Edgar Filing: CATHAY GENERAL BANCORP

caty_10q-033112.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

March 31, 2012

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission file number

0-18630

CATHAY GENERAL BANCORP

(Exact name of registrant as specified in its charter)

Delaware		95-4274680
(State of other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

777 North Broadway, Los Angeles, California		90012
(Address of principal executive offices)		(Zip Code)

Registrant's telephone number, including area code:

(213) 625-4700

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes R 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes R No ¨

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 definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	þ	Accelerated filer	¨

Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ¨ No R

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Common stock, $.01 par value, 78,708,975 shares outstanding as of April 30, 2012.

CATHAY GENERAL BANCORP AND SUBSIDIARIES

1ST QUARTER 2012 REPORT ON FORM 10-Q

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION			5

	Item 1.	FINANCIAL STATEMENTS (Unaudited)	5
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)	8
	Item 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	34
	Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	62
	Item 4.	CONTROLS AND PROCEDURES.	63

PART II - OTHER INFORMATION			64
	Item 1.	LEGAL PROCEEDINGS.	64
	Item 1A.	RISK FACTORS.	64
	Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.	64
	Item 3.	DEFAULTS UPON SENIOR SECURITIES.	65
	Item 4.	MINE SAFETY DISCLOSURES.	65
	Item 5.	OTHER INFORMATION.	65
	Item 6.	EXHIBITS.	65




SIGNATURES			66

Forward-Looking Statements

In this Quarterly Report on Form 10-Q, , the term “Bancorp” refers to Cathay General Bancorp and the term “Bank” refers to Cathay Bank. The terms “Company,” “we,” “us,” and “our” refer to Bancorp and the Bank collectively. The statements in this report include forward-looking statements within the meaning of the applicable provisions of the Private Securities Litigation Reform Act of 1995 regarding management’s beliefs, projections, and assumptions concerning future results and events. We intend such forward-looking statements to be covered by the safe harbor provision for forward-looking statements in these provisions. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including statements about anticipated future operating and financial performance, financial position and liquidity, growth opportunities and growth rates, growth plans, acquisition and divestiture opportunities, business prospects, strategic alternatives, business strategies, financial expectations, regulatory and competitive outlook, investment and expenditure plans, financing needs and availability, and other similar forecasts and statements of expectation and statements of assumptions underlying any of the foregoing. Words such as “aims,” “anticipates,” “believes,” “can,” “could,” “estimates,” “expects,” “hopes,” “intends,” “may,” “plans,” “projects,” “seeks,” “shall,” “should,” “will,” “predicts,” “potential,” “continue,” “possible,” “optimistic,” and variations of these words and similar expressions are intended to identify these forward-looking statements. Forward-looking statements by us are based on estimates, beliefs, projections, and assumptions of management and are not guarantees of future performance. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. Such risks and uncertainties and other factors include, but are not limited to, adverse developments or conditions related to or arising from:

U.S. and international business and economic conditions;

credit risks of lending activities and deterioration in asset or credit quality;

current and potential future supervisory action by bank supervisory authorities;

increased costs of compliance and other risks associated with changes in regulation and the current regulatory environment, including the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), and the potential for substantial changes in the legal, regulatory, and enforcement framework and oversight applicable to financial institutions in reaction to recent adverse financial market events, including changes pursuant to the Dodd-Frank Act;

potential goodwill impairment;

liquidity risk;

fluctuations in interest rates;

inflation and deflation;

risks associated with acquisitions and the expansion of our business into new markets;

real estate market conditions and the value of real estate collateral;

environmental liabilities;

the effect of repeal of the federal prohibition on payment of interest on demand deposit accounts;

our ability to compete with larger competitors;

the possibility of higher capital requirements, including implementation of the Basel III capital standards of the Basel Committee;

our ability to retain key personnel;

successful management of reputational risk;

natural disasters and geopolitical events;

general economic or business conditions in California, Asia, and other regions where the Bank has operations;

restrictions on compensation paid to our executives as a result of our participation in the TARP Capital Purchase Program;

failures, interruptions or security breaches of systems or data breaches;

our ability to adapt our systems to technological changes, including successfully implementing our core system conversion;

changes in accounting standards or tax laws and regulations;

market disruption and volatility;

restrictions on dividends and other distributions by laws and regulations and by our regulators and our capital structure;

successfully raising additional capital, if needed, and the resulting dilution of interests of holders of our common stock; and

the soundness of other financial institutions.

These and other factors are further described in Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2011 (Item 1A in particular), other reports and registration statements filed with the Securities and Exchange Commission (“SEC”), and other filings it makes with the SEC from time to time. Actual results in any future period may also vary from the past results discussed in this report. Given these risks and uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements, which speak to the date of this report. We have no intention and undertake no obligation to update any forward-looking statement or to publicly announce any revision of any forward-looking statement to reflect future developments or events, except as required by law.

Bancorp’s filings with the SEC are available at the website maintained by the SEC at http://www.sec.gov, or by request directed to Cathay General Bancorp, 9650 Flair Drive, El Monte, California 91731, Attention: Investor Relations (626) 279-3286.

PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS (Unaudited)

CATHAY GENERAL BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31, 2012			December 31, 2011
	(In thousands, except share data)

ASSETS
Cash and due from banks	$	119,106		$	117,888
Short-term investments and interest bearing deposits		275,056			294,956
Securities purchased under agreements to resell		50,000			-
Securities held-to-maturity (market value of $1,131,524 in 2012 and $1,203,977 in 2011)		1,084,708			1,153,504
Securities available-for-sale (amortized cost of $1,361,571 in 2012 and $1,309,521 in 2011)		1,353,742			1,294,478
Trading securities		104,453			4,542
Loans held for sale		3,709			760
Loans		6,908,544			7,059,212
Less: Allowance for loan losses		(194,743	)		(206,280	)
Unamortized deferred loan fees		(7,921	)		(8,449	)
Loans, net		6,705,880			6,844,483
Federal Home Loan Bank stock		50,456			52,989
Other real estate owned, net		87,806			92,713
Investments in affordable housing partnerships, net		80,789			78,358
Premises and equipment, net		105,157			105,961
Customers' liability on acceptances		29,790			37,300
Accrued interest receivable		31,544			32,226
Goodwill		316,340			316,340
Other intangible assets		10,314			11,598
Other assets		164,586			206,768
Total assets	$	10,573,436		$	10,644,864

