2. Certain Accounting Matters.
(a) At all times during the existence of the Trust, the Administrators shall keep, or cause to be kept at the principal office of the Trust in the United States, as defined for purposes of Treasury Regulations § 301.7701-7, full books of account, records and supporting documents, which shall reflect in reasonable detail each transaction of the Trust. The books of account shall be maintained on the accrual method of accounting, in accordance with generally accepted accounting principles, consistently applied.
(b) The Administrators shall either (i) cause each Form 10-K and Form 10-Q prepared by the Sponsor and filed with the Commission in accordance with the Exchange Act to be delivered to each Holder of Securities, within 90 days after the filing of each Form 10-K and within 30 days after the filing of each Form 10-Q or (ii) cause to be prepared at the principal office of the Trust in the United States, as defined for purposes of Treasury Regulations § 301.7701-7, and delivered to each of the Holders of Securities, within 90 days after the end of each Fiscal Year of the Trust, annual financial statements of the Trust, including a balance sheet of the Trust as of the end of such Fiscal Year, and the related statements of income or loss.
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(c) The Administrators shall cause to be duly prepared and delivered to each of the Holders of Securities Form 1099 or such other annual United States federal income tax information statement required by the Code, containing such information with regard to the Securities held by each Holder as is required by the Code and the Treasury Regulations. Notwithstanding any right under the Code to deliver any such statement at a later date, the Administrators shall endeavor to deliver all such statements within 30 days after the end of each Fiscal Year of the Trust.
(d) The Administrators shall cause to be duly prepared in the United States, as defined for purposes of Treasury Regulations § 301.7701-7, and filed an annual United States federal income tax return on a Form 1041 or such other form required by United States federal income tax law, and any other annual income tax returns required to be filed by the Administrators on behalf of the Trust with any state or local taxing authority.
(e) So long as the only Holder of the Capital Securities is Bear, Stearns Securities Corp., the Administrators will cause the Sponsors reports on Form FRY-6, FRY-9C and FRY-9LP to be delivered to the Holder promptly following their filing with the Federal Reserve.
SECTION 10.3. Banking. The Trust shall maintain one or more bank accounts in the United States, as defined for purposes of Treasury Regulations § 301.7701-7, in the name and for the sole benefit of the Trust; provided, however, that all payments of funds in respect of the Debentures held by the Institutional Trustee shall be made directly to the Property Account and no other funds of the Trust shall be deposited in the Property Account. The sole signatories for such accounts (including the Property Account) shall be designated by the Institutional Trustee.
SECTION 10.4. Withholding. The Institutional Trustee or any Paying Agent and the Administrators shall comply with all withholding requirements under United States federal, state and local law. The Institutional Trustee or any Paying Agent shall request, and each Holder shall provide to the Institutional Trustee or any Paying Agent, such forms or certificates as are necessary to establish an exemption from withholding with respect to the Holder, and any representations and forms as shall reasonably be requested by the Institutional Trustee or any Paying Agent to assist it in determining the extent of, and in fulfilling, its withholding obligations. The Administrators shall file required forms with applicable jurisdictions and, unless an exemption from withholding is properly established by a Holder, shall remit amounts withheld with respect to the Holder to applicable jurisdictions. To the extent that the Institutional Trustee or any Paying Agent is required to withhold and pay over any amounts to any authority with respect to distributions or allocations to any Holder, the amount withheld shall be deemed to be a Distribution to the Holder in the amount of the withholding. In the event of any claimed overwithholding, Holders shall be limited to an action against the applicable jurisdiction. If the amount required to be withheld was not withheld from actual Distributions made, the Institutional Trustee or any Paying Agent may reduce subsequent Distributions by the amount of such withholding.
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ARTICLE XI
AMENDMENTS AND MEETINGS
SECTION 11.1. Amendments.
(a) Except as otherwise provided in this Declaration or by any applicable terms of the Securities, this Declaration may only be amended by a written instrument approved and executed by:
(i) the Institutional Trustee,
(ii) if the amendment affects the rights, powers, duties, obligations or immunities of the Delaware Trustee, the Delaware Trustee,
(iii) if the amendment affects the rights, powers, duties, obligations or immunities of the Administrators, the Administrators, and
(iv) the Holders of a Majority in liquidation amount of the Common Securities.
(b) Notwithstanding any other provision of this Article XI, no amendment shall be made, and any such purported amendment shall be void and ineffective:
(i) unless the Institutional Trustee shall have first received
(A) an Officers Certificate from each of the Trust and the Sponsor that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Securities); and
(B) an opinion of counsel (who may be counsel to the Sponsor or the Trust) that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Securities) and that all conditions precedent to the execution and delivery of such amendment have been satisfied; or
(ii) if the result of such amendment would be to
(A) cause the Trust to cease to be classified for purposes of United States federal income taxation as a grantor trust;
(B) reduce or otherwise adversely affect the powers of the Institutional Trustee in contravention of the Trust Indenture Act;
(C) cause the Trust to be deemed to be an Investment Company required to be registered under the Investment Company Act; or
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(D) cause the Debenture Issuer to be unable to treat an amount equal to the Liquidation Amount of the Debentures as Tier 1 Capital for purposes of the capital adequacy guidelines of the Federal Reserve.
(c) Except as provided in Section 11.1(d), (e) or (g), no amendment shall be made, and any such purported amendment shall be void and ineffective, unless the Holders of a Majority in liquidation amount of the Capital Securities shall have consented to such amendment.
(d) In addition to and notwithstanding any other provision in this Declaration, without the consent of each affected Holder, this Declaration may not be amended to (i) change the amount or timing of any Distribution on the Securities or otherwise adversely affect the amount of any Distribution required to be made in respect of the Securities as of a specified date or (ii) restrict the right of a Holder to institute suit for the enforcement of any such payment on or after such date.
(e) Sections 9.1 (b) and 9.1 (c) and this Section 11.1 shall not be amended without the consent of all of the Holders of the Securities.
(f) The rights of the Holders of the Capital Securities and Common Securities, as applicable, under Article IV to increase or decrease the number of, and appoint and remove, Trustees shall not be amended without the consent of the Holders of a Majority in liquidation amount of the Capital Securities or Common Securities, as applicable.
(g) This Declaration may be amended by the Institutional Trustee and the Holder of a Majority in liquidation amount of the Common Securities without the consent of the Holders of the Capital Securities to:
(i) cure any ambiguity;
(ii) correct or supplement any provision in this Declaration that may be defective or inconsistent with any other provision of this Declaration;
(iii) add to the covenants, restrictions or obligations of the Sponsor; or
(iv) modify, eliminate or add to any provision of this Declaration to such extent as may be necessary or desirable, including, without limitation, to ensure that the Trust will be classified for United States federal income tax purposes at all times as a grantor trust and will not be required to register as an Investment Company under the Investment Company Act (including without limitation to conform to any change in Rule 3a-5, Rule 3a-7 or any other applicable rule under the Investment Company Act or written change in interpretation or application thereof by any legislative body, court, government agency or regulatory authority) which amendment does not have a material adverse effect on the right, preferences or privileges of the Holders of Securities;
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provided, however, that no such modification, elimination or addition referred to in clauses (i), (ii), (iii) or (iv) shall adversely affect the powers, preferences or rights of Holders of Capital Securities.
SECTION 11.2. Meetings of the Holders of the Securities; Action by Written Consent.
(a) Meetings of the Holders of any class of Securities may be called at any time by the Administrators (or as provided in the terms of the Securities) to consider and act on any matter on which Holders of such class of Securities are entitled to act under the terms of this Declaration, the terms of the Securities or the rules of any stock exchange on which the Capital Securities are listed or admitted for trading, if any. The Administrators shall call a meeting of the Holders of such class if directed to do so by the Holders of not less than 10% in liquidation amount of such class of Securities. Such direction shall be given by delivering to the Administrators one or more calls in a writing stating that the signing Holders of the Securities wish to call a meeting and indicating the general or specific purpose for which the meeting is to be called. Any Holders of the Securities calling a meeting shall specify in writing the Certificates held by the Holders of the Securities exercising the right to call a meeting and only those Securities represented by such Certificates shall be counted for purposes of determining whether the required percentage set forth in the second sentence of this paragraph has been met.
(b) Except to the extent otherwise provided in the terms of the Securities, the following provisions shall apply to meetings of Holders of the Securities:
(i) notice of any such meeting shall be given to all the Holders of the Securities having a right to vote thereat at least 7 days and not more than 60 days before the date of such meeting. Whenever a vote, consent or approval of the Holders of the Securities is permitted or required under this Declaration or the rules of any stock exchange on which the Capital Securities are listed or admitted for trading, if any, such vote, consent or approval may be given at a meeting of the Holders of the Securities. Any action that may be taken at a meeting of the Holders of the Securities may be taken without a meeting if a consent in writing setting forth the action so taken is signed by the Holders of the Securities owning not less than the minimum amount of Securities that would be necessary to authorize or take such action at a meeting at which all Holders of the Securities having a right to vote thereon were present and voting. Prompt notice of the taking of action without a meeting shall be given to the Holders of the Securities entitled to vote who have not consented in writing. The Administrators may specify that any written ballot submitted to the Holders of the Securities for the purpose of taking any action without a meeting shall be returned to the Trust within the time specified by the Administrators;
(ii) each Holder of a Security may authorize any Person to act for it by proxy on all matters in which a Holder of Securities is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Holder of the Securities executing it. Except as otherwise provided
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herein, all matters relating to the giving, voting or validity of proxies shall be governed by the General Corporation Law of the State of Delaware relating to proxies, and judicial interpretations thereunder, as if the Trust were a Delaware corporation and the Holders of the Securities were stockholders of a Delaware corporation; each meeting of the Holders of the Securities shall be conducted by the Administrators or by such other Person that the Administrators may designate; and
(iii) unless the Statutory Trust Act, this Declaration, the terms of the Securities, the Trust Indenture Act or the listing rules of any stock exchange on which the Capital Securities are then listed for trading, if any, otherwise provides, the Administrators, in their sole discretion, shall establish all other provisions relating to meetings of Holders of Securities, including notice of the time, place or purpose of any meeting at which any matter is to be voted on by any Holders of the Securities, waiver of any such notice, action by consent without a meeting, the establishment of a record date, quorum requirements, voting in person or by proxy or any other matter with respect to the exercise of any such right to vote; provided, however, that each meeting shall be conducted in the United States (as that term is defined in Treasury Regulations § 301.7701-7).
ARTICLE XII
REPRESENTATIONS OF INSTITUTIONAL TRUSTEE
AND DELAWARE TRUSTEE
SECTION 12.1. Representations and Warranties of Institutional Trustee. The Trustee that acts as initial Institutional Trustee represents and warrants to the Trust and to the Sponsor at the date of this Declaration, and each Successor Institutional Trustee represents and warrants to the Trust and the Sponsor at the time of the Successor Institutional Trustees acceptance of its appointment as Institutional Trustee, that:
(a) the Institutional Trustee is a banking corporation or national association with trust powers, duly organized, validly existing and in good standing under the laws of the State of Delaware or the United States of America, respectively, with trust power and authority to execute and deliver, and to carry out and perform its obligations under the terms of, this Declaration;
(b) the Institutional Trustee has a combined capital and surplus of at least fifty million U.S. dollars ($50,000,000);
(c) the Institutional Trustee is not an affiliate of the Sponsor, nor does the Institutional Trustee offer or provide credit or credit enhancement to the Trust;
(d) the execution, delivery and performance by the Institutional Trustee of this Declaration has been duly authorized by all necessary action on the part of the Institutional Trustee. This Declaration has been duly executed and delivered by the Institutional Trustee, and under Delaware law (excluding any securities laws) constitutes a legal, valid and binding obligation of the Institutional Trustee, enforceable against it in accordance with its terms, subject
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to applicable bankruptcy, reorganization, moratorium, insolvency and other similar laws affecting creditors rights generally and to general principles of equity and the discretion of the court (regardless of whether considered in a proceeding in equity or at law);
(e) the execution, delivery and performance of this Declaration by the Institutional Trustee does not conflict with or constitute a breach of the charter or by-laws of the Institutional Trustee; and
(f) no consent, approval or authorization of, or registration with or notice to, any state or federal banking authority governing the trust powers of the Institutional Trustee is required for the execution, delivery or performance by the Institutional Trustee of this Declaration.
SECTION 12.2. Representations and Warranties of Delaware Trustee. The Trustee that acts as initial Delaware Trustee represents and warrants to the Trust and to the Sponsor at the date of this Declaration, and each Successor Delaware Trustee represents and warrants to the Trust and the Sponsor at the time of the Successor Delaware Trustees acceptance of its appointment as Delaware Trustee that:
(a) if it is not a natural person, the Delaware Trustee is duly organized, validly existing and in good standing under the laws of the State of Delaware;
(b) if it is not a natural person, the execution, delivery and performance by the Delaware Trustee of this Declaration has been duly authorized by all necessary corporate action on the part of the Delaware Trustee. This Declaration has been duly executed and delivered by the Delaware Trustee, and under Delaware law (excluding any securities laws) constitutes a legal, valid and binding obligation of the Delaware Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency and other similar laws affecting creditors rights generally and to general principles of equity and the discretion of the court (regardless of whether considered in a proceeding in equity or at law);
(c) if it is not a natural person, the execution, delivery and performance of this Declaration by the Delaware Trustee does not conflict with or constitute a breach of the charter or by-laws of the Delaware Trustee;
(d) it has trust power and authority to execute and deliver, and to carry out and perform its obligations under the terms of, this Declaration;
(e) no consent, approval or authorization of, or registration with or notice to, any state or federal banking authority governing the trust powers of the Delaware Trustee is required for the execution, delivery or performance by the Delaware Trustee of this Declaration; and
(f) the Delaware Trustee is a natural person who is a resident of the State of Delaware or, if not a natural person, it is an entity which has its principal place of business in the State of Delaware and, in either case, a Person that satisfies for the Trust the requirements of Section 3807 of the Statutory Trust Act.
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ARTICLE XIII
MISCELLANEOUS
SECTION 13.1. Notices. All notices provided for in this Declaration shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied (which telecopy shall be followed by notice delivered or mailed by first class mail) or mailed by first class mail, as follows:
(a) if given to the Trust, in care of the Administrators at the Trusts mailing address set forth below (or such other address as the Trust may give notice of to the Holders of the Securities):
Center Capital Trust I
c/o Center Financial Corporation
3435 Wilshire Boulevard, Suite 700
Los Angeles, CA 90010
Attention: Yong Hwa Kim
Telecopy: (213) 386-6774
Telephone: (213) 251-2222
(b) if given to the Delaware Trustee, at the mailing address set forth below (or such other address as the Delaware Trustee may give notice of to the Holders of the Securities):
Wells Fargo Delaware Trust Company
919 Market Street Suite 700
Wilmington, DE 19801
Attention: Corporate Trust Division
Telecopy: 302-575-2006
Telephone: 302-575-2005
(c) if given to the Institutional Trustee, at the Institutional Trustees mailing address set forth below (or such other address as the Institutional Trustee may give notice of to the Holders of the Securities):
Wells Fargo Bank, National Association
919 Market Street Suite 700
Wilmington, DE 19801
Attention: Corporate Trust Division
Telecopy: 302-575-2006
Telephone: 302-575-2005
(d) if given to the Holder of the Common Securities, at the mailing address of the Sponsor set forth below (or such other address as the Holder of the Common Securities may give notice of to the Trust):
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Center Financial Corporation
3435 Wilshire Boulevard, Suite 700
Los Angeles, CA 90010
Attention: Yong Hwa Kim, Chief Financial Officer
Telecopy: (213) 386-6774
Telephone: (213) 251-2222
(e) if given to any other Holder, at the address set forth on the books and records of the Trust.
All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid, except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver.
SECTION 13.2. Governing Law. This Declaration and the rights and obligations of the parties hereunder shall be governed by and interpreted in accordance with the law of the State of Delaware and all rights, obligations and remedies shall be governed by such laws without regard to the principles of conflict of laws of the State of Delaware or any other jurisdiction that would call for the application of the law of any jurisdiction other than the State of Delaware.
SECTION 13.3. Submission to Jurisdiction.
(a) Each of the parties hereto agrees that any suit, action or proceeding arising out of or based upon this Declaration, or the transactions contemplated hereby, may be instituted in any of the courts of the State of New York the United States District Courts and in each case located in the Borough of Manhattan, City and State of New York, and further agrees to submit to the jurisdiction of Delaware, and to any actions that are instituted in state or Federal court in Wilmington, Delaware and any competent court in the place of its corporate domicile in respect of actions brought against it as a defendant. In addition, each such party irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of such suit, action or proceeding brought in any such court and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum and irrevocably waives any right to which it may be entitled on account of its place of corporate domicile. Each such party hereby irrevocably waives any and all right to trial by jury in any legal proceeding arising out of or relating to this Declaration or the transactions contemplated hereby. Each such party agrees that final judgment in any proceedings brought in such a court shall be conclusive and binding upon it and may be enforced in any court to the jurisdiction of which it is subject by a suit upon such judgment.
(b) Each of the Sponsor, the Trustees, the Administrators and the Holder of the Common Securities irrevocably consents to the service of process on it in any such suit, action or proceeding by the mailing thereof by registered or certified mail, postage prepaid, to it at its address given in or pursuant to Section 13.1 hereof.
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(c) To the extent permitted by law, nothing herein contained shall preclude any party from effecting service of process in any lawful manner or from bringing any suit, action or proceeding in respect of this Declaration in any other state, country or place.
SECTION 13.4. Intention of the Parties. It is the intention of the parties hereto that the Trust be classified for United States federal income tax purposes as a grantor trust. The provisions of this Declaration shall be interpreted to further this intention of the parties.
SECTION 13.5. Headings. Headings contained in this Declaration are inserted for convenience of reference only and do not affect the interpretation of this Declaration or any provision hereof.
SECTION 13.6. Successors and Assigns. Whenever in this Declaration any of the parties hereto is named or referred to, the successors and assigns of such party shall be deemed to be included, and all covenants and agreements in this Declaration by the Sponsor and the Trustees shall bind and inure to the benefit of their respective successors and assigns, whether or not so expressed.
SECTION 13.7. Partial Enforceability. If any provision of this Declaration, or the application of such provision to any Person or circumstance, shall be held invalid, the remainder of this Declaration, or the application of such provision to persons or circumstances other than those to which it is held invalid, shall not be affected thereby.
SECTION 13.8. Counterparts. This Declaration may contain more than one counterpart of the signature page and this Declaration may be executed by the affixing of the signature of each of the Trustees and Administrators to any of such counterpart signature pages. All of such counterpart signature pages shall be read as though one, and they shall have the same force and effect as though all of the signers had signed a single signature page.
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IN WITNESS WHEREOF, the undersigned have caused this Declaration to be duly executed as of the day and year first above written.
WELLS FARGO DELAWARE TRUST COMPANY, as Delaware Trustee | ||||
By: | ||||
Name: | ||||
Title: |
WELLS FARGO BANK, NATIONAL ASSOCIATION, as Institutional Trustee | ||||
By: | ||||
Name: | ||||
Title: |
Center Financial Corporation as Sponsor | ||||
By: | ||||
Name: | Yong Hwa Kim | |||
Title: | Chief Financial Officer |
By: | ||||
Name: | Yong Hwa Kim | |||
Title: | Administrator |
By: | ||||
Name: | Richard Koh | |||
Title: | Administrator |
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ANNEX I
TERMS OF
TP SECURITIES AND
COMMON SECURITIES
Pursuant to Section 6.1 of the Amended and Restated Declaration of Trust, dated as of December 30, 2003 (as amended from time to time, the Declaration), the designation, rights, privileges, restrictions, preferences and other terms and provisions of the Capital Securities and the Common Securities are set out below (each capitalized term used but not defined herein has the meaning set forth in the Declaration):
1. Designation and Number.
(a) Capital Securities. 18,000 Capital Securities of Center Capital Trust I (the Trust), with an aggregate stated liquidation amount with respect to the assets of the Trust of Eighteen Million Dollars ($18,000,000) and a stated liquidation amount with respect to the assets of the Trust of $1,000 per Capital Security, are hereby designated for the purposes of identification only as the TP Securities (the Capital Securities). The Capital Security Certificates evidencing the Capital Securities shall be substantially in the form of Exhibit A-1 to the Declaration, with such changes and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice or to conform to the rules of any stock exchange on which the Capital Securities are listed, if any.
(b) Common Securities.557 Common Securities of the Trust (the Common Securities) will be evidenced by Common Security Certificates substantially in the form of Exhibit A-2 to the Declaration, with such changes and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice. In the absence of an Event of Default, the Common Securities will have an aggregate stated liquidation amount with respect to the assets of the Trust of Five Hundred Fifty Seven Thousand Dollars ($557,000) and a stated liquidation amount with respect to the assets of the Trust of $1,000 per Common Security.
2. Distributions.
(a) Distributions payable on each Security will be payable at a variable per annum rate of interest, reset quarterly, equal to LIBOR, as determined on the LIBOR Determination Date, plus 2.85% (the Coupon Rate) of the stated liquidation amount of $1,000 per Security, such rate being the rate of interest payable on the Debentures to be held by the Institutional Trustee. Except as set forth below in respect of an Extension Period, Distributions in arrears for more than one quarterly period will bear interest thereon compounded quarterly at the applicable Coupon Rate for each such quarterly period (to the extent permitted by applicable law). The term Distributions as used herein includes cash distributions, any such compounded distributions and any Additional Interest payable on the Debentures unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Institutional Trustee and to the extent the Institutional Trustee has funds legally available in the Property Account therefor. The amount of Distributions payable for any period will be computed for any full quarterly Distribution period on the basis of a 360-day year and the actual number of
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days elapsed in the relevant Distribution period; provided, however, that upon the occurrence of a Special Event redemption pursuant to paragraph 4(a) below the amounts payable pursuant to this Declaration shall be calculated as set forth in the definition of Special Redemption Price.
(b) LIBOR shall be determined by the Calculation Agent in accordance with the following provisions:
(1) On the second LIBOR Business Day (provided, that on such day commercial banks are open for business (including dealings in foreign currency deposits) in London (a LIBOR Banking Day), and otherwise the next preceding LIBOR Business Day that is also a LIBOR Banking Day) prior to January 15, April 15, July 15 and October 15 (except, with respect to the first interest payment period, on December 29, 2003), (each such day, a LIBOR Determination Date), LIBOR shall equal the rate, as obtained by the Calculation Agent for three-month U.S. Dollar deposits in Europe, which appears on Telerate Page 3750 (as defined in the International Swaps and Derivatives Association, Inc. 1991 Interest Rate and Currency Exchange Definitions) or such other page as may replace such Telerate Page 3750, as of 11:00 a.m. (London time) on such LIBOR Determination Date, as reported by Bloomberg Financial Markets Commodities News. LIBOR Business Day means any day that is not a Saturday, Sunday or other day on which commercial banking institutions in New York, New York or Wilmington, Delaware are authorized or obligated by law or executive order to be closed. If such rate is superseded on Telerate Page 3750 by a corrected rate before 12:00 noon (London time) on the same LIBOR Determination Date, the corrected rate as so substituted will be the applicable LIBOR for that LIBOR Determination Date.
(2) If, on any LIBOR Determination Date, such rate does not appear on Telerate Page 3750 as reported by Bloomberg Financial Markets Commodities News or such other page as may replace such Telerate Page 3750, the Calculation Agent shall determine the arithmetic mean of the offered quotations of the Reference Banks (as defined below) to leading banks in the London Interbank market for three-month U.S. Dollar deposits in Europe (in an amount determined by the Calculation Agent) by reference to requests for quotations as of approximately 11:00 a.m. (London time) on the LIBOR Determination Date made by the Calculation Agent to the Reference Banks. If, on any LIBOR Determination Date, at least two of the Reference Banks provide such quotations, LIBOR shall equal the arithmetic mean of such quotations. If, on any LIBOR Determination Date, only one or none of the Reference Banks provide such a quotation, LIBOR shall be deemed to be the arithmetic mean of the offered quotations that at least two leading banks in the City of New York (as selected by the Calculation Agent) are quoting on the relevant LIBOR Determination Date for three-month U.S. Dollar deposits in Europe at approximately 11:00 a.m. (London time) (in an amount determined by the Calculation Agent). As used herein, Reference Banks means four major banks in the London Interbank market selected by the Calculation Agent.
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(3) If the Calculation Agent is required but is unable to determine a rate in accordance with at least one of the procedures provided above, LIBOR shall be LIBOR in effect on the previous LIBOR Determination Date (whether or not LIBOR for such period was in fact determined on such LIBOR Determination Date).
(c) All percentages resulting from any calculations on the Securities will be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point, with five one-millionths of a percentage point rounded upward (e.g., 9.876545% (or .09876545) being rounded to 9.87655% (or .0987655)), and all dollar amounts used in or resulting from such calculation will be rounded to the nearest cent (with one-half cent being rounded upward).
(d) On each LIBOR Determination Date, the Calculation Agent shall notify, in writing, the Sponsor and the Paying Agent of the applicable Coupon Rate in effect for the related Distribution payment period. The Calculation Agent shall, upon the request of the Holder of any Securities, provide the Coupon Rate then in effect. All calculations made by the Calculation Agent in the absence of manifest error shall be conclusive for all purposes and binding on the Sponsor and the Holders of the Securities. The Paying Agent shall be entitled to rely on information received from the Calculation Agent or the Sponsor as to the Coupon Rate. The Sponsor shall, from time to time, provide any necessary information to the Paying Agent relating to any original issue discount and interest on the Securities that is included in any payment and reportable for taxable income calculation purposes.
(e) Distributions on the Securities will be cumulative, will accrue from the date of original issuance, and will be payable, subject to extension of Distribution payment periods as described herein, quarterly in arrears on January 7, April 7, July 7 and October 7 of each year, commencing April 7, 2004 (each, a Distribution Payment Date). Subject to prior Submission of Notice (as defined in the Indenture), the Debenture Issuer has the right under the Indenture to defer payments of interest on the Debentures by extending the interest payment period for up to 20 consecutive quarterly periods (each, an Extension Period) at any time and from time to time on the Debentures, subject to the conditions described below, during which Extension Period no interest shall be due and payable (except any Additional Interest that may be due and payable). During any Extension Period, interest will continue to accrue on the Debentures, and interest on such accrued interest (such accrued interest and interest thereon referred to herein as Deferred Interest) will accrue at an annual rate equal to the Coupon Rate in effect for each such Extension Period, compounded quarterly from the date such Deferred Interest would have been payable were it not for the Extension Period, to the extent permitted by law. No Extension Period may end on a date other than a Distribution Payment Date. At the end of any such Extension Period, the Debenture Issuer shall pay all Deferred Interest then accrued and unpaid on the Debentures; provided, however, that no Extension Period may extend beyond the Maturity Date and provided, further, that, during any such Extension Period, the Debenture Issuer may not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Debenture Issuers capital stock or (ii) make any payment due on or repay, repurchase or redeem any debt securities of the Debenture Issuer that rank pari passu in all respects with or junior in interest to the Debentures (other than (a) repurchases, redemptions or other acquisitions of shares of capital stock of the Debenture Issuer (A) in connection with any employment contract, benefit plan or other similar arrangement with
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or for the benefit of one or more employees, officers, directors or consultants, (B) in connection with a dividend reinvestment or stockholder stock purchase plan or (C) in connection with the issuance of capital stock of the Debenture Issuer (or securities convertible into or exercisable for such capital stock), as consideration in an acquisition transaction entered into prior to the applicable Extension Period, (b) as a result of any exchange or conversion of any class or series of the Debenture Issuers capital stock (or any capital stock of a subsidiary of the Debenture Issuer) for any class or series of the Debenture Issuers capital stock or of any class or series of the Debenture Issuers indebtedness for any class or series of the Debenture Issuers capital stock, (c) the purchase of fractional interests in shares of the Debenture Issuers capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged, (d) any declaration of a dividend in connection with any stockholders rights plan, or the issuance of rights, stock or other property under any stockholders rights plan, or the redemption or repurchase of rights pursuant thereto, or (e) any dividend in the form of stock, warrants, options or other rights where the dividend stock or the stock issuable upon exercise of such warrants, options or other rights is the same stock as that on which the dividend is being paid or ranks pari passu with or junior to such stock). Prior to the termination of any Extension Period, the Debenture Issuer may further extend such period, provided, that such period together with all such previous and further consecutive extensions thereof shall not exceed 20 consecutive quarterly periods, or extend beyond the Maturity Date. Upon the termination of any Extension Period and upon the payment of all Deferred Interest, the Debenture Issuer may commence a new Extension Period, subject to the foregoing requirements. No interest or Deferred Interest shall be due and payable during an Extension Period, except at the end thereof, but Deferred Interest shall accrue upon each installment of interest that would otherwise have been due and payable during such Extension Period until such installment is paid. If Distributions are deferred, the Distributions due shall be paid on the date that the related Extension Period terminates, or, if such date is not a Distribution Payment Date, on the immediately following Distribution Payment Date, to Holders of the Securities as they appear on the books and records of the Trust on the record date immediately preceding such date. Distributions on the Securities must be paid on the dates payable (after giving effect to any Extension Period) to the extent that the Trust has funds legally available for the payment of such distributions in the Property Account of the Trust. The Trusts funds available for Distribution to the Holders of the Securities will be limited to payments received from the Debenture Issuer. The payment of Distributions out of moneys held by the Trust is guaranteed by the Guarantor pursuant to the Guarantee.
(f) Distributions on the Securities will be payable to the Holders thereof as they appear on the books and records of the Registrar on the relevant record dates. The relevant record dates shall be selected by the Administrators, which dates shall be 15 days before the relevant payment dates. Distributions payable on any Securities that are not punctually paid on any Distribution Payment Date, as a result of the Debenture Issuer having failed to make a payment under the Debentures, as the case may be, when due (taking into account any Extension Period), will cease to be payable to the Person in whose name such Securities are registered on the relevant record date, and such defaulted Distribution will instead be payable to the Person in whose name such Securities are registered on the special record date or other specified date determined in accordance with the Indenture. If any Distribution Payment Date other than any date of redemption, falls on a day that is not a Business Day, then Distributions payable will be paid on, and such Distribution Payment Date will be moved to, the next succeeding Business Day, and additional Distributions will accrue for each day that such payment is delayed as a result thereof.
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(g) In the event that there is any money or other property held by or for the Trust that is not accounted for hereunder, such property shall be distributed pro rata (as defined herein) among the Holders of the Securities.
3. Liquidation Distribution Upon Dissolution. In the event of the voluntary or involuntary liquidation, dissolution, winding-up or termination of the Trust (each, a Liquidation) other than in connection with a redemption of the Debentures, the Holders of the Securities will be entitled to receive out of the assets of the Trust available for distribution to Holders of the Securities, after satisfaction of liabilities to creditors of the Trust (to the extent not satisfied by the Debenture Issuer), distributions equal to the aggregate of the stated liquidation amount of $1,000 per Security plus accrued and unpaid Distributions thereon to the date of payment (such amount being the Liquidation Distribution), unless in connection with such Liquidation, the Debentures in an aggregate stated principal amount equal to the aggregate stated liquidation amount of such Securities, with an interest rate equal to the Coupon Rate of, and bearing accrued and unpaid interest in an amount equal to the accrued and unpaid Distributions on, and having the same record date as, such Securities, after paying or making reasonable provision to pay all claims and obligations of the Trust in accordance with Section 3808(e) of the Statutory Trust Act, shall be distributed on a Pro Rata basis to the Holders of the Securities in exchange for such Securities.
The Sponsor, as the Holder of all of the Common Securities, has the right at any time to dissolve the Trust (including without limitation upon the occurrence of a Tax Event, an Investment Company Event or a Capital Treatment Event), subject to the receipt by the Debenture Issuer of prior approval from the Board of Governors of the Federal Reserve System (the Federal Reserve), and any successor federal agency that is primarily responsible for regulating the activities of the Sponsor (the Federal Reserve), if the Sponsor is a bank holding company, or from the Office of Thrift Supervision and any successor federal agency that is primarily responsible for regulating the activities of the Sponsor (the OTS), if the Sponsor is a savings and loan holding company, in either case if then required under applicable capital guidelines or policies of the Federal Reserve or OTS, as applicable, and, after satisfaction of liabilities to creditors of the Trust, cause the Debentures to be distributed to the Holders of the Securities on a Pro Rata basis in accordance with the aggregate stated liquidation amount thereof.
The Trust shall dissolve on the first to occur of (i) April 17, 2039, the expiration of the term of the Trust, (ii) a Bankruptcy Event with respect to the Sponsor, the Trust or the Debenture Issuer, (iii) (other than in connection with a merger, consolidation or similar transaction not prohibited by the Indenture, this Declaration or the Guarantee, as the case may be) the filing of a certificate of dissolution of the Sponsor or upon the revocation of the charter of the Sponsor and the expiration of 90 days after the date of revocation without a reinstatement thereof, (iv) the distribution to the Holders of the Securities of the Debentures, upon exercise of the right of the Holder of all of the outstanding Common Securities to dissolve the Trust as described above, (v) the entry of a decree of a judicial dissolution of the Sponsor or the Trust, or (vi) when all of the Securities shall have been called for redemption and the amounts necessary for redemption
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thereof shall have been paid to the Holders in accordance with the terms of the Securities. As soon as practicable after the dissolution of the Trust and upon completion of the winding up of the Trust, the Trust shall terminate upon the filing of a certificate of cancellation with the Secretary of State of the State of Delaware.