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest-bearing demand deposits	$	1,080,209		$	1,074,718
Interest-bearing accounts:
NOW accounts		490,173			451,541
Money market accounts		981,237			951,516
Savings accounts		434,899			420,030
Time deposits under $100,000		901,768			832,997
Time deposits of $100,000 or more		3,471,488			3,498,329
Total deposits		7,359,774			7,229,131

Securities sold under agreements to repurchase		1,400,000			1,400,000
Advances from the Federal Home Loan Bank		-			225,000
Other borrowings from financial institutions		-			880
Other borrowings for affordable housing investments		18,868			18,920
Long-term debt		171,136			171,136
Acceptances outstanding		29,790			37,300
Other liabilities		48,345			46,864
Total liabilities		9,027,913			9,129,231
Commitments and contingencies		-			-
Stockholders' equity
Preferred stock, 10,000,000 shares authorized, 258,000 issued and outstanding at March 31, 2012, and at December 31, 2011		251,884			250,992
Common stock, $0.01 par value; 100,000,000 shares authorized, 82,915,962 issued and 78,708,397 outstanding at March 31, 2012, and 82,860,122 issued and 78,652,557 outstanding at December 31, 2011		829			829
Additional paid-in-capital		766,435			765,641
Accumulated other comprehensive loss, net		(4,537	)		(8,732	)
Retained earnings		648,201			624,192
Treasury stock, at cost (4,207,565 shares at March 31, 2012, and at December 31, 2011)		(125,736	)		(125,736	)
Total Cathay General Bancorp stockholders' equity		1,537,076			1,507,186
Noncontrolling interest		8,447			8,447
Total equity		1,545,523			1,515,633
Total liabilities and equity	$	10,573,436		$	10,644,864

See accompanying notes to unaudited condensed consolidated financial statements

CATHAY GENERAL BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)

	Three months ended March 31,
	2012			2011
	(in thousands, except share and per share data)
INTEREST AND DIVIDEND INCOME
Loans receivable, including loan fees	$	90,701		$	90,558
Investment securities- taxable		17,723			21,854
Investment securities- nontaxable		1,052			1,056
Federal Home Loan Bank stock		66			47
Federal funds sold and securities purchased under agreements to resell		5			41
Deposits with banks		588			221
Total interest and dividend income		110,135			113,777

INTEREST EXPENSE
Time deposits of $100,000 or more		9,540			10,725
Other deposits		3,916			5,720
Securities sold under agreements to repurchase		14,655			16,171
Advances from Federal Home Loan Bank		53			4,849
Long-term debt		1,320			1,206
Short-term borrowings		-			1
Total interest expense		29,484			38,672

Net interest income before provision for credit losses		80,651			75,105
Provision (credit) for loan losses		(4,000	)		6,000
Net interest income after provision for loan losses		84,651			69,105

NON-INTEREST INCOME
Securities gains, net		2,215			6,232
Letters of credit commissions		1,526			1,278
Depository service fees		1,389			1,361
Other operating income		3,701			3,755
Total non-interest income		8,831			12,626

NON-INTEREST EXPENSE
Salaries and employee benefits		19,878			18,271
Occupancy expense		3,584			3,538
Computer and equipment expense		2,463			2,183
Professional services expense		4,742			3,729
FDIC and State assessments		2,489			4,317
Marketing expense		1,406			695
Other real estate owned expense		4,693			221
Operations of affordable housing investments, net		1,960			1,976
Amortization of core deposit intangibles		1,457			1,481
Cost associated with debt redemption		2,750			8,811
Other operating expense		2,449			2,561
Total non-interest expense		47,871			47,783

Income before income tax expense		45,611			33,948
Income tax expense		16,547			11,734
Net income		29,064			22,214
Less: net income attributable to noncontrolling interest		151			151
Net income attributable to Cathay General Bancorp		28,913			22,063
Dividends on preferred stock		(4,117	)		(4,105	)
Net income attributable to common stockholders		24,796			17,958

Other comprehensive income/(loss), net of tax
Unrealized holding gain/(loss) arising during the period		5,479			(950	)
Less: reclassification adjustments included in net income		1,284			2,620
Total other comprehensive gain/(loss), net of tax		4,195			(3,570	)
Total comprehensive income	$	33,108		$	18,493

Net income per common share:
Basic	$	0.32		$	0.23
Diluted	$	0.32		$	0.23
Cash dividends paid per common share	$	0.01		$	0.01
Average common shares outstanding
Basic		78,678,645			78,609,460
Diluted		78,690,132			78,635,620

See accompanying notes to unaudited condensed consolidated financial statements.

CATHAY GENERAL BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended March 31
	2012			2011
	(In thousands)
Cash Flows from Operating Activities
Net income	$	29,064		$	22,214
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Provision (credit) for loan losses		(4,000	)		6,000
Provision for losses on other real estate owned		2,740			1,979
Deferred tax liability		2,356			5,425
Depreciation		1,471			1,521
Net losses/(gains) on sale and transfer of other real estate owned		712			(3,605	)
Net gains on sale of loans		(278	)		-
Proceeds from sales of loans		25,140			-
Originations of loans held-for-sale		(24,836	)		-
Increase in trading securities, net		(99,930	)		-
Write-downs on venture capital investments		137			57
Gain on sales and calls of securities		(2,215	)		(6,232	)
Decrease in unrealized loss from interest rate swaps mark-to-market		(789	)		(874	)
Amortization/accretion of security premiums/discounts, net		1,314			1,236
Amortization of other intangible assets		1,491			1,498
Excess tax short-fall from share-based payment arrangements		565			234
Stock based compensation expense		546			463
(Decrease)/increase in deferred loan fees, net		(527	)		207
Decrease in accrued interest receivable		682			1,858
Decrease/(increase) in other assets, net		38,001			(7,148	)
Increase in other liabilities		2,316			298
Net cash (used in)/provided by operating activities		(26,040	)		25,131