If a Liquidation of the Trust occurs as described in clause (i), (ii), (iii) or (v) in the immediately preceding paragraph, the Trust shall be liquidated by the Institutional Trustee of the Trust as expeditiously as such Trustee determines to be possible by distributing, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, to the Holders of the Securities, the Debentures on a Pro Rata basis to the extent not satisfied by the Debenture Issuer, unless such distribution is determined by the Institutional Trustee not to be practical, in which event such Holders will be entitled to receive out of the assets of the Trust available for distribution to the Holders, after satisfaction of liabilities to creditors of the Trust to the extent not satisfied by the Debenture Issuer, an amount equal to the Liquidation Distribution. An early Liquidation of the Trust pursuant to clause (iv) of the immediately preceding paragraph shall occur if the Institutional Trustee determines that such Liquidation is possible by distributing, after satisfaction of liabilities to creditors of Trust, to the Holders of the Securities on a Pro Rata basis, the Debentures, and such distribution occurs.
If, upon any such Liquidation, the Liquidation Distribution can be paid only in part because the Trust has insufficient assets available to pay in full the aggregate Liquidation Distribution, then the amounts payable directly by the Trust on such Capital Securities shall be paid to the Holders of the Securities on a Pro Rata basis, except that if an Event of Default has occurred and is continuing, the Capital Securities shall have a preference over the Common Securities with regard to such distributions.
Upon any such Liquidation of the Trust involving a distribution of the Debentures, if at the time of such Liquidation, the Capital Securities were rated by at least one nationally-recognized statistical rating organization, the Debenture Issuer will use its reasonable best efforts to obtain from at least one such or other rating organization a rating for the Debentures.
After the date for any distribution of the Debentures upon dissolution of the Trust, (i) the Securities of the Trust will be deemed to be no longer outstanding, (ii) any certificates representing the Capital Securities will be deemed to represent undivided beneficial interests in such of the Debentures as have an aggregate principal amount equal to the aggregate stated liquidation amount of, with an interest rate identical to the distribution rate of, and bearing accrued and unpaid interest equal to accrued and unpaid distributions on, the Securities until such certificates are presented to the Debenture Issuer or its agent for transfer or reissuance (and until such certificates are so surrendered, no payments of interest or principal shall be made to Holders of Securities in respect of any payments due and payable under the Debentures) and (iii) all rights of Holders of Securities under the Capital Securities or the Common Securities, as applicable, shall cease, except the right of such Holders to receive Debentures upon surrender of certificates representing such Securities.
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4. Redemption and Distribution.
(a) The Debentures will mature on January 7, 2034. The Debentures may be redeemed by the Debenture Issuer, in whole or in part, on any January 7, April 7, July 7 or October 7 on or after January 7, 2009 at the Redemption Price, upon not less than 30 nor more than 60 days notice to Holders of such Debentures. In addition, upon the occurrence and continuation of a Tax Event, an Investment Company Event or a Capital Treatment Event, the Debentures may be redeemed by the Debenture Issuer in whole or in part, at any time within 90 days following the occurrence of such Tax Event, Investment Company Event or Capital Treatment Event, as the case may be (the Special Redemption Date), at the Special Redemption Price, upon not less than 30 nor more than 60 days notice to Holders of the Debentures so long as such Tax Event, Investment Company Event or Capital Treatment Event, as the case may be, is continuing. In each case, the right of the Debenture Issuer to redeem the Debentures is subject to the Debenture Issuer having received prior approval from the Federal Reserve, if then required under applicable capital guidelines or policies of the Federal Reserve.
Tax Event means the receipt by the Debenture Issuer and the Trust of an opinion of counsel experienced in such matters to the effect that, as a result of any amendment to or change (including any announced prospective change) in the laws or any regulations thereunder of the United States or any political subdivision or taxing authority thereof or therein, or as a result of any official administrative pronouncement (including any private letter ruling, technical advice memorandum, regulatory procedure, notice or announcement) (an Administrative Action) or judicial decision interpreting or applying such laws or regulations, regardless of whether such Administrative Action or judicial decision is issued to or in connection with a proceeding involving the Debenture Issuer or the Trust and whether or not subject to review or appeal, which amendment, clarification, change, Administrative Action or decision is enacted, promulgated or announced, in each case on or after the date of original issuance of the Debentures, there is more than an insubstantial risk that: (i) the Trust is, or will be within 90 days of the date of such opinion, subject to United States federal income tax with respect to income received or accrued on the Debentures; (ii) interest payable by the Debenture Issuer on the Debentures is not, or within 90 days of the date of such opinion, will not be, deductible by the Debenture Issuer, in whole or in part, for United States federal income tax purposes; or (iii) the Trust is, or will be within 90 days of the date of such opinion, subject to more than a de minimis amount of other taxes (including withholding taxes), duties, assessments or other governmental charges.
Investment Company Event means the receipt by the Debenture Issuer and the Trust of an opinion of counsel experienced in such matters to the effect that, as a result of a change in law or regulation or written change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority, there is more than an insubstantial risk that the Trust is or, within 90 days of the date of such opinion will be, considered an investment company that is required to be registered under the Investment Company Act, which change or prospective change becomes effective or would become effective, as the case may be, on or after the date of the original issuance of the Debentures.
Capital Treatment Event means the receipt by the Debenture Issuer and the Trust of an opinion of counsel experienced in such matters to the effect that, as a result of any amendment
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to, or change in, the laws, rules or regulations of the United States or any political subdivision thereof or therein, or as the result of any official or administrative pronouncement or action or decision interpreting or applying such laws, rules or regulations, which amendment or change is effective or which pronouncement, action or decision is announced on or after the date of original issuance of the Debentures, there is more than an insubstantial risk that the Debenture Issuer will not, within 90 days of the date of such opinion, be entitled to treat an amount equal to the aggregate Liquidation Amount of the Capital Securities as Tier 1 Capital (or the then equivalent thereof) for purposes of the capital adequacy guidelines of the Federal Reserve (or any successor regulatory authority with jurisdiction over bank holding companies), as then in effect and applicable to the Debenture Issuer; provided, however, that the distribution of the Debentures in connection with the Liquidation of the Trust by the Debenture Issuer shall not in and of itself constitute a Capital Treatment Event unless such Liquidation shall have occurred in connection with a Tax Event or an Investment Company Event.
Special Event means any of a Capital Treatment Event, a Tax Event or an Investment Company Event.
Redemption Price means 100% of the principal amount of the Debentures being redeemed plus accrued and unpaid interest on such Debentures to the Redemption Date or, in the case of a redemption due to the occurrence of a Special Event, to the Special Redemption Date if such Special Redemption Date is on or after January 7, 2009.
Special Redemption Price means (1) if the Special Redemption Date is before January 7, 2009, One Hundred Five Percent (105%) of the principal amount to be redeemed plus any accrued and unpaid interest thereon to the date of such redemption and (2) if the Special Redemption Date is on or after January 7, 2009, the Redemption Price for such Special Redemption Date.
Redemption Date means the date fixed for the redemption of Capital Securities, which shall be any January 7,April 7, July 7or October 7 on or after January 7, 2009.
(b) Upon the repayment in full at maturity or redemption in whole or in part of the Debentures (other than following the distribution of the Debentures to the Holders of the Securities), the proceeds from such repayment or payment shall concurrently be applied to redeem Pro Rata at the applicable Redemption Price, Securities having an aggregate liquidation amount equal to the aggregate principal amount of the Debentures so repaid or redeemed; provided, however, that holders of such Securities shall be given not less than 30 nor more than 60 days notice of such redemption (other than at the scheduled maturity of the Debentures).
(c) If fewer than all the outstanding Securities are to be so redeemed, the Common Securities and the Capital Securities will be redeemed Pro Rata and the Capital Securities to be redeemed will be as described in Section 4(e)(ii) below.
(d) The Trust may not redeem fewer than all the outstanding Capital Securities unless all accrued and unpaid Distributions have been paid on all Capital Securities for all quarterly Distribution periods terminating on or before the date of redemption.
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(e) | Redemption or Distribution Procedures. |
(i) Notice of any redemption of, or notice of distribution of the Debentures in exchange for, the Securities (a Redemption/Distribution Notice) will be given by the Trust by mail to each Holder of Securities to be redeemed or exchanged not fewer than 30 nor more than 60 days before the date fixed for redemption or exchange thereof which, in the case of a redemption, will be the date fixed for redemption of the Debentures. For purposes of the calculation of the date of redemption or exchange and the dates on which notices are given pursuant to this Section 4(e)(i), a Redemption/Distribution Notice shall be deemed to be given on the day such notice is first mailed by first-class mail, postage prepaid, to Holders of such Securities. Each Redemption/Distribution Notice shall be addressed to the Holders of such Securities at the address of each such Holder appearing on the books and records of the Registrar. No defect in the Redemption/Distribution Notice or in the mailing thereof with respect to any Holder shall affect the validity of the redemption or exchange proceedings with respect to any other Holder.
(ii) In the event that fewer than all the outstanding Securities are to be redeemed, the Securities to be redeemed shall be redeemed Pro Rata from each Holder of Capital Securities.
(iii) If the Securities are to be redeemed and the Trust gives a Redemption/Distribution Notice, which notice may only be issued if the Debentures are redeemed as set out in this Section 4 (which notice will be irrevocable), then, provided, that the Institutional Trustee has a sufficient amount of cash in connection with the related redemption or maturity of the Debentures, the Institutional Trustee will, with respect to Book-Entry Capital Securities, on the Redemption Date, irrevocably deposit with the Depositary for such Book-Entry Capital Securities, to the extent available therefore, funds sufficient to pay the relevant Redemption Price and will give such Depositary irrevocable instructions and authority to pay the Redemption Price to the Owners of the Capital Securities. With respect to Capital Securities that are not Book-Entry Capital Securities, the Institutional Trustee will pay, to the extent available therefore, the relevant Redemption Price to the Holders of such Securities by check mailed to the address of each such Holder appearing on the books and records of the Trust on the redemption date. If a Redemption/Distribution Notice shall have been given and funds deposited as required, then immediately prior to the close of business on the date of such deposit, Distributions will cease to accrue on the Securities so called for redemption and all rights of Holders of such Securities so called for redemption will cease, except the right of the Holders of such Securities to receive the applicable Redemption Price specified in Section 4(a), but without interest on such Redemption Price. If any date fixed for redemption of Securities is not a Business Day, then payment of any such Redemption Price payable on such date will be made on the next succeeding day that is a Business Day except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day, in
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each case with the same force and effect as if made on such date fixed for redemption. If payment of the Redemption Price in respect of any Securities is improperly withheld or refused and not paid either by the Trust or by the Debenture Issuer as guarantor pursuant to the Guarantee, Distributions on such Securities will continue to accrue at the then applicable rate from the original redemption date to the actual date of payment, in which case the actual payment date will be considered the date fixed for redemption for purposes of calculating the Redemption Price. In the event of any redemption of the Capital Securities issued by the Trust in part, the Trust shall not be required to (i) issue, register the transfer of or exchange any Security during a period beginning at the opening of business 15 days before any selection for redemption of the Capital Securities and ending at the close of business on the earliest date on which the relevant notice of redemption is deemed to have been given to all Holders of the Capital Securities to be so redeemed or (ii) register the transfer of or exchange any Capital Securities so selected for redemption, in whole or in part, except for the unredeemed portion of any Capital Securities being redeemed in part.
(iv) Redemption/Distribution Notices shall be sent by the Administrators on behalf of the Trust (A) in respect of the Capital Securities, to the Holders thereof, and (B) in respect of the Common Securities, to the Holder thereof.
(v) Subject to the foregoing and applicable law (including, without limitation, United States federal securities laws), and provided, that the acquiror is not the Holder of the Common Securities or the obligor under the Indenture, the Sponsor or any of its subsidiaries may at any time and from time to time purchase outstanding Capital Securities by tender, in the open market or by private agreement.
5. Voting RightsCapital Securities.
(a) Except as provided under Sections 5(b) and 7 and as otherwise required by law and the Declaration, the Holders of the Capital Securities will have no voting rights. The Administrators are required to call a meeting of the Holders of the Capital Securities if directed to do so by Holders of not less than 10% in liquidation amount of the Capital Securities.
(b) Subject to the requirements of obtaining a tax opinion by the Institutional Trustee in certain circumstances set forth in the last sentence of this paragraph, the Holders of a Majority in liquidation amount of the Capital Securities, voting separately as a class, have the right to direct the time, method, and place of conducting any proceeding for any remedy available to the Institutional Trustee, or exercising any trust or power conferred upon the Institutional Trustee under the Declaration, including the right to direct the Institutional Trustee, as holder of the Debentures, to (i) exercise the remedies available under the Indenture as the holder of the Debentures, (ii) waive any past default that is waivable under the Indenture, (iii) exercise any right to rescind or annul a declaration that the principal of all the Debentures shall be due and payable or (iv) consent on behalf of all the Holders of the Capital Securities to any amendment, modification or termination of the Indenture or the Debentures where such consent shall be
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required; provided, however, that, where a consent or action under the Indenture would require the consent or act of the holders of greater than a simple majority in principal amount of Debentures (a Super Majority) affected thereby, the Institutional Trustee may only give such consent or take such action at the written direction of the Holders of not less than the proportion in liquidation amount of the Capital Securities outstanding which the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding. If the Institutional Trustee fails to enforce its rights under the Debentures after the Holders of a Majority in liquidation amount of such Capital Securities have so directed the Institutional Trustee, to the fullest extent permitted by law, a Holder of the Capital Securities may institute a legal proceeding directly against the Debenture Issuer to enforce the Institutional Trustees rights under the Debentures without first instituting any legal proceeding against the Institutional Trustee or any other person or entity. Notwithstanding the foregoing, if an Event of Default has occurred and is continuing and such event is attributable to the failure of the Debenture Issuer to pay interest or principal on the Debentures on the date the interest or principal is payable (or in the case of redemption, the redemption date), then a Holder of record of the Capital Securities may directly institute a proceeding for enforcement of payment, on or after the respective due dates specified in the Debentures, to such Holder directly of the principal of or interest on the Debentures having an aggregate principal amount equal to the aggregate liquidation amount of the Capital Securities of such Holder. The Institutional Trustee shall notify all Holders of the Capital Securities of any default actually known to the Institutional Trustee with respect to the Debentures unless (x) such default has been cured prior to the giving of such notice or (y) the Institutional Trustee determines in good faith that the withholding of such notice is in the interest of the Holders of such Capital Securities, except where the default relates to the payment of principal of or interest on any of the Debentures. Such notice shall state that such Indenture Event of Default also constitutes an Event of Default hereunder. Except with respect to directing the time, method and place of conducting a proceeding for a remedy, the Institutional Trustee shall not take any of the actions described in clause (i), (ii) or (iii) above unless the Institutional Trustee has obtained an opinion of tax counsel to the effect that, as a result of such action, the Trust will not be classified as other than a grantor trust for United States federal income tax purposes.
In the event the consent of the Institutional Trustee, as the holder of the Debentures is required under the Indenture with respect to any amendment, modification or termination of the Indenture, the Institutional Trustee shall request the written direction of the Holders of the Securities with respect to such amendment, modification or termination and shall vote with respect to such amendment, modification or termination as directed by a Majority in liquidation amount of the Securities voting together as a single class; provided, however, that where a consent under the Indenture would require the consent of a Super Majority, the Institutional Trustee may only give such consent at the written direction of the Holders of not less than the proportion in liquidation amount of such Securities outstanding which the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding. The Institutional Trustee shall not take any such action in accordance with the written directions of the Holders of the Securities unless the Institutional Trustee has obtained an opinion of tax counsel to the effect that, as a result of such action, the Trust will not be classified as other than a grantor trust for United States federal income tax purposes.
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A waiver of an Indenture Event of Default will constitute a waiver of the corresponding Event of Default hereunder. Any required approval or direction of Holders of the Capital Securities may be given at a separate meeting of Holders of the Capital Securities convened for such purpose, at a meeting of all of the Holders of the Securities in the Trust or pursuant to written consent. The Institutional Trustee will cause a notice of any meeting at which Holders of the Capital Securities are entitled to vote, or of any matter upon which action by written consent of such Holders is to be taken, to be mailed to each Holder of record of the Capital Securities. Each such notice will include a statement setting forth the following information (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of such matter upon which written consent is sought and (iii) instructions for the delivery of proxies or consents. No vote or consent of the Holders of the Capital Securities will be required for the Trust to redeem and cancel Capital Securities or to distribute the Debentures in accordance with the Declaration and the terms of the Securities.
Notwithstanding that Holders of the Capital Securities are entitled to vote or consent under any of the circumstances described above, any of the Capital Securities that are owned by the Sponsor or any Affiliate of the Sponsor shall not entitle the Holder thereof to vote or consent and shall, for purposes of such vote or consent, be treated as if such Capital Securities were not outstanding.
In no event will Holders of the Capital Securities have the right to vote to appoint, remove or replace the Administrators, which voting rights are vested exclusively in the Sponsor as the Holder of all of the Common Securities of the Trust. Under certain circumstances as more fully described in the Declaration, Holders of Capital Securities have the right to vote to appoint, remove or replace the Institutional Trustee and the Delaware Trustee.
6. Voting RightsCommon Securities.
(a) Except as provided under Sections 6(b), 6(c) and 7 and as otherwise required by law and the Declaration, the Common Securities will have no voting rights.
(b) The Holders of the Common Securities are entitled, in accordance with Article IV of the Declaration, to vote to appoint, remove or replace any Administrators.
(c) Subject to Section 6.7 of the Declaration and only after each Event of Default (if any) with respect to the Capital Securities has been cured, waived or otherwise eliminated and subject to the requirements of the second to last sentence of this paragraph, the Holders of a Majority in liquidation amount of the Common Securities, voting separately as a class, may direct the time, method, and place of conducting any proceeding for any remedy available to the Institutional Trustee, or exercising any trust or power conferred upon the Institutional Trustee under the Declaration, including (i) directing the time, method, place of conducting any proceeding for any remedy available to the Debenture Trustee, or exercising any trust or power conferred on the Debenture Trustee with respect to the Debentures, (ii) waiving any past default and its consequences that are waivable under the Indenture, or (iii) exercising any right to rescind or annul a declaration that the principal of all the Debentures shall be due and payable, provided, however, that, where a consent or action under the Indenture would require a Super Majority, the
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Institutional Trustee may only give such consent or take such action at the written direction of the Holders of not less than the proportion in liquidation amount of the Common Securities which the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding. Notwithstanding this Section 6(c), the Institutional Trustee shall not revoke any action previously authorized or approved by a vote or consent of the Holders of the Capital Securities. Other than with respect to directing the time, method and place of conducting any proceeding for any remedy available to the Institutional Trustee or the Debenture Trustee as set forth above, the Institutional Trustee shall not take any action described in clause (i), (ii) or (iii) above, unless the Institutional Trustee has obtained an opinion of tax counsel to the effect that for the purposes of United States federal income tax the Trust will not be classified as other than a grantor trust on account of such action. If the Institutional Trustee fails to enforce its rights under the Declaration, to the fullest extent permitted by law any Holder of the Common Securities may institute a legal proceeding directly against any Person to enforce the Institutional Trustees rights under the Declaration, without first instituting a legal proceeding against the Institutional Trustee or any other Person.
Any approval or direction of Holders of the Common Securities may be given at a separate meeting of Holders of the Common Securities convened for such purpose, at a meeting of all of the Holders of the Securities in the Trust or pursuant to written consent. The Administrators will cause a notice of any meeting at which Holders of the Common Securities are entitled to vote, or of any matter upon which action by written consent of such Holders is to be taken, to be mailed to each Holder of the Common Securities. Each such notice will include a statement setting forth (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of such matter upon which written consent is sought and (iii) instructions for the delivery of proxies or consents.
No vote or consent of the Holders of the Common Securities will be required for the Trust to redeem and cancel Common Securities or to distribute the Debentures in accordance with the Declaration and the terms of the Securities.
7. Amendments to Declaration and Indenture.
(a) In addition to any requirements under Section 11.1 of the Declaration, if any proposed amendment to the Declaration provides for, or the Trustees otherwise propose to effect, (i) any action that would adversely affect the powers, preferences or special rights of the Securities, whether by way of amendment to the Declaration or otherwise, or (ii) the Liquidation of the Trust, other than as described in Section 7.1 of the Declaration, then the Holders of outstanding Securities, voting together as a single class, will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of the Holders of not less than a Majority in liquidation amount of the Securities affected thereby; provided, however, if any amendment or proposal referred to in clause (i) above would adversely affect only the Capital Securities or only the Common Securities, then only the affected class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of a Majority in liquidation amount of such class of Securities.
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(b) In the event the consent of the Institutional Trustee as the holder of the Debentures is required under the Indenture with respect to any amendment, modification or termination of the Indenture or the Debentures, the Institutional Trustee shall request the written direction of the Holders of the Securities with respect to such amendment, modification or termination and shall vote with respect to such amendment, modification, or termination as directed by a Majority in liquidation amount of the Securities voting together as a single class; provided, however, that where a consent under the Indenture would require a Super Majority, the Institutional Trustee may only give such consent at the written direction of the Holders of not less than the proportion in liquidation amount of the Securities which the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding.
(c) Notwithstanding the foregoing, no amendment or modification may be made to the Declaration if such amendment or modification would (i) cause the Trust to be classified for purposes of United States federal income taxation as other than a grantor trust, (ii) reduce or otherwise adversely affect the powers of the Institutional Trustee or (iii) cause the Trust to be deemed an investment company which is required to be registered under the Investment Company Act.
(d) Notwithstanding any provision of the Declaration, the right of any Holder of the Capital Securities to receive payment of distributions and other payments upon redemption or otherwise, on or after their respective due dates, or to institute a suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. For the protection and enforcement of the foregoing provision, each and every Holder of the Capital Securities shall be entitled to such relief as can be given either at law or equity.
8. Pro Rata. A reference in these terms of the Securities to any payment, distribution or treatment as being Pro Rata shall mean pro rata to each Holder of the Securities according to the aggregate liquidation amount of the Securities held by the relevant Holder in relation to the aggregate liquidation amount of all Securities outstanding unless, in relation to a payment, an Event of Default has occurred and is continuing, in which case any funds available to make such payment shall be paid first to each Holder of the Capital Securities Pro Rata according to the aggregate liquidation amount of the Capital Securities held by the relevant Holder relative to the aggregate liquidation amount of all Capital Securities outstanding, and only after satisfaction of all amounts owed to the Holders of the Capital Securities, to each Holder of the Common Securities Pro Rata according to the aggregate liquidation amount of the Common Securities held by the relevant Holder relative to the aggregate liquidation amount of all Common Securities outstanding.
9. Ranking. The Capital Securities rank pari passu with, and payment thereon shall be made Pro Rata with, the Common Securities except that, where an Event of Default has occurred and is continuing, the rights of Holders of the Common Securities to receive payment of Distributions and payments upon liquidation, redemption and otherwise are subordinated to the rights of the Holders of the Capital Securities with the result that no payment of any Distribution on, or Redemption Price of, any Common Security, and no other payment on account of redemption, liquidation or other acquisition of Common Securities, shall be made unless payment in full in cash of all accumulated and unpaid Distributions on all outstanding
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Capital Securities for all distribution periods terminating on or prior thereto, or in the case of payment of the Redemption Price the full amount of such Redemption Price on all outstanding Capital Securities then called for redemption, shall have been made or provided for, and all funds immediately available to the Institutional Trustee shall first be applied to the payment in full in cash of all Distributions on, or the Redemption Price of, the Capital Securities then due and payable.
10. Acceptance of Guarantee and Indenture. Each Holder of the Capital Securities and the Common Securities, by the acceptance of such Securities, agrees to the provisions of the Guarantee, including the subordination provisions therein and to the provisions of the Indenture.
11. No Preemptive Rights. The Holders of the Securities shall have no, and the issuance of the Securities is not subject to, preemptive or similar rights to subscribe for any additional securities.
12. Miscellaneous. These terms constitute a part of the Declaration. The Sponsor will provide a copy of the Declaration, the Guarantee, and the Indenture to a Holder without charge on written request to the Sponsor at its principal place of business.
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EXHIBIT A-1
FORM OF CAPITAL SECURITY CERTIFICATE
[FORM OF FACE OF SECURITY]
[If the Capital Security is to be Global Capital Security THIS CAPITAL SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE DECLARATION HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY (DTC) OR A NOMINEE OF DTC. THIS CAPITAL SECURITY IS EXCHANGEABLE FOR CAPITAL SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN DTC OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE DECLARATION, AND NO TRANSFER OF THIS CAPITAL SECURITY (OTHER THAN A TRANSFER OF THIS CAPITAL SECURITY AS A WHOLE BY DTC TO A NOMINEE OF DTC OR BY A NOMINEE OF DTC TO DTC OR ANOTHER NOMINEE OF DTC) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.
UNLESS THIS CAPITAL SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF DTC TO Center Capital Trust I OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CAPITAL SECURITY ISSUED IS REGISTERED AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY ONLY (A) TO THE DEBENTURE ISSUER OR THE TRUST, (B) PURSUANT TO RULE 144A UNDER THE SECURITIES ACT (RULE 144A), TO A PERSON THE HOLDER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (C) PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT TO AN ACCREDITED INVESTOR WITHIN THE MEANING OF SUBPARAGRAPH (a) (1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF AN
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ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (D) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE DEBENTURE ISSUERS AND THE TRUSTS RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (C) OR (D) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM IN ACCORDANCE WITH THE AMENDED AND RESTATED DECLARATION OF TRUST, A COPY OF WHICH MAY BE OBTAINED FROM THE DEBENTURE ISSUER OR THE TRUST. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES THAT IT WILL COMPLY WITH THE FOREGOING RESTRICTIONS.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES, REPRESENTS AND WARRANTS THAT IT WILL NOT ENGAGE IN HEDGING TRANSACTIONS INVOLVING THIS SECURITY UNLESS SUCH TRANSACTIONS ARE IN COMPLIANCE WITH THE SECURITIES ACT.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF ALSO AGREES, REPRESENTS AND WARRANTS THAT IT IS NOT AN EMPLOYEE BENEFIT, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER PLAN OR ARRANGEMENT SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (ERISA), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE CODE), (EACH A PLAN), OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF ANY PLANS INVESTMENT IN THE ENTITY AND NO PERSON INVESTING PLAN ASSETS OF ANY PLAN MAY ACQUIRE OR HOLD THIS SECURITY OR ANY INTEREST THEREIN, UNLESS SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR THE EXEMPTION RELIEF AVAILABLE UNDER U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION 96-23,95-60,91-38,90-1 OR 84-14 OR ANOTHER APPLICABLE EXEMPTION OR ITS PURCHASE AND HOLDING OF THIS SECURITY IS NOT PROHIBITED BY SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE WITH RESPECT TO SUCH PURCHASE OR HOLDING. ANY PURCHASER OR HOLDER OF THIS SECURITY OR ANY INTEREST THEREIN WILL BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND HOLDING THEREOF THAT EITHER (i) IT IS NOT AN EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF SECTION 3(3) OF ERISA, OR A PLAN TO WHICH SECTION 4975 OF THE CODE IS APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF AN EMPLOYEE BENEFIT PLAN OR PLAN, OR ANY OTHER PERSON OR ENTITY USING THE ASSETS OF ANY EMPLOYEE BENEFIT PLAN OR PLAN TO FINANCE SUCH PURCHASE, OR (ii) SUCH PURCHASE WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE FOR WHICH THERE IS NO APPLICABLE STATUTORY OR ADMINISTRATIVE EXEMPTION.
IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS MAY BE REQUIRED BY THE AMENDED AND RESTATED DECLARATION OF TRUST TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS.
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THIS SECURITY WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN BLOCKS HAVING A LIQUIDATION AMOUNT OF NOT LESS THAN $100,000 AND MULTIPLES OF $1,000 IN EXCESS THEREOF. ANY ATTEMPTED TRANSFER OF THIS SECURITY IN A BLOCK HAVING A LIQUIDATION AMOUNT OF LESS THAN $100,000 SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. ANY SUCH PURPORTED TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER OF THIS SECURITY FOR ANY PURPOSE, INCLUDING, BUT NOT LIMITED TO, THE RECEIPT OF DISTRIBUTIONS ON THIS SECURITY, AND SUCH PURPORTED TRANSFEREE SHALL BE DEEMED TO HAVE NO INTEREST WHATSOEVER IN THIS SECURITY.
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Certificate Number [P-001] |
Number of Capital Securities 18,000 |
Certificate Evidencing Capital Securities
of
Center Capital Trust I
TP Securities
(liquidation amount $1,000 per Capital Security)
Center Capital Trust I, a statutory trust created under the laws of the State of Delaware (the Trust), hereby certifies that Cede & Co. (the Holder), as nominee on behalf of The Depository Trust Company (the Holder), is the registered owner of 18,000 capital securities of the Trust representing undivided beneficial interests in the assets of the Trust, designated the TP Securities (liquidation amount $1,000 per Capital Security) (the Capital Securities). Subject to the Declaration (as defined below), the Capital Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this Certificate duly endorsed and in proper form for transfer. The Capital Securities represented hereby are issued pursuant to, and the designation, rights, privileges, restrictions, preferences and other terms and provisions of the Capital Securities shall in all respects be subject to, the provisions of the Amended and Restated Declaration of Trust of the Trust, dated as of December 30, 2003, among Yong Hwa Kim and Richard Koh, as Administrators, Wells Fargo Delaware Trust Company, as Delaware Trustee, Wells Fargo Bank, National Association, as Institutional Trustee, Center Financial Corporation, as Sponsor, and the holders from time to time of undivided beneficial interests in the assets of the Trust, including the designation of the terms of the Capital Securities as set forth in Annex I to the Declaration, as the same may be amended from time to time (the Declaration). Capitalized terms used herein but not defined shall have the meaning given them in the Declaration. The Holder is entitled to the benefits of the Guarantee to the extent provided therein. The Sponsor will provide a copy of the Declaration, the Guarantee, and the Indenture to the Holder without charge upon written request to the Sponsor at its principal place of business.
By acceptance of this Security, the Holder is bound by the Declaration and is entitled to the benefits thereunder.
By acceptance of this Security, the Holder agrees to treat, for United States federal income tax purposes, the Debentures as indebtedness and the Capital Securities as evidence of beneficial ownership in the Debentures.
This Capital Security is governed by, and shall be construed in accordance with, the laws of the State of Delaware, without regard to principles of conflict of laws.
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IN WITNESS WHEREOF, the Trust has duly executed this certificate.
Center Capital Trust I | ||
By: | ||
Name: | ||
Title: Administrator |
Dated: |
CERTIFICATE OF AUTHENTICATION
This is one of the Capital Securities referred to in the within-mentioned Declaration.
WELLS FARGO BANK, NATIONAL ASSOCIATION, | ||
not in its individual capacity but solely as the Institutional Trustee | ||
By: | ||
Authorized Officer |
Dated |
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[FORM OF REVERSE OF SECURITY]
Distributions payable on each Capital Security will be payable at a variable per annum rate of interest, reset quarterly, equal to LIBOR (as defined in the Declaration) plus 2.85% (the Coupon Rate) of the stated liquidation amount of $1,000 per Capital Security, such rate being the rate of interest payable on the Debentures to be held by the Institutional Trustee. Except as set forth below in respect of an Extension Period, Distributions in arrears for more than one quarterly period will bear interest thereon compounded quarterly at the applicable Coupon Rate for each such quarterly period (to the extent permitted by applicable law). The term Distributions as used herein includes cash distributions, any such compounded distributions and any Additional Interest payable on the Debentures unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Institutional Trustee and to the extent the Institutional Trustee has funds legally available in the Property Account therefor. The amount of Distributions payable for any period will be computed for any full quarterly Distribution period on the basis of a 360-day year and the actual number of days elapsed in the relevant Distribution period.
Except as otherwise described below, Distributions on the Capital Securities will be cumulative, will accrue from the date of original issuance and will be payable quarterly in arrears on January 7], April 7, July 7 and October 7 of each year, commencing on April 7, 2004 (each, a Distribution Payment Date). Upon submission of Notice, the Debenture Issuer has the right under the Indenture to defer payments of interest on the Debentures by extending the interest payment period for up to 20 consecutive quarterly periods (each, an Extension Period) at any time and from time to time on the Debentures, subject to the conditions described below, during which Extension Period no interest shall be due and payable (except any Additional Interest that may be due and payable). During any Extension Period, interest will continue to accrue on the Debentures, and interest on such accrued interest (such accrued interest and interest thereon referred to herein as Deferred Interest) will accrue at an annual rate equal to the Coupon Rate in effect for each such Extension Period, compounded quarterly from the date such Deferred Interest would have been payable were it not for the Extension Period, to the extent permitted by law. No Extension Period may end on a date other than a Distribution Payment Date. At the end of any such Extension Period, the Debenture Issuer shall pay all Deferred Interest then accrued and unpaid on the Debentures; provided, however, that no Extension Period may extend beyond the Maturity Date. Prior to the termination of any Extension Period, the Debenture Issuer may further extend such period, provided, that such period together with all such previous and further consecutive extensions thereof shall not exceed 20 consecutive quarterly periods, or extend beyond the Maturity Date. Upon the termination of any Extension Period and upon the payment of all Deferred Interest, the Debenture Issuer may commence a new Extension Period, subject to the foregoing requirements. No interest or Deferred Interest shall be due and payable during an Extension Period, except at the end thereof, but Deferred Interest shall accrue upon each installment of interest that would otherwise have been due and payable during such Extension Period until such installment is paid. If Distributions are deferred, the Distributions due shall be paid on the date that the related Extension Period terminates to Holders of the Securities as they appear on the books and records of the Trust on the record date immediately preceding such date. Distributions on the Securities must be paid on the dates payable (after giving effect to any Extension Period) to the extent that the Trust has funds legally available for the payment of such distributions in the Property Account of the Trust. The Trusts funds available for Distribution to
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the Holders of the Securities will be limited to payments received from the Debenture Issuer. The payment of Distributions out of moneys held by the Trust is guaranteed by the Guarantor pursuant to the Guarantee.
The Capital Securities shall be redeemable as provided in the Declaration.
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ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Capital Security Certificate to:
(Insert assignees social security or tax identification number)
(Insert address and zip code of assignee),
and irrevocably appoints
as agent to transfer this Capital Security Certificate on the books of the Trust. The agent may substitute another to act for it, him or her.
Date:
Signature:
(Sign exactly as your name appears on the other side of this Capital Security Certificate)
Signature Guarantee:1
1 | Signature must be guaranteed by an "eligible guarantor institution" that is a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Security registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Security registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. |
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EXHIBIT A-2
FORM OF COMMON SECURITY CERTIFICATE
THIS COMMON SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EXEMPTION FROM REGISTRATION.
EXCEPT AS SET FORTH IN SECTION 8.1 (b) OF THE DECLARATION (AS DEFINED BELOW), THIS SECURITY MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED.
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Certificate Number [C-001] | Number of Common Securities 557 |
Certificate Evidencing Common Securities
of
Center Capital Trust I
Center Capital Trust I, a statutory trust created under the laws of the State of Delaware (the Trust), hereby certifies that Center Financial Corporation (the Holder) is the registered owner of 557 common securities of the Trust representing undivided beneficial interests in the assets of the Trust (liquidation amount $1,000 per Common Security)(the Common Securities). The Common Securities represented hereby are issued pursuant to, and the designation, rights, privileges, restrictions, preferences and other terms and provisions of the Common Securities shall in all respects be subject to, the provisions of the Amended and Restated Declaration of Trust of the Trust, dated as of December 30, 2003, among Yong Hwa Kim and Richard Koh, as Administrators, Wells Fargo Delaware Trust Company, as Delaware Trustee, Wells Fargo Bank, National Association, as Institutional Trustee, the Holder, as Sponsor, and the holders from time to time of undivided beneficial interests in the assets of the Trust, including the designation of the terms of the Common Securities as set forth in Annex I to the Declaration, as the same may be amended from time to time (the Declaration). Capitalized terms used herein but not defined shall have the meaning given them in the Declaration. The Sponsor will provide a copy of the Declaration and the Indenture to the Holder without charge upon written request to the Sponsor at its principal place of business.
As set forth in the Declaration, when an Event of Default has occurred and is continuing, the rights of Holders of Common Securities to payment in respect of Distributions and payments upon Liquidation, redemption or otherwise are subordinated to the rights of payment of Holders of the Capital Securities.
By acceptance of this Certificate, the Holder is bound by the Declaration and is entitled to the benefits thereunder.
By acceptance of this Certificate, the Holder agrees to treat, for United States federal income tax purposes, the Debentures as indebtedness and the Common Securities as evidence of undivided beneficial ownership in the Debentures.
This Common Security is governed by, and shall be construed in accordance with, the laws of the State of Delaware, without regard to principles of conflict of laws.
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IN WITNESS WHEREOF, the Trust has executed this certificate December 30, 2003.
Center Capital Trust I | ||
By: | ||
Name: Title: Administrator |
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[FORM OF REVERSE OF SECURITY]
Distributions payable on each Common Security will be identical in amount to the Distributions payable on each Capital Security, which is at a variable per annum rate of interest, reset quarterly, equal to LIBOR (as defined in the Declaration) plus 2.85% (the Coupon Rate) of the stated liquidation amount of $1,000 per Capital Security, such rate being the rate of interest payable on the Debentures to be held by the Institutional Trustee. Except as set forth below in respect of an Extension Period, Distributions in arrears for more than one quarterly period will bear interest thereon compounded quarterly at the applicable Coupon Rate for each such quarterly period (to the extent permitted by applicable law). The term Distributions as used herein includes cash distributions, any such compounded distributions and any Additional Interest payable on the Debentures unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Institutional Trustee and to the extent the Institutional Trustee has funds legally available in the Property Account therefor. The amount of Distributions payable for any period will be computed for any full quarterly Distribution period on the basis of a 360-day year and the actual number of days elapsed in the relevant Distribution period.
Except as otherwise described below, Distributions on the Common Securities will be cumulative, will accrue from the date of original issuance and will be payable quarterly in arrears on January 7, April 7, July 7 and October 7 of each year, commencing on April 7, 2004 (each, a Distribution Payment Date). Upon submission of Notice, the Debenture Issuer has the right under the Indenture to defer payments of interest on the Debentures by extending the interest payment period for up to 20 consecutive quarterly periods (each, an Extension Period) at any time and from time to time on the Debentures, subject to the conditions described below, during which Extension Period no interest shall be due and payable (except any Additional Interest that may be due and payable). During any Extension Period, interest will continue to accrue on the Debentures, and interest on such accrued interest (such accrued interest and interest thereon referred to herein as Deferred Interest) will accrue at an annual rate equal to the Coupon Rate in effect for each such Extension Period, compounded quarterly from the date such Deferred Interest would have been payable were it not for the Extension Period, to the extent permitted by law. No Extension Period may end on a date other than a Distribution Payment Date. At the end of any such Extension Period, the Debenture Issuer shall pay all Deferred Interest then accrued and unpaid on the Debentures; provided, however, that no Extension Period may extend beyond the Maturity Date. Prior to the termination of any Extension Period, the Debenture Issuer may further extend such period, provided, that such period together with all such previous and further consecutive extensions thereof shall not exceed 20 consecutive quarterly periods, or extend beyond the Maturity Date. Upon the termination of any Extension Period and upon the payment of all Deferred Interest, the Debenture Issuer may commence a new Extension Period, subject to the foregoing requirements. No interest or Deferred Interest shall be due and payable during an Extension Period, except at the end thereof, but Deferred Interest shall accrue upon each installment of interest that would otherwise have been due and payable during such Extension Period until such installment is paid. If Distributions are deferred, the Distributions due shall be paid on the date that the related Extension Period terminates to Holders of the Securities as they appear on the books and records of the Trust on the record date immediately preceding such date.
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Distributions on the Securities must be paid on the dates payable (after giving effect to any Extension Period) to the extent that the Trust has funds legally available for the payment of such distributions in the Property Account of the Trust. The Trusts funds legally available for Distribution to the Holders of the Securities will be limited to payments received from the Debenture Issuer. The payment of Distributions out of moneys held by the Trust is guaranteed by the Guarantor pursuant to the Guarantee.
The Common Securities shall be redeemable as provided in the Declaration.
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ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security Certificate to:
(Insert assignees social security or tax identification number)
(Insert address and zip code of assignee),
and irrevocably appoints as agent to transfer this Common Security Certificate on the books of the Trust. The agent may substitute another to act for him or her.
Date:
Signature:
(Sign exactly as your name appears on the other side of this Common Security Certificate)
Signature Guarantee:1
1 | Signature must be guaranteed by an eligible guarantor institution that is a bank, stockbroker, savings and loan association or credit union, meeting the requirements of the Security registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program (STAMP) or such other signature guarantee program as may be determined by the Security registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. |
Exhibit 4.22
GUARANTEE AGREEMENT
Center Financial Corporation
Dated as of December 30, 2003
TABLE OF CONTENTS
Page | ||||||
ARTICLE I | ||||||
DEFINITIONS AND INTERPRETATION | ||||||
SECTION 1.1. |
Definitions and Interpretation | 1 | ||||
ARTICLE II | ||||||
POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE | ||||||
SECTION 2.1. |
Powers and Duties of the Guarantee Trustee | 4 | ||||
SECTION 2.2. |
Certain Rights of the Guarantee Trustee | 5 | ||||
SECTION 2.3. |
Not Responsible for Recitals or Issuance of Guarantee | 7 | ||||
SECTION 2.4. |
Events of Default; Waiver | 7 | ||||
SECTION 2.5. |
Events of Default; Notice | 8 | ||||
ARTICLE III | ||||||
THE GUARANTEE TRUSTEE | ||||||
SECTION 3.1. |
The Guarantee Trustee; Eligibility | 8 | ||||
SECTION 3.2. |
Appointment, Removal and Resignation of the Guarantee Trustee | 9 | ||||
ARTICLE IV | ||||||
GUARANTEE | ||||||
SECTION 4.1. |
Guarantee | 9 | ||||
SECTION 4.2. |
Waiver of Notice and Demand | 10 | ||||
SECTION 4.3. |
Obligations Not Affected | 10 | ||||
SECTION 4.4. |
Rights of Holders | 11 | ||||
SECTION 4.5. |
Guarantee of Payment | 11 | ||||
SECTION 4.6. |
Subrogation | 11 | ||||
SECTION 4.7. |
Independent Obligations | 12 | ||||
SECTION 4.8. |
Enforcement | 12 |
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TABLE OF CONTENTS
(continued)
Page | ||||||
ARTICLE V | ||||||
LIMITATION OF TRANSACTIONS; SUBORDINATION | ||||||
SECTION 5.1. |
Limitation of Transactions | 12 | ||||
SECTION 5.2. |
Ranking | 13 | ||||
ARTICLE VI | ||||||
TERMINATION | ||||||
SECTION 6.1. |
Termination | 13 | ||||
ARTICLE VII | ||||||
INDEMNIFICATION | ||||||
SECTION 7.1. |
Exculpation | 14 | ||||
SECTION 7.2. |
Indemnification | 14 | ||||
SECTION 7.3. |
Compensation; Reimbursement of Expenses | 15 | ||||
ARTICLE VIII | ||||||
MISCELLANEOUS | ||||||
SECTION 8.1. |
Successors and Assigns | 16 | ||||
SECTION 8.2. |
Amendments | 16 | ||||
SECTION 8.3. |
Notices | 16 | ||||
SECTION 8.4. |
Benefit | 17 | ||||
SECTION 8.5. |
Governing Law | 17 | ||||
SECTION 8.6. |
Counterparts | 17 |
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GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT (the Guarantee), dated as of December 30, 2003, is executed and delivered by Center Financial Corporation, incorporated in California (the Guarantor), and Wells Fargo Bank, National Association, a national banking association with its principal place of business in the State of Delaware, as trustee (the Guarantee Trustee), for the benefit of the Holders (as defined herein) from time to time of the Capital Securities (as defined herein) of Center Capital Trust I, a Delaware statutory trust (the Issuer).
WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the Declaration), dated as of December 30, 2003, among the trustees named therein of the Issuer, Center Financial Corporation, as sponsor, and the Holders from time to time of undivided beneficial interests in the assets of the Issuer, the Issuer is issuing on the date hereof securities, having an aggregate liquidation amount of up to $18,000,000, designated the TP Securities (the Capital Securities); and
WHEREAS, as incentive for the Holders to purchase the Capital Securities, the Guarantor desires irrevocably and unconditionally to agree, to the extent set forth in this Guarantee, to pay to the Holders of Capital Securities the Guarantee Payments (as defined herein) and to make certain other payments on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the purchase by each Holder of the Capital Securities, which purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers this Guarantee for the benefit of the Holders.
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1. Definitions and Interpretation.
In this Guarantee, unless the context otherwise requires:
(a) capitalized terms used in this Guarantee but not defined in the preamble above have the respective meanings assigned to them in this Section 1.1;
(b) a term defined anywhere in this Guarantee has the same meaning throughout;
(c) all references to the Guarantee or this Guarantee are to this Guarantee as modified, supplemented or amended from time to time;
(d) all references in this Guarantee to Articles and Sections are to Articles and Sections of this Guarantee, unless otherwise specified;
(e) terms defined in the Declaration as of the date of execution of this Guarantee have the same meanings when used in this Guarantee, unless otherwise defined in this Guarantee or unless the context otherwise requires; and
(f) a reference to the singular includes the plural and vice versa.
Beneficiaries means any Person to whom the Issuer is or hereafter becomes indebted or liable.
Corporate Trust Office means the office of the Guarantee Trustee at which the corporate trust business of the Guarantee Trustee shall, at any particular time, be principally administered, which office at the date of execution of this Guarantee is located at 919 Market Street, Suite 700, Wilmington, DE 19801.
Covered Person means any Holder of Capital Securities.
Debentures means the junior subordinated debentures of Center Financial Corporation, designated the Junior Subordinated Debt Securities due 2034, held by the Institutional Trustee (as defined in the Declaration) of the Issuer.
Event of Default has the meaning set forth in Section 2.4.
Guarantee Payments means the following payments or distributions, without duplication, with respect to the Capital Securities, to the extent not paid or made by the Issuer: (i) any accrued and unpaid Distributions (as defined in the Declaration) which are required to be paid on such Capital Securities to the extent the Issuer has funds available in the Property Account (as defined in the Declaration) therefor at such time, (ii) the Redemption Price (as defined in the Indenture) to the extent the Issuer has funds available in the Property Account therefor at such time, with respect to any Capital Securities called for redemption by the Issuer, (iii) the Special Redemption Price (as defined in the Indenture) to the extent the Issuer has funds available in the Property Account therefor at such time, with respect to Capital Securities called for redemption upon the occurrence of a Special Event (as defined in the Indenture), and (iv) upon a voluntary or involuntary liquidation, dissolution, winding-up or termination of the Issuer (other than in connection with the distribution of Debentures to the Holders of the Capital Securities in exchange therefor as provided in the Declaration), the lesser of (a) the aggregate of the liquidation amount and all accrued and unpaid Distributions on the Capital Securities to the date of payment, to the extent the Issuer has funds available in the Property Account therefor at such time, and (b) the amount of assets of the Issuer remaining available for distribution to Holders in liquidation of the Issuer after satisfaction of liabilities to creditors of the Issuer as required by applicable law (in either case, the Liquidation Distribution).
Guarantee Trustee means Wells Fargo Bank, National Association, until a Successor Guarantee Trustee has been appointed and has accepted such appointment pursuant to the terms of this Guarantee and thereafter means each such Successor Guarantee Trustee.
Holder means any holder, as registered on the books and records of the Issuer, of any Capital Securities; provided, however, that, in determining whether the holders of the requisite percentage of Capital Securities have given any request, notice, consent or waiver hereunder, Holder shall not include the Guarantor or any Affiliate of the Guarantor.
Indemnified Person means the Guarantee Trustee (including in its individual capacity), any Affiliate of the Guarantee Trustee, or any officers, directors, shareholders, members, partners, employees, representatives, nominees, custodians or agents of the Guarantee Trustee.
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Indenture means the Indenture, dated as of December 30, 2003, between the Guarantor and Wells Fargo Bank, National Association, not in its individual capacity but solely as trustee, and any indenture supplemental thereto pursuant to which the Debentures are to be issued to the Institutional Trustee of the Issuer.
Liquidation Distribution has the meaning set forth in the definition of Guarantee Payments herein.
Majority in liquidation amount of the Capital Securities means Holder(s) of outstanding Capital Securities, voting together as a class, but separately from the holders of Common Securities, of more than 50% of the aggregate liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to, but excluding, the date upon which the voting percentages are determined) of all Capital Securities then outstanding.
Obligations means any costs, expenses or liabilities (but not including liabilities related to taxes) of the Issuer, other than obligations of the Issuer to pay to holders of any Trust Securities the amounts due such holders pursuant to the terms of the Trust Securities.
Officers Certificate means, with respect to any Person, a certificate signed by one Authorized Officer of such Person. Any Officers Certificate delivered with respect to compliance with a condition or covenant provided for in this Guarantee shall include:
(a) a statement that each officer signing the Officers Certificate has read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Officers Certificate;
(c) a statement that each such officer has made such examination or investigation as, in such officers opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with.
Person means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature.
Responsible Officer means, with respect to the Guarantee Trustee, any officer within the Corporate Trust Office of the Guarantee Trustee with direct responsibility for the administration of any matters relating to this Guarantee, including any vice president, any
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assistant vice president, any secretary, any assistant secretary, the treasurer, any assistant treasurer, any trust officer or other officer of the Corporate Trust Office of the Guarantee Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officers knowledge of and familiarity with the particular subject.
Successor Guarantee Trustee means a successor Guarantee Trustee possessing the qualifications to act as Guarantee Trustee under Section 3.1.
Trust Securities means the Common Securities and the Capital Securities.
ARTICLE II
POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE
SECTION 2.1. Powers and Duties of the Guarantee Trustee.
(a) This Guarantee shall be held by the Guarantee Trustee for the benefit of the Holders of the Capital Securities, and the Guarantee Trustee shall not transfer this Guarantee to any Person except a Holder of Capital Securities exercising his or her rights pursuant to Section 4.4(b) or to a Successor Guarantee Trustee on acceptance by such Successor Guarantee Trustee of its appointment to act as Successor Guarantee Trustee. The right, title and interest of the Guarantee Trustee shall automatically vest in any Successor Guarantee Trustee, and such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered pursuant to the appointment of such Successor Guarantee Trustee.
(b) If an Event of Default actually known to a Responsible Officer of the Guarantee Trustee has occurred and is continuing, the Guarantee Trustee shall enforce this Guarantee for the benefit of the Holders of the Capital Securities.
(c) The Guarantee Trustee, before the occurrence of any Event of Default and after the curing or waiving of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Guarantee, and no implied covenants shall be read into this Guarantee against the Guarantee Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.4(b)) and is actually known to a Responsible Officer of the Guarantee Trustee, the Guarantee Trustee shall exercise such of the rights and powers vested in it by this Guarantee, and use the same degree of care and skill in its exercise thereof, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs.
(d) No provision of this Guarantee shall be construed to relieve the Guarantee Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that:
(i) prior to the occurrence of any Event of Default and after the curing or waiving of all Events of Default that may have occurred:
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(A) the duties and obligations of the Guarantee Trustee shall be determined solely by the express provisions of this Guarantee, and the Guarantee Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Guarantee, and no implied covenants or obligations shall be read into this Guarantee against the Guarantee Trustee; and
(B) in the absence of bad faith on the part of the Guarantee Trustee, the Guarantee Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Guarantee Trustee and conforming to the requirements of this Guarantee; but in the case of any such certificates or opinions furnished to the Guarantee Trustee, the Guarantee Trustee shall be under a duty to examine the same to determine whether or not on their face they conform to the requirements of this Guarantee;
(ii) the Guarantee Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Guarantee Trustee, unless it shall be proved that such Responsible Officer of the Guarantee Trustee or the Guarantee Trustee was negligent in ascertaining the pertinent facts upon which such judgment was made;
(iii) the Guarantee Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the written direction of the Holders of not less than a Majority in liquidation amount of the Capital Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee, or exercising any trust or power conferred upon the Guarantee Trustee under this Guarantee; and
(iv) no provision of this Guarantee shall require the Guarantee Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if the Guarantee Trustee shall have reasonable grounds for believing that the repayment of such funds is not reasonably assured to it under the terms of this Guarantee, or security and indemnity, reasonably satisfactory to the Guarantee Trustee, against such risk or liability is not reasonably assured to it.
SECTION 2.2. Certain Rights of the Guarantee Trustee.
(a) Subject to the provisions of Section 2.1:
(i) The Guarantee Trustee may conclusively rely, and shall be fully protected in acting or refraining from acting upon, any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed, sent or presented by the proper party or parties.
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(ii) Any direction or act of the Guarantor contemplated by this Guarantee shall be sufficiently evidenced by an Officers Certificate.
(iii) Whenever, in the administration of this Guarantee, the Guarantee Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Guarantee Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an Officers Certificate of the Guarantor which, upon receipt of such request, shall be promptly delivered by the Guarantor.
(iv) The Guarantee Trustee shall have no duty to see to any recording, filing or registration of any instrument or other writing (or any rerecording, refiling or reregistration thereof).
(v) The Guarantee Trustee may consult with counsel of its selection, and the advice or opinion of such counsel with respect to legal matters shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with such advice or opinion. Such counsel may be counsel to the Guarantor or any of its Affiliates and may include any of its employees. The Guarantee Trustee shall have the right at any time to seek instructions concerning the administration of this Guarantee from any court of competent jurisdiction.
(vi) The Guarantee Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Guarantee at the request or direction of any Holder, unless such Holder shall have provided to the Guarantee Trustee such security and indemnity, reasonably satisfactory to the Guarantee Trustee, against the costs, expenses (including attorneys fees and expenses and the expenses of the Guarantee Trustees agents, nominees or custodians) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Guarantee Trustee; provided, however, that nothing contained in this Section 2.2(a)(vi) shall be taken to relieve the Guarantee Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Guarantee.
(vii) The Guarantee Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Guarantee Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit.
(viii) The Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, nominees, custodians or attorneys, and the Guarantee Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder.
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(ix) Any action taken by the Guarantee Trustee or its agents hereunder shall bind the Holders of the Capital Securities, and the signature of the Guarantee Trustee or its agents alone shall be sufficient and effective to perform any such action. No third party shall be required to inquire as to the authority of the Guarantee Trustee to so act or as to its compliance with any of the terms and provisions of this Guarantee, both of which shall be conclusively evidenced by the Guarantee Trustees or its agents taking such action.
(x) Whenever in the administration of this Guarantee the Guarantee Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Guarantee Trustee (A) may request instructions from the Holders of a Majority in liquidation amount of the Capital Securities, (B) may refrain from enforcing such remedy or right or taking such other action until such instructions are received and (C) shall be protected in conclusively relying on or acting in accordance with such instructions.
(xi) The Guarantee Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Guarantee.
(b) No provision of this Guarantee shall be deemed to impose any duty or obligation on the Guarantee Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it, in any jurisdiction in which it shall be illegal or in which the Guarantee Trustee shall be unqualified or incompetent in accordance with applicable law to perform any such act or acts or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Guarantee Trustee shall be construed to be a duty.
SECTION 2.3. Not Responsible for Recitals or Issuance of Guarantee.
The recitals contained in this Guarantee shall be taken as the statements of the Guarantor, and the Guarantee Trustee does not assume any responsibility for their correctness. The Guarantee Trustee makes no representation as to the validity or sufficiency of this Guarantee.
SECTION 2.4. Events of Default; Waiver.
(a) An Event of Default under this Guarantee will occur upon the failure of the Guarantor to perform any of its payment or other obligations hereunder.
(b) The Holders of a Majority in liquidation amount of the Capital Securities may, voting or consenting as a class, on behalf of the Holders of all of the Capital Securities, waive any past Event of Default and its consequences. Upon such waiver, any
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such Event of Default shall cease to exist, and shall be deemed to have been cured, for every purpose of this Guarantee, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon.
SECTION 2.5. Events of Default; Notice.
(a) The Guarantee Trustee shall, within 90 days after the occurrence of an Event of Default, transmit by mail, first class postage prepaid, to the Holders of the Capital Securities, notices of all Events of Default actually known to a Responsible Officer of the Guarantee Trustee, unless such defaults have been cured before the giving of such notice, provided, however, that the Guarantee Trustee shall be protected in withholding such notice if and so long as a Responsible Officer of the Guarantee Trustee in good faith determines that the withholding of such notice is in the interests of the Holders of the Capital Securities.
(b) The Guarantee Trustee shall not be charged with knowledge of any Event of Default unless the Guarantee Trustee shall have received written notice thereof from the Guarantor or a Holder of the Capital Securities, or a Responsible Officer of the Guarantee Trustee charged with the administration of this Guarantee shall have actual knowledge thereof.
ARTICLE III
THE GUARANTEE TRUSTEE
SECTION 3.1. The Guarantee Trustee; Eligibility.
(a) There shall at all times be a Guarantee Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a corporation or national association organized and doing business under the laws of the United States of America or any state or territory thereof or of the District of Columbia, or Person authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least 50 million U.S. dollars ($50,000,000), and subject to supervision or examination by federal, state, territorial or District of Columbia authority. If such corporation or national association publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then, for the purposes of this Section 3.1(a)(ii), the combined capital and surplus of such corporation or national association shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published.
(b) If at any time the Guarantee Trustee shall cease to be eligible to so act under Section 3.1(a), the Guarantee Trustee shall immediately resign in the manner and with the effect set forth in Section 3.2(c).
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(c) If the Guarantee Trustee has or shall acquire any conflicting interest within the meaning of Section 310(b) of the Trust Indenture Act, the Guarantee Trustee shall either eliminate such interest or resign to the extent and in the manner provided by, and subject to, this Guarantee.
SECTION 3.2. Appointment, Removal and Resignation of the Guarantee Trustee.
(a) Subject to Section 3.2(b), the Guarantee Trustee may be appointed or removed without cause at any time by the Guarantor except during an Event of Default.
(b) The Guarantee Trustee shall not be removed in accordance with Section 3.2(a) until a Successor Guarantee Trustee has been appointed and has accepted such appointment by written instrument executed by such Successor Guarantee Trustee and delivered to the Guarantor.
(c) The Guarantee Trustee appointed to office shall hold office until a Successor Guarantee Trustee shall have been appointed or until its removal or resignation. The Guarantee Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing executed by the Guarantee Trustee and delivered to the Guarantor, which resignation shall not take effect until a Successor Guarantee Trustee has been appointed and has accepted such appointment by an instrument in writing executed by such Successor Guarantee Trustee and delivered to the Guarantor and the resigning Guarantee Trustee.
(d) If no Successor Guarantee Trustee shall have been appointed and accepted appointment as provided in this Section 3.2 within 60 days after delivery of an instrument of removal or resignation, the Guarantee Trustee resigning or being removed may petition any court of competent jurisdiction for appointment of a Successor Guarantee Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Successor Guarantee Trustee.
(e) No Guarantee Trustee shall be liable for the acts or omissions to act of any Successor Guarantee Trustee.
(f) Upon termination of this Guarantee or removal or resignation of the Guarantee Trustee pursuant to this Section 3.2, the Guarantor shall pay to the Guarantee Trustee all amounts owing to the Guarantee Trustee under Sections 7.2 and 7.3 accrued to the date of such termination, removal or resignation.
ARTICLE IV
GUARANTEE
SECTION 4.1. Guarantee.
(a) The Guarantor irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by the Issuer), as and when due, regardless of any defense (except as defense of payment by the Issuer), right of set-off or counterclaim that the Issuer may have or assert. The
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Guarantors obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Issuer to pay such amounts to the Holders.
(b) The Guarantor hereby also agrees to assume any and all Obligations of the Issuer and in the event any such Obligation is not so assumed, subject to the terms and conditions hereof, the Guarantor hereby irrevocably and unconditionally guarantees to each Beneficiary the full payment, when and as due, of any and all Obligations to such Beneficiaries. This Guarantee is intended to be for the Beneficiaries who have received notice hereof.
SECTION 4.2. Waiver of Notice and Demand.
The Guarantor hereby waives notice of acceptance of this Guarantee and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Issuer or any other Person before proceeding against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands.
SECTION 4.3. Obligations Not Affected.
The obligations, covenants, agreements and duties of the Guarantor under this Guarantee shall in no way be affected or impaired by reason of the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Issuer of any express or implied agreement, covenant, term or condition relating to the Capital Securities to be performed or observed by the Issuer;
(b) the extension of time for the payment by the Issuer of all or any portion of the Distributions, Redemption Price, Special Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Capital Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Capital Securities (other than an extension of time for the payment of the Distributions, Redemption Price, Special Redemption Price, Liquidation Distribution or other sums payable that results from the extension of any interest payment period on the Debentures or any extension of the maturity date of the Debentures permitted by the Indenture);
(c) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Capital Securities, or any action on the part of the Issuer granting indulgence or extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Issuer or any of the assets of the Issuer;
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(e) any invalidity of, or defect or deficiency in, the Capital Securities;
(f) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or
(g) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 4.3 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or obtain consent of, the Guarantor with respect to the happening of any of the foregoing.
SECTION 4.4. Rights of Holders.
(a) The Holders of a Majority in liquidation amount of the Capital Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee in respect of this Guarantee or to direct the exercise of any trust or power conferred upon the Guarantee Trustee under this Guarantee; provided, however, that (subject to Sections 2.1 and 2.2) the Guarantee Trustee shall have the right to decline to follow any such direction if the Guarantee Trustee shall determine that the actions so directed would be unjustly prejudicial to the Holders not taking part in such direction or if the Guarantee Trustee being advised by legal counsel determines that the action or proceeding so directed may not lawfully be taken or if the Guarantee Trustee in good faith by its board of directors or trustees, executive committee or a trust committee of directors or trustees and/or Responsible Officers shall determine that the action or proceeding so directed would involve the Guarantee Trustee in personal liability.
(b) Any Holder of Capital Securities may institute a legal proceeding directly against the Guarantor to enforce the Guarantee Trustees rights under this Guarantee, without first instituting a legal proceeding against the Issuer, the Guarantee Trustee or any other Person. The Guarantor waives any right or remedy to require that any such action be brought first against the Issuer, the Guarantee Trustee or any other Person before so proceeding directly against the Guarantor.
SECTION 4.5. Guarantee of Payment.
This Guarantee creates a guarantee of payment and not of collection.
SECTION 4.6. Subrogation.
The Guarantor shall be subrogated to all (if any) rights of the Holders of Capital Securities against the Issuer in respect of any amounts paid to such Holders by the Guarantor under this Guarantee; provided, however, that the Guarantor shall not (except to the extent required by applicable provisions of law) be entitled to enforce or exercise any right that it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Guarantee, if, after giving effect to any such payment, any
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amounts are due and unpaid under this Guarantee. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders.
SECTION 4.7. Independent Obligations.
The Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Issuer with respect to the Capital Securities and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Guarantee notwithstanding the occurrence of any event referred to in subsections (a) through (g), inclusive, of Section 4.3 hereof.
SECTION 4.8. Enforcement.
A Beneficiary may enforce the Obligations of the Guarantor contained in Section 4.1 (b) directly against the Guarantor, and the Guarantor waives any right or remedy to require that any action be brought against the Issuer or any other person or entity before proceeding against the Guarantor.
The Guarantor shall be subrogated to all rights (if any) of any Beneficiary against the Issuer in respect of any amounts paid to the Beneficiaries by the Guarantor under this Guarantee; provided, however, that the Guarantor shall not (except to the extent required by applicable provisions of law) be entitled to enforce or exercise any rights that it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Guarantee, if, after giving effect to such payment, any amounts are due and unpaid under this Guarantee.
ARTICLE V
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 5.1. Limitation of Transactions.
So long as any Capital Securities remain outstanding, if (a) there shall have occurred and be continuing an Event of Default or (b) the Guarantor shall have selected an Extension Period as provided in the Declaration and such period, or any extension thereof, shall have commenced and be continuing, then the Guarantor may not (x) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Guarantors capital stock or (y) make any payment of principal of or interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Guarantor that rank pari passu in all respects with or junior in interest to the Debentures (other than (i) payments under this Guarantee, (ii) repurchases, redemptions or other acquisitions of shares of capital stock of the Guarantor (A) in connection with any employment contract, benefit plan or other similar arrangement with or for the benefit of one or more employees, officers, directors, or consultants, (B) in connection with a dividend reinvestment or stockholder stock purchase plan or (C) in connection with the issuance of capital stock of the Guarantor (or securities convertible into or exercisable for such capital stock), as consideration in an acquisition transaction entered into prior to the occurrence of the Event of Default or the applicable Extension Period, (iii) as a result of any exchange, reclassification, combination or
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conversion of any class or series of the Guarantors capital stock (or any capital stock of a subsidiary of the Guarantor) for any class or series of the Guarantors capital stock or of any class or series of the Guarantors indebtedness for any class or series of the Guarantors capital stock, (iv) the purchase of fractional interests in shares of the Guarantors capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged, (v) any declaration of a dividend in connection with any stockholders rights plan, or the issuance of rights, stock or other property under any stockholders rights plan, or the redemption or repurchase of rights pursuant thereto, or (vi) any dividend in the form of stock, warrants, options or other rights where the dividend stock or the stock issuable upon exercise of such warrants, options or other rights is the same stock as that on which the dividend is being paid or ranks pari passu with or junior to such stock).
SECTION 5.2. Ranking.
This Guarantee will constitute an unsecured obligation of the Guarantor and will rank subordinate and junior in right of payment to all present and future Senior Indebtedness (as defined in the Indenture) of the Guarantor. By their acceptance thereof, each Holder of Capital Securities agrees to the foregoing provisions of this Guarantee and the other terms set forth herein.
The right of the Guarantor to participate in any distribution of assets of any of its subsidiaries upon any such subsidiarys liquidation or reorganization or otherwise is subject to the prior claims of creditors of that subsidiary, except to the extent the Guarantor may itself be recognized as a creditor of that subsidiary. Accordingly, the Guarantors obligations under this Guarantee will be effectively subordinated to all existing and future liabilities of the Guarantors subsidiaries, and claimants should look only to the assets of the Guarantor for payments thereunder. This Guarantee does not limit the incurrence or issuance of other secured or unsecured debt of the Guarantor, including Senior Indebtedness of the Guarantor, under any indenture or agreement that the Guarantor may enter into in the future or otherwise.
ARTICLE VI
TERMINATION
SECTION 6.1. Termination.