Cash Flows from Investing Activities
Decrease in short-term investments		19,900			36,360
(Increase)/decrease in securities purchased under agreements to resell		(50,000	)		110,000
Purchase of investment securities available-for-sale		(116,807	)		(7,768	)
Proceeds from maturities and calls of investment securities available-for-sale		200,000			-
Proceeds from sale of investment securities available-for-sale		30,550			217,261
Purchase of mortgage-backed securities available-for-sale		(307,830	)		(100,496	)
Proceeds from repayment and sale of mortgage-backed securities available-for-sale		143,757			356,931
Purchase of investment securities held-to-maturity		-			(419,460	)
Proceeds from maturities and calls of investment securities held-to-maturity		67,979			26,971
Redemptions of Federal Home Loan Bank stock		2,533			2,509
Net decrease/(increase) in loans		131,822			(47,686	)
Purchase of premises and equipment		(905	)		(1,069	)
Proceeds from sale of other real estate owned		10,186			16,064
Net increase in investment in affordable housing		(4,902	)		(265	)
Net cash provided by investing activities		126,283			189,352

Cash Flows from Financing Activities

Net increase in demand deposits, NOW accounts, money market and savings deposits		88,712			62,800
Net increase in time deposits		42,005			24,839
Net decrease in federal funds purchased and securities sold under agreements to repurchase		-			(102,000	)
Advances from Federal Home Loan Bank		260,000			286,000
Repayment of Federal Home Loan Bank borrowings		(485,000	)		(486,000	)
Dividends paid on common stock		(787	)		(786	)
Dividends paid on preferred stock		(3,225	)		(3,225	)
Proceeds from other borrowings		-			2,526
Repayment of other borrowings		(879	)
Proceeds from shares issued under Dividend Reinvestment Plan		67			54
Proceeds from exercise of stock options		647			1,307
Excess tax short-fall from share-based payment arrangements		(565	)		(234	)
Net cash used in financing activities		(99,025	)		(214,719	)

Increase/(decrease) in cash and cash equivalents		1,218			(236	)
Cash and cash equivalents, beginning of the period		117,888			87,347
Cash and cash equivalents, end of the period	$	119,106		$	87,111

Supplemental disclosure of cash flow information
Cash paid during the period:
Interest	$	30,699		$	40,765
Income taxes (refunded)/paid	$	(20,424	)	$	21,600
Non-cash investing and financing activities:
Net change in unrealized holding (loss)/gain on securities available-for-sale, net of tax	$	4,195		$	(3,571	)
Transfers to other real estate owned from loans held for investment	$	8,338		$	14,035
Transfers to other real estate owned from loans held for sale	$	-		$	2,874
Loans transferred from held for investment to held for sale	$	15,986		$	2,388
Loans to facilitate the sale of other real estate owned	$	-		$	4,625

See accompanying notes to unaudited condensed consolidated financial statements.

CATHAY GENERAL BANCORP AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. Business

Cathay General Bancorp (“Bancorp”) is the holding company for Cathay Bank (the “Bank” and, together, the “Company”), six limited partnerships investing in affordable housing investments in which the Bank is the sole limited partner, and GBC Venture Capital, Inc. The Bancorp also owns 100% of the common stock of five statutory business trusts created for the purpose of issuing capital securities. The Bank was founded in 1962 and offers a wide range of financial services. As of March 31, 2012, the Bank operated twenty branches in Southern California, eleven branches in Northern California, eight branches in New York State, three branches in Illinois, three branches in Washington State, two branches in Texas, one branch in Massachusetts, one branch in New Jersey, one branch in Hong Kong, and a representative office in Shanghai and in Taipei. Deposit accounts at the Hong Kong branch are not insured by the Federal Deposit Insurance Corporation (the “FDIC”).

2. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. For further information, refer to the audited consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

The preparation of the condensed consolidated financial statements in accordance with GAAP requires management of the Company to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. The most significant estimates subject to change are the allowance for loan losses, goodwill impairment, and other-than-temporary impairment.

3. Recent Accounting Pronouncements

In April 2011, the Financial Accounting Standards Board (“FASB”) issued ASU 2011-02 “A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.” ASU 2011-02 clarifies the guidance on a creditor’s evaluation of whether a restructuring constitutes a troubled debt restructuring. A restructuring constitutes a troubled debt restructuring if it meets both of the following criteria: (a) the restructuring constitutes a concession; and (b) the debtor is experiencing financial difficulties. ASU 2011-02 was effective for interim and annual periods beginning on or after June 15, 2011, and was applied retrospectively to restructurings occurring on or after January 1, 2011. Adoption of ASU 2011-02 did not have a significant impact on the Company’s consolidated financial statements.

In April 2011, the FASB issued ASU 2011-03 “Transfers and Servicing: Reconsideration of Effective Control for Repurchase Agreements.” ASU 2011-03 improves the accounting for repurchase agreements and other similar transactions by removing the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms even in the event of default by the transferee, and the collateral maintenance implementation guidance related to that criterion. ASU 2011-03 was effective for interim and annual periods beginning on or after December 15, 2011, and applied prospectively. Adoption of ASU 2011-03 did not have a significant impact on the Company’s consolidated financial statements.