This Guarantee shall terminate as to the Capital Securities (i) upon full payment of the Redemption Price or the Special Redemption Price, as the case may be, of all Capital Securities then outstanding, (ii) upon the distribution of all of the Debentures to the Holders of all of the Capital Securities or (iii) upon full payment of the amounts payable in accordance with the Declaration upon dissolution of the Issuer. This Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any Holder of Capital Securities must restore payment of any sums paid under the Capital Securities or under this Guarantee.
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ARTICLE VII
INDEMNIFICATION
SECTION 7.1. Exculpation.
(a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Guarantor or any Covered Person for any loss, damage or claim incurred by reason of any act or omission of such Indemnified Person in good faith in accordance with this Guarantee and in a manner that such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Guarantee or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Persons negligence or willful misconduct with respect to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Issuer or the Guarantor and upon such information, opinions, reports or statements presented to the Issuer or the Guarantor by any Person as to matters the Indemnified Person reasonably believes are within such other Persons professional or expert competence and who, if selected by such Indemnified Person, has been selected with reasonable care by such Indemnified Person, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Capital Securities might properly be paid.
SECTION 7.2. Indemnification.
(a) The Guarantor agrees to indemnify each Indemnified Person for, and to hold each Indemnified Person harmless against, any and all loss, liability, damage, claim or expense incurred without negligence or willful misconduct on the part of the Indemnified Person, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including but not limited to the costs and expenses (including reasonable legal fees and expenses) of the Indemnified Person defending itself against, or investigating, any claim or liability in connection with the exercise or performance of any of the Indemnified Persons powers or duties hereunder. The obligation to indemnify as set forth in this Section 7.2 shall survive the resignation or removal of the Guarantee Trustee and the termination of this Guarantee.
(b) Promptly after receipt by an Indemnified Person under this Section 7.2 of notice of the commencement of any action, such Indemnified Person will, if a claim in respect thereof is to be made against the Guarantor under this Section 7.2, notify the Guarantor in writing of the commencement thereof; but the failure so to notify the Guarantor (i) will not relieve the Guarantor from liability under paragraph (a) above unless and to the extent that the Guarantor did not otherwise learn of such action and such failure results in the forfeiture by the Guarantor of substantial rights and defenses and (ii) will not, in any event, relieve the Guarantor from any obligations to any Indemnified Person other than the indemnification obligation provided in paragraph (a) above. The Guarantor shall be entitled to appoint counsel of the Guarantors choice at the Guarantors
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expense to represent the Indemnified Person in any action for which indemnification is sought (in which case the Guarantor shall not thereafter be responsible for the fees and expenses of any separate counsel retained by the Indemnified Person or Persons except as set forth below); provided, however, that such counsel shall be satisfactory to the Indemnified Person. Notwithstanding the Guarantors election to appoint counsel to represent the Indemnified Person in any action, the Indemnified Person shall have the right to employ separate counsel (including local counsel), and the Guarantor shall bear the reasonable fees, costs and expenses of such separate counsel (and local counsel), if (i) the use of counsel chosen by the Guarantor to represent the Indemnified Person would present such counsel with a conflict of interest, (ii) the actual or potential defendants in, or targets of, any such action include both the Indemnified Person and the Guarantor and the Indemnified Person shall have reasonably concluded that there may be legal defenses available to it and/or other Indemnified Persons which are different from or additional to those available to the Guarantor, (iii) the Guarantor shall not have employed counsel satisfactory to the Indemnified Person to represent the Indemnified Person within a reasonable time after notice of the institution of such action or (iv) the Guarantor shall authorize the Indemnified Person to employ separate counsel at the expense of the Guarantor. The Guarantor will not, without the prior written consent of the Indemnified Persons, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the Indemnified Persons are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each Indemnified Person from all liability arising out of such claim, action, suit or proceeding.
SECTION 7.3. Compensation; Reimbursement of Expenses.
The Guarantor agrees:
(a) to pay to the Guarantee Trustee from time to time such compensation for all services rendered by it hereunder as the parties shall agree to from time to time (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); and
(b) except as otherwise expressly provided herein, to reimburse the Guarantee Trustee upon request for all reasonable expenses, disbursements and advances incurred or made by it in accordance with any provision of this Guarantee (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or willful misconduct.
The provisions of this Section 7.3 shall survive the resignation or removal of the Guarantee Trustee and the termination of this Guarantee.
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ARTICLE VIII
MISCELLANEOUS
SECTION 8.1. Successors and Assigns.
All guarantees and agreements contained in this Guarantee shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Capital Securities then outstanding. Except in connection with any merger or consolidation of the Guarantor with or into another entity or any sale, transfer or lease of the Guarantors assets to another entity, in each case to the extent permitted under the Indenture, the Guarantor may not assign its rights or delegate its obligations under this Guarantee without the prior approval of the Holders of not less than a Majority in liquidation amount of the Capital Securities.
SECTION 8.2. Amendments.
Except with respect to any changes that do not adversely affect the rights of Holders of the Capital Securities in any material respect (in which case no consent of Holders will be required), this Guarantee may be amended only with the prior approval of the Holders of not less than a Majority in liquidation amount of the Capital Securities. The provisions of the Declaration with respect to amendments thereof shall apply equally with respect to amendments of the Guarantee.
SECTION 8.3. Notices.
All notices provided for in this Guarantee shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by first class mail, as follows:
(a) If given to the Guarantee Trustee, at the Guarantee Trustees mailing address set forth below (or such other address as the Guarantee Trustee may give notice of to the Holders of the Capital Securities):
Wells Fargo Bank, National Association
919 Market Street
Suite 700
Wilmington, DE 19801
Attention: Corporate Trust Division
Telecopy: 302-575-2006
Telephone: 302-575-2005
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(b) If given to the Guarantor, at the Guarantors mailing address set forth below (or such other address as the Guarantor may give notice of to the Holders of the Capital Securities and to the Guarantee Trustee):
Center Financial Corporation
3435 Wilshire Boulevard, Suite 700
Los Angeles, CA 90010
Attention: Yong Hwa Kim, Chief Financial Officer
Telecopy: (213) 386-6774
Telephone: (213) 251-2222
(c) If given to any Holder of the Capital Securities, at the address set forth on the books and records of the Issuer.
All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid, except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver.
SECTION 8.4. Benefit.
This Guarantee is solely for the benefit of the Holders of the Capital Securities and, subject to Section 2.1(a), is not separately transferable from the Capital Securities.
SECTION 8.5. Governing Law.
THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF.
SECTION 8.6. Counterparts.
This Guarantee may contain more than one counterpart of the signature page and this Guarantee may be executed by the affixing of the signature of the Guarantor and the Guarantee Trustee to any of such counterpart signature pages. All of such counterpart signature pages shall be read as though one, and they shall have the same force and effect as though all of the signers had signed a single signature page.
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THIS GUARANTEE is executed as of the day and year first above written.
Center Financial Corporation, as Guarantor | ||
By: | ||
Name: Yong Hwa Kim | ||
Title: Chief Financial Officer |
WELLS FARGO BANK, NATIONAL ASSOCIATION, as Guarantee Trustee | ||
By: | ||
Name: | ||
Title: |
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Exhibit 4.23
Delaware
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 DESIGNATION OF NARA BANCORP, INC., FILED IN THIS OFFICE ON THE THIRTIETH DAY OF NOVEMBER, A. D. 2011, AT 10:37 OCLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT COUNTY RECORDER OF DEEDS.
3239893 8100
111239087 You may verify this certificate online at corp. delware. gov/authver.shtml |
/s/ Jeffrey W. Bullock Jeffrey W. Bullock, Secretary of State AUTHENTICATION: 9187994
DATE: 11-30-11 |
State of Delaware | ||||||
Secretary of State | ||||||
Division of Corporations | ||||||
Delivered 10:37 AM 11/30/2011 | ||||||
FILED 10:37 AM 11/30/2011 | ||||||
SRV 111239087-3239893 FILE |
CERTIFICATE OF DESIGNATIONS
OF
FIXED RATE CUMULATIVE PERPETUAL PREFERRED STOCK, SERIES B
OF
NARA BANCORP, INC.
NARA BANCORP, INC., a corporation organized and existing under the laws of the State of Delaware (hereinafter called the Corporation), in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware, does hereby certify:
The board of directors of the Corporation (the Board of Directors) or an applicable committee of the Board of Directors, in accordance with the certificate of incorporation and the bylaws of the Corporation and applicable law, adopted the following resolution on November 16, 2011.
RESOLVED, that pursuant to the provisions of the certificate of incorporation of the Corporation and applicable law, a series of preferred stock, par value $0.001 per share, of the Corporation, in the amount of 55,000 shares designated as Fixed Rate Cumulative Perpetual Preferred Stock, Series B (the Series B Preferred Stock), be and hereby is created, and that the voting and other powers, preferences and relative, participating, optional and other rights, and the qualifications, limitations and restrictions thereof, of the Series B Preferred Stock, are as follows:
Part 1. Designation and Number of Shares. There is hereby created out of the authorized and unissued shares of preferred stock of the Corporation a series of preferred stock designated as the Fixed Rate Cumulative Perpetual Preferred Stock, Series B (the Designated Preferred Stock). The authorized number of shares of Designated Preferred Stock shall be Fifty-Five Thousand (55,000).
Part 2. Standard Provisions. The Standard Provisions contained in Annex A attached hereto are incorporated herein by reference in their entirety and shall be deemed to be a part of this Certificate of Designations to the same extent as if such provisions had been set forth in full herein.
Part 3. Definitions. The following terms are used in this Certificate of Designations (including the Standard Provisions in Annex A hereto) as defined below:
(a) Common Stock means the common stock, par value $0.001 per share, of the Corporation.
(b) Dividend Payment Date means February 15, May 15, August 15 and November 15 of each year.
(c) Junior Stock means the Common Stock, and any other class or series of stock of the Corporation the terms of which expressly provide that it ranks junior to Designated Preferred Stock as to dividend rights and/or as to rights on liquidation, dissolution or winding up of the Corporation.
(d) Liquidation Amount means $1,000 per share of Designated Preferred Stock.
(e) Minimum Amount means $13,750,000.
(f) Parity Stock means any class or series of stock of the Corporation (other than Designated Preferred Stock) the terms of which do not expressly provide that such class or series will rank senior or junior to Designated Preferred Stock as to dividend rights and/or as to rights on liquidation, dissolution or winding up of the Corporation (in each case without regard to whether dividends accrue cumulatively or non-cumulatively).
(g) Signing Date means the Original Issue Date.
Part 4. Certain Voting Matters. Holders of shares of Designated Preferred Stock will be entitled to one vote for each such share on any matter on which holders of Designated Preferred Stock are entitled to vote, including any action by written consent.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, NARA BANCORP, INC. has caused this Certificate of Designations to be signed by Alvin D. Kang, President and Chief Executive Officer, as of the 30th day of November, 2011.
NARA BANCORP, INC. | ||
By: |
/s/ Alvin D. Kang | |
Name: |
Alvin D. Kang | |
Title: |
President and Chief Executive Officer |
ANNEX A
STANDARD PROVISIONS
Section 1. General Matters. Each share of Designated Preferred Stock shall be identical in all respects to every other share of Designated Preferred Stock. The Designated Preferred Stock shall be perpetual, subject to the provisions of Section 5 of these Standard Provisions that form a part of the Certificate of Designations. The Designated Preferred Stock shall rank equally with Parity Stock and shall rank senior to Junior Stock with respect to the payment of dividends and the distribution of assets in the event of any dissolution, liquidation or winding up of the Corporation.
Section 2. Standard Definitions. As used herein with respect to Designated Preferred Stock:
(a) Applicable Dividend Rate means (i) during the period from the Original Issue Date to, but excluding, the first day of the first Dividend Period commencing on or after the fifth anniversary of the Original Issue Date, 5% per annum and (ii) from and after the first day of the first Dividend Period commencing on or after the fifth anniversary of the Original Issue Date, 9% per annum.
(b) Appropriate Federal Banking Agency means the appropriate Federal banking agency with respect to the Corporation as defined in Section 3(q) of the Federal Deposit Insurance Act (12 U.S.C. Section 1813(q)), or any successor provision.
(c) Business Combination means a merger, consolidation, statutory share exchange or similar transaction that requires the approval of the Corporations stockholders.
(d) 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.
(e) Bylaws means the bylaws of the Corporation, as they may be amended from time to time.
(f) Certificate of Designations means the Certificate of Designations or comparable instrument relating to the Designated Preferred Stock, of which these Standard Provisions form a part, as it may be amended from time to time.
(g) Charter means the Corporations certificate or articles of incorporation, articles of association, or similar organizational document.
(h) Dividend Period has the meaning set forth in Section 3(a).
(i) Dividend Record Date has the meaning set forth in Section 3(a).
(j) Liquidation Preference has the meaning set forth in Section 4(a).
(k) Original Issue Date means December 12, 2008.
(l) Preferred Director has the meaning set forth in Section 7(b).
(m) Preferred Stock means any and all series of preferred stock of the Corporation, including the Designated Preferred Stock.
(n) Qualified Equity Offering means the sale and issuance for cash by the Corporation to persons other than the Corporation or any of its subsidiaries after the Original Issue Date of shares of perpetual Preferred Stock, Common Stock or any combination of such stock, that, in each case, qualify as and may be included in Tier 1 capital of the Corporation at the time of issuance under the applicable risk-based capital guidelines of the Corporations Appropriate Federal Banking Agency (other than any such sales and issuances made pursuant to agreements or arrangements entered into, or pursuant to financing plans which were publicly announced, on or prior to October 13, 2008).
(o) Share Dilution Amount has the meaning set forth in Section 3(b).
(p) Standard Provisions mean these Standard Provisions that form a part of the Certificate of Designations relating to the Designated Preferred Stock.
(q) Successor Preferred Stock has the meaning set forth in Section 5(a).
(r) Voting Parity Stock means, with regard to any matter as to which the holders of Designated Preferred Stock are entitled to vote as specified in Sections 7(a) and 7(b) of these Standard Provisions that form a part of the Certificate of Designations, any and all series of Parity Stock upon which like voting rights have been conferred and are exercisable with respect to such matter.
Section 3. Dividends.
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(a) Rate. Holders of Designated Preferred Stock shall be entitled to receive, on each share of Designated Preferred Stock if, as and when declared by the Board of Directors or any duly authorized committee of the Board of Directors, but only out of assets legally available therefor, cumulative cash dividends with respect to each Dividend Period (as defined below) at a rate per annum equal to the Applicable Dividend Rate on (i) the Liquidation Amount per share of Designated Preferred Stock and (ii) the amount of accrued and unpaid dividends for any prior Dividend Period on such share of Designated Preferred Stock, if any. Such dividends shall begin to accrue and be cumulative from November 30, 2011, shall compound on each subsequent Dividend Payment Date (i.e., no dividends shall accrue on other dividends unless and until the first Dividend Payment Date for such other dividends has passed without such other dividends having been paid on such date) and shall be payable quarterly in arrears on each Dividend Payment Date, commencing with the first such Dividend Payment Date to occur at least 20 calendar days after November 30, 2011. In the event that any Dividend Payment Date would otherwise fall on a day that is not a Business Day, the dividend payment due on that date will be postponed to the next day that is a Business Day and no additional dividends will accrue as a result of that postponement. The period from and including any Dividend Payment Date to, but excluding, the next Dividend Payment Date is a Dividend Period, provided that the initial Dividend Period shall be the period from and including November 30, 2011 to, but excluding, the next Dividend Payment Date.
Dividends that are payable on Designated Preferred Stock in respect of any Dividend Period shall be computed on the basis of a 360-day year consisting of twelve 30-day months. The amount of dividends payable on Designated Preferred Stock on any date prior to the end of a Dividend Period, and for the initial Dividend Period, shall be computed on the basis of a 360-day year consisting of twelve 30-day months, and actual days elapsed over a 30-day month.
Dividends that are payable on Designated Preferred Stock on any Dividend Payment Date will be payable to holders of record of Designated Preferred Stock as they appear on the stock register of the Corporation on the applicable record date, which shall be the 15th calendar day immediately preceding such Dividend Payment Date or such other record date fixed by the Board of Directors or any duly authorized committee of the Board of Directors that is not more than 60 nor less than 10 days prior to such Dividend Payment Date (each, a Dividend Record Date). Any such day that is a Dividend Record Date shall be a Dividend Record Date whether or not such day is a Business Day.
Holders of Designated Preferred Stock shall not be entitled to any dividends, whether payable in cash, securities or other property, other than dividends (if any) declared and payable on Designated Preferred Stock as specified in this Section 3 (subject to the other provisions of the Certificate of Designations).
(b) Priority of Dividends. So long as any share of Designated Preferred Stock remains outstanding, no dividend or distribution shall be declared or paid on the Common Stock or any other shares of Junior Stock (other than dividends payable solely in shares of Common Stock) or Parity Stock, subject to the immediately following paragraph in the case of Parity Stock, and no Common Stock, Junior Stock or Parity Stock shall be, directly or indirectly, purchased, redeemed or otherwise acquired for consideration by the Corporation or any of its subsidiaries unless all accrued and unpaid dividends for all past Dividend Periods, including the latest completed Dividend Period (including, if applicable as provided in Section 3(a) above, dividends on such amount), on all outstanding shares of Designated Preferred Stock have been or are contemporaneously declared and paid in full (or have been declared and a sum sufficient for the payment thereof has been set aside for the benefit of the holders of shares of Designated Preferred Stock on the applicable record date). The foregoing limitation shall not apply to (i) redemptions, purchases or other acquisitions of shares of Common Stock or other Junior Stock in connection with the administration of any employee benefit plan in the ordinary course of business (including purchases to offset the Share Dilution Amount (as defined below) pursuant to a publicly announced repurchase plan) and consistent with past practice, provided that any purchases to offset the Share Dilution Amount shall in no event exceed the Share Dilution Amount; (ii) purchases or other acquisitions by a broker-dealer subsidiary of the Corporation solely for the purpose of market-making, stabilization or customer facilitation transactions in Junior Stock or Parity Stock in the ordinary course of its business; (iii) purchases by a broker-dealer subsidiary of the Corporation of capital stock of the Corporation for resale pursuant to an offering by the Corporation of such capital stock underwritten by such broker-dealer subsidiary; (iv) any dividends or distributions of rights or Junior Stock in connection with a stockholders rights plan or any redemption or repurchase of rights pursuant to any stockholders rights plan; (v) the acquisition by the Corporation or any of its subsidiaries of record ownership in Junior Stock or Parity Stock for the beneficial ownership of any other persons (other than the Corporation or any of its subsidiaries), including as trustees or custodians; and (vi) the exchange or conversion of Junior Stock for or into other Junior Stock or of Parity Stock for or into other Parity Stock (with the same or lesser aggregate liquidation amount) or Junior Stock, in each case, solely to the extent required pursuant to binding contractual agreements entered into prior to the Signing Date or any subsequent agreement for the accelerated exercise, settlement or exchange thereof for Common Stock. Share Dilution Amount means the increase in the number of diluted shares outstanding (determined in accordance with generally accepted accounting principles in the United States, and as measured from the date of the Corporations consolidated financial statements most recently filed with the Securities and Exchange Commission prior to the Original Issue Date) resulting from the grant, vesting or exercise of equity-based compensation to employees and equitably adjusted for any stock split, stock dividend, reverse stock split, reclassification or similar transaction.
When dividends are not paid (or declared and a sum sufficient for payment thereof set aside for the benefit of the holders thereof on the applicable record date) on any Dividend Payment Date (or, in the case of Parity Stock having dividend payment dates different from the
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Dividend Payment Dates, on a dividend payment date falling within a Dividend Period related to such Dividend Payment Date) in full upon Designated Preferred Stock and any shares of Parity Stock, all dividends declared on Designated Preferred Stock and all such Parity Stock and payable on such Dividend Payment Date (or, in the case of Parity Stock having dividend payment dates different from the Dividend Payment Dates, on a dividend payment date falling within the Dividend Period related to such Dividend Payment Date) shall be declared pro rata so that the respective amounts of such dividends declared shall bear the same ratio to each other as all accrued and unpaid dividends per share on the shares of Designated Preferred Stock (including, if applicable as provided in Section 3(a) above, dividends on such amount) and all Parity Stock payable on such Dividend Payment Date (or, in the case of Parity Stock having dividend payment dates different from the Dividend Payment Dates, on a dividend payment date falling within the Dividend Period related to such Dividend Payment Date) (subject to their having been declared by the Board of Directors or a duly authorized committee of the Board of Directors out of legally available funds and including, in the case of Parity Stock that bears cumulative dividends, all accrued but unpaid dividends) bear to each other. If the Board of Directors or a duly authorized committee of the Board of Directors determines not to pay any dividend or a full dividend on a Dividend Payment Date, the Corporation will provide written notice to the holders of Designated Preferred Stock prior to such Dividend Payment Date.
Subject to the foregoing, and not otherwise, such dividends (payable in cash, securities or other property) as may be determined by the Board of Directors or any duly authorized committee of the Board of Directors may be declared and paid on any securities, including Common Stock and other Junior Stock, from time to time out of any funds legally available for such payment, and holders of Designated Preferred Stock shall not be entitled to participate in any such dividends.
Section 4. Liquidation Rights.
(a) Voluntary or Involuntary Liquidation. In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, holders of Designated Preferred Stock shall be entitled to receive for each share of Designated Preferred Stock, out of the assets of the Corporation or proceeds thereof (whether capital or surplus) available for distribution to stockholders of the Corporation, subject to the rights of any creditors of the Corporation, before any distribution of such assets or proceeds is made to or set aside for the holders of Common Stock and any other stock of the Corporation ranking junior to Designated Preferred Stock as to such distribution, payment in full in an amount equal to the sum of (i) the Liquidation Amount per share and (ii) the amount of any accrued and unpaid dividends (including, if applicable as provided in Section 3(a) above, dividends on such amount), whether or not declared, to the date of payment (such amounts collectively, the Liquidation Preference).
(b) Partial Payment. If in any distribution described in Section 4(a) above the assets of the Corporation or proceeds thereof are not sufficient to pay in full the amounts payable with respect to all outstanding shares of Designated Preferred Stock and the corresponding amounts payable with respect of any other stock of the Corporation ranking equally with Designated Preferred Stock as to such distribution, holders of Designated Preferred Stock and the holders of such other stock shall share ratably in any such distribution in proportion to the full respective distributions to which they are entitled.
(c) Residual Distributions. If the Liquidation Preference has been paid in full to all holders of Designated Preferred Stock and the corresponding amounts payable with respect of any other stock of the Corporation ranking equally with Designated Preferred Stock as to such distribution has been paid in full, the holders of other stock of the Corporation shall be entitled to receive all remaining assets of the Corporation (or proceeds thereof) according to their respective rights and preferences.
(d) Merger, Consolidation and Sale of Assets Not Liquidation. For purposes of this Section 4, the merger or consolidation of the Corporation with any other corporation or other entity, including a merger or consolidation in which the holders of Designated Preferred Stock receive cash, securities or other property for their shares, or the sale, lease or exchange (for cash, securities or other property) of all or substantially all of the assets of the Corporation, shall not constitute a liquidation, dissolution or winding up of the Corporation.
Section 5. Redemption.
(a) Optional Redemption. Except as provided below, the Designated Preferred Stock may not be redeemed prior to the first Dividend Payment Date falling on or after the third anniversary of the Original Issue Date. On or after the first Dividend Payment Date falling on or after the third anniversary of the Original Issue Date, the Corporation, at its option, subject to the approval of the Appropriate Federal Banking Agency, may redeem, in whole or in part, at any time and from time to time, out of funds legally available therefor, the shares of Designated Preferred Stock at the time outstanding, upon notice given as provided in Section 5(c) below, at a redemption price equal to the sum of (i) the Liquidation Amount per share and (ii) except as otherwise provided below, any accrued and unpaid dividends (including, if applicable as provided in Section 3(a) above, dividends on such amount) (regardless of whether any dividends are actually declared) to, but excluding, the date fixed for redemption.
Notwithstanding the foregoing, prior to the first Dividend Payment Date falling on or after the third anniversary of the Original Issue Date, the Corporation, at its option, subject to the approval of the Appropriate Federal Banking Agency, may redeem, in whole or in part, at any time and from time to time, the shares of Designated Preferred Stock at the time outstanding, upon notice given as provided in Section 5(c) below, at a redemption price equal to the sum of (i) the Liquidation Amount per share and (ii) except as otherwise provided
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below, any accrued and unpaid dividends (including, if applicable as provided in Section 3(a) above, dividends on such amount) (regardless of whether any dividends are actually declared) to, but excluding, the date fixed for redemption; provided that (x) the Corporation (or any successor by Business Combination) has received aggregate gross proceeds of not less than the Minimum Amount (plus the Minimum Amount as defined in the relevant certificate of designations for each other outstanding series of preferred stock of such successor that was originally issued to the United States Department of the Treasury (the Successor Preferred Stock) in connection with the Troubled Asset Relief Program Capital Purchase Program) from one or more Qualified Equity Offerings (including Qualified Equity Offerings of such successor), and (y) the aggregate redemption price of the Designated Preferred Stock (and any Successor Preferred Stock) redeemed pursuant to this paragraph may not exceed the aggregate net cash proceeds received by the Corporation (or any successor by Business Combination) from such Qualified Equity Offerings (including Qualified Equity Offerings of such successor).
The redemption price for any shares of Designated Preferred Stock shall be payable on the redemption date to the holder of such shares against surrender of the certificate(s) evidencing such shares to the Corporation or its agent. Any declared but unpaid dividends payable on a redemption date that occurs subsequent to the Dividend Record Date for a Dividend Period shall not be paid to the holder entitled to receive the redemption price on the redemption date, but rather shall be paid to the holder of record of the redeemed shares on such Dividend Record Date relating to the Dividend Payment Date as provided in Section 3 above.
(b) No Sinking Fund. The Designated Preferred Stock will not be subject to any mandatory redemption, sinking fund or other similar provisions. Holders of Designated Preferred Stock will have no right to require redemption or repurchase of any shares of Designated Preferred Stock.
(c) Notice of Redemption. Notice of every redemption of shares of Designated Preferred Stock shall be given by first class mail, postage prepaid, addressed to the holders of record of the shares to be redeemed at their respective last addresses appearing on the books of the Corporation. Such mailing shall be at least 30 days and not more than 60 days before the date fixed for redemption. Any notice mailed as provided in this Subsection shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, but failure duly to give such notice by mail, or any defect in such notice or in the mailing thereof, to any holder of shares of Designated Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Designated Preferred Stock. Notwithstanding the foregoing, if shares of Designated Preferred Stock are issued in book-entry form through The Depository Trust Corporation or any other similar facility, notice of redemption may be given to the holders of Designated Preferred Stock at such time and in any manner permitted by such facility. Each notice of redemption given to a holder shall state: (1) the redemption date; (2) the number of shares of Designated Preferred Stock to be redeemed and, if less than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (3) the redemption price; and (4) the place or places where certificates for such shares are to be surrendered for payment of the redemption price.
(d) Partial Redemption. In case of any redemption of part of the shares of Designated Preferred Stock at the time outstanding, the shares to be redeemed shall be selected either pro rata or in such other manner as the Board of Directors or a duly authorized committee thereof may determine to be fair and equitable. Subject to the provisions hereof, the Board of Directors or a duly authorized committee thereof shall have full power and authority to prescribe the terms and conditions upon which shares of Designated Preferred Stock shall be redeemed from time to time. If fewer than all the shares represented by any certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without charge to the holder thereof.
(e) Effectiveness of Redemption. If notice of redemption has been duly given and if on or before the redemption date specified in the notice all funds necessary for the redemption have been deposited by the Corporation, in trust for the pro rata benefit of the holders of the shares called for redemption, with a bank or trust company doing business in the Borough of Manhattan, The City of New York, and having a capital and surplus of at least $500 million and selected by the Board of Directors, so as to be and continue to be available solely therefor, then, notwithstanding that any certificate for any share so called for redemption has not been surrendered for cancellation, on and after the redemption date dividends shall cease to accrue on all shares so called for redemption, all shares so called for redemption shall no longer be deemed outstanding and all rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders thereof to receive the amount payable on such redemption from such bank or trust company, without interest. Any funds unclaimed at the end of three years from the redemption date shall, to the extent permitted by law, be released to the Corporation, after which time the holders of the shares so called for redemption shall look only to the Corporation for payment of the redemption price of such shares.
(f) Status of Redeemed Shares. Shares of Designated Preferred Stock that are redeemed, repurchased or otherwise acquired by the Corporation shall revert to authorized but unissued shares of Preferred Stock (provided that any such cancelled shares of Designated Preferred Stock may be reissued only as shares of any series of Preferred Stock other than Designated Preferred Stock).
Section 6. Conversion. Holders of Designated Preferred Stock shares shall have no right to exchange or convert such shares into any other securities.
Section 7. Voting Rights.
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(a) General. The holders of Designated Preferred Stock shall not have any voting rights except as set forth below or as otherwise from time to time required by law.
(b) Preferred Stock Directors. Whenever, at any time or times, dividends payable on the shares of Designated Preferred Stock have not been paid for an aggregate of six quarterly Dividend Periods or more, whether or not consecutive, the authorized number of directors of the Corporation shall automatically be increased by two and the holders of the Designated Preferred Stock shall have the right, with holders of shares of any one or more other classes or series of Voting Parity Stock outstanding at the time, voting together as a class, to elect two directors (hereinafter the Preferred Directors and each a Preferred Director) to fill such newly created directorships at the Corporations next annual meeting of stockholders (or at a special meeting called for that purpose prior to such next annual meeting) and at each subsequent annual meeting of stockholders until all accrued and unpaid dividends for all past Dividend Periods, including the latest completed Dividend Period (including, if applicable as provided in Section 3(a) above, dividends on such amount), on all outstanding shares of Designated Preferred Stock have been declared and paid in full at which time such right shall terminate with respect to the Designated Preferred Stock, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent default of the character above mentioned; provided that it shall be a qualification for election for any Preferred Director that the election of such Preferred Director shall not cause the Corporation to violate any corporate governance requirements of any securities exchange or other trading facility on which securities of the Corporation may then be listed or traded that listed or traded companies must have a majority of independent directors. Upon any termination of the right of the holders of shares of Designated Preferred Stock and Voting Parity Stock as a class to vote for directors as provided above, the Preferred Directors shall cease to be qualified as directors, the term of office of all Preferred Directors then in office shall terminate immediately and the authorized number of directors shall be reduced by the number of Preferred Directors elected pursuant hereto. Any Preferred Director may be removed at any time, with or without cause, and any vacancy created thereby may be filled, only by the affirmative vote of the holders a majority of the shares of Designated Preferred Stock at the time outstanding voting separately as a class together with the holders of shares of Voting Parity Stock, to the extent the voting rights of such holders described above are then exercisable. If the office of any Preferred Director becomes vacant for any reason other than removal from office as aforesaid, the remaining Preferred Director may choose a successor who shall hold office for the unexpired term in respect of which such vacancy occurred.
(c) Class Voting Rights as to Particular Matters. So long as any shares of Designated Preferred Stock are outstanding, in addition to any other vote or written consent of stockholders required by law or by the Charter, the vote or written consent of the holders of at least 66 2/3% of the shares of Designated Preferred Stock at the time outstanding, voting as a separate class, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating:
(i) Authorization of Senior Stock. Any amendment or alteration of the Certificate of Designations for the Designated Preferred Stock or the Charter to authorize or create or increase the authorized amount of, or any issuance of, any shares of, or any securities convertible into or exchangeable or exercisable for shares of, any class or series of capital stock of the Corporation ranking senior to Designated Preferred Stock with respect to either or both the payment of dividends and/or the distribution of assets on any liquidation, dissolution or winding up of the Corporation;
(ii) Amendment of Designated Preferred Stock. Any amendment, alteration or repeal of any provision of the Certificate of Designations for the Designated Preferred Stock or the Charter (including, unless no vote on such merger or consolidation is required by Section 7(c)(iii) below, any amendment, alteration or repeal by means of a merger, consolidation or otherwise) so as to adversely affect the rights, preferences, privileges or voting powers of the Designated Preferred Stock; or
(iii) Share Exchanges. Reclassifications. Mergers and Consolidations. Any consummation of a binding share exchange or reclassification involving the Designated Preferred Stock, or of a merger or consolidation of the Corporation with another corporation or other entity, unless in each case (x) the shares of Designated Preferred Stock remain outstanding or, in the case of any such merger or consolidation with respect to which the Corporation is not the surviving or resulting entity, are converted into or exchanged for preference securities of the surviving or resulting entity or its ultimate parent, and (y) such shares remaining outstanding or such preference securities, as the case may be, have such rights, preferences, privileges and voting powers, and limitations and restrictions thereof, taken as a whole, as are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers, and limitations and restrictions thereof, of Designated Preferred Stock immediately prior to such consummation, taken as a whole;
provided, however, that for all purposes of this Section 7(c), any increase in the amount of the authorized Preferred Stock, including any increase in the authorized amount of Designated Preferred Stock necessary to satisfy preemptive or similar rights granted by the Corporation to other persons prior to the Signing Date, or the creation and issuance, or an increase in the authorized or issued amount, whether pursuant to preemptive or similar rights or otherwise, of any other series of Preferred Stock, or any securities convertible into or exchangeable or exercisable for any other series of Preferred Stock, ranking equally with and/or junior to Designated Preferred Stock with respect to the payment of dividends (whether such dividends are cumulative or non-cumulative) and the distribution of assets upon liquidation, dissolution or winding up of the Corporation will not be deemed to adversely affect the rights, preferences, privileges or voting powers, and shall not require the affirmative vote or consent of, the holders of outstanding shares of the Designated Preferred Stock.
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(d) Changes after Provision for Redemption. No vote or consent of the holders of Designated Preferred Stock shall be required pursuant to Section 7(c) above if, at or prior to the time when any such vote or consent would otherwise be required pursuant to such Section, all outstanding shares of the Designated Preferred Stock shall have been redeemed, or shall have been called for redemption upon proper notice and sufficient funds shall have been deposited in trust for such redemption, in each case pursuant to Section 5 above.
(e) Procedures for Voting and Consents. The rules and procedures for calling and conducting any meeting of the holders of Designated Preferred Stock (including, without limitation, the fixing of a record date in connection therewith), the solicitation and use of proxies at such a meeting, the obtaining of written consents and any other aspect or matter with regard to such a meeting or such consents shall be governed by any rules of the Board of Directors or any duly authorized committee of the Board of Directors, in its discretion, may adopt from time to time, which rules and procedures shall conform to the requirements of the Charter, the Bylaws, and applicable law and the rules of any national securities exchange or other trading facility on which Designated Preferred Stock is listed or traded at the time.
Section 8. Record Holders. To the fullest extent permitted by applicable law, the Corporation and the transfer agent for Designated Preferred Stock may deem and treat the record holder of any share of Designated Preferred Stock as the true and lawful owner thereof for all purposes, and neither the Corporation nor such transfer agent shall be affected by any notice to the contrary.
Section 9. Notices. All notices or communications in respect of Designated Preferred Stock shall be sufficiently given if given in writing and delivered in person or by first class mail, postage prepaid, or if given in such other manner as may be permitted in this Certificate of Designations, in the Charter or Bylaws or by applicable law. Notwithstanding the foregoing, if shares of Designated Preferred Stock are issued in book-entry form through The Depository Trust Corporation or any similar facility, such notices may be given to the holders of Designated Preferred Stock in any manner permitted by such facility.
Section 10. No Preemptive Rights. No share of Designated Preferred Stock shall have any rights of preemption whatsoever as to any securities of the Corporation, or any warrants, rights or options issued or granted with respect thereto, regardless of how such securities, or such warrants, rights or options, may be designated, issued or granted.
Section 11. Replacement Certificates. The Corporation shall replace any mutilated certificate at the holders expense upon surrender of that certificate to the Corporation. The Corporation shall replace certificates that become destroyed, stolen or lost at the holders expense upon delivery to the Corporation of reasonably satisfactory evidence that the certificate has been destroyed, stolen or lost, together with any indemnity that may be reasonably required by the Corporation.
Section 12. Other Rights. The shares of Designated Preferred Stock shall not have any rights, preferences, privileges or voting powers or relative, participating, optional or other special rights, or qualifications, limitations or restrictions thereof, other than as set forth herein or in the Charter or as provided by applicable law.
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Exhibit 4.24
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
337,480.4
Shares of Common Stock
of BBCN Bancorp, Inc.
(which is based upon the number of shares of common stock previously issuable to Investor by Acquired Company)
Issue Date: November 30, 2011
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 Companys 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 Directors 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 Warrantholders 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 Warrantholders objection.
Governmental Entities has the meaning ascribed to it in the Purchase Agreement.
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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 4:00 p.m. and the specified event occurs at 5:00 p.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) of the Exchange Act.
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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 of the Company, other securities of the 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 named therein and the United States Department of the 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
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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.
U.S. 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 5:00 p.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 cashiers check payable to the order of the Company, or by wire transfer of immediately available funds to an account designated by the Company.
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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 efforts 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.
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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 of the 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 of like 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
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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. If the 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:
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(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 of the 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
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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 (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 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 of the 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 of the 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 of this 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 Warrantholders 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
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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 Warrantholders 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 (1/10th) of a cent or to the nearest one-hundredth (1/100th) 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 (1/10th) 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 1/10th of a share of Common Stock, or more.
(G) Timing of Issuance 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 Warrantholders 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).
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(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 Companys 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.
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(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 of the 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
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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]
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[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 of the 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: | ||
By: | ||
Name: | ||
Title: |
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by a duly authorized officer.
Dated: November 30, 2011
COMPANY: BBCN Bancorp, Inc. | ||
By: | /s/ Alvin D. Kang | |
Name: Alvin D. Kang | ||
Title: President and Chief Executive Officer |
Attest: | ||
By: | /s/ Juliet Stone | |
Name: Juliet Stone | ||
Title: Secretary |
[Signature Page to Warrant]
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SCHEDULE A
Item 1
Name: BBCN Bancorp, Inc.
Corporate or other organizational form: corporation
Jurisdiction of organization: Delaware
Item 2
Exercise Price: $12.223
Item 3
Issue Date: December 12, 2008
Item 4
Amount of last dividend declared by the Company prior to the Issue Date: $0.0275
Item 5
Date of Letter Agreement between Center Financial Corporation and the United States Department of the Treasury: December 12, 2008
Date of Post-Merger Side Letter: November 30, 2011
Item 6
Number of shares of Common Stock: 337,480.4
Item 7
Companys address: 3731 Wilshire Boulevard, Suite 1000
Los Angeles, CA 90010
Item 8
Notice information: BBCN Bancorp, Inc.
3731 Wilshire Boulevard, Suite 1000
Los Angeles, CA 90010
Attention: Philip E. Guldeman,
Executive Vice President and Chief Financial Officer
Facsimile: (213) 235- 3033
Exhibit 10.14
FIRST AMENDMENT TO OFFICE LEASE
(Suites 200, 400, 1000, and 1100)
THIS FIRST AMENDMENT TO OFFICE LEASE dated as of November 18, 2011 (this First Amendment), is entered into by and between COLONNADE WILSHIRE CORP., a California corporation (Landlord), and NARA BANK, a California corporation (Tenant), with reference to the following:
R E C I T A L S
WHEREAS, Landlord and Tenant entered into that certain office lease dated March 16, 2006, for the lease of certain premise (the Premises), commonly known as Suite 400, 1000, and 1100 consisting of approximately 43,993 rentable square feet of space comprised of the fourth (4th), tenth (10th) and eleventh (11th) floor of that certain office building (the Building) commonly known as The Wilshire Colonnade and located at 3731 Wilshire Boulevard, Los Angeles, California (Office Lease);
WHEREAS, Landlord and Tenant desire by this First Amendment to amend the Lease in order to, among other things, (a) expand the Premises leased by Tenant under the Lease to include approximately 18,392 rentable square feet commonly known as suite 200 located on the entire second (2nd) floor of the Building (Expansion Premises) (b) provide for the Rent to be paid by Tenant for the Expansion Premises (c) provide the Tenant Improvement Allowances for the Expansion Premises (d) further extend the Lease Term of suites 400, 1000, and 1100 (Existing Premises) in order to make the Lease Terms coterminous as well as provide a combined total square footage of approximately 62,385 rentable square feet in the Building (Entire Premises) (e) provide the Rent to be paid by Tenant for the Extension Term of the Existing Premises (f) provide the Tenant Improvements Allowance for the Existing Premises as well as amend, modify and supplement the Lease as set forth herein, subject to the terms and conditions of this First Amendment.
NOW, THEREFORE, in consideration of the Premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:
1. Recitals. The Recitals set forth above are incorporated herein as though set forth in full herein.
2. Definitions. Unless the context clearly indicates otherwise, all initially capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Lease. Unless the context clearly indicates otherwise, all references to the Lease in the Lease shall hereafter be deemed to refer to the Lease as amended hereby.
3. Expansion Premises: Suite 200. Landlord and Tenant acknowledge that Suite 200 is 18,392 rentable square feet. Landlord shall provide a Tenant Improvement Allowance for the renovations of the Expansion Premises which are described in section 10 Tenant Improvement Allowance. The Rentable Area of the Premises has been determined in accordance with the standards set forth in ANSI Z65.1-1996, as promulgated by the Building Owners and
Managers Association (BOMA). Tenant shall have the right to remeasure the Premises at anytime during the first (1st) year of the Extended Lease Term pursuant to BOMA. In the event that any remeasurement indicates that the square footage measurement previously set forth in an amendment to this Lease or otherwise agreed upon by Landlord and Tenant is in excess of or lower than the square footage number which would have resulted had the BOMA Standard been properly utilized (including the square footage limitations set forth above), any payments due either party (or other rights between Landlord and Tenant) based upon the amount of rentable square feet contained in such space shall be proportionally, retroactively and prospectively reduced or increased, as appropriate, to reflect the actual number of rentable square feet as properly remeasured under the BOMA Standard (including the square footage limitations set forth above). If either party disagrees with the other partys remeasurement and if a dispute occurs regarding the final accuracy of the measurement of such space in accordance with the BOMA Standard (including the square footage limitations set forth above), such dispute will be resolved pursuant to binding arbitration pursuant to Section 23 of the First Amendment. In the event that the remeasurement right set forth herein is not timely exercised, the rentable square footage of such space shall not be subject to remeasurement, and the rentable square footage set forth in any applicable amendment shall be binding and conclusive.
4. Notwithstanding anything to the contrary contained in the Lease, Landlord and Tenant agree that the Lease Term for Suite 200 shall be for Ten (10) years, commencing on May 1, 2012 and ending on April 30, 2022, unless sooner terminated in accordance with the terms of the Lease.
5. Base Rent for Expansion Premises: Suite 200. Notwithstanding anything to the contrary contained in the Lease, Landlord and Tenant agree that Tenant shall pay to Landlord Base Rent for Suite 200 in the following amounts in accordance with Article 3 of the Original Lease;
Suite 200 Extension Term Period |
Monthly Installment of Base Rent |
Monthly Rental Rate Per Rentable Square Foot |
||||||
May 1, 2012July 31, 2012 |
$ | 0.00 | $ | 0.00 | ||||
August 1, 2012April 30, 2013 |
$ | 27,588.00 | $ | 1.50 | ||||
May 1, 2013April 30, 2015 |
$ | 28,507.60 | $ | 1.55 | ||||
May 1, 2015August 31, 2016 |
$ | 29,427.20 | $ | 1.60 | ||||
September 1, 2016September 30, 2016 |
$ | 0.00 | $ | 0.00 | ||||
October 1, 2016September 30, 2018 |
$ | 30,530.72 | $ | 1.66 | ||||
October 1, 2018September 30, 2020 |
$ | 31,634.24 | $ | 1.72 | ||||
October 1, 2020April 30, 2022 |
$ | 32,921.68 | $ | 1.79 |
(Tenant shall not be obligated to pay Base Rent for months one (May 2012), two (June 2012), three July (2012), month twenty four (April 2014) and fifty five (September 2016) of the Lease Term on the Expansion Premises)
Upon execution of this Lease, Tenant shall prepay rent in the amount of eighty-two thousand, seven hundred and sixty-four ($82,764.00) dollars to be applied to the rent consideration for August 2012, September 2012, and October 2012.
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6. Tenants Share of Direct Expenses for Entire Premises of Lease Term. In addition to paying all other amounts due under the lease and the base Rent for the Entire Premises, Tenant shall pay Tenants Share of Direct Expenses with respect to its lease of Suite 200, 400, 1000, 1100 (Entire Premises) during the Term in accordance with Article 4 of the original Lease except for Tenants Share of Direct Expenses for the Entire Premises for the Extension Term shall be 16.89% and the Base Year shall mean the 2012 calendar year. (The Office Lease Summary section 9.1 and 9.2 is hereby amended accordingly to reflect the new Base Year and new Tenants share of Direct Expenses as stated in this paragraph.) Tenants share of Direct Expenses shall not increase by more than three percent (3%) annually from year to year over the Lease Term.
Tenant will not be required to pay any Operating Expenses or Tax Expenses during the first 12 months of the lease term. Landlord will be required to operate and maintain the Building in a First Class manner. Incorporated into this First Amendment is Exhibit A, List of Exclusions to the definition of Operating Expenses under the Office Lease.
Notwithstanding anything to the contrary in the Master Lease Section 4.2.6 of the Office Lease, shall be replaced in its entirety as follows:
4.2.6 Tax Expenses shall mean all federal, state, county, or local governmental or municipal taxes, fees, charges or other impositions of every kind and nature, whether general, special, ordinary or extraordinary, (including, without limitation, real estate taxes, general and special assessments, transit taxes, leasehold taxes or taxes based upon the receipt of rent, including gross receipts or sales taxes applicable to the receipt of rent, unless required to be paid by Tenant, personal property taxes imposed upon the fixtures, machinery, equipment, apparatus, systems and equipment, appurtenances, furniture and other personal property used in connection with the Building), which Landlord shall pay during any Expense Year because of or in connection with the ownership, leasing and operation of the Real Property or Landlords interest therein, For purposes of this Lease, Tax Expenses shall be calculated as if the tenant improvements in the Building were fully constructed and the Real Property, the Building, and all tenant improvements in the Building were fully assessed for real estate tax purposes, and accordingly, during the portion of any Expense Year occurring during the Base Year, Tax Expenses shall be deemed to be increased appropriately, Not withstanding anything to the contrary in this Lease, Tax Expenses shall not include and Tenant shall not be responsible for any increase of, or reassessment in, real property taxes and assessments in excess of two percent (2%) of the tax for the previous year, resulting from any sale, transfer or other change in ownership of the Building or the Project during the term of this Lease.
7. Extension of Lease Term Suites 400, 1000, and 1100. Landlord and Tenant acknowledge that the lease term for suites 400, 1000, and 1100 currently expire according to the terms of the original Office Lease dated March 13, 2006 on August 31, 2016. Notwithstanding anything to the contrary contained in the First Amendment to Office Lease and Article 2 of the Office Lease and Section 7 of the Office Lease Summary, Landlord and Tenant agree that the Lease Term for suites 400, 1000, and 1100 shall be extended for an additional five (5) years and eight (8) months in order to for the terms to be coterminous with Suite 200. Landlord and Tenant agree the expiration date shall be April 30, 2022 for suites 200, 400, 1000, as well as suite 1100, known collectively as the Entire Premises.
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8. Base Rent for Suite 400, 1000, and 1100 During the Extension Term
Suite 400, 1000, 1100 Extension Term |
Monthly Installment of Base Rent |
Monthly Rental Rate Per Rentable Square foot |
||||||
September 1, 2016 September 30, 2016 |
$ | 0.00 | $ | 0.00 | ||||
October 1, 2016 September 30, 2018 |
$ | 73,028.38 | $ | 1.66 | ||||
October 1, 2018 September 30, 2020 |
$ | 75,667.96 | $ | 1.72 | ||||
October 1, 2020 April 30, 2022 |
$ | 78,747.47 | $ | 1.79 |
9. Condition of Expansion Premises: Suite 200. Tenant acknowledges that it is familiar with the condition of Suite 200 and accepts Suite 200 in its presently AsIs condition with all faults and without representation, warranty or improvements by Landlord of any kind whatsoever. Notwithstanding the foregoing, Landlord shall provide Tenant with a Tenant Improvements Allowance, described in section 10 below, to be used towards the renovations of the Expansion Premises. Landlord will be responsible to ensure the Base Building and all Common Areas is fully operational in accordance with current codes, including ADA, as currently interpreted and enforced as of the Commencement Date of the Lease Term (the Required Condition).
10. Tenant Improvement Allowance for the Expansion Premises: Suite 200. Tenant shall accept the Premises in its presently AsIs condition, and Landlord shall not be obligated to provide or pay for any improvements to the Premises with the exception that Landlord shall provide thirty dollars ($30.00) per a rentable square foot (which equals $551,760.00) Tenant Improvement Allowance to be used by Tenant towards renovations to the Expansion Premises upon execution of this First Amendment and Landlords review of all bids, construction invoices, and floor plan designs. Tenant will have the right to competitively bid the tenant improvement work to reputable general contractors of its choice and to select the contractor to perform the work. Landlord will have the right to reasonably approve said contractor. Tenant may also award the construction contract to a reputable general contractor reasonably approved by Landlord without a competitive bid process. Tenant will have the right, at its option, to use the Improvement Allowance for: tenant improvements; space planning and design; construction fees; licenses; permits; electrical data; architecture, and engineering. Tenant shall submit to Landlord for approval all plans and specifications for the proposed Tenant Improvements (a) all work shall be completed by licensed contractors retained by Tenant in accordance with plans and specifications approved by Landlord in writing, (b) the Tenant Improvements shall be constructed in compliance with all applicable codes, regulations and ordinances, without any claims for unpaid bills for materials, labor, or supplies (c) Tenant shall furnish to Landlord construction invoices, affidavits, releases, and other documentation as Landlord may request, to be assured to Landlords reasonable satisfaction, that the Tenant Improvements have been completed in accordance with the plans and specifications approved by Landlord and specified in the Tenant Work Letter, Exhibit B, attached. Tenant will not be charged for parking, loading, freight elevators, utilities or temporary HVAC or any other building facilities or services during design and construction or Tenants move into the Building. Additionally, Tenant will not be charged a construction management fee. Landlord will be responsible to insure the Base Building is fully operational in accordance with current codes, including ADA, as currently interpreted and enforced as of the Commencement Date of the Lease Term (the Required Condition).
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With respect to Tenants Premises or any space that is located outside Tenants Premises, Landlord will be responsible for any fire/life/safety, Americans With Disabilities Act (ADA) requirements or any other code compliance issues that may be triggered by Tenants construction within their Premises. Included in that work will be the Building Standard elevator lobby, public restrooms and public corridor.
11. Tenant Improvement Allowance for the Existing Premises: Suite 400, 1000, and 1100. Notwithstanding anything to the contrary in the Tenant Work Letter, Exhibit B of the original Office Lease, Tenant shall accept the Existing Premises in its presently AsIs condition, and Landlord shall not be obligated to provide or pay for any improvements to the Premises with the exception that Landlord shall provide six dollars and fifty cents ($6.50) per rentable square foot (which equals $285,954.50) Tenant Improvement Allowance to be used by Tenant towards renovations to the Existing Premises on October 1, 2016. Tenant will have the right to competitively bid the tenant improvement work to reputable general contractors of its choice and to select the contractor to perform the work. Landlord will have the right to reasonably approve said contractor. Tenant may also award the construction contract to a reputable general contractor reasonably approved by Landlord without a competitive bid process. Tenant will have the right, at its option, to use the Improvement Allowance for: tenant improvements; space planning and design; construction fees; licenses; permits; electrical data; architecture, and engineering. Tenant shall submit to Landlord for approval all plans and specifications for the proposed Tenant Improvements (a) all work shall be completed by licensed contractors retained by Tenant in accordance with plans and specifications approved by Landlord in writing, (b) the Tenant Improvements shall be constructed in compliance with all applicable codes, regulations and ordinances, without any claims for unpaid bills for materials, labor, or supplies (c) Tenant shall furnish to Landlord construction invoices, affidavits, releases, and other documentation as Landlord may request, to be assured to Landlords reasonable satisfaction, that the Tenant Improvements have been completed in accordance with the plans and specifications approved by Landlord and specified in the Tenant Work Letter, Exhibit B, attached. Tenant will not be charged for parking, loading, freight elevators, utilities or temporary HVAC or any other building facilities or services during design and construction or Tenants move into the Building. Additionally, Tenant will not be charged a construction management fee. Landlord will be responsible to insure the Base Building is fully operational in accordance with current codes, including ADA, as currently interpreted and enforced as of the Commencement Date of the Lease Term (the Required Condition).
With respect to Tenants Premises or any space that is located outside Tenants Premises, Landlord will be responsible for any fire/life/safety, Americans With Disabilities Act (ADA) requirements or any other code compliance issues that may be triggered by Tenants construction within their Premises. Included in that work will be the Building Standard elevator lobby, public restrooms and public corridor.
Landlord will reimburse Tenants architect with an allowance of $.15 per square foot for preparation of Tenants preliminary space plan for the Expansion Premises.
12. Estoppel. Tenant hereby certifies and acknowledges, that as of the date hereof (a) Landlord is not in default in any respect under the Lease, (b) Tenant does not have any defenses to its obligations under the Lease, (c) Landlord is holding Tenants Security Deposit under
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the Lease in the amount of $0.00 (as such amount shall be increased pursuant to Section 9 above), and (d) there are no offsets against rent payable under the Lease. Tenant acknowledges and agrees that the representations herein set forth: (i) constitute a material consideration to Landlord in entering into this First Amendment; (ii) such representations are being made by Tenant for purposes of inducing Landlord to enter into this First Amendment; and (iii) Landlord is relying on such representations in entering into this First Amendment.
13. Parking. Notwithstanding anything to the contrary in the Pargraph 11 of the Office Lease Summary or Article 28 of the Office Lease, throughout the Initial Term, and the Renewal Option periods (as described in Section 24 below) thereafter, Tenant will have the right, but not the obligation, to parking spaces at a ratio of three (3) spaces for each one thousand (1,000) rentable square feet leased. Furthermore, Landlord shall provide the Tenant with a twenty-five percent (25%) discount off its current monthly parking rates of the Lease Term. Tenant shall have the right to additional parking spaces on a month-to-month basis at negotiated rates. Tenants clients and visitors will have unlimited use of the Parking facilities on a 24 hour basis. Parking validations may be purchased at a twenty-five percent (25%) percent discounted rate throughout the Initial Term of the lease and any Renewal Option periods. Parking shall not increase by more than three (3%) percent in any year over year period.
14. Storage. Landlord shall provide to Tenant an enclosed storage space (712 square feet) on the P1 level of the parking structure for the first eighteen months of the lease free of charge. The space will be thoroughly cleaned out and will include a high density file system for Tenants use. Tenant shall take the space in AsIs condition and Landlord shall not be responsible for any repairs. Beginning on the 19th month of the term, Tenant shall pay a $1.00 per square foot for the duration of the lease term and have the right to terminate with 30 days notice.
15. Brokers. Tenant represents to Landlord that Tenant has not dealt with any real estate broker, salesperson or finder in connection with this First Amendment, and no other such person initiated or participated in the negotiation of this First Amendment or is entitled to any commission in connection herewith except for Charles Dunn Real Estate Services, Inc. (Landlords Broker) and Studley, Inc. (Tenants Broker). Tenant hereby agrees to indemnify, defend and hold Landlord, its property manager and their respective employees harmless from and against any and all liabilities, claims, demands, actions, damages, costs and expenses (including attorneys fees) arising from either (a) a claim for a fee or commission made by any broker, other than the Broker, claiming to have acted by or on behalf of Tenant in connection with this First Amendment, or (b) a claim of, or right to lien under the statutes of California relating to real estate broker liens with respect to any such broker retained by Tenant.
Landlord shall pay Tenants Broker a full market commission (Commission) equivalent to four (4%) percent of the total aggregate gross rental due for years one through five (1-5) of the lease term and two (2%) percent of the total aggregate gross rental due for the remainder of the Term for Base Rent for Expansion Premises as depicted in Article 4; and two percent (2%) of the total aggregate gross rental due during the Extension Term for suites 400, 1000, and 1100 as depicted in Article 7.
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The commission payable to Tenants Broker shall be paid by Landlord in two installments, 50% on signing of this First Amendment and 50% on Tenants occupancy of the Expansion Premises (Suite 200)
16. Controlling Provisions. To the extent there are any conflicting terms between the Office Lease and the First Amendment, the First Amendment shall control.
17. Ratification. Except as specifically herein amended, the Lease is and shall remain in full force and effect according to the terms thereof. In the event of any conflict between the provisions of the Office Lease and the First Amendment, this First Amendment shall control.
18. Construction. Headings at the beginning of each Section of this First Amendment are solely for the convenience of the parties and are not part of this First Amendment.
19. Integration of Other Agreements. The Office Lease, as amended by this First Amendment, sets forth the entire agreement and understanding of the parties with respect to the matters set forth herein and supersedes all previous written or oral understandings, agreements, contracts, correspondence and documentation with respect thereto.
20. No Third Party Beneficiaries. Except as otherwise provided herein, no person or entity shall be deemed to be a third party beneficiary hereof, and nothing in this First Amendment (either expressed or implied) is intended to confer upon any person or entity, other than Landlord and/or Tenant (and their respective nominees, successors and assigns), any rights, remedies, obligations or liabilities under or by reason of this First Amendment.
21. Counterparts. This First Amendment may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement.
22. Remaining Provisions. Those provisions contained in the Office Lease which have not expired and have not been revised pursuant to this First Amendment will remain in full force and effect.
23. Arbitration. In the event of a dispute, claim or disagreement between Landlord and Tenant arising under the original Office Lease or this First Amendment, except in connection with the Excepted Disputes, as that term is defined below, the parties hereby agree that such disputes, claims and/or disagreements shall be resolved by a single arbitrator pursuant to the rules of the American Arbitration Association. This Section 22 shall be the sole and exclusive method, means and procedure to resolve any such dispute, claim or disagreement. For purposes of this Section 22, the Excepted Disputes shall mean (i) all claims by either party which (A) seek anything other than enforcement of rights under this Lease, or (B) are primarily founded upon matters of fraud, willful misconduct, bad faith or any other allegations of tortious action, and seek the award of punitive or exemplary damages, and (ii) claims relating to Landlords exercise of any unlawful detainer rights pursuant to California law or rights or remedies used by Landlord to gain possession of the Premises or terminate Tenants right of possession to the Premises, which disputes shall be resolved by suit filed in the Superior Court of Los Angeles County, California, the decision
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of which court shall be subject to appeal pursuant to applicable law. The parties hereby irrevocably waive any and all rights to the contrary and shall at all times conduct themselves in accordance with this Section 22. The Arbitrator (the Arbitrator) of any dispute, claim or disagreement resolved pursuant to this Section 22 may award costs, including without limitation attorneys fees, and expert and witness costs, to the prevailing party, if any, as determined by the Arbitrator in his discretion. The Arbitrators fees and costs shall be paid by the non-prevailing party as determined by the Arbitrator in his discretion.
24. Board, Legal, and Regulatory Approval. Commencement of Lease is subject to obtaining approval from Tenants Board of Directors (Board Approval) and regulatory approval from California Department of Financial Institutions, Federal Reserve Board and Federal Deposit Insurance Corporation (Regulatory Approvals) for the Tenants Application to Merge with Center Bank, and Center Financial Corporation into Tenants holding company Nara Bancorp, Inc. Upon obtaining all such Regulatory Approvals, Lessee shall so notify Lessor (or agent) within thirty (30) working days by Certified Mail
25. Option to Renew. Tenant will have two (2) five (5) year options to renew some or part of the Entire Premises space then under lease by Tenant. The Renewal Option shall be exercised no later than one hundred and eighty (180) days prior to the expiration of the Initial Term.The Renewal Option Base Rent for some or part of the Entire Premises then under lease by Tenant will be ninety-five percent (95%) of the then Fair Market Rental Rate for space of comparable size, quality and location taking into consideration one hundred percent (100%) of the Rental Abatement, Tenant Improvements and any other tenant inducements then given to new tenants in comparable first-class office buildings. To the extent not inconsistent with this paragraph, all other provisions in the Office Lease Section 2.2 Option Term, including provisions pertaining to manner of exercise of option and determination of market rent, shall apply.
26. Right of First Refusal. Tenant will have the continuing Right of First Refusal during the Extension Term, the Renewal Option periods, and/or any other extensions thereafter, to lease any contiguous space (the First Offer Space). First Offer Space is any space, above or below Tenants floor(s). First Offer Space will also mean any retail space on the ground floor of 3731 Wilshire Blvd or 3701 Wilshire Blvd.
Landlord will provide Tenant with a true, correct, and complete copy of any offer received from any third party for any Contiguous Space which Landlord is willing to accept. Tenant will have thirty (30) business days within which to elect to lease any Contiguous Space at terms and conditions no different from those contained in such offer.
In the event that Tenant elects not to lease any Contiguous Space, Landlord may lease such space to a third party on the same terms and conditions as those contained in the offer to Tenant. If Landlord desires to lease the Contiguous Space on terms and/or conditions different from those contained in the offer, Landlord will first offer the Contiguous Space on such different terms and/or conditions to Tenant and Tenant will then have fifteen (15) business days within which to elect to lease such Contiguous Space.
25.1 Procedure for Offer of Right of First Refusal. Landlord shall notify Tenant in writing (the First Offer Notice) from time to time whenever the First Offer Space or any
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portion thereof will become available for lease to third parties and a third party makes an offer for the space, the Landlord shall provide Tenant a true, correct, and complete copy of any offer received from any third party. Pursuant to such First Offer Notice, Landlord shall offer to lease to Tenant the then available First Offer Space. The First Offer Notice shall describe the space so offered to Tenant and shall set forth the First Offer Rent, as that term is defined in Section 25.3 below, and the other economic and material non-economic terms upon which Landlord is willing to lease such space to Tenant (collectively, the Fundamental Terms), which Fundamental Terms shall pertain to the following categories: (i) the usable and rentable square footage of the First Offer Space (subject to the remeasurement provisions of Section 3 of this First Amendment, above), (ii) the delivery condition, including any required Landlord work and any Landlord warranties regarding the condition of the First Offer Space, (iii) rights to expand, options to purchase, rights of first refusal, and other material space-encumbering rights, (iv) the length of term, including the lease commencement date and options or other rights to extend the lease term or to terminate the lease, (v) base rent, including escalations thereto, expressed as a dollar amount per rentable square foot, (vi) monetary concessions (e.g., free rent, improvement allowances), (vii) operating expense and tax protections, including any rent stop or base year protections, (viii) parking rights, (ix) parking charges, and (x) the date by which the First Offer Space will be delivered to the tenant and the period of time, if any, granted to the tenant for the construction or build-out period of the First Offer Space prior to the obligation to pay rent. The term of Tenants lease of any First Offer Space shall terminate thirty (30) days after Tenants receipt of the First Offer.
26.2 Procedure for Acceptance. If Tenant wishes to exercise Tenants right of first offer with respect to the space described in the First Offer Notice, then within twenty (20) business days of receipt of the First Offer Notice to Tenant (the Exercise Period), Tenant shall deliver notice to Landlord of Tenants intention to exercise its right of first offer with respect to the space so described in the First Offer Notice on the Fundamental Terms contained in such notice. If Tenant does not so notify Landlord prior to the expiration of the Exercise Period, then Landlord shall be free to lease the space described in the First Offer Notice to anyone to whom Landlord desires on the same Fundamental Terms of the First Offer Notice to the Tenant; provided, however, that if the Fundamental Terms differ from the First Offer Notice to the Tenant, then before entering into such third party lease, Landlord shall notify Tenant of such different Fundamental Terms and Tenant shall have the right to lease the First Offer Space (as the same may have been reconfigured and/or resized) upon such different Fundamental Terms by delivering written notice thereof to Landlord within ten (10) business days after Tenants receipt of Landlords Revised Offer Notice.
In the event Landlord fails to lease such First Offer Space to a third party, Landlord shall again be obligated to deliver a First Offer Notice to Tenant with regard to the subject First Offer Space, and Tenant shall again have the right to lease such First Offer Space in accordance with this Section.
Landlord shall only deliver such a First Offer Notice to the extent Landlord has a bona-fide prospective tenant (i.e., a prospective tenant with which Landlord is conducting active negotiations)
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26.3 First Offer Space Rent. The Rent payable by Tenant for the First Offer Space (the First Offer Rent) shall be as set forth in the First Offer Notice.
26.4 Construction In First Offer Space. Tenant shall take the First Offer Space in its as is condition, and the construction of improvements in the First Offer Space by Tenant shall comply with the Tenant Work Letter of this First Amendment, subject to the delivery condition and any improvement allowance component of the Fundamental Terms.
25.5 The lease term for any space leased by Tenant under the exercise of its First Right of Refusal will be coterminous with the Initial Term or the Renewal Option periods, as applicable. The Rental Abatement, Tenant Improvements and other applicable terms and conditions will be adjusted on a straight line, pro-rata basis to allow for differences in the length of the term.
27. Building Security. Landlord, as an Operating Expense of the Building, will provide twenty-four (24) hour on-site Building Security, equipment, personnel, procedures and systems. The Office Lease will contain an exhibit, acceptable to Tenant, setting forth building standard security specifications, procedures and systems. Tenant will be permitted to install its own additional Security System for its Premises.
28. Add to Transfers in Office Lease: Notwithstanding anything to the contrary in Article 14 of the Office Lease, Tenant will have the right to Assign or Sublease to, or from, any other tenant in the Building. Landlord will not impose any restrictions on the terms and conditions of such Assignment and Subleasing rights (such as minimum rent or further sub-subletting and/or assigning). Tenants Renewal Option & Option Space rights are not personal to Tenant and are fully transferable. Tenants vacating of its Premises will not be grounds for default under the proposed lease. Neither the use by, nor the Subletting to, any subsidiary or affiliate of Tenant of all or a portion of the Premises will be deemed an Assignment or Sublease under the lease and therefore Landlords consent will not be required.