In May 2011, the FASB issued ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” The provisions of ASU 2011-04 result in a consistent definition of fair value and common requirements for the measurement of and disclosure about fair value between U.S. GAAP and International Financial Reporting Standards (“IFRS”). The changes to U.S. GAAP as a result of ASU 2011-04 are as follows: (1) The concepts of highest and best use and valuation premise are only relevant when measuring the fair value of nonfinancial assets (that is, it does not apply to financial assets or any liabilities); (2) U.S. GAAP currently prohibits application of a blockage factor in valuing financial instruments with quoted prices in active markets. ASU 2011-04 extends that prohibition to all fair value measurements; (3) An exception is provided to the basic fair value measurement principles for an entity that holds a group of financial assets and financial liabilities with offsetting positions in market risks or counterparty credit risk that are managed on the basis of the entity’s net exposure to either of those risks. This exception allows the entity, if certain criteria are met, to measure the fair value of the net asset or liability position in a manner consistent with how market participants would price the net risk position; (4) Aligns the fair value measurement of instruments classified within an entity’s shareholders’ equity with the guidance for liabilities; and (5) Disclosure requirements have been enhanced for Level 3 fair value measurements to disclose quantitative information about unobservable inputs and assumptions used, to describe the valuation processes used by the entity, and to qualitatively describe the sensitivity of fair value measurements to changes in unobservable inputs and the interrelationships between those inputs. In addition, entities must report the level in the fair value hierarchy of items that are not measured at fair value in the statement of condition but whose fair value must be disclosed. Adoption of ASU 2011-04 did not have a significant impact on the Company’s consolidated financial statements.

In September 2011, the FASB issued ASU 2011-08 “Intangibles -Goodwill and Other.” ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in ASC Topic 350. ASU 2011-08 was effective for interim and annual goodwill impairment tests performed after December 15, 2011. Adoption of ASU 2011-08 did not have a significant impact on the Company’s consolidated financial statements.

4. Earnings per Share

Basic earnings per share exclude 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 earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock and resulted in the issuance of common stock that then shared in earnings. Potential dilution is excluded from computation of diluted per-share amounts when a net loss from operations exists.

Outstanding stock options with anti-dilutive effect were not included in the computation of diluted earnings per share. The following table sets forth earnings per common stock share calculations:

	For the three months ended March 31,
(Dollars in thousands, except share and per share data)	2012			2011
Net income attributable to Cathay General Bancorp	$	28,913		$	22,063
Dividends on preferred stock		(4,117	)		(4,105	)
Net income available to common stockholders	$	24,796		$	17,958

Weighted-average shares:
Basic weighted-average number of common shares outstanding		78,678,645			78,609,460
Dilutive effect of weighted-average outstanding common share equivalents
Stock options		11,487			26,160
Diluted weighted-average number of common shares outstanding		78,690,132			78,635,620

Average stock options and warrants with anti-dilutive effect		6,227,224			6,198,286
Earnings per common share:
Basic	$	0.32		$	0.23
Diluted	$	0.32		$	0.23

Options to purchase an additional 4.2 million shares, restricted stock units for an additional 218,539 shares, and warrants to purchase an additional 1.8 million shares at March 31, 2012, were not included in the computation of diluted earnings per share because their inclusion would have had an anti-dilutive effect.

5. Stock-Based Compensation

Under the Company’s equity incentive plans, directors and eligible employees may be granted incentive or non-statutory stock options and/or restricted stock units, or awarded non-vested stock. As of March 31, 2012, the only options granted by the Company were non-statutory stock options to selected Bank officers and non-employee directors at exercise prices equal to the fair market value of a share of the Company’s common stock on the date of grant. Such options have a maximum ten-year term and vest in 20% annual increments (subject to early termination in certain events) except certain options granted to the Chief Executive Officer of the Company in 2005 and 2008. If such options expire or terminate without having been exercised, any shares not purchased will again be available for future grants or awards. There were no options granted during 2011 or during the first three months of 2012.

Option compensation expense totaled $194,000 for the three months ended March 31, 2012, and $366,000 for the three months ended March 31, 2011. Stock-based compensation is recognized ratably over the requisite service period for all awards. Unrecognized stock-based compensation expense related to stock options totaled $710,000 at March 31, 2012, and is expected to be recognized over the next 10 months.

Stock options covering 39,784 shares were exercised in the first quarter of 2012 compared to 86,860 shares in the first quarter of 2011. Cash received totaled $647,000 and the aggregate intrinsic value totaled $34,000 from the exercise of stock options during the three months ended March 31, 2012, compared to cash received of $1.3 million and the aggregate intrinsic value of $172,000 from the exercise of stock options during the three months ended March 31, 2011. The fair value of stock options for 108,027 shares that vested during the first quarter of 2012 was $745,000 compared to the fair value of $2.6 million for 247,842 stock option shares that vested during the first quarter of 2011. The table below summarizes stock option activity for the periods indicated:

						Weighted-Average		Aggregate
				Weighted-Average		Remaining Contractual		Intrinsic
	Shares			Exercise Price		Life (in years)		Value (in thousands)

Balance, December 31, 2011		4,356,985		$	28.86		3.0	$	37
Exercised		(39,784	)		16.28
Forfeited		(249,506	)		22.27
Balance, March 31, 2012		4,067,695		$	29.40		3.0	$	65
Exercisable, March 31, 2012		3,959,668		$	29.57		2.9	$	65

At March 31, 2012, 2,445,258 shares were available under the Company’s 2005 Incentive Plan for future grants.

In 2011, the Company granted restricted stock units for 147,661 shares. On March 30, 2012, the Company granted 1,943 restricted stock units. The restricted stock units granted in 2011 and 2012 are scheduled to vest two years from grant date.

The following table presents information relating to the restricted stock units as of March 31, 2012:

	Units
Balance at December 31, 2011		171,410
Granted		1,943
Forfeited		(122	)
Vested		(11,814	)
Balance at March 31, 2012		161,417

The compensation expense recorded related to the restricted stock units was $353,000 for the three months ended March 31, 2012, compared to $96,000 for the three months ended March 31, 2011. Unrecognized stock-based compensation expense related to restricted stock units was $1.8 million at March 31, 2012, and is expected to be recognized over the next 1.4 years.

The following table summarizes the tax short-fall from share-based payment arrangements:

	For the three months ended March 31,
(Dollars in thousands)	2012			2011
Short-fall of tax deductions in excess of grant-date fair value	$	(565	)	$	(234	)
Benefit of tax deductions on grant-date fair value		663			306
Total benefit of tax deductions	$	98		$	72

6. Investment Securities

The following table reflects the amortized cost, gross unrealized gains, gross unrealized losses, and fair values of investment securities as of March 31, 2012, and December 31, 2011:

	March 31, 2012
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
	(In thousands)
Securities Held-to-Maturity
U.S. government sponsored entities	$	99,978	$	945	$	-	$	100,923
State and municipal securities		129,444		6,057		-		135,501
Mortgage-backed securities		845,314		39,860		-		885,174
Corporate debt securities		9,972		-		46		9,926
Total securities held-to-maturity	$	1,084,708	$	46,862	$	46	$	1,131,524

Securities Available-for-Sale
U.S. treasury securities	$	99,904	$	-	$	49	$	99,855
U.S. government sponsored entities		300,000		270		106		300,164
Mortgage-backed securities		493,043		9,889		537		502,395
Collateralized mortgage obligations		14,234		519		90		14,663
Asset-backed securities		164		-		5		159
Corporate debt securities		410,195		552		23,397		387,350
Mutual funds		6,000		40		16		6,024
Preferred stock of government sponsored entities		569		1,056		-		1,625
Trust preferred securities		35,993		853		-		36,846
Other equity securities		1,469		3,192		-		4,661
Total securities available-for-sale	$	1,361,571	$	16,371	$	24,200	$	1,353,742
Total investment securities	$	2,446,279	$	63,233	$	24,246	$	2,485,266

	December 31, 2011
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
	(In thousands)
Securities Held-to-Maturity
U.S. government sponsored entities	$	99,966	$	1,406	$	-	$	101,372
State and municipal securities		129,577		7,053		-		136,630
Mortgage-backed securities		913,990		42,351		-		956,341
Corporate debt securities		9,971		-		337		9,634
Total securities held-to-maturity	$	1,153,504	$	50,810	$	337	$	1,203,977

Securities Available-for-Sale
U.S. government sponsored entities	$	500,007	$	1,226	$	7	$	501,226
State and municipal securities		1,869		59		-		1,928
Mortgage-backed securities		325,706		12,361		436		337,631
Collateralized mortgage obligations		16,184		540		238		16,486
Asset-backed securities		172		-		6		166
Corporate debt securities		412,045		113		31,729		380,429
Mutual funds		6,000		48		13		6,035
Preferred stock of government sponsored entities		569		1,085		-		1,654
Trust preferred securities		45,501		486		24		45,963
Other equity securities		1,468		1,492		-		2,960
Total securities available-for-sale	$	1,309,521	$	17,410	$	32,453	$	1,294,478
Total investment securities	$	2,463,025	$	68,220	$	32,790	$	2,498,455

The amortized cost and fair value of investment securities at March 31, 2012, by contractual maturities are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or repay obligations with or without call or repayment penalties.

	Securities Available-for-Sale				Securities Held-to-Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Due in one year or less	$	34,890	$	34,950	$	99,978	$	100,923
Due after one year through five years		225,252		224,709		-		-
Due after five years through ten years		631,327		614,458		39,105		40,722
Due after ten years (1)		470,102		479,625		945,625		989,879
Total	$	1,361,571	$	1,353,742	$	1,084,708	$	1,131,524

(1) Equity securities are reported in this category

Proceeds from sales of mortgage-backed securities were $117.6 million and repayments of mortgage-backed securities were $94.2 million during the first quarter of 2012 compared to proceeds from sales of $315.3 million and repayment of $41.6 million during the same quarter a year ago. Proceeds from sales of other investment securities were $30.6 million during the first quarter of 2012 compared to $217.3 million during the same quarter a year ago. Proceeds from maturity and calls of investment securities were $200.0 million during the first quarter of 2012 compared to $27.0 million during the same quarter a year ago. Gains of $2.8 million and losses of $595,000 were realized on sales and calls of investment securities during the first quarter of 2012 compared to gains of $6.2 million and no losses realized for the same quarter a year ago.

The Company's unrealized loss on investments in corporate bonds relates to a number of investments in bonds of financial institutions, all of which were investment grade at the date of acquisition and as of March 31, 2012. The unrealized losses were primarily caused by the widening of credit spreads since the dates of acquisition. The contractual terms of those investments do not permit the issuers to settle the security at a price less than the amortized cost of the investment. The Company currently does not believe it is probable that it will be unable to collect all amounts due according to the contractual terms of the investments. Therefore, it is expected that these bonds would not be settled at a price less than the amortized cost of the investment. Because the Company does not intend to sell and would not be required to sell these investments until a recovery of fair value, which may be maturity, it does not consider its investments in these corporate bonds to be other-than-temporarily impaired at March 31, 2012.

The temporarily impaired securities represent 25.1% of the fair value of investment securities as of March 31, 2012. Unrealized losses for securities with unrealized losses for less than twelve months represent 2.1%, and securities with unrealized losses for twelve months or more represent 8.1%, of the historical cost of these securities. Unrealized losses on these securities generally resulted from increases in interest rate spreads subsequent to the date that these securities were purchased.

At March 31, 2012, management believed the impairment was temporary and, accordingly, no impairment loss has been recognized in our condensed consolidated statements of operations. The Company expects to recover the amortized cost basis of its debt securities, and has no intent to sell and will not be required to sell available-for-sale debt securities that have declined below their cost before their anticipated recovery.