29. Right of Recapture. Landlord will not have the right of recapture per Article 14 of the Office Lease
30. Non Disturbance Agreement: Landlord agrees to provide Tenant with a commercially reasonable subordination, nondisturbance and attornment agreement (the Nondisturbance Agreement) in favor of Tenant from any ground lessors, mortgage holders or lien holders (collectively, the Current Lender) of Landlord in existence as of the date of this Lease. In addition, Landlord agrees to provide Tenant with a Nondisturbance Agreement from any ground lessors, mortgage holders or lien holders (collectively, the Future Lender) of Landlord who later come into existence at any time prior to the expiration of the Lease Term. Current Lender and Future Lender may be collectively referred to herein as Lender. Tenant subordinates this Lease and its other interests, if any, in the Project to any lien upon Landlords interests in all or any portion of the Project which secures obligations of Landlord to the Future Lender. Future Lender and any purchaser at a foreclosure agrees that, notwithstanding such subordination, Future Lender shall, in the event of a foreclosure or deed in lieu, (i) recognize this Lease and the Tenant hereunder, (ii) assume and perform all of Landlords obligations set forth in this Lease accruing after the date of the foreclosure, and (iii) be subject to all uncured defaults of Landlord and all defenses whenever accruing and all rights and remedies of Tenant, except that Future Lender shall not be liable for any
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defaults occurring prior to the date of the foreclosure or deed in lieu except to the extent such defaults are continuing thereafter. Furthermore, Tenants rights and interests with respect to the Premises and the Project shall not be impaired or disturbed by foreclosure or other enforcement of such lien except as expressly permitted under this Lease. Tenant agrees to attorn to any person who succeeds to Landlords interests through a foreclosure of such lien or transfer in lieu thereof.
IN WITNESS WHEREOF, this Fifth Amendment has been executed by the parties as of the date first referenced above.
Landlord | COLONNADE WILSHIRE CORP., | |||||
a California corporation | ||||||
By: | /s/ Tai Sing Lam | |||||
Name: | ||||||
Title: |
Tenant |
NARA BANK, | |||||
a California corporation | ||||||
By: | /s/ Philip E. Guldeman | |||||
Name: | Philip E. Guldeman | |||||
Title: | EVP/CFO |
By: | ||||||
Name: | ||||||
Title: |
11
TENANT WORK LETTER
Exhibit B
This Tenant Work Letter shall set forth the terms and conditions relating to the future construction of the tenant improvements in the Premises on the Expansion Premises and Existing Premises as defined in the First Amendment. This Tenant Work Letter is essentially organized chronologically and addresses the issues of the construction of the Premises, in sequence, as such issues will arise during the actual construction of the Premises. All references in this Tenant Work Letter to Articles or Sections of this Lease shall mean the relevant portion of Articles 1 through 29 of the Office Lease to which this Tenant Work Letter is attached as Exhibit B and of which this Tenant Work Letter forms a part, and all references in this Tenant Work Letter to Sections of this Tenant Work Letter shall mean the relevant portion of Sections 1 through 5 of this Tenant Work Letter.
SECTION 1
LANDLORDS INITIAL CONSTRUCTION IN THE PREMISES
1.1 Base, Shell and Core of the Premises as Constructed by Landlord. Landlord has constructed, at its sole cost and expense, the base, shell, and core (i) of the Premises and (ii) of the floor of the Building on which the Premises is located (collectively, the Base, Shell, and Core). The Base, Shell and Core shall consist of those portions of the Premises which were in existence prior to the construction of the tenant improvements in the Premises for the prior tenant of the Premises. Tenant shall accept the Base, Shell and Core in their AS IS condition, without representation, warranty or any improvements by Landlord except as specifically hereinafter set forth.
1.2 Landlord Work. Landlord shall, at Landlords sole cost and expense, cause the construction or installation of the following items on the floor of the Building containing the Premises (collectively, the Landlord Work). Landlord will be responsible to insure the Base Building is fully operational in accordance with current codes, including ADA, as currently interpreted and enforced as of the Commencement Date of the Lease Term (the Required Condition). With respect to Tenants Premises or any space that is located outside Tenants Premises, Landlord will be responsible for any fire/life/safety, Americans With Disabilities Act (ADA) requirements or any other code compliance issues that may be triggered by Tenants construction within their Premises. Included in that work will be the Building Standard elevator lobby, public restrooms and public corridor. Landlord, at its sole cost and expense (except as properly included in Operating Expenses), will be responsible for, and will make (or cause to be made) alterations, additions, improvements and/or renovations to the areas of the Buildings outside of the Premises (including the paths of travel thereto), to the extent that the same is necessary to correct any violations of applicable law, to the extent interpreted and enforced from time to time, including, without limitation, the provisions of the Americans with Disabilities Act of 1990 (ADA) and all applicable building and fire codes (collectively, Regulations) as of the Commencement Date. Any such work with respect to portions of the Building or property outside of the Premises will be performed in a prompt and diligent manner in compliance with applicable law. Notwithstanding the foregoing, Landlord will have the right to contest any such obligations in good faith, including the right to a waiver or deferment of compliance, the right to assert any and all defenses allowed by law.
SECTION 2
TENANT IMPROVEMENTS
2.1 Tenant Improvement Allowance. Tenant shall be entitled to a tenant improvement allowance (the Tenant Improvement Allowance) as described in the First Amendment Section 8 and Section 9. In no event shall Landlord be obligated to make disbursements pursuant to this Work Letter in a total amount which exceeds the Tenant Improvement Allowance. In the event that the actual cost of the Tenant Improvements is less than the Tenant Improvement Allowance, Tenant shall not be entitled to such excess or any credit, deduction or offset against rent or any other amounts due under the terms of the Lease. All Tenant Improvements for which the Tenant Improvement Allowance has been made available shall be deemed Landlords property under the terms of the Lease.
Landlord will, provide Tenants architect with an allowance of $.15 per square foot to prepare a preliminary space plan and two revisions of the Premises which is in addition to the total Tenant Improvement Allowance.
2.2 Disbursement of the Tenant Improvement Allowance.
2.2.1 Tenant Improvement Allowance Items. Except as otherwise set forth in this Work Letter, the Tenant Improvement Allowance shall be disbursed by Landlord for costs related to the construction of the Tenant Improvements and for the following items and costs (collectively, the Tenant Improvement Allowance Items); (i) payment of the fees of the Architect and the Engineers, as those terms are defined in Section 3.1 of this Work Letter
2.2.2 Disbursements. Tenant shall deliver to Landlord: (i) a request for payment; (ii) paid receipts evidencing the labor rendered and materials delivered to the Premises; (iii) evidence of payment by Tenant of the amount for which reimbursement is requested; and (iv) executed unconditional mechanics lien releases from those Tenants Agents, as that term is hereinafter defined, who have performed the Tenant Improvements for which payment is requested, which releases shall comply with the appropriate provisions, as reasonably determined by Landlord, of the California Civil Code. Thereafter, Landlord shall deliver a check to Tenant made payable to Tenant in payment of the lesser of: (A) the amounts so requested by Tenant, as set forth in this Section 2.2.2, less a ten percent (10%) retention (the aggregate amount of such retentions to be known as the Final Retention), and (B) the balance of any remaining available portion of the Tenant Improvement Allowance (not including the Final Retention), provided that Landlord does not dispute any request for payment based on non-compliance of any work with the Approved Working Drawings, as that term is defined in Section 3.4 below, or due to any substandard work. Landlords payment of such amounts shall not be deemed Landlords approval or acceptance of the work furnished or materials supplied as set forth in Tenants payment request.
2.2.3 Final Retention. Subject to the provisions of this Work Letter, a check for the Final Retention payable to Tenant shall be delivered by Landlord to Tenant following Tenants receipt of paid receipts as defined in Section 2.2.2 above, totaling the amount of the Tenant Improvement Allowance, provided that with respect to work for which the Tenant Improvement Allowance is paid (i) Tenant delivers to Landlord properly executed unconditional mechanics lien releases in compliance with both California Civil Code Section 3262(d)(2) and, if then attainable, 3262(d)(4), (ii) Tenant has satisfied its obligations under Section 4.5 below, and (iii) Landlord has determined that no substandard work exists which adversely affects the mechanical, electrical, plumbing, heating, ventilating and air conditioning, life safety or other systems of the Building, the curtain wall of the Building, or the structure of the Building. Notwithstanding the foregoing, Tenant shall deliver final lien releases in compliance with Section 3262(d)(4) for all Tenant Improvements promptly upon completion of the Tenant Improvements.
2.2.4 Standard Tenant Improvement Package. Landlord has established specifications (the Specifications) for the Building standard components to be used in the construction of the Tenant Improvements in the Premises (collectively, the Standard Improvement Package), which Specifications shall be supplied to Tenant by Landlord. The quality of Tenant Improvements shall be equal to or of greater quality than the quality of the Specifications
PLEASE PROVIDE SAID SPECIFICATIONS NOW.
SECTION 3
CONSTRUCTION DRAWINGS
3.1 Selection of Architect/Construction Drawings. Tenant shall retain an architect/space planner, subject to Landlords prior approval, which approval shall not be unreasonably withheld or delayed (the Architect) to prepare the Construction Drawings, as that term is defined in this Section 3.1. Tenant shall retain the engineering consultants designated by Landlord (the Engineers) [PLEASE PROVIDE THIS LIST NOW] to prepare all plans and engineering -working drawings relating to the structural, mechanical, electrical, plumbing, HVAC, lifesafety, and sprinkler work of the Tenant Improvements. The plans and drawings to be prepared by Architect and the Engineers hereunder shall be known collectively as the Construction Drawings, All Construction Drawings shall comply with the drawing format and specifications as reasonably determined by Landlord, and shall be subject to Landlords approval. Tenant and Architect shall verify, in the field, the dimensions and conditions as shown on the relevant portions of the base Building plans, and Tenant and Architect shall be solely responsible for the same, and Landlord shall have no responsibility in connection therewith. Landlords review of the Construction Drawings as set forth in this Section 3, shall be for its sole purpose and shall not imply Landlords review of the same, or obligate Landlord to review the same, for quality, design, Code compliance or other like matters. Accordingly, notwithstanding that any Construction Drawings are reviewed by Landlord or its space planner, architect, engineers and consultants, and notwithstanding any advice or assistance which may be rendered to Tenant by Landlord or Landlords space planner, architect, engineers, and consultants, Landlord shall have no liability whatsoever in connection therewith and shall not be responsible for any omissions or errors contained in the Construction Drawings, and Tenants waiver and indemnity set forth in this Lease shall specifically apply to the Construction Drawings.
3.2 Final Space Plan. Tenant shall supply Landlord with four (4) copies signed by Tenant of its final space plan for the Tenant Improvements before any architectural working drawings have been commenced. The final space plan (the Final Space Plan) shall include a layout and designation of all offices, rooms and other partitioning, their intended use, and equipment to be contained therein. Landlord may request clarification or more specific drawings for special use items not included in the Final Space Plan. Landlord shall advise Tenant within five (5) business days after Landlords receipt of the Final Space Plan for the Premises if the same is unsatisfactory or incomplete in any respect. If Tenant is so advised, Tenant shall promptly cause the Final Space Plan to be revised to correct any deficiencies or other matters Landlord may reasonably require.
3.3 Final Working Drawings. Upon the approval of the Final Space Plan by Landlord, Tenant shall promptly, cause the Architect and the Engineers to complete the architectural and engineering drawings for the Tenant Improvements, and the final architectural working drawings in a form which is complete to allow subcontractors to bid on the work and to obtain all applicable permits (collectively, the Final Working Drawings) and shall submit the same to Landlord for Landlords approval. Tenant shall supply Landlord with four (4) copies signed by Tenant of such Final Working Drawings, Landlord shall advise Tenant within ten (10) business days after Landlords receipt of the Final Working Drawings if the same is unsatisfactory or incomplete in any respect, along with the cause and explanation of such disapproval. If Tenant is so advised, Tenant shall immediately revise the Final Working Drawings in accordance with such review and any disapproval of Landlord in connection therewith. If Landlord does not advise Tenant of its approval or disapproval within ten (10) days of receipt of said plans, it will be deemed that Landlord approves of the plans.
3.4 Permits. Promptly after approval by Landlord of the Final Working Drawings (the Approved Working Drawings), Tenant shall immediately submit the Approved Working Drawings to the appropriate municipal authorities for all applicable building permits necessary to allow Contractor, as that term is defined in Section 4.1, below, to commence and fully complete the construction of the Tenant Improvements (the Permits), and, in connection therewith, Tenant shall coordinate with Landlord in order to allow Landlord, at its option, to take part in all phases of the permitting process and shall supply Landlord, as soon as possible, with all plan check numbers and dates of submittal and obtain the Permits on or before the date set forth in Schedule 1. Notwithstanding anything to the contrary set forth in this Section 3.4, Tenant hereby agrees that neither Landlord nor Landlords consultants shall be responsible for obtaining any building permit or certificate of occupancy for the Premises and that the obtaining of the same shall be Tenants responsibility; provided however that Landlord shall, in any event, cooperate with Tenant in executing permit applications and performing other ministerial acts reasonably necessary to enable Tenant to obtain any such permit or certificate of occupancy. No changes, modifications or alterations in the Approved Working Drawings may be made without the prior written consent of Landlord
3.5 Time Deadlines. Tenant shall use its best, good faith, efforts and all due diligence to cause the Architect and the Engineers to complete all phases of the Construction Drawings and the permitting process and to receive the permits as soon as possible after the execution of the Lease, and, in that regard, shall meet with Landlord on a scheduled basis to be mutually determined by Tenant and Landlord, to discuss Tenants progress in connection with the same. The applicable dates for approval of items, plans and drawings as described in this Section 3. Section 4, below, and in this Work Letter are set forth and further elaborated upon in Schedule 1 (the Time Deadlines), attached hereto. Tenant agrees to comply with the Time Deadlines and to prosecute construction of the Tenant Improvements diligently to completion.
SECTION 4
CONSTRUCTION OF THE TENANT IMPROVEMENTS
4.1 Contractor. A general contractor shall be retained by Tenant to construct the Tenant Improvements. Such general contractor (Contractor) shall be approved in writing by Landlord, such approval not to be unreasonably withheld or delayed. Promptly after approval by Landlord of the Contractor, Tenant shall cause the Contractor to prepare a construction schedule and Tenant shall submit the same to Landlord for Landlords approval.
4.2 Landlord Supervision Fee. N/A. There is no LL supervision fee.
4.3 Tenants Agents. All subcontractors, laborers, materialmen, and suppliers used by Tenant (such subcontractors, laborers, materialmen, and suppliers, and the Contractor to be known collectively as Tenants Agents) must be approved by Landlord, which approval shall not be unreasonably withheld or delayed. If Landlord does not approve any of Tenants proposed subcontractors, laborers, materialmen or suppliers, Tenant shall submit other proposed subcontractors, laborers, materialmen or suppliers for Landlords written approval.
4.4 Construction of Tenant Improvements.
4.4.1 Tenants Agents.
4.4.1.1 Landlords General Conditions for Tenants Agents and Tenant Improvement Work. The Tenant Improvements shall be constructed substantially in accordance with the Approved Working Drawings.
4.4.1.2 Indemnity. Tenants indemnity of Landlord as set forth in this Lease shall also apply with respect to any and all costs, losses, damages, injuries and liabilities related in any way to any act or omission of Tenant or Tenants Agents, or anyone directly or indirectly employed by any of them, or in connection with Tenants non-payment of any amount arising out of the Tenant Improvements and/or any disapproval of all or any portion of any request for payment. Such indemnity by Tenant, as set forth in this Lease, shall also apply with respect to any cost of the Tenant Improvements in excess of the Tenant Improvement Allowance, and all costs, losses, damages, injuries and liabilities related in any way to Landlords performance of any ministerial acts reasonably necessary (i) to permit Tenant to complete the Tenant Improvements, or (ii) to enable Tenant to obtain any building permit or certificate of occupancy for the Premises.
4.4.1.3 Requirements of Contractor. The Contractor shall guarantee to Tenant and for the benefit of Landlord that the Tenant Improvements shall be free from any defects in workmanship and materials for a period of not less than one (1) year from the date of completion thereof. The Contractor shall be responsible for the replacement or repair, without additional charge, of all work done or furnished in accordance with its contract and any of its subcontracts that shall become defective within one (1) year after the completion of the work. The correction of such work shall include, without additional charge, all additional expenses and damages incurred in connection with such removal or replacement of all or any part of the Tenant Improvements, and/or the Premises that may be damaged or disturbed thereby. All such warranties or guarantees as to materials or workmanship of or with respect to the Tenant Improvements shall be contained in the Contract shall be written such that such
guarantees or warranties shall inure to the benefit of both Landlord and Tenant, as their respective interests may appear, and can be directly enforced by either. Tenant covenants to give to Landlord any assignment or other assurances which may be necessary to effect such right of direct enforcement.
4.4.1.4 Insurance Requirements. TENANTS RISK MANAGER TO REVIEW THESE INSURANCE PROVISIONS.
4.4.1.4.1 General Coverages. The Contractor shall carry workers compensation insurance covering all of their respective employees, and shall also carry public liability insurance, including property damage, all with limits, in form and with companies as are required by be carried by Tenant as set forth in this Lease. The Contractor shall submit to Landlord a Certificate of Insurance naming Landlord and Landlords property manager, Insignia/ESG, Inc., as additional insureds.
4.4.1.4.2 Special Coverages. Tenant shall carry Builders All Risk insurance in a limit amount of $2 million covering the construction of the Tenant Improvements, and such other insurance as Landlord may require, it being understood and agreed that the Tenant Improvements shall be insured by Tenant pursuant to this Lease immediately upon completion thereof. Such insurance shall be in amounts and shall include such extended coverage endorsements as may be reasonably required by Landlord including, but not limited to, the requirement that all of Tenants Agents shall carry excess liability and Products and Completed Operation Coverage insurance, in amounts, in form and with companies as are required to be carried by Tenant as set forth in this Lease.
4.4.1.4.3 General Terms. Certificates for all insurance carried pursuant to this Section 4.4.1.4 shall be delivered to Landlord before the commencement of construction of the Tenant Improvements and before the Contractors equipment is moved onto the site. All such policies of insurance must contain a provision that the company writing said policy will give Landlord thirty (30) days prior written notice of any cancellation or lapse of the effective date or any reduction in the amounts of such insurance, In the event that the Tenant Improvements are damaged by any cause during the course of the construction thereof, Tenant shall immediately repair the same at Tenants sole cost and expense. The Contractor shall maintain all of the foregoing insurance coverage in force until the Tenant Improvements are fully completed and accepted by Landlord, except for any Products and Completed Operation Coverage insurance required by Landlord, which is to be maintained for ten (10) years following completion of the work and acceptance by Landlord and Tenant. All policies carried under this Section 4.4.1.4 shall insure Landlord and Tenant, as their interests may appear as well as Contractor and Tenants Agents. All insurance, except Workers Compensation, maintained by Tenants Agents shall preclude subrogation claims by the insurer against anyone insured thereunder. Such insurance shall provide that it is primary insurance as respects the owner and that any other insurance maintained by owner is excess and noncontributing with the insurance required hereunder. The requirements for the foregoing insurance shall not derogate from the provisions for indemnification of Landlord by Tenant under Section 4.4.1.2 of this Work Letter.
4.4.2 Governmental Compliance. The Tenant Improvements shall comply in all respects with the following: (i) state, federal, city or quasi-governmental laws, codes, ordinances and regulations, as each may apply according to the rulings of the controlling public official, agent or other person; (ii) applicable standards of the American Insurance Association (formerly, the National Board of Fire Underwriters) and the National Electrical Code; and (iii) building material manufacturers specifications.
4.4.3 Inspection by Landlord. Landlord shall have the right to inspect the Tenant Improvements at all times during construction, provided however, that Landlords failure to inspect the Tenant
WILSHIRE COLONNADE | ||||
Exhibit B - Page 5 | [Insert Tenants Name] |
`Improvements shall in no event constitute a waiver of any of Landlords rights hereunder nor shall Landlords inspection of the Tenant Improvements constitute Landlords approval of the same. Should Landlord disapprove any portion of the Tenant Improvements, Landlord shall notify Tenant in writing of such disapproval and shall specify the items disapproved. Any defects or deviations in, and/or disapproval and shall specify the items disapproved. Any defects or deviations in, and/or disapproval by Landlord of, the Tenant Improvements shall be rectified by Tenant at no expense to Landlord, provided however, that in the event Landlord determines that a defect or deviation exists to Landlord, provided however, that in the event Landlord determines that a defect or deviation exists or disapproves of any matter in connection with any portion of the Tenant Improvements and such defect, deviation or matter might adversely affect the mechanical, electrical, plumbing, heating, ventilating and air conditioning or life-safety systems of the Premises or the Building, Landlord may, take such action as Landlord deems necessary, at Tenants expense and without incurring any liability on Landlords part, to correct any such defect, deviation and/or matter, including, without limitation, causing the cessation of performance of the construction of the Tenant Improvements until such time as the defect, deviation and/or matter is corrected to Landlords satisfaction.
4.5 Notice of Completion; Copy of Record Set of Plans. Within ten (10) days after completion of construction of the Tenant Improvements, Tenant shall cause a Notice of Completion to be recorded in the office of the Recorder of the county in which the Building is located in accordance with Section 3093 of the Civil Code of the State of California or any successor statute, and shall furnish a copy thereof to Landlord upon such recordation. If Tenant fails to do so, Landlord may execute and file the same on behalf of Tenant as Tenants agent for such purpose, at Tenants sole cost and expense. At the conclusion of construction, (i) Tenant shall cause the Architect and Contractor (A) to update the Approved Working Drawings as necessary to reflect all changes made to the Approved Working Drawings during the course of construction, (B) to certify to the best of their knowledge that the record-set of as-built drawings are true and correct, which certification shall survive the expiration or termination of this Lease, and (C) to deliver to Landlord two (2) sets of copies of such record set of drawings within ninety (90) days following issuance of a certificate of occupancy for the Premises, (ii) Tenant shall deliver to Landlord a copy of all warranties, guaranties, and operating manuals and information relating to the improvements, equipment, and systems in the Premises, and (iii) Tenant shall deliver to Landlord the original signed permit card, indicating final approval by all applicable departments.
WILSHIRE COLONNADE | ||||
Exhibit B - Page 6 | [Insert Tenants Name] |
SECTION 5
MISCELLANEOUS
5.1 Freight Elevators. Landlord shall, at no cost to Tenant, consistent with its obligations to other tenants of the Building, make the freight elevator reasonably available to Tenant in connection with initial decorating, furnishing and moving into the Premises.
5.2 Parking: LL to provide parking at no cost to T, its contractors, consultants, employees, agents, etc in connection with the TI design and construction.
5.2 Tenants Representative. Tenant has designated Executive Vice President Myung Hee Hyun as its sole representative with respect to the matters set forth in this Work Letter, who, until further notice to Landlord, shall have full authority and responsibility to act on behalf of the Tenant as required in this Work Letter.
5.3 Landlords Representative. Landlord has designated as its sole representatives with respect to the matters set forth in this Work Letter, who, until further notice to Tenant, shall have full authority and responsibility to act on behalf of the Landlord as required in this Work Letter.
5.4 Time of the Essence in This Work Letter. Unless otherwise indicated, all references herein to a number of days shall mean and refer to calendar days. In all instances where Tenant is required to approve or deliver an item, if no written notice of approval is given or the item is not delivered within the stated time period, at Landlords sole option, at the end of such period the item shall automatically be deemed approved or delivered by Tenant and the next succeeding time period shall commence.
5.5 Tenants Lease Default. Notwithstanding any provision to the contrary contained in this Lease, if an event of default as described in the Lease, or a default by Tenant under this Work Letter, has occurred at any time on or before the substantial completion of the Premises, then (i) in addition to all other rights and remedies granted to Landlord pursuant to the Lease, Landlord shall have the right to withhold payment of all or any portion of the Tenant Improvement Allowance, and (ii) all other obligations of Landlord under the terms of this Work Letter shall be forgiven until such time as such default is cured pursuant to the terms of the Lease.
WILSHIRE COLONNADE | ||||
Exhibit B - Page 7 | [Insert Tenants Name] |
Exhibit 12.1
BBCN Bancorp, Inc.
Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends
For the Year ended December 31, | ||||||||||||||||||||
(Dollars in thousands) | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||
Earnings excluding interest on deposits (1): |
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Earnings (losses) before income tax provision (benefit) |
$ | 42,775 | $ | (15,139 | ) | $ | (11,922 | ) | $ | 4,380 | $ | 55,798 | ||||||||
Fixed charges |
14,716 | 16,197 | 17,210 | 18,709 | 12,666 | |||||||||||||||
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$ | 57,491 | $ | 1,058 | $ | 5,288 | $ | 23,089 | $ | 68,464 | |||||||||||
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Preferred dividends and discount accretion (2): |
$ | 6,633 | $ | 7,948 | $ | 7,904 | $ | 693 | $ | | ||||||||||
Fixed charges (1) : |
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Interest on borrowings |
$ | 9,926 | $ | 12,099 | $ | 13,041 | $ | 13,932 | $ | 6,988 | ||||||||||
Interest on long-term debt, including amortization of debt issuance costs |
1,937 | 1,881 | 2,055 | 2,845 | 3,750 | |||||||||||||||
Portion of long-term lease expense representative of the interest factor (3) |
2,853 | 2,217 | 2,114 | 1,932 | 1,928 | |||||||||||||||
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$ | 14,716 | $ | 16,197 | $ | 17,210 | $ | 18,709 | $ | 12,666 | |||||||||||
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Ratio of earnings (losses) to fixed charges |
3.91 | 0.07 | 0.31 | 1.23 | 5.41 | |||||||||||||||
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Ratio of earnings (losses) to fixed charges and preferred dividends and discount accretion |
2.69 | 0.04 | 0.21 | 1.19 | 5.41 | |||||||||||||||
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Earnings including interest on deposits (1): |
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Earnings (losses) before income tax provision (benefit) |
$ | 42,775 | $ | (15,139 | ) | $ | (11,922 | ) | $ | 4,380 | $ | 55,798 | ||||||||
Fixed charges |
34,961 | 44,079 | 67,846 | 72,789 | 80,913 | |||||||||||||||
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$ | 77,736 | $ | 28,940 | $ | 55,924 | $ | 77,169 | $ | 136,711 | |||||||||||
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Preferred dividends and discount accretion (2): |
$ | 6,633 | $ | 7,948 | $ | 7,904 | $ | 693 | $ | | ||||||||||
Fixed charges (1): |
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Interest on borrowings and deposits |
$ | 30,171 | $ | 39,981 | $ | 63,677 | $ | 68,012 | $ | 75,235 | ||||||||||
Interest on long-term debt, including amortization of debt issuance costs |
1,937 | 1,881 | 2,055 | 2,845 | 3,750 | |||||||||||||||
Portion of long-term lease expense representative of the interest factor (3) |
2,853 | 2,217 | 2,114 | 1,932 | 1,928 | |||||||||||||||
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$ | 34,961 | $ | 44,079 | $ | 67,846 | $ | 72,789 | $ | 80,913 | |||||||||||
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Ratio of earnings (losses) to fixed charges |
2.22 | 0.66 | 0.82 | 1.06 | 1.69 | |||||||||||||||
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Ratio of earnings (losses) to fixed charges and preferred dividends and discount accretion |
1.87 | 0.56 | 0.74 | 1.05 | 1.69 | |||||||||||||||
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Amounts of Coverage Deficiency |
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Excluding interest on deposits |
$ | | $ | 23,087 | $ | 19,826 | $ | | $ | | ||||||||||
Excluding interest on deposits |
$ | | $ | 23,087 | $ | 19,826 | $ | | $ | |
(1) | As defined in Item 503(d) of Regulation S-K |
(2) | Increased to amounts representing the pretax earnings (losses) that would be required to cover such dividend requirements. |
(3) | The interest factor is estimated to be one-third of long-term lease expense. |
Exhibit 14.1
BBCN Bancorp, Inc. and BBCN Bank
DIRECTOR CODE OF ETHICS & BUSINESS
CONDUCT
Director Code of Ethics and Business Conduct |
Page 1 of 9 |
TABLE OF CONTENTS
I. | INTRODUCTION | 2 | ||||||
II. | COMPLIANCE WITH LAWS, RULES, REGULATIONS | 2 | ||||||
III. | PRESERVE CONFIDENTIALITY | 3 | ||||||
A. | CONFIDENTIAL INFORMATION | 3 | ||||||
B. | PROPRIETARY INFORMATION | 3 | ||||||
C. | INSIDER TRADING | 4 | ||||||
IV. | CONFLICTS OF INTEREST | 5 | ||||||
A. | OVERVIEW | 5 | ||||||
B. | SPECIFIC GUIDELINES | 5 | ||||||
V. | COMPANYS REGULATORY REPORTING | 7 | ||||||
VI. | PROCESS FOR REPORTING, WAIVERS AND EXCEPTIONS | 7 | ||||||
VII. | APPENDIX A ANNUAL CERTIFICATION CONCERNING CODE OF ETHICS AND BUSINESS CONDUCT | 8 |
Director Code of Ethics and Business Conduct |
Page 2 of 9 |
I. | INTRODUCTION |
This Director Code of Ethics and Business Conduct (the Code) sets forth BBCN Bancorp, Inc. and BBCN Bank, and each of its affiliates (collectively hereinafter referred to as the Company) policy and standards concerning ethical conduct for its directors. Company directors are expected to act in a manner that will serve the best interests of the Company; that is fair, honest, and trustworthy; that is in compliance with applicable laws, rules, and regulations; that will preserve confidential information; that will avoid conflicts of interest or the appearance of conflicts of interest; that will avoid fraudulent acts, misconduct and dishonesty, and that will protect and uphold the best use of the Companys assets.
While this Code addresses many types of business and social relationships that may present legal and ethical concerns, it does not cover every issue that may arise. This Code instead contains basic principles to guide you when facing ethical issues. In some situations involving ethical judgment, it may be difficult for you to determine the proper course of action or your obligations under this Code. In such instances, you should not rely solely on your own judgment, but must discuss the matter with the appropriate party as set forth in § VI Process for Reporting, Waivers and Exceptions.
Each director has a duty and obligation to report any violation or potential violation of the Code or the employee Code of Ethics and Business Conduct. The Company will fully investigate all reported violations to determine the facts of the case and will take appropriate action up to and including the removal of the director, instituting civil proceedings, and alerting authorities for potential criminal sanctions.
II. | COMPLIANCE WITH LAWS, RULES, REGULATIONS |
Directors must conduct his/herself at the Company and all of its functions or when acting on its behalf in a manner which is in compliance with applicable laws, rules, regulations, as well as with Companys policies. Any behavior which could lead to an action being brought before a criminal or civil court is deemed in violation of the Code. Directors will avoid fraudulent acts, misconduct and dishonesty, or the appearance of such. It is prohibited for a director to use illegal (theft, bribery, misrepresentations, or espionage) or unethical means or methods when acting on behalf of the Company.
Any director convicted or pleading guilty to a felony or who has been sanctioned by a regulatory agency must immediately notify the Legal Department. All inquiries of the Companys independent public accounting firm or supervisory regulatory agency must be responded to honestly and truthfully.
Directors are prohibited from unlawfully soliciting or demanding for the benefit of any person, or unlawfully accepting anything of value for or in connection with any transaction or business of the Bank within the context of the Bank Bribery Act.
Director Code of Ethics and Business Conduct |
Page 3 of 9 |
III. | PRESERVE CONFIDENTIALITY |
A. Confidential Information
Confidential information includes private, sensitive, privileged information in possession of the Company, the Board of Directors and/or its customers. Confidential information will include all materials and formal or informal communications by directors on behalf of the Company, including but not limited to the Board of Director and Committee packages, agendas and minutes which have not already been disclosed to the public. Confidential information is intended solely for use within Company and is limited to those with a business need-to-know. Confidential information acquired by a director through his or her service must be held in the strictest confidence and, except for an appropriate business reason, must not be discussed outside the Company and may be discussed within Company only with those with a business reason to know the information for the performance of their duties on behalf of Company. Confidential information is to be used solely for corporate purposes and never for personal gain, and may not be used to compete with Company.
Confidential information may not be disclosed to persons outside Company except when disclosure is made in accordance with Companys policies and customer agreements or as required by law.
Any disclosure of confidential information, by a director, could lead to their immediate dismissal from the NCB Board; in addition, a process to remove the Director, for cause, subject to shareholder approval may be initiated in relation to their directorship with NCB, Inc.
B. Proprietary Information
Proprietary information includes trade secrets and information regarding:
| Companys business; |
| the Companys financial performance, if it has not been publicly announced; |
| Board of Directors and Committee communications and materials; |
| customers; |
| other Company directors; |
| products, services and pricing; |
| patents and other intellectual property; |
| systems plans and information; |
| data centers or other property information; and |
| business plans, marketing plans, strategies and costs. |
Director Code of Ethics and Business Conduct |
Page 4 of 9 |
Directors must not use or disclose proprietary information about the Company or its staff, customers or vendors, except as appropriate in connection with the business of the Company and in line with the requirements under applicable law.
C. Insider Trading
Insider trading involves the purchase or sale of securities of a company or other entity while in possession of material, nonpublic information (MNPI) about the company or entity. Please see the NCB, Inc. and NCB Insider Trading Policy & Bank Stock Trading Guidelines for further details.
1. Material Non-Public InformationInside or nonpublic information is information about a business organization that is not generally available to or known by the public. Such information is considered to be material if there is a likelihood that it would be considered important by an investor in making a decision to buy or sell a companys securities (whether stock, bonds, notes, debentures, limited partnership units, or other equity or debt securities). Information should be presumed material if it relates to, among other things, any of the following:
| earnings or financial results; |
| dividend increases or decreases; |
| changes in previously released earnings estimates; |
| significant gains or losses; |
| significant expansion or curtailment of operations; |
| significant merger or acquisition proposals or agreements; |
| significant purchase or sale of assets; |
| significant borrowing; |
| major litigation; |
| new debt or equity offerings; |
| liquidity problems; or |
| significant management or Board of Directors changes. |
Questions regarding whether information is inside or material should be referred to the Legal Department or the Chief Financial Officer.