The table below shows the fair value, unrealized losses, and number of issuances of the temporarily impaired securities in our investment securities portfolio as of March 31, 2012, and December 31, 2011:

	As of March 31, 2012
	Temporarily Impaired Securities

	Less than 12 months				12 months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
	(Dollars in thousands)

Securities Held-to-Maturity
Corporate debt securities	$	9,925	$	46		-		-	$	9,925	$	46
Total securities held-to-maturity	$	9,925	$	46	$	-	$	-	$	9,925	$	46
Securities Available-for-Sale
U.S. treasury securities	$	99,855	$	49	$	-	$	-	$	99,855	$	49
U.S. government sponsored entities		49,894		106		-		-		49,894		106
Mortgage-backed securities		154,114		532		535		3		154,649		535
Mortgage-backed securities-Non-agency		-		-		99		2		99		2
Collateralized mortgage obligations		-		-		503		90		503		90
Asset-backed securities		-		-		158		5		158		5
Corporate debt securities		145,771		9,180		160,783		14,217		306,554		23,397
Mutual funds		1,983		16		-		-		1,983		16
Total securities available-for-sale	$	451,617	$	9,883	$	162,078	$	14,317	$	613,695	$	24,200
Total investment securities	$	461,542	$	9,929	$	162,078	$	14,317	$	623,620	$	24,246

	As of December 31, 2011
	Temporarily Impaired Securities

	Less than 12 months				12 months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
	(Dollars in thousands)
Securities Held-to-Maturity
Corporate debt securities	$	9,635	$	337	$	-	$	-	$	9,635	$	337
Total securities held-to-maturity	$	9,635	$	337	$	-	$	-	$	9,635	$	337
Securities Available-for-Sale
U.S. government sponsored entities	$	49,993	$	7	$	-	$	-	$	49,993	$	7
Mortgage-backed securities		564		4		35		1		599		5
Mortgage-backed securities-Non-agency		-		-		6,719		431		6,719		431
Collateralized mortgage obligations		-		-		570		238		570		238
Asset-backed securities		-		-		166		6		166		6
Corporate debt securities		185,577		14,201		172,857		17,528		358,434		31,729
Mutual funds		1,987		13		-		-		1,987		13
Trust preferred securities		5,674		24		-		-		5,674		24
Total securities available-for-sale	$	243,795	$	14,249	$	180,347	$	18,204	$	424,142	$	32,453
Total investment securities	$	253,430	$	14,586	$	180,347	$	18,204	$	433,777	$	32,790

Investment securities having a carrying value of $1.52 billion at March 31, 2012, and $1.68 billion at December 31, 2011, were pledged to secure public deposits, other borrowings, treasury tax and loan, Federal Home Loan Bank advances, securities sold under agreements to repurchase, interest rate swaps, and foreign exchange transactions.

7. Loans

Most of the Company’s business activity is predominately with Asian customers located in Southern and Northern California; New York City; Houston and Dallas, Texas; Seattle, Washington; Boston, Massachusetts; Chicago, Illinois; Edison, New Jersey; and Hong Kong. The Company has no specific industry concentration, and generally its loans are collateralized with real property or other pledged collateral of the borrowers. Loans are generally expected to be paid off from the operating profits of the borrowers, refinancing by another lender, or through sale by the borrowers of the secured collateral.

The components of loans in the condensed consolidated balance sheets as of March 31, 2012, and December 31, 2011, were as follows:

	March 31, 2012			December 31, 2011
	(In thousands)
Type of Loans:
Commercial loans	$	1,844,849		$	1,868,275
Residential mortgage loans		985,105			972,262
Commercial mortgage loans		3,662,436			3,748,897
Equity lines		208,602			214,707
Real estate construction loans		188,081			237,372
Installment and other loans		19,471			17,699
Gross loans		6,908,544			7,059,212

Less:
Allowance for loan losses		(194,743	)		(206,280	)
Unamortized deferred loan fees		(7,921	)		(8,449	)
Total loans, net	$	6,705,880		$	6,844,483
Loans held for sale	$	3,709		$	760

Loans held for sale of $3.7 million at March 31, 2012, increased $3.0 million from $760,000 at December 31, 2011. In the first quarter of 2012, we added three new loans of $16.0 million and sold three loans of $13.0 million for a net loss on sale of $26,000. At March 31, 2012, loans held for sale were comprised of a residential construction loan of $500,000 and a commercial real estate loans of $3.2 million.

At March 31, 2012, recorded investment in impaired loans totaled $275.2 million and was comprised of nonaccrual loans of $131.5 million, nonaccrual loans held for sale of $500,000, and accruing troubled debt restructured (“TDR”) loans of $143.2 million. At December 31, 2011, recorded investment in impaired loans totaled $322.0 million and was comprised of nonaccrual loans of $201.2 million, nonaccrual loans held for sale of $760,000, and accruing TDR’s of $120.0 million. For impaired loans, the amounts previously charged off represent 22.4% at March 31, 2012, and 25.6% at December 31, 2011, of the contractual balances for impaired loans. The following table presents the average balance and interest income recognized related to impaired loans for the periods indicated:

	Impaired Loans
	Average Recorded Investment				Interest Income Recognized
	For the three months ended March 31,
	2012		2011		2012		2011
	(In thousands)
Commercial loans	$	45,142	$	41,982	$	257	$	272
Real estate construction loans		66,455		86,024		176		330
Commercial mortgage loans		184,867		253,130		1,088		1,066
Residential mortgage and equity lines		17,715		16,519		40		25
Subtotal	$	314,179	$	397,655	$	1,561	$	1,693

The following table presents impaired loans and the related allowance for credit losses as of the dates indicated:

	Impaired Loans
	March 31, 2012						December 31, 2011
	Unpaid Principal Balance		Recorded Investment		Allowance		Unpaid Principal Balance		Recorded Investment		Allowance
	(In thousands)
With no allocated allowance
Commercial loans	$	38,012	$	28,077	$	-	$	46,671	$	38,194	$	-
Real estate construction loans		65,839		43,426		-		134,836		78,767		-
Commercial mortgage loans		174,252		134,562		-		187,580		149,034		-
Residential mortgage and equity lines		4,347		4,273		-		8,555		7,987		-
Subtotal	$	282,450	$	210,338	$	-	$	377,642	$	273,982	$	-
With allocated allowance
Commercial loans	$	20,689	$	17,329	$	1,272	$	11,795	$	7,587	$	3,336
Commercial mortgage loans		36,200		34,191		2,529		29,722		28,023		2,969
Residential mortgage and equity lines		15,480		13,372		1,806		13,813		12,381		1,247
Subtotal	$	72,369	$	64,892	$	5,607	$	55,330	$	47,991	$	7,552
Total impaired loans	$	354,819	$	275,230	$	5,607	$	432,972	$	321,973	$	7,552