2. Restrictions Against Insider TradingDirectors must not purchase or sell securities either personally or for any account over which they have direct or indirect control if they are aware of MNPI about the issuer of those securities. Directors must not disclose MNPI they possess to family members or others, except to those who have a reason to know, in order to perform their duties on behalf of Company.
3. Purchase and Sales of Securities Issued by CompanyDirectors may not purchase or sell securities issued by BBCN Bancorp, Inc. if they have MNPI
Director Code of Ethics and Business Conduct |
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about the Company. Directors may not purchase or sell securities issued by BBCN Bancorp, Inc. outside the trading window determined by the Legal Department. When directors do trade in securities issued by BBCN Bancorp, Inc. they are asked to inform the Legal Department and complete required disclosures. Directors may not invest in options (other than stock options issued under director compensation plans), puts, calls, short sales, futures contracts or other similar transactions involving securities issued by Company, regardless of whether they have MNPI.
IV. | CONFLICTS OF INTEREST |
A. Overview
Board members must avoid conflicts of interest or the appearance of conflicts of interest in their activities. A conflict of interest exists when you are involved in an outside interest or any activity that might either conflict with your duty to Company or adversely affect your judgment in the performance of your responsibilities to the Company. You are required to act in a responsible and respectable manner and to remain free of influences that may result in a loss of objectivity regarding business conducted with the Companys customers, suppliers or the Company itself. See the Bylaws of BBCN Bancorp, Inc. for a further discussion of interested directors. A conflict of interest is a situation in which:
a directors personal interest or outside economic interest in a matter may be inconsistent or incompatible with the directors obligation to exercise his or her best judgment in pursuit of the interests of Company;
a director appropriates a business opportunity that belongs to Company;
a reasonable question about or the appearance of such interference, inconsistency, appropriation or involvement is raised.
B. Specific Guidelines
1. Related Party Transactions In addition to the duties and responsibilities addressed above a director must report all related party transactions as soon as the director is aware of the potential related party transaction. See the Corporate Governance Guidelines for a detailed discussion.
2. Outside Business Activities Directors should inform the Chair of the Nomination and Governance Committee (NGC) and the Chief Executive Officer before serving as an officer, general partner, or director of an outside for-profit enterprise so that the opportunity can be reviewed for any possible conflicts of interest.
3. Independence Directors should inform the Chair of the NGC and the Chief Executive Officer of any circumstance which might reasonably affect their independence under the requirements of NASDAQ and other applicable laws and regulations and the Companys corporate governance guidelines.
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4. Loan / Credit Federal law prohibits preferential lending to directors by correspondent banks, and requires Company directors to report any outstanding credit held with a correspondent bank on a yearly basis. It is, however; permissible for the Company to extend credit to a director in accordance with Regulation O where terms are substantially similar to terms offered to comparably situated customers who are not directors.
5. Gifts and HospitalityDirectors must not accept gifts or hospitality (including services, discounts, entertainment, travel or promotional materials) from a person or entity known to them to be an actual or potential customer or supplier or from business or professional people to whom Company does or may refer business unless the gift or hospitality was made in accordance with accepted, lawful business practices and no inference can be drawn that the gift or hospitality could influence the director in the performance of his or her duties for Company. It is unlawful to seek or accept anything of value from any person, intending to be influenced or rewarded in connection with any business or transaction of Company.
6. Civic Activities Directors participation in Community Reinvestment Act activities performed on behalf of the Company are encouraged. Director participation, including appointment as a trustee, director or officer, in a religious, community, professional or charitable organizations does not require approval unless there is a lending relationship or some other potential conflict of interest between the organization and Company. A directors participation shall not imply that you are serving at the direction or request of Company.
7. Political Activities It must be clear at all times that a directors participation in political activity is done as an individual and not as a representative of Company. Before you become a candidate or appointee to a public office you must notify the Chair of the NGC. Under Regulation O the definition of a related interest includes a political or campaign committee that is controlled by a director, or the funds or services benefit a director, thus the Company must comply with Regulation O before extending credit to a political or campaign committee that is controlled by a director.
When presented with a situation involving a potential conflict of interest, things to consider include: whether an outside observer would believe that the situation is improper or may interfere with your work performance or responsibilities to the Company. Questions concerning the application of this guideline in specific instances should be discussed with the Legal Department or the Chair of the NGC.
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V. | COMPANYS REGULATORY REPORTING & INVESTIGATIONS |
It is of critical importance that Companys filings with the Securities and Exchange Commission, banking regulators, and other regulatory agencies and authorities, as well as its other public communications are fair, full, accurate, timely, and understandable. A director must always answer all regulatory requests fully and honestly.
A director must also cooperate fully and honestly with all requests for information and as related to internal or external investigations.
VI. | PROCESS FOR REPORTING, WAIVERS AND EXCEPTIONS |
If a director becomes aware of a possible violation by Company of applicable laws, rules or regulations, the director should notify the Chair of the NGC to start an investigation and make sure that there is a satisfactory resolution of the possible violation. A director has a duty to report any possible violation, including actions of another director.
Exceptions or waivers to this Code can be approved only by the NGC and if approved, will be disclosed to Company stockholders as required by applicable laws, rules and regulations. A director requesting an exception or waiver must put all relevant facts in writing and submit the request to the Chair of the NGC. The director will be notified in writing of the decision of the NGC. If an exception or waiver is requested by the Chair of the NGC, such request should be submitted to the Chairman of BBCN Bancorp, Inc., or if they are the same person, such request must be approved by the disinterested members of the Executive Committee.
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VII. APPENDIX A
ANNUAL CERTIFICATION CONCERNING CODE OF ETHICS AND BUSINESS
CONDUCT
I hereby certify that I have received the Director Code of Ethics and Business Conduct for BBCN Bancorp, Inc. and BBCN Bank (the Code). I acknowledge my obligation to read, understand, and abide by its contents, and I am familiar with the provisions in the Code concerning disciplinary measures which may be taken for violations of the Code. I further certify that:
I have complied with all provisions of the Code of Ethics and Business Conduct relating to confidential information since , 20 [date of last certification] , and to the best of my knowledge have not violated any other provisions of the Code since that date.
I understand and acknowledge that I have a duty to report any violations of the Code by anyone. I am not aware of any violations of the Code by any other directors or employees since , 20 [date of last certification].
Date: | ||||||||
Name (Please Print) | ||||||||
Signature |
Exhibit 14.2
CODE OF ETHICS AND BUSINESS CONDUCT
December 1, 2011
TABLE OF CONTENTS
I. |
INTRODUCTION | 1 | ||||||
II. |
GENERAL POLICY STATEMENT | 1 | ||||||
A. |
Compliance with Laws and Regulations | 1 | ||||||
B. | Administration of the Code of Ethics and Business Conduct | 1 | ||||||
III. |
COMPANY RECORDS AND REPORTING | 2 | ||||||
IV. |
PROTECTING CORPORATE ASSETS | 2 | ||||||
V. |
CONFLICTS OF INTEREST | 3 | ||||||
A. |
General Policy | 3 | ||||||
B. |
Acceptance of Gifts | 3 | ||||||
C. |
Giving of Gifts | 4 | ||||||
D. |
Political Contributions | 4 | ||||||
E. |
Outside Employment and Activities | 5 | ||||||
F. |
Service as Directors or Officers of Outside Companies | 5 | ||||||
G. |
Acting on Behalf of Customers | 5 | ||||||
H. |
Personal Investment Activity | 5 | ||||||
I. |
Corporate Opportunities | 6 | ||||||
VI. |
OTHER STAFF MEMBER ACTIVITIES | 8 | ||||||
A. |
Personal Finances | 8 | ||||||
B. |
Overdrafts. | 8 | ||||||
C. |
Lending Practices | 8 | ||||||
D. |
Giving Advice to Customers | 8 | ||||||
E. |
Receipt of Legal Documents or Subpoenas | 9 | ||||||
VII. |
CONFIDENTIALITY | 10 | ||||||
A. |
Customer Information | 10 | ||||||
B. |
Information Regarding the Company | 10 | ||||||
C. |
Confidentiality Agreements | 10 | ||||||
VIII. |
INSIDER TRADING | 10 | ||||||
IX. |
COMPLIANCE AND ENFORCEMENT PROCEDURES | 11 | ||||||
A. |
Complaints or Concerns Regarding Accounting or Auditing Matters | 11 | ||||||
B. |
Reporting of Other Unusual, Suspicious or Illegal Activity or Suspected Violations of the Code of Ethics and Business Conduct and Protection Against Retaliation | 11 | ||||||
C. |
Investigating Violations | 12 | ||||||
D. |
Disciplinary Action | 13 | ||||||
X. |
WAIVERS | 14 | ||||||
XI. |
PRIVACY | 14 | ||||||
XII. |
E-MAIL/INTERNET POLICY | 14 | ||||||
XIII. |
MISCELLANEOUS GUIDELINES FOR CONDUCT | 15 | ||||||
A. |
Use of Company Letterhead and Name | 15 | ||||||
B. |
Dealings with Competitors | 15 | ||||||
C. |
Exclusive Dealings (Anti-Tying) | 15 | ||||||
D. |
Obstruction of Normal and Sound Banking Practice | 15 | ||||||
E. |
Improper Influence and/or Harassment | 15 | ||||||
XIV. |
ACKNOWLEDGEMENT AND ANNUAL CERTIFICATIONS | 16 | ||||||
XV. |
AMENDMENTS | 16 |
EXHIBITS
Exhibit A | | RECEIPT AND ACKNOWLEDGEMENT CONCERNING CODE OF ETHICS AND BUSINESS CONDUCT | ||
Exhibit B | | ANNUAL CERTIFICATION CONCERNING CODE OF ETHICS AND BUSINESS CONDUCT |
I. | INTRODUCTION |
This Code of Ethics and Business Conduct (the Code) has been prepared to reflect the ongoing commitment of BBCN Bancorp and BBCN (collectively the Company) to maintain the highest ethical standards in all Company business. The Code is intended to reflect compliance with all applicable governmental laws, rules and regulations, including but not limited to the Sarbanes-Oxley Act of 2002 and SEC regulations promulgated thereunder. In accordance with the mandate of these laws, this Code of Ethics and Business Conduct applies to all officers and employees of BBCN Bancorp and BBCN (collectively staff members). More specifically, it applies equally to the President/Chief Executive Officer, the Chief Financial Officer, the Controller, and any other senior financial officers of both BBCN Bancorp and BBCN, as it does to all other officers and employees of the Company. Because this Code of Ethics and Business Conduct imposes important ethical obligations on all of the Companys officers and employees, it is imperative that everyone read this Code of Ethics and Business Conduct carefully.
All employees are expected to treat compliance with ethical standards, as well as laws and regulations, as a critical element of their duties and responsibilities to the Company. No retaliatory action may be taken against an employee for providing information in good faith about possible Code violations or violations of laws, rules or regulations by other. Everyone will be expected, as a condition of employment, to read this Code of Ethics and Business Conduct and to sign the attached Acknowledgment, indicating their understanding of and agreement to all of the terms of this Code of Ethics and Business Conduct. Anyone with a question regarding any aspect of the Code, either when they read it for the first time or at any time thereafter, must address their questions to the Chief Legal Officer or other appropriate person as discussed further below. Nothing in the Code is intended to alter the nature of the at-will relationship which exists between the Company and all of its officers and employees who are not subject to written employment agreements. If any provision of this Code or the Companys policy conflicts with applicable law or regulations, the one with the higher standard will apply, except in cases where doing so would cause non-compliance with such laws or regulations.
II. | GENERAL POLICY STATEMENT |
It is the Companys policy to conduct its business in accordance with the highest ethical standards in order to comply with all applicable laws and regulations, and to merit and maintain the complete confidence and trust of its customers and the public in general. All staff members are expected to conduct all of their business and personal affairs and to manage all business transactions in a manner which reflects positively on the Companys reputation in the industry and in the communities in which it does business. The Code is intended to address both business and personal relationships which may present potential legal and ethical concerns for anyone affiliated with the Company. It also sets forth a code of conduct to guide staff members. The term staff member as used herein is intended to refer to all officers and employees of the Company.
A. | Compliance with Laws and Regulations |
It is and has always been the Companys policy to comply fully with the spirit and intent of all applicable governmental laws, rules and regulations which govern the Company. The Company expects all of its staff members to exercise good judgment and to exhibit the highest standards of honest and ethical conduct at all times. All officers and employees are expected to refrain from engaging in any form of illegal, dishonest or unethical conduct.
B. | Administration of the Code of Ethics and Business Conduct |
Each staff member is responsible for becoming familiar with the Code. Supervising officers are expected to make every reasonable effort to ensure that they themselves and all of their subordinate staff comply with the provisions of the Code. Any supervising officer who encounters a situation in which a subordinate staff member has failed to comply with the Code must immediately report the situation to the Chief Legal Officer.
The Audit Committee (with respect to auditing and accounting related matters) and the Compensation Committee (with respect to all other matters) shall have the ultimate responsibility for determining matters of interpretation with respect to the Code, and for making all final decisions concerning disciplinary actions if applicable. The day-to-day administration and implementation of the Code, as well as the distribution of any periodic changes to the Code to staff members, shall be the responsibility of the Ethics Officer or the Chief Legal Officer.
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If a staff member is unsure of what to do in any situation, he or she should always seek additional guidance and information before acting. Staff members should always try to use their good judgment and common sense; if something seems improper, it probably is. If a staff member has a question or concern about any accounting-related issues, he or she should ask the Controller, the Chief Financial Officer, or, at the staff members option, the Chairman of the Audit Committee. For all other types of questions, the staff member should first address the question to his or her immediate supervisor. For non-accounting related issues, the staff member should ask his or her supervisor, the Ethics Officer or the Chief Legal Officer. If a supervisor has a question regarding the interpretation or applicability of any provision of the Code to a particular situation, such supervisor should immediately seek the advice of the Chief Legal Officer.
III. | COMPANY RECORDS AND REPORTING |
It is imperative that all records, data and information used and managed by the Company be kept current, accurate and complete. Each staff member is personally responsible for the integrity of the information, reports and records under his or her control. Records must be maintained with a sufficient level of detail to accurately reflect the Companys transactions.
In keeping with their legal and ethical obligations, all staff members who are involved in any manner with the preparation and/or filing of any reports or documents that the Company is required to file or submit to any governmental agency, including but not limited to the SEC, the FDIC and the Federal Reserve Board, are expected to make full, fair, accurate and timely and understandable disclosure in all such reports. In furtherance of this objective, all staff members must maintain accurate Company records and retain them in accordance with the law. This obligation to insure full, fair, accurate and timely and understandable disclosure also extends to any public communication made by the Company.
The falsification of any of the Companys books, records or documents will result in immediate dismissal. In addition, falsification of Company books and records is a felony under applicable laws.
Staff members are expected to exercise good judgment and standards when creating any Company records, including e-mail. When creating any records or documents, staff members should keep in mind that such records may need to be interpreted at a later time with the benefit of hindsight and/or the disadvantage of imperfect recollections or the lack of availability of the author to shed light on the written records.
Staff members are required to fully cooperate with audits conducted by the Companys internal audit staff, external auditing firm or state and federal regulatory examiners. Questions raised by the auditors or examiners must be answered honestly and no adverse information may be concealed.
Staff members are required to cooperate fully with any appropriately authorized internal or external investigations. The making of any false statement to or misleading of internal or external auditors, Company representatives or regulators can be a crime and may result in severe penalties. Staff members should never withhold information that may seem to raise an ethical issue, but should immediately contact their supervisor, the Chief Risk Officer, the Controller, the Chief Financial Officer, or the Chairman of the Audit Committee, depending on the nature of the issue involved.
Staff members shall follow all specified Company guidelines and procedures with respect to the retention of records. While in general records should be maintained for specified time periods in accordance with Company policy and as required by law, a staff member must never, regardless of time, destroy any records which could potentially be relevant to any violation of law, any litigation, or any pending, threatened or foreseeable government investigation or proceeding.
IV. | PROTECTING CORPORATE ASSETS |
Staff members are responsible for safeguarding the tangible and intangible assets of the Company and its customers. Staff members should never use company assets for their personal benefit except as specifically
2
permitted by the Company. Company assets include cash, securities, business plans, customer information, intellectual property (computer programs, models and other items), physical property and services. Misappropriation of corporate assets is a breach of fiduciary duty and in some cases can amount to fraud against the Company. Carelessness or waste of corporate assets can also be a breach of duty to the Company.
Staff members should always remember that the Companys computer, telephone, e-mail and voice mail systems are to be used primarily for business purposes, and that such systems should never be used in a way that could be harmful or embarrassing to the Company. Staff members should limit personal communications to a minimum.
V. | CONFLICTS OF INTEREST |
A. | General Policy |
One of the purposes of this Code of Ethics and Business Conduct is to remind all staff members of the importance of avoiding any actual or apparent conflict of interest in any transaction involving the Company. A conflict of interest is defined as a staff members involvement in any outside interest or activity which either conflicts or appears to conflict with the staff members duty to the Company, or which may adversely affect the staff members judgment in the performance of his or her responsibilities to the Company.
Staff members must not engage in any personal or business conduct which has even the potential or appearance of conflicting with the interests of the Company. All staff members are required to disclose to their supervisor any potential conflict of interest, including one in which they have been unintentionally placed as a result of a business or personal relationship with a customer, supplier, business associate or competitor of the Company. (All potential new employees must be asked before commencing employment whether they have any pre-existing relationship or investment which might present a potential conflict of interest, so that appropriate action can be taken if necessary prior to such employment or service.) The supervisor will review the situation with the next appropriate level of management and advise the staff member as to the proper course of conduct. Contemporaneous written records of all such disclosures will be retained by the Company in keeping with all applicable legal requirements. Any supervisory employee who encounters a potential or actual conflict of interest must disclose the situation to the next appropriate level of management who will review the situation and advise the supervisory employee as to the proper course of conduct. All staff members must contact either their supervisor or the next appropriate level of management in the chain of command if they have any question about whether an apparent or actual conflict of interest exists. This consultation must occur before the staff member becomes involved in the potentially problematic transaction or situation.
B. | Acceptance of Gifts |
Staff members and their immediate families are prohibited by law from soliciting, accepting or retaining any gift, benefit or anything of value, for themselves or for any third party, from any customer of the Company, or from any individual or organization which is either involved in a business relationship with the Company or which is seeking to establish a business relationship with the Company. A benefit is defined as any type of gift, bequest, gratuity, favor, service, loan, legacy (except from a relative), fee or compensation, or anything of monetary value.
Specific exceptions to this policy may be permitted if the benefit or gift is of nominal value and there is no, and there appears to be no, reasonable likelihood that the staff members business judgment might be compromised. In order to qualify for such exception, the personal benefit, however, must be one of the following:
(i) | normal business courtesies, such as a meal, refreshment or entertainment of reasonable value, involving no more than ordinary amenities, where the giver is present and the purpose of the event is to hold bona fide business discussions; |
(ii) | non-cash gifts of reasonable value (under $100.00 within a six month period) such as are typically received at holiday time or special occasions, such as in connection with the acceptance of a new job, a promotion, wedding, or retirement and which represent only an expression of friendship on the part of the giver; |
3
(iii) | gifts based upon kinship, marriage or social relationships entirely beyond and apart from any business relation; |
(iv) | unsolicited advertising and promotional material of nominal value; |
(v) | awards given by charitable, educational, civic, or religious organizations meritorious contributions or service; |
(vi) | loans from other banks or financial institutions on customary terms to finance proper and usual activities such as home mortgage loans; and |
(vii) | discounts or rebates on merchandise or services that do not exceed those available to other customers. |
Any gift or benefit offered to a staff member, other than as one of the exceptions noted above, must be reported by the staff member to his or her supervisor or to the Chief Legal Officer. This individual will review the situation and instruct the staff member as to the appropriate action. Contemporaneous written records of all such disclosures are retained by the Company in keeping with applicable legal requirements.
It is important for all staff members to remember that state and federal laws make it a crime for any officer, director or employee of a federally insured bank or bank holding company, directly or indirectly, to ask or solicit, accept, receive or agree to receive anything of value, for him or herself or for any other person or entity, for or in connection with any transaction or business of the Company. Penalties for violating these laws include a fine, imprisonment, or both. Any offer of such an improper payment must be reported immediately to the staff members supervisor or to the Chief Legal Officer. Any staff member who has a question about whether anything offered to the staff member falls within this law must be directed to the staff members supervisor or to the Chief Legal Officer before the item is accepted.
C. | Giving of Gifts |
Staff members may not give gifts to customers under any circumstances where the gift could potentially be seen by others as consideration for any type of business favor. Any entertainment or other gifts to be offered to customers may be done only with the prior authorization of the Chief Legal Officer, and must be in accordance with business expense reimbursement requirements. Employees who wish to give gifts to vendors or customers must follow standard expense authorization procedures. Named executive officers may make gifts valued at less than or equal to $300 to a current or potential business customer within any calendar year. District Managers may make gifts valued at less than or equal to $200 to a current or potential business customer within any calendar year. All other employees may make a gift valued at less than or equal to $100 to a current or potential business customer within any calendar year. All exceptions to this policy must be approved, in writing, by employees supervisor, and reported to the Ethics Officer before the gifts are given. Any exceptions must be approved by the Chief Executive Officer.
Employees who wish to give personal gifts to other employees must follow the general guideline that the gift be made in accordance with accepted business practices and is of sufficiently limited value that the gift could not influence the giver or the receiver in the performance of their duties for Company, nor create actual or perceived pressure to reciprocate.
Staff members should also remember that there are strict laws restricting the giving of gifts to any government officials. No gifts to any government officials will be allowed without the prior approval of the Ethics Officer.
D. | Political Contributions |
It is the Companys policy to strictly comply with all applicable federal and state political campaign laws. While the Company believes that it is appropriate for every citizen to take an active interest in political and governmental affairs, all participation must be done solely as a private citizen and not as a representative of the
4
Company. Directors, officers and employees must not make any political contribution (whether in the form of cash, goods or services) either directly or indirectly, on behalf of the Company. For these purposes, use of any of the Companys facilities, equipment, supplies or manpower for political activities will be considered to be a contribution. All political contributions shall be made by solely by the individual on his or her own behalf. Under no circumstances may the Company require staff members to contribute to, support or oppose any political group or candidate.
The decision to make any political contribution or to engage in any election activity should not be taken lightly and legal counsel should be consulted before any contribution or expenditure is made. The Federal Election Campaign Act of 1971 (FECA) is administered by the Federal Elections Commission, and every federal banking agency treats compliance with the election campaign laws as a matter of supervisory interest.
E. | Outside Employment and Activities |
With the exception of a sole proprietorship or family-owned small business as described below, staff members may not accept a position as a director, trustee, officer, owner or general partner of any outside business organized for-profit without obtaining approval of a member of executive management and the Ethics Officer. Sole proprietorships owned by the staff member must be reported to the Ethics Officer. Under no circumstances may a staff member accept outside employment or engage in any outside activity, whether for profit or not, if the employment or activity might (i) pose a potential, actual or apparent conflict of interest, (ii) subject the Company to adverse publicity or criticism, or (iii) interfere with the staff members performance of their duties or productivity on behalf of the Company.
The Company encourages individual participation in civic activities. Normally, such voluntary efforts must take place outside of regular business hours. If voluntary efforts require the use of business time, prior approval must be obtained from the staff members supervisor.
F. | Service as Directors or Officers of Outside Companies |
Staff members are not permitted to serve as directors or officers of any outside companies without the prior approval of the Companys Chief Risk Officer or the Human Resources Department. In making any decision on the permissibility of such service in specific situations, the Board of Directors shall carefully evaluate (i) the outside companys relationship to the Company, if any; (ii) any potential conflict of interest between the Company and the outside company, such as actual or potential similar product lines; and (iii) the extent to which such service would further the interests of the Company and its shareholders. If any staff member has previously accepted any such appointments or positions, he or she must immediately report the same to the Chief Legal Officer, so that an appropriate decision can be made as to the possible need to discontinue such service. In the case of directors of the Company, any such outside service must be in accordance with such directors fiduciary duty to the Company and in strict compliance with all applicable laws and regulations.
G. | Acting on Behalf of Customers |
Staff members are not permitted to act, without the prior written approval of their supervisor, as an executor, administrator, trustee, guardian or conservator, or in any other fiduciary capacity, for a customer of the Company. An exception to this policy may be made if the staff member requests permission to act as a fiduciary for a family member. However, even these situations require the prior written approval of the employees supervisor.
Staff members must not sign on customers accounts, act as co-renters of customers safe boxes, or otherwise represent customers, other than customers related to the staff member by blood or marriage. With respect to accounts of such relatives, staff members should make no decisions outside of normal deposit and check writing activities, i.e., they should not approve overdrafts, waive service charges, etc.
H. | Personal Investment Activity |
While the Company does not wish to unreasonably limit staff members in their personal investment activities, it is the Companys policy that no staff member shall, at any time during their employment with the Company, have any direct or indirect investment interest in or business relationship with (whether as a partner,
5
stockholder, employee, independent contractor or otherwise) a competitor, supplier or customer of the Company or with any person or firm with whom the Company has any business relationship. Furthermore, all employees must devote substantially all of their time and effort during normal business hours to the business of the Company. They must not become involved in any off-duty investments which will interfere with the performance of their work. Likewise, they may not enter into any investment transaction which might create, or give the appearance of creating, a conflict of interest between the staff member and the Company or between the Company and any customer or other individual or entity with whom the Company has a business relationship. However, staff members may make investments of a passive nature in any business or venture, provided, however, that the amount of such investment does not exceed one percent (1%) of the issued and outstanding shares or one percent (1%) of the equity interest in such business or venture. In addition, any investment in the securities of a customer must be made in strict accordance with the Companys Insider Trading Policy, and must be immediately reported to the Controller or the Chief Financial Officer.
While an exhaustive list of the types of impermissible investments is not practical, all staff members must refrain from directly or indirectly owning or purchasing any of the following:
(i) | Real or personal property in which the Company intends to obtain an ownership interest (i.e. through purchase, foreclosure or repossession, or in a fiduciary capacity), unless offered through a third party to the general public. |
(ii) | Stocks, bonds or other securities which have either been pledged to the Company as collateral, sold by the Company in a fiduciary capacity or issued by any entity indebted to the Company (except publicly traded securities). |
(iii) | Stock of any business or financial institution, in anticipation of its merger with or acquisition by the Company. Investment in the stock of any financial institution, even though made in good faith and without prior inside knowledge, should be given careful consideration because of the possible adverse publicity to the Company in the event of a subsequent merger with, or acquisition by the Company. |
(iv) | Trust deeds, mortgages or any other liens against property in which the Company also has a security interest. |
(v) | Any other investments paralleling or anticipating investment action by the Company. |
In addition, a staff member should not allow a customer to arrange investments for the account of the staff member or his or her immediate family, nor should the staff member become involved in investments sponsored by a customer under circumstances which might create either a conflict of interest or the appearance of such a conflict.
Any staff member who has any question about whether a particular investment falls within the prohibitions of this policy must contact the General Counsel before becoming involved in the investment.
I. | Corporate Opportunities |
Staff members owe a duty to the Company to advance its legitimate interest when the opportunity to do so arises. Staff members are prohibited from:
| Taking for themselves personal opportunities that are discovered through the use of corporate property, information, or position; |
| Using corporate property, information, or position for personal gain; or |
| Competing with the Company without prior consent from the Board of Directors. |
6
J. Transactions with Company
Company maintains an extensive system of internal controls in order to provide reasonable assurance that assets are safeguarded and all transactions are properly recorded.
Personal Transactions Staff members must transact all personal financial business with Company following the same procedures that are used by customers and from the customer side of the window or desk. Staff members are not allowed to handle or approve their own transactions, or transactions on accounts over which they have any ownership interest, control or signing authority. This includes transactions for a business if the employee owns that business. These transactions must be handled by personnel other than the employee for whom the transaction is conducted. Any Employee found transacting personal business for both him or herself and Company will be assumed to be in violation of the Code and internal operating policy and procedures. Monetary and non-monetary transactions must be processed by another employee. This includes but is not limited to transactions such as:
| Loans or any form of credit extension; |
| Checks and withdrawals; |
| Deposits; |
| Changes of address, or |
| Changing overdraft limit codes. |
If the transaction requires approval, the approval must come from the next higher level of authority. The staff member may not request approval of personal transactions by a co-worker or by anyone you directly or indirectly supervise. Staff member may not directly or indirectly purchase from Company, notes, real or personal property that has been repossessed by Company, unless authorized by the Chief Credit Officer and the Ethics Officer or Chief Risk Officer and pursuant to applicable banking regulations.
Overdrafts, Fees and Service Charges Staff members may not approve overdrafts or reverse or waive fees or service charges for:
| Employees own accounts; |
| Accounts in which Employee has an interest; |
| Accounts of family members, other relatives and close friends (more than an acquaintance); |
| Accounts of members of employees household, including roommates and unrelated individuals, or |
| Accounts of companies controlled by employee, employees family members, other relatives and close friends. |
In addition, the decision to pay or waive charges for employees own overdraft must not be made by another employee that the staff member directly or indirectly supervise. This policy is intended to prevent situations where one employee could exert either purposeful or inadvertent pressure on another employee to pay an overdraft or waive or reduce charges merely because of their job relationship. The fact that a employee is a treasurer or officer of a corporation, municipality, county, political fund, nonprofit corporation or escrow trustee fund does not warrant or justify rate concessions for personal borrowing or fee waivers on other forms of business which are not available to similarly situated customers.
K. | Employment of Relatives |
Employment of related individuals is not prohibited, but not encouraged. However, an applicant for employment must disclose any relationship with a current employee, at the beginning of the application process. It is then, in the sole discretion of the Manager of Human Resources and the potential employees Manager to determine if the relationship between employees or potential employees, including those not related by blood, creates potential for conflict of interest or a disruption in the workplace, Company may transfer one of the employees or potential employees, or determine that it is not appropriate to hire the applicant due to the conflict. Supervisors should contact the Manager of Human Resources to review the circumstances prior to acting.
An employee should not be placed under the immediate supervision of a relative. In addition, an employee should not be placed in a position in which a relative is otherwise responsible for processing, reviewing, or approving the employees transactions, recommendations, or performance.
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For purposes of this policy, relatives include, but are not limited to, an employees parent, grandparent, child, spouse, niece, nephew, uncle, aunt, brother, sister, or stepchild relationships. Relatives also include any parent, grandparent, child, niece, nephew, uncle, aunt, brother, sister, or stepchild relationships of an employees spouse. As noted above, the policy is not limited to relatives and applies to other covered situations involving actual and potential conflicts of interest, such as a dating relationship.
VI. | OTHER STAFF MEMBER ACTIVITIES |
A. | Personal Finances |
All staff members are expected to demonstrate an ability to manage their personal finances in a responsible manner, particularly in the intelligent use of credit. Imprudent personal financial management not only may reflect poorly on the individuals ability to perform their responsibilities of a financial nature but may also adversely affect the staff members job performance. Staff members and their immediate families are generally expected to borrow only from reputable organizations which regularly lend money (except for loans from personal friends and relatives). Staff members may not borrow money from their coworkers, but should discuss any financial emergency with their supervisor.
B. | Overdrafts. |
All employees have an obligation to keep their checking accounts in good order. Executive officers and directors with checking accounts at BBCN are also subject to a flat overdraft prohibition under state and federal insider lending laws and regulations, and could be subject to penalties for violations under Federal Reserve Regulation O. All staff members must remember that any overdraft on his or her account is a serious offense which will not be tolerated and which may result in the checking account being closed. In addition, anyone overdrawing his or her account may be subject to discipline.
C. | Lending Practices |
(i) | The Companys policy is to maintain prudent lending practices in order to insure an adequate supply of funds for the credit needs of its customers. Any rate concessions shall be primarily based upon borrowers creditworthiness and overall relationships with the Company (including related deposits of guarantors, etc.), as well as competitive bank pressures. |
(ii) | Staff members are not in any way to represent or exercise authority on behalf of the Company, grant direct or indirect accommodations to or make credit recommendations with respect to: members of their families; any individual or organization with which the staff member, or his or her immediate family, is associated or in which the staff member holds any financial interest. |
(iii) | Federal law prohibits any director, officer or employee of the Company from granting any loan or gratuity to any public bank examiner or assistant bank examiner, who either examines the Company or has authority to examine the Company. |
All directors and executive officers are required to comply with federal and state insider lending laws and regulations, including Federal Reserve Regulation O. Detailed requirements concerning loans to insiders are addressed in a separate policy. Any staff member with a question regarding the propriety of a loan involving an executive officer or director should contact the Chief Credit Officer.
D. | Giving Advice to Customers |
Staff members may occasionally be asked by customers to comment upon the legality of a particular transaction. Since the Company cannot practice law or give legal or tax advice, staff members must exercise care in discussing transactions with customers and nothing should be said that might be interpreted as the giving of legal or tax advice.
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E. | Giving Customers Accurate and Complete Information about all Products and Services |
Honesty and fairness require that staff members provide accurate and complete information in dealings with customers and others. The products and services of the Company should be presented accurately and fairly. Any practice, no matter how long-standing or widespread, that involves conveying inaccurate or incomplete information in dealings with others is not acceptable.