The following table presents the aging of the loan portfolio by type as of March 31, 2012 and as of December 31, 2011:

	As of March 31, 2012
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Non-accrual Loans		Total Past Due		Loans Not Past Due		Total
Type of Loans:	(In thousands)
Commercial loans	$	16,248	$	605	$	845	$	30,329	$	48,027	$	1,796,822	$	1,844,849
Real estate construction loans		22,674		3,553		-		10,711		36,938		151,143		188,081
Commercial mortgage loans		11,718		591		544		76,619		89,472		3,572,964		3,662,436
Residential mortgage and equity lines		6,175		668		-		13,838		20,681		1,173,026		1,193,707
Installment and other loans		-		-		-		-		-		19,471		19,471
Total loans	$	56,815	$	5,417	$	1,389	$	131,497	$	195,118	$	6,713,426	$	6,908,544

	As of December 31, 2011
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Non-accrual Loans		Total Past Due		Loans Not Past Due		Total
Type of Loans:	(In thousands)
Commercial loans	$	1,683	$	-	$	-	$	30,661	$	32,344	$	1,835,931	$	1,868,275
Real estate construction loans		20,326		-		-		46,012		66,338		171,034		237,372
Commercial mortgage loans		13,627		20,277		6,726		107,784		148,414		3,600,483		3,748,897
Residential mortgage and equity lines		5,871		-		-		16,740		22,611		1,164,358		1,186,969
Installment and other loans		-		-		-		-		-		17,699		17,699
Total loans	$	41,507	$	20,277	$	6,726	$	201,197	$	269,707	$	6,789,505	$	7,059,212

The determination of the amount of the allowance for credit losses for impaired loans is based on management’s current judgment about the credit quality of the loan portfolio and takes into consideration known relevant internal and external factors that affect collectibility when determining the appropriate level for the allowance for credit losses. The nature of the process by which the Bank determines the appropriate allowance for credit losses requires the exercise of considerable judgment. This allowance evaluation process is also applied to troubled debt restructurings since trouble debt restructurings are considered to be impaired loans.

A troubled debt restructuring (“TDR”) is a formal modification of the terms of a loan when the lender, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower. The concessions may be granted in various forms, including change in the stated interest rate, reduction in the loan balance or accrued interest, or extension of the maturity date that causes significant delay in payment.

At March 31, 2012, accruing TDRs were $143.2 million and non-accrual TDRs were $21.5 million compared to accruing TDRs of $120.0 million and non-accrual TDRs of $50.9 million at December 31, 2011. The Company has allocated specific reserves of $2.2 million to accruing TDRs and $288,000 to non-accrual TDRs at March 31, 2012, and $1.4 million to accruing TDRs and $1.6 million to non-accrual TDRs at December 31, 2011. The following table presents TDRs that were modified during the first quarters of 2012 and 2011, their specific reserve at March 31, and charge-offs during the first quarters of 2012 and 2011:

	For the Three Months Ended March 31, 2012								As of March 31, 2012
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(Dollars in thousands)
Commercial loans		5	$	1,988	$	1,988	$	-	$	68
Commercial mortgage loans		9		26,693		23,375		3,318		268
Residential mortgage and equity lines		2		1,587		1,587		-		-
Total		16	$	30,268	$	26,950	$	3,318	$	336

	For the Three Months Ended March 31, 2011								As of March 31, 2011
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(Dollars in thousands)
Commercial loans		4	$	14,862	$	14,862	$	-	$	5
Commercial mortgage loans		2		1,930		1,929		1		1
Residential mortgage and equity lines		1		591		501		90		93
Total		7	$	17,383	$	17,292	$	91	$	99

Modifications of the loan terms during the first three months of 2012 and 2011 were in the form of changes in the stated interest rate, multiple note structure, or extensions of the maturity date. Modifications involving a reduction of the stated interest rate were for periods ranging from ten months to four years. Modifications involving an extension of the maturity date were for periods ranging from ten months to four years.

Accruing TDRs at March 31, 2012, were comprised of loans collateralized by thirteen retail shopping and commercial use buildings of $80.7 million, eleven office and commercial use buildings of $29.0 million, two hotels of $12.8 million, eleven single family residences of $19.3 million, two multi-family residences of $805,000, one land of $537,000, and four commercial loans of $106,000. We expect that the troubled debt restructuring loans on accruing status as of March 31, 2012, which were all performing in accordance with their restructured terms, will continue to comply with the restructured terms because of the reduced principal or interest payments on these loans. A summary of TDRs by type of concession, by type of loan as of March 31, 2012, and as of December 31, 2011, is shown below:

	As of March 31, 2012
Accruing TDRs	Principal Deferral		Rate Reduction		Rate Reduction and Forgiveness of Principal			Rate Reduction and Payment Deferral		Total
	(In thousands)
Commercial loans	$	12,911	$	1,738		$	-	$	427	$	15,076
Real estate construction loans		16,820		9,620			-		5,776		32,216
Commercial mortgage loans		14,275		37,600			1,506		38,753		92,134
Residential mortgage loans		1,291		1,032			-		1,484		3,807
Total accruing TDRs	$	45,297	$	49,990		$	1,506	$	46,440	$	143,233

	As of March 31, 2012
Non-accrual TDRs	Interest Deferral		Principal Deferral		Rate Reduction		Rate Reduction and Forgiveness of Principal		Rate Reduction and Payment Deferral		Total
	(In thousands)
Commercial loans	$	-	$	1,073	$	1,397	$	1,145	$	-	$	3,615
Commercial mortgage loans		2,614		6,859		1,167		-		5,006		15,646
Residential mortgage loans		302		1,349		-		-		631		2,282
Total non-accrual TDRs	$	2,916	$	9,281	$	2,564	$	1,145	$	5,637	$	21,543