Mis-selling is the sale of a product or service to a customer without regard to the customers interests, and is prohibited. Mis-selling exposes the Company to regulatory penalties, reputational damage and legal action by customers.
Misrepresentation is providing inaccurate or misleading information about the Company, its products or services that will prevent our customers and stockholders from making an informed decision.
What should staff do?
| For any new product, the assigned manager must complete all required steps and approvals from the board, executive management, risk and legal approval, as needed according to the applicable policy. |
| Provide relevant and complete information to customers to ensure that they have the best choice of product options; |
| Not sell products or services to customers that do not meet their needs; |
| Make every effort to ensure that the customer understands the product and its risks; |
| Comply with the Companys advertising standards and ensure all advertisements are reviewed by the Legal and Compliance department before they are launched; and |
| Explain the features of each product orally and in writing. |
F. | Receipt of Legal Documents or Subpoenas |
Any staff member who receives a legal document of any kind relating to the Company, including but not limited to subpoenas, requests for documents, demand letters, summonses or correspondence from attorneys that appear to be legal in nature, shall immediately contact the BSA Department for instructions. Under no circumstance shall any staff member release any confidential customer information to any outside party in response to such a request (whether oral or written) without the approval of the BSA Department.
G. | Sales Incentive / Referral Programs |
The Company has various incentive programs to reward employees who bring in new business. This section provides guidance for specific situations involving incentive programs. If any business practice being followed in your area does not meet these guidelines, the staff member should refuse to participate and should report the inappropriate behavior immediately.
1. Sales to Relatives and FriendsThe Company recognizes that relatives and friends are one source of new business. Within these guidelines, incentive programs generally allow employees to receive credit and any related compensation for legitimate sales to, or referrals of, relatives or friends.
2. Inappropriate SalesSteering a customer to an inappropriate or unnecessary product to receive sales credit harms the customer and is an unacceptable practice which violates both the spirit and the letter of our incentive programs.
3. GamingGaming is defined as the manipulation and/or misrepresentation of sales or sales reporting in an attempt to receive compensation or to meet sales goals. Any form of gaming to receive compensation or to meet sales goals is in direct violation of company policy and will result in corrective action, which may include termination of employment.
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4. Payment Errors Staff members are expected to check their paychecks for accuracy, and are required to report immediately to their supervisor any overpayment including, but not limited to, wages, salary, incentive pay, bonuses or any other form of payment. The supervisor will work with the staff member to make appropriate arrangements to reimburse the company. Failure to report discrepancies or to make appropriate repayment arrangements may result in corrective action, which may include termination of employment.
VII. | CONFIDENTIALITY |
A. | Customer Information |
In accordance with the Gramm-Leach-Bliley Act (GLBA) of 1999, financial institutions are required to have administrative, technical and physical safeguards for sensitive customer information. As such, safeguarding the confidential financial information concerning the Companys customers is essential to maintaining the public trust. It is the policy of the Company that such confidential information acquired by a staff member through his or her employment must be held in the strictest confidence. Such information is to be held for Company purposes only and not as a basis for personal gain by any staff member. Such information must also be protected from misuse that could result in identity theft. Aside from routine credit inquires, information regarding a customer may generally only be released to private persons, organizations or governmental bodies that request it with the consent of the customer involved or upon receipt of legal process, such as a subpoena or court order. Information obtained about any Bank customer from any record of the Bank shall not be disclosed. This provision continues regardless of whether the individual who obtains the information ceases employment with the Bank.
Confidential customer information should never be discussed with anyone outside the Company, and only with those within the Company who have a legitimate business need to know. Such information should never be discussed in public places, even within the Companys offices. Staff members should be sensitive to the risk of inadvertent disclosure resulting from open doors, speakerphones, cellular phones, and when transmitting confidential information by fax or other electronic media.
Lending personnel must not disclose confidential information on existing or proposed loan customers to investment personnel without the prior consent of the customer, which shall either be obtained in writing or noted on the requisite Conversation Log.
B. | Information Regarding the Company |
Financial or other information regarding the Company, its operations, its customers or any aspect of its business may not to be released to any outside person or organization unless it has been published in reports to shareholders, otherwise made available to the public through authorized news releases. All news media inquiries must be referred to the President, the Controller or the Chief Financial Officer. The Company expects every employee to treat information concerning the Company and its personnel with the same confidentiality as information concerning customers of the Company and to observe, with respect to the Company, the same guidelines set forth in Paragraph A above.
C. | Confidentiality Agreements |
All employees will be required to sign and adhere to the Banks Confidentiality Agreement as a condition of their employment, and to certify annually that they have complied with all provisions of the Code relating to confidential information since the date of the last certification.
VIII. | INSIDER TRADING |
Staff members are frequently entrusted with possession of confidential and highly sensitive information concerning the Company and/or its customers. As long as a staff member is aware of material non-public
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information relating to the Company or any of its customers, such staff member may not buy or sell the securities of the Company or such customer, regardless of how that information was obtained. Material non-public information is any information which could reasonably be expected to affect the price of a companys stock. Equally important, the staff member must maintain such material non-public information in the strictest of confidence.
Details on insider trading restrictions, the consequences of violating such restrictions, and special requirements for transactions (including stock option exercises) involving the Companys stock are documented in the Companys Insider Trading Policy. All staff members have received copies of either the Insider Trading Policy or a Summary thereof, and are responsible for complying with all of its requirements. The Insider Trading Policy applies not only to the Companys officers, directors and employees but also to such persons spouses, minor children, other relatives who live in their households, and trusts or companies which such persons control or as to whose shares of the Companys stock such persons otherwise enjoy beneficial ownership.
IX. | COMPLIANCE AND ENFORCEMENT PROCEDURES |
A. | Complaints or Concerns Regarding Accounting or Auditing Matters |
A link to the Companys Whistleblower Policy regarding complaints concerning accounting and auditing matters can be found on the Company intranet home page, at .
Any employee of the Company may submit a good faith complaint regarding accounting for auditing matters to the management of the Company without fear of dismissal or retaliation of any kind. The Company is committed to achieving compliance with all applicable securities laws and regulations, accounting standards, accounting controls and audit practices. The Audit Committee will oversee treatment of employee concerns in this area.
In order to facilitate the reporting of employee complaints, the Audit Committee has established the intranet submittal process for (1) the receipt, retention and treatment of complaints regarding accounting, internal accounting controls, or auditing matters (Accounting Matters), (2) the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters which links directly to the Chairman of the Audit Committee.
You may use the Whistleblower Hotline at (888) 582 8811 to report any complaint related to accounting for auditing matters.
B. | Reporting of Other Unusual, Suspicious or Illegal Activity or Suspected Violations of the Code of Ethics and Business Conduct and Protection Against Retaliation |
What Must Be Reported. Directors, officers and employees must promptly report any unusual, suspicious or illegal activity or suspected violations of this Code. Failure to report a violation can lead to disciplinary action against the person who failed to report the violation which may be as severe as the disciplinary action against the person who committed the violation. Unusual, suspicious or illegal activity may include illegal acts (such as fraud or misappropriation of funds), harassment or coercive acts, obstruction of proper bank reporting, violations of the Bank Secrecy/USA Patriot Act (such as money laundering, funds transfers to specially designated nationals or structuring transactions to avoid reporting requirements), or any other violations of the Code of Ethics and Business Conduct.
If a staff member believes that he or she has violated the Code or any applicable law or regulation, he or she must report the violation so that the Company can take appropriate action. The fact that the staff member has reported the violation will be given consideration in determining appropriate disciplinary action, if any. In many cases, a prompt report of a violation can substantially reduce the adverse consequences of a violation for all involved.
If a staff member becomes aware that another employee, of whatever level of seniority, has, in all likelihood, violated the Code, including any law or regulation applicable to the Companys businesses, that staff member has a duty to report that violation so that the Company can take steps to rectify the problem and prevent a
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recurrence. The staff member has a duty to report the suspected violation as long as he or she believes that a violation occurred. Absolute certainty is not the standard. If a staff member has any question about his or her obligation in a particular situation, he or she should contact his or her immediate supervisor or the Chief Legal Officer.
Reporting Procedures. Normally, (except in the case of auditing or accounting related matters, which are discussed in Section IX.A. above) a suspected violation of this Code by an employee other than an officer of the Company should be reported to the supervisor of the employee who commits the violation. Suspected violations by an employee concerning the Bank Secrecy/USA Patriot Act should be reported immediately to the employees supervisor, who will in turn report the violation directly to the Banks BSA Officer. However, a staff member may instead report the possible violation to his or her own supervisor or to the Chief Legal Officer. Any supervisor who receives a report of suspicious or illegal activity from a staff member must immediately notify the Chief Legal Officer.
A suspected violation of this Code by a director or an officer of the Company should be reported to the Chief Executive Officer. However, if a staff member believes that in a particular situation it would not be appropriate to report a possible violation by a director or officer to the CEO, the staff member may report the possible violation to the Chairman of the Audit Committee, or to any other officer or director of the Company to whom the employee believes it would be appropriate to report the possible violation.
Reports made by staff members may be anonymous, at the choice of the individual making the report. All reports made under these procedures will be handled with the maximum degree of confidentiality, and information from the report will be shared only to the extent necessary to conduct a complete and fair investigation. All such reports will be promptly reviewed and resolved.
Protection Against Retaliation. Retaliation in any form against an individual who makes a good faith report of a suspected violation of this Code or of law (even if the report is mistaken), or against anyone who assists in the investigation of a reported violation, is itself a serious violation of this Code. Acts of retaliation will not be tolerated and should be reported immediately. The Chief Legal Officer, the Compensation Committee or the Audit Committee, as appropriate (depending on the nature of the allegations and positions of the individuals involved) will conduct a full investigation and will take appropriate disciplinary action against anyone engaging in retaliatory conduct.
In addition, any staff member who discourages or prevents other staff members from making such reports or seeking the help or assistance they need, will be subject to disciplinary action.
False Accusations. It is very important that the process for reporting suspected violations not be used improperly or in bad faith to make false accusations against any Company personnel. However, since the Company wants to encourage employees to come forward when they suspect that inappropriate conduct has occurred, it will not take disciplinary action against a staff member for coming forward unless there is evidence that the staff member knowingly provided false information. The mere fact that a staff members suspicions prove to be unfounded will not lead to discipline.
The Company will make every effort to assure that complaints are investigated thoroughly and that no disciplinary actions are taken based solely on unsubstantiated allegations. Particularly in the case of anonymous allegations, any disciplinary actions must be based upon documentary or other corroborating evidence of misconduct, and the subject of the investigation must be given an opportunity to provide an explanation of any suspicious circumstances if desired. However, the decision by the Chief Legal Officer, the Compensation Committee or the Audit Committee, as appropriate (again depending on the individuals and allegations involved), after conducting its investigation, will be final and binding.
C. | Investigating Violations |
With respect to any suspected violations not involving accounting or audit related matters, the Chief Legal Officer together with appropriate members of management, and legal counsel, if necessary, shall develop and maintain standard procedures for documenting all allegations received, evaluating and investigating allegations and documenting the conclusions of that process. The Compensation Committee shall receive at least annually, or more
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often as the Chief Legal Officer deems appropriate, a list of all such alleged violations and the outcome of the inquiry or investigation thereof and shall have access to all reports prepared regarding alleged violations of this Code.
Any suspected violations or concerns regarding accounting or audit related matters will be investigated promptly and directly by the Audit Committee in accordance with Section IX. B. above.
D. | Disciplinary Action |
The Company shall consistently enforce this Code of Ethics and Business Conduct through appropriate means of discipline. Suspected violations of the Code involving auditing or accounting related matters shall be promptly reported to the Audit Committee. The Audit Committee shall determine, through consistently enforced procedures, whether violations of the Code have occurred and, if so, shall determine the disciplinary measures to be taken against any employee or agent of the Company who has violated the Code. In the case of suspected violations not involving auditing or accounting related matters, similar procedures shall be enforced by the Chief Legal Officer, in consultation with the Compensation Committee or outside counsel, if necessary, depending on the position or level of the individual involved.
The disciplinary measures, which may be invoked at the discretion of the Audit Committee, the Compensation Committee or the Chief Legal Officer, as appropriate, include, but are not limited to, counseling, oral or written reprimands, warnings, probation or suspension without pay, demotions, reductions in salary, termination of employment and restitution.
Among other things, and without limitation to the following, directors, officers and employees may be disciplined for:
| Committing, authorizing, or directing an illegal act. |
| Failing to exercise proper compliance oversight, tolerating illegal conduct, or approving or condoning violations, if acting as a supervisor of another employee of the Company. |
| Failing to report illegal business conduct or violations of the Code of which he or she directly knows or observes. |
| Discouraging another director, officer, or employee from reporting a violation of law or of this Code of Ethics and Business Conduct. |
| Improperly disclosing the identity of a person who reports a violation of this Code. |
| Withholding material information regarding a violation when requested to provide such information. |
| Retaliating or condoning retaliation against any director, officer, or employee of the Company who reports such a violation. |
As examples, the following are not valid excuses for failing to comply with the law and/or the Code and, as such, will not avoid disciplinary measures under this Code:
| A supervisor demanded that I do the illegal, unethical or improper act. |
| I thought the conduct was standard practice in our business. |
| It was a business necessity because it would have cost more to act properly. |
| I misinterpreted the law or this Code and did not seek the advice of the Chief Risk Officer. |
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X. | WAIVERS |
Any waivers of this Code for executive officers or directors may be made only by the Board of Directors of the Company upon the recommendation of its Audit Committee, and must be promptly filed and/or disclosed to the public as required by all applicable securities or other laws, rules or regulations or the requirements applicable to any exchange or system upon which Companys securities are listed, quoted or traded. Any waivers of this Code for other personnel may be made by the Chief Legal Officer.
XI. | PRIVACY |
In order to assure access at all times to Company property, and because employees may not always be available to produce various documents, records, files, or other items in their possession in the ordinary course of business, the Company reserves the right to conduct inspections or searches of the Companys premises at any time without the consent of and without advance notice to the employee.
The Companys premises include all locations owned or leased by the Company or under the control of the Company, including office space, parking lots, closets, storage areas, and lockers. Company property includes all tangible and intangible personal property of the Company, including without limitation, all furniture, equipment, file cabinets, computer hardware and software, licenses and copyrights. The foregoing includes all communications and transmissions of any kind, including all information stored on any hardware, software, removable media, voice mail, e-mail, and all other communication media.
Searches and inspections may include an employees office, desk, file cabinets, closet, locker, computer files, whether contained on a hard drive or removable media, including past and present e-mail communications, and similar places where the Company property may be located, whether or not such places are locked.
Employees are prohibited from using the code of another employee to gain access to that individuals e-mail, voice mail, or computer system.
XII. | E-MAIL/INTERNET POLICY |
The Company promotes the use of advanced technology and provides employees with access to e-mail, the Internet, and the world wide web (collectively, on-line services).
Although occasional use of on-line services for personal, non-business use is acceptable, employees are not allowed to use them for any significant amount of personal use.
Employees must respect the confidentiality of all on-line service communications and may not read, revise, or monitor the communications of other employees or third parties, including customers, except with the approval of management. However, as stated above, employees must recognize that their own usage of on-line services is subject to review by the Company and, therefore, is not confidential as to management.
All messages and information sent by an employee to others, including customers, via on-line services may reflect on the Company. Employees are prohibited from using the Companys on-line services in any way that might be considered disruptive or offensive to others, including customers and vendors.
Inappropriate transmission includes, but is not limited to, sexually explicit messages, offensive language, and ethnic, racial, and gender-specific slurs. Any employee who abuses the privilege of access to and use of on-line services may be subject to disciplinary action up to and including discharge.
The Company reserves the right to review all electronic files and messages and to monitor usage to the extent necessary to ensure that on-line services are used in compliance with the law and with the Companys policy. Employees must provide reasonable assistance to the Company if so requested as part of such monitoring, and expressly waive any personal right to privacy with respect to any electronic files or messages contained on any Bank computer or server.
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Employees (other than those specifically authorized by the Company to monitor electronic files and communications in accordance with the previous paragraph) must respect the confidentiality of all on-line service communications and may not read, revise, or monitor the communications of other employees or third parties, including customers, except with the approval of management. However, as stated above, employees must recognize that their own usage of on-line services is subject to review by the Company and, therefore, is not confidential as to the Company.
Further details on this subject are documented in the Companys Acceptable Use Policy and Procedures. It is the responsibility of each employee to read, become familiar with, and abide by, the contents of that policy and procedures.
XIII. | MISCELLANEOUS GUIDELINES FOR CONDUCT |
A. | Use of Company Letterhead and Name |
Staff members are not permitted to use official stationery for either personal correspondence or other non-job related purposes. They must exercise care and good judgment to avoid the use of the Companys name in any manner that may imply endorsement by the Company of any outside activity or product, or make reference that they are an employee of BBCN Bancorp or BBCN in matters of personal dispute.
B. | Dealings with Competitors |
The policy of the Company is to require staff members to observe fair and ethical conduct in dealing with the Companys competitors. The making of disparaging remarks regarding the Companys competitors is considered to be unprofessional and inappropriate. In addition, circulating false rumors about a financial institutions condition is a felony. The Companys strategy is to emphasize the quality and competence of its staff and services. Staff members are prohibited from involving the Company in arrangements with its competitors which provide for the setting or controlling of rates, prices or marketing policies. Employees may not disclose or use confidential information obtained from any competitor without the consent of the competitor. Staff members shall also comply with the provisions of the Code concerning confidentiality in any discussions they may have with competitors.
C. | Exclusive Dealings (Anti-Tying) |
It is the policy of the Company that it does not condition the sale of services to a customer upon the requirement that the customer purchase other services from the Company or refrain from dealing with other suppliers of such services. Tying the availability of credit to the purchase of insurance offered by the financial institution or one of its affiliates is prohibited under federal law. However, such tying prohibitions do not prevent an institution from informing a customer that insurance is required in order to obtain a loan or that loan approval in contingent on the customer obtaining acceptable insurance.
D. | Obstruction of Normal and Sound Banking Practice |
Structuring of transactions, especially cash transactions, on behalf of customers or relatives to avoid CTR filing by the bank is strictly prohibited. Any type of obstruction to prevent adverse reporting by the bank to state or federal agencies will result in the immediate dismissal of all involved. Willful blindness by a bank officer to money laundering activities is a crime under 18 USC 1956 and 1957, punishable by fines up to $500,000 and incarceration of up to five years. Detailed information concerning CTRs and related matters is contained in the Banks BSA Policy
E. | Improper Influence and/or Harassment |
As described more fully in the Companys Employee Handbook, improper influence or harassment, including sexual harassment of employees is strictly prohibited. The Company will not tolerate any coercion or harassment of an employee, including sexual harassment, any use of influence to participate in illegal or improper activity, or any other improper acts. Any such activity will subject the offending employee to immediate dismissal.
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This Code of Ethics and Business Conduct augments the Employee Handbook. Staff members are to acknowledge their understanding by signing and dating such on the next page and returning this acknowledgement to the Chief Risk Officer.
XIV. | ACKNOWLEDGEMENT AND ANNUAL CERTIFICATIONS |
All staff members must acknowledge their understanding of this Code by signing and dating the Receipt and Acknowledgement which is attached hereto as Exhibit A and returning this acknowledgement to the Chief Legal Officer. Staff members will also be required to certify annually, and whenever the Code is amended and re-presented to them, (i) that they are familiar with the Code and provisions therein concerning disciplinary measures which may be taken for violations of the Code, (ii) that they have complied with all provisions of the Code relating to confidential information since the date of the last certification and to the best of their knowledge have not violated any other provisions of the Code during that time; and (iii) that they are not aware of any violations of the Code by any other staff members during that time. The form of annual certification, titled Statement of Personal Interest, is attached hereto as Exhibit B.
XV. | AMENDMENTS |
The Code may be amended from time to time by action of the Board of Directors. The Company shall promptly notify all staff members of any material amendments, and shall promptly post all amendments on the Companys website.
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RECEIPT AND ACKNOWLEDGEMENT
CONCERNING CODE OF ETHICS AND BUSINESS CONDUCT
I acknowledge that I have received the Code of Ethics and Business Conduct for BBCN Bancorp, and BBCN (collectively, the Company). I acknowledge my obligation to read, understand, and abide by its contents. I further acknowledge and agree that:
The Code of Ethics and Business Conduct is intended to provide a general overview of the Companys Code of Ethics and Business Conduct and does not necessarily represent all such policies and practices in force at any particular time. It is, however, my obligation to comply with any and all current and/or future written or verbal policies, practices, rules, regulations, and directives issued by the Company. It is also my obligation to contact either my supervisor, the Chief Legal Officer, the Controller, the Chief Financial Officer, or the Chairman of the Audit Committee, as appropriate, if I have any questions whatsoever concerning the Code of Ethics and Business Conduct or the propriety of any behavior or situation concerning the Company.
I understand and acknowledge that I have a duty to report any violations to one of the individuals identified in the preceding paragraph
Neither this Code of Ethics and Business Conduct nor any other official or unofficial written or verbal statement or practices of the Company creates, or is intended to create, an express or implied contract, covenant, promise, or representation that employment, nor any particular assignment or position, will continue for any specified period of time.
The Company reserves the sole right to add, revise, or rescind any policy, practice, benefit, assignment, position, work schedule, wage or any other working condition at any time except that any such modification shall not alter my right nor the right of the Companyto terminate employment at-will.
No officer, manager, employee, or representative of the Company other than the Board of Directors has authority to enter into any valid or binding agreement different than what is stated in this acknowledgement. To be valid, any such agreement must be in writing and adopted by the Board of Directors.
Date: |
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Name (Please Print) | ||||||||
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Signature |
Exhibit A
STATEMENT OF PERSONAL INTEREST
I have read and understand Companys Code of Ethics and Business Conduct. In compliance with the reporting requirements of these guidelines, I complete this statement concerning my personal business interests honestly and accurately:
You means you and any member of your immediate family. Each YES answer must be explained at the end of this questionnaire or on an attached sheet.
1. Are you a stockholder or interested financially in any way with: |
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A competing institution (e.g., bank, savings and loan, finance company, etc.)? |
YES ( ) NO ( ) N/A ( ) | |
A supplier of goods or services Landlord of the Company or other business contact with Company? |
YES ( ) NO ( ) N/A ( ) | |
2. Have you accepted any gift of a value in excess of $100 from customers, suppliers, broker or vendor? |
YES ( ) NO ( ) N/A ( ) | |
If the answer to 2. Above is YES, have you reported the gift(s) to your supervisor? |
YES ( ) NO ( ) N/A ( ) | |
3. Have you solicited for yourself or a third party, other than Company or its agents, anything of value from anyone in return for any business, service, or confidential information of Company? |
YES ( ) NO ( ) N/A ( ) | |
4. Have you accepted anything of value directly or indirectly from anyone in connection with the business of Company? |
YES ( ) NO ( ) N/A ( ) | |
5. Do you have outside employment which has not been previously approved as required by provisions of the guidelines? |
YES ( ) NO ( ) N/A ( ) | |
6. Have you received any compensation for acting as a director, officer, trustee, or consultant of an outside organization? |
YES ( ) NO ( ) N/A ( ) | |
7. Have you borrowed money from customers or vendors of the Company, other than recognized lending institutions, in an arms length transaction? |
YES ( ) NO ( ) N/A ( ) | |
8. Have you accepted an appointment as an executor, trustee, guardian, or conservator, for other than those of your immediate family? |
YES ( ) NO ( ) N/A ( ) | |
9. Do you have any relatives who currently work for BBCN Bank? |
YES ( ) NO ( ) N/A ( ) | |
10. Have you extended credit on behalf of Company or otherwise influenced the extension of credit to: |
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A customer where the proceeds were used to pay a debt owing to you or a member of your immediate family? |
YES ( ) NO ( ) N/A ( ) | |
A customer who is your relative? |
YES ( ) NO ( ) N/A ( ) | |
An individual to finance the purchase of real estate or personal property from you? |
YES ( ) NO ( ) N/A ( ) | |
A firm in which you or a member of your immediate family has a financial interest or with which you are employed on a part-time or consulting basis? |
YES ( ) NO ( ) N/A ( ) | |
11. Have you cosigned, endorsed, or otherwise assumed liability in connection with the borrowing of any customer, vendor or supplier? |
YES ( ) NO ( ) N/A ( ) |
Exhibit B
12. Do you sign on any customer accounts, act as deputy or co-tenant of a customers safe deposit box, or otherwise represent customers, except for family members? |
YES ( ) NO ( ) N/A ( ) | |
13. Have you taken for your own benefit any opportunity or information which rightfully belongs to Company? |
YES ( ) NO ( ) N/A ( ) | |
14. Do you have any business relationship with any present or former loan or deposit customer of Company, of which you are aware? |
YES ( ) NO ( ) N/A ( ) | |
Offered to or completed transaction to purchase a business or piece of real property from a loan or deposit customer. |
YES ( ) NO ( ) N/A ( ) | |
15. Have you solicited any business relationship with any present or former loan or deposit customer of Company, of which you are aware? |
YES ( ) NO ( ) N/A ( ) | |
16. Have you ever disclosed to anyone confidential material non-public information regarding Company or its customers in violation of the Regulation FD Fair Disclosure Policy, or otherwise? |
YES ( ) NO ( ) N/A ( ) | |
17. Have you participated in any dealings with competitors for the purpose of setting prices, interest rates, and trade practices or marketing policies? |
YES ( ) NO ( ) N/A ( ) | |
18. Have you withheld information or knowingly not notified proper Senior Officers of any wrongdoing, including violations of laws, regulations, or Company policies? |
YES ( ) NO ( ) N/A ( ) | |
19. Have you offered, extended, or in any way participated in the extension of a bribe to a political party, party official, or candidate for political office for the purpose of obtaining, retaining, or directing business to Company? |
YES ( ) NO ( ) N/A ( ) | |
20. Are there circumstances or any other matters of a personal or family nature that could reasonably be subject to question as to their effect on the interests of Company? |
YES ( ) NO ( ) N/A ( ) | |
21. Have you ever traded in Company securities outside of the Trading Window? |
YES ( ) NO ( ) N/A ( ) | |
22. Have you ever traded in Company securities while in possession of material non-public information? |
YES ( ) NO ( ) N/A ( ) |
In compliance with the provisions of Companys Code of Ethics and Business Conduct, I wish to disclose the following information (indicate item number from above, dollar value, number of shares, etc. as appropriate):
(Use additional blank sheets as needed and attach to this document) |
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Date | Employee Name (Type or Print) Branch/Dept Name or # | |||||||||
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Signature |
Exhibit B
Exhibit 21.1
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. (formerly known as Nara Bancorp, Inc.) of our report dated March 13, 2012, relating to the consolidated financial statements and effectiveness of internal control over financial reporting appearing in this Annual Report on Form 10-K.
/s/ Crowe Horwath LLP
Sherman Oaks, California
March 13, 2012
EXHIBIT 31.1
CERTIFICATION
I, Alvin D. Kang, certify that:
1. | I have reviewed this annual 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 registrants other certifying officer(s) 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; |
b. | 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 registrants 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 registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants 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 registrants 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 registrants internal control over financial reporting. |
Dated: March 13, 2012 | /s/ Alvin D. Kang | |||||||
Alvin D. Kang President and Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION
I, Philip E. Guldeman, certify that:
1. | I have reviewed this annual 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 registrants other certifying officer(s) 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; |
c. | 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 registrants 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 registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants 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 registrants 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 registrants internal control over financial reporting. |
Dated: March 13, 2012 | /s/ Philip E. Guldeman | |||||||
Philip E. Guldeman Executive Vice President and |
EXHIBIT 32.1
In connection with the periodic report of BBCN Bancorp, Inc. (the Company) on Form 10-K for the period ended December 31, 2011, as filed with the Securities and Exchange Commission (the Report), I, Alvin D. Kang, Chief Executive 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 13, 2012
/s/ Alvin D. Kang |
President and Chief Executive Officer |
EXHIBIT 32.2
In connection with the periodic report of BBCN Bancorp, Inc (the Company) on Form 10-K for the period ended December 31, 2011, 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 13, 2012
/s/ Philip E. Guldeman |
Executive Vice President and Chief Financial Officer |
Exhibit 99.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
AND PRINCIPAL FINANCIAL OFFICER
BBCN BANCORP, INC. UST #88
Alvin D. Kang, the principal executive officer, and Philip E. Guldeman, the principal financial officer of BBCN Bancorp, Inc., certify, based on our knowledge, that:
(i) The compensation committee of BBCN Bancorp, Inc. has discussed, reviewed, and evaluated with senior risk officers at least every six months during any part of the most recently completed fiscal year that was a TARP period, senior executive officer (SEO) compensation plans and employee compensation plans and the risks these plans pose to BBCN Bancorp, Inc.;
(ii) The compensation committee of BBCN Bancorp, Inc. has identified and limited during any part of the most recently completed fiscal year that was a TARP period any features of the SEO compensation plans that could lead SEOs to take unnecessary and excessive risks that could threaten the value of BBCN Bancorp, Inc. and has identified any features of the employee compensation plans that pose risks to BBCN Bancorp, Inc. and has limited those features to ensure that BBCN Bancorp, Inc. is not unnecessarily exposed to risks;
(iii) The compensation committee has reviewed, at least every six months during any part of the most recently completed fiscal year that was a TARP period, the terms of each employee compensation plan and identified any features of the plan that could encourage the manipulation of reported earnings of BBCN Bancorp, Inc. to enhance the compensation of an employee, and has limited any such features;
(iv) The compensation committee of BBCN Bancorp, Inc. will certify to the reviews of the SEO compensation plans and employee compensation plans required under (i) and (iii) above;
(v) The compensation committee of BBCN Bancorp, Inc. will provide a narrative description of how it limited during any part of the most recently completed fiscal year that was a TARP period the features in:
(A) SEO compensation plans that could lead SEOs to take unnecessary and excessive risks that could threaten the value of BBCN Bancorp, Inc.;
(B) Employee compensation plans that unnecessarily expose BBCN Bancorp, Inc. to risks; and
(C) Employee compensation plans that could encourage the manipulation of reported earnings of BBCN Bancorp, Inc. to enhance the compensation of an employee;
(vi) BBCN Bancorp, Inc. has required that bonus payments to SEOs or any of the next twenty most highly compensated employees, as defined in the regulations and guidance established under section 111 of EESA (bonus payments), be subject to a recovery or clawback provision during any part of the most recently completed fiscal year that was a TARP period if the bonus payments were based on materially inaccurate financial statements or any other materially inaccurate performance metric criteria;
(vii) BBCN Bancorp, Inc. has prohibited any golden parachute payment, as defined in the regulations and guidance established under section 111 of EESA, to a SEO or any of the next five most highly compensated employees during any part of the most recently completed fiscal year that was a TARP period;
(viii) BBCN Bancorp, Inc. has limited bonus payments to its applicable employees in accordance with section 111 of EESA and the regulations and guidance established thereunder during any part of the most recently completed fiscal year that was a TARP period;
(ix) BBCN Bancorp, Inc. and its employees have complied with the excessive or luxury expenditures policy, as defined in the regulations and guidance established under section 111 of EESA, during any part of the most recently completed fiscal year that was a TARP period; and any expenses that, pursuant to the policy, required approval of the board of directors, a committee of the board of directors, an SEO, or an executive officer with a similar level of responsibility were properly approved;
(x) BBCN Bancorp, Inc. will permit a non-binding shareholder resolution in compliance with any applicable federal securities rules and regulations on the disclosures provided under the federal securities laws related to SEO compensation paid or accrued during any part of the most recently completed fiscal year that was a TARP period;
(xi) BBCN Bancorp, Inc. will disclose the amount, nature, and justification for the offering, during any part of the most recently completed fiscal year that was a TARP period, of any perquisites, as defined in the regulations and guidance established under section 111 of EESA, whose total value exceeds $25,000 for any employee who is subject to the bonus payment limitations identified in paragraph (viii);
(xii) BBCN Bancorp, Inc. will disclose whether BBCN Bancorp, Inc., the board of directors of BBCN Bancorp, Inc., or the compensation committee of BBCN Bancorp, Inc. has engaged during any part of the most recently completed fiscal year that was a TARP period a compensation consultant; and the services the compensation consultant or any affiliate of the compensation consultant provided during this period;
(xiii) BBCN Bancorp, Inc. has prohibited the payment of any gross-ups, as defined in the regulations and guidance established under section 111 of EESA, to the SEOs and the next twenty most highly compensated employees during any part of the most recently completed fiscal year that was a TARP period;
(xiv) BBCN Bancorp, Inc. has substantially complied with all other requirements related to employee compensation that are provided in the agreement between BBCN Bancorp, Inc. and Treasury, including any amendments;
(xv) BBCN Bancorp, Inc. has submitted to Treasury a complete and accurate list of the SEOs and the twenty next most highly compensated employees for the current fiscal year, with the non-SEOs ranked in descending order of level of annual compensation, and with the name, title, and employer of each SEO and most highly compensated employee identified; and
(xvi) I understand that a knowing and willful false or fraudulent statement made in connection with this certification may be punished by fine, imprisonment, or both. (See, for example, 18 USC 1001.)
Date: March 5, 2012 |
/s/ Alvin D. Kang |
Alvin D. Kang, President & CEO (Principal Executive Officer) |
/s/ Philip E. Guldeman |
Philip E. Guldeman, EVP & Chief Financial Officer (Principal Financial Officer) |
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