	As of December 31, 2011
Accruing TDRs	Principal Deferral		Rate Reduction		Rate Reduction and Forgiveness of Principal		Rate Reduction and Payment Deferral		Total
	(In thousands)
Commercial loans	$	12,933	$	1,756	$	-	$	431	$	15,120
Real estate construction loans		16,820		9,659		-		5,776		32,255
Commercial mortgage loans		471		37,796		2,071		28,935		69,273
Residential mortgage loans		1,294		587		-		1,487		3,368
Total accruing TDRs	$	31,518	$	49,798	$	2,071	$	36,629	$	120,016

	As of December 31, 2011
Non-accrual TDRs	Interest Deferral		Principal Deferral		Rate Reduction		Rate Reduction and Forgiveness of Principal		Rate Reduction and Payment Deferral		Total
	(In thousands)
Commercial loans	$	-	$	616	$	1,859	$	1,506	$	-	$	3,981
Real estate construction loans		-		13,579		12,376		-		-		25,955
Commercial mortgage loans		2,633		9,727		-		-		5,076		17,436
Residential mortgage loans		311		2,427		449		-		311		3,498
Total non-accrual TDRs	$	2,944	$	26,349	$	14,684	$	1,506	$	5,387	$	50,870

The activity within our TDR loans for three months ended March 31, 2012, and for the three months ended March 31, 2011, are shown below:

	For the Three Months Ended March 31,
Accruing TDRs	2012			2011
	(In thousands)
Beginning balance	$	120,016		$	136,800
New restructurings		21,712			13,736
Restructured loans restored to accrual status		2,853			-
Payments		(1,348	)		(1,660	)
Restructured loans placed on nonaccrual		-			(12,816	)
Expiration of loan concession		-			(733	)
Ending balance	$	143,233		$	135,327

	For the Three Months Ended March 31,
Non-accrual TDRs	2012			2011
	(In thousands)
Beginning balance	$	50,870		$	28,147
New restructurings		5,238			3,679
Restructured loans placed on nonaccrual		-			12,816
Charge-offs		(4,018	)		(1,104	)
Payments		(27,694	)		(408	)
Restructured loans restored to accrual status		(2,853	)		-
Ending balance	$	21,543		$	43,130

A loan is considered to be in payment default once it is 60 to 90 days contractually past due under the modified terms. Two commercial real estate TDRs of $6.4 million, three commercial TDRs of $1.4 million, and one land TDR of $1.2 million had payments defaults within the twelve months ended March 31, 2012. The TDRs that subsequently defaulted incurred charge-off of $495,000 within the twelve months ended March 31, 2012.

Under the Company’s internal underwriting policy, 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 in order to determine whether a borrower is experiencing financial difficulty.

As of March 31, 2012, there were no commitments to lend additional funds to those borrowers whose loans have been restructured, were considered impaired, or were on non-accrual status.

As part of the on-going monitoring of the credit quality of our loan portfolio, the Company utilizes a risk grading matrix to assign a risk grade to each loan. The risk rating categories can be generally described by the following grouping for non-homogeneous loans:

	·	Pass/Watch – These loans range from minimal credit risk to lower than average, but still acceptable, credit risk.

	·	Special Mention – Borrower is fundamentally sound and loan is currently protected but adverse trends are apparent that, if not corrected, may affect ability to repay. Primary source of loan repayment remains viable but there is increasing reliance on collateral or guarantor support.

Substandard – These loans are inadequately protected by current sound net worth, paying capacity or pledged collateral. Well-defined weaknesses exist that could jeopardize repayment of debt. Loss may not be imminent, but if weaknesses are not corrected, there is a good possibility of some loss.

	·	Doubtful – The possibility of loss is extremely high, but due to identifiable and important pending events (which may strengthen the loan) a loss classification is deferred until the situation is better defined.

	·	Loss – These loans are considered uncollectible and of such little value that to continue to carry the loan as an active asset is no longer warranted.

The following table presents loan portfolio by risk rating as of March 31, 2012, and as of December 31, 2011:

	As of March 31, 2012
	Pass/Watch		Special Mention		Substandard		Doubtful		Total
	(In thousands)
Commercial loans	$	1,697,108	$	66,297	$	74,643	$	6,801	$	1,844,849
Real estate construction loans		110,965		21,718		48,280		7,118		188,081
Commercial mortgage loans		3,245,353		112,335		304,748		-		3,662,436
Residential mortgage and equity lines		1,173,660		403		19,500		144		1,193,707
Installment and other loans		19,405		66		-		-		19,471
Total gross loans	$	6,246,491	$	200,819	$	447,171	$	14,063	$	6,908,544

Loans held for sale	$	3,209	$	-	$	-	$	500	$	3,709

	As of December 31, 2011
	Pass/Watch		Special Mention		Substandard		Doubtful		Total
	(In thousands)
Commercial loans	$	1,689,842	$	64,290	$	108,858	$	5,285	$	1,868,275
Real estate construction loans		115,538		23,555		90,132		8,147		237,372
Commercial mortgage loans		3,275,431		69,925		403,541		-		3,748,897
Residential mortgage and equity lines		1,149,225		4,439		33,160		145		1,186,969
Installment and other loans		17,636		63		-		-		17,699
Total gross loans	$	6,247,672	$	162,272	$	635,691	$	13,577	$	7,059,212

Loans held for sale	$	-	$	-	$	260	$	500	$	760

The allowance for loan losses and the reserve for off-balance sheet credit commitments are significant estimates that can and do change based on management’s process in analyzing the loan portfolio and on management’s assumptions about specific borrowers, underlying collateral, and applicable economic and environmental conditions, among other factors.

The following table presents the balance in the allowance for loan losses by portfolio segment and based on impairment method as of March 31, 2012, and as of December 31, 2011.

			Real Estate		Commercial		Residential
	Commercial		Construction		Mortgage		Mortgage Loans		Consumer and
	Loans		Loans		Loans		and Equity Lines		Other Loans		Total
	(In thousands)
March 31, 2012
Loans individually evaluated for impairment
Allowance	$	1,272	$	-	$	2,529	$	1,806	$	-	$	5,607
Balance	$	45,406	$	43,426	$	168,753	$	17,645	$	-	$	275,230

Loans collectively evaluated for impairment