NOTE 11—BORROWINGS AND SUBORDINATED DEBENTURES

Debt Termination Expense—FHLB Advances and Subordinated Debentures

In March 2012, the Company incurred $22.6 million in debt termination expense related to the repayment of $225.0 million in fixed-rate term FHLB advances and the early redemption of $18.6 million in fixed-rate subordinated debentures. The Company used a combination of excess cash and collateralized overnight FHLB advances to repay these debt instruments. The FHLB advances were composed of $200 million maturing in December 2017 with a fixed rate of 3.16% and $25 million due in January 2018 with a fixed rate of 2.61%. The agreements for these FHLB advances had an early prepayment penalty or fee for payoffs before maturity. The subordinated debentures were composed of a $10.3 million debenture, due in March 2030 and bearing a fixed rate of 11.00%, which was referred to as "Trust CI," and an $8.3 million debenture due in September 2030 and bearing a fixed rate of 10.6%, which was referred to as "Trust I."

During 2010, the Company incurred $2.7 million in debt termination expense related to the repayment of $175.0 million in fixed-rate term FHLB advances. In April 2010, the Company elected to prepay $125.0 million in FHLB advances that were assumed in connection with the August 2009 Affinity acquisition and incurred a $726,000 prepayment penalty. In December 2010, the Company elected to prepay $50 million in FHLB advances and incurred a $1.9 million prepayment penalty.

Borrowings

The Bank has established secured and unsecured lines of credit. We may borrow funds from time to time on a term or overnight basis from the FHLB, the FRBSF, or other financial institutions.

Federal Funds Arrangements with Commercial Banks. As of December 31, 2012, 2011, and 2010, the Bank had unsecured lines of credit with correspondent banks, subject to availability, in the amount of $65.0 million, $45.0 million, and $52.0 million, respectively. These lines are renewable annually and have no unused commitment fees. As of December 31, 2012, 2011, and 2010, there were no balances outstanding.

FRBSF Secured Line of Credit. The Bank established a secured line of credit with the FRBSF during 2008. The secured borrowing capacity is collateralized by liens covering $484.0 million of certain qualifying loans. As of December 31, 2012, our secured FRBSF borrowing capacity was $385.7 million. As of December 31, 2012, 2011, and 2010, and during such periods, there were no balances outstanding.

FHLB Secured Lines of Credit. The borrowing arrangements with the FHLB are based on two separate FHLB programs, one collateralized by loans and the other by securities available-for-sale. At December 31, 2012, our FHLB lines were secured by a blanket lien on certain qualifying loans in our loan portfolio which are not pledged to the FRBSF, in addition to securities with a carrying value of $18.9 million.

The following table summarizes our outstanding FHLB advances by their maturity dates as of the dates indicated:

	December 31,

	2012				2011
Contractual Maturity Date	Amount		Rate		Amount		Rate
	(Dollars in thousands)
December 11, 2017	$	—		—	$	200,000		3.16	%
January 11, 2018		—		—		25,000		2.61	%

Total FHLB advances	$	—			$	225,000

Included in borrowings at December 31, 2012 were $12.6 million of non-recourse debt, relating to the payment stream of certain leases sold to third parties. The debt is secured by the equipment in the leases and all interest rates are fixed. As of December 31, 2012, the weighted average interest rate of the debt was 6.28% with a weighted average remaining maturity of 2.5 years. There were no such borrowings in 2011.

Subordinated Debentures

The Company had an aggregate of $108.3 million and $129.3 million in subordinated debentures outstanding at December 31, 2012 and 2011, respectively. The subordinated debentures outstanding at December 31, 2012 were issued in five separate series. Each issuance had a maturity of thirty years from its date of issue. The subordinated debentures are variable-rate instruments and are each callable at par with no prepayment penalty. The subordinated debentures were issued to trusts established by us or entities we have acquired, which in turn issued trust preferred securities, which totaled $105.0 million at December 31, 2012. The proceeds of the subordinated debentures were used primarily to fund several of our acquisitions and to augment regulatory capital.

The Company includes in Tier 1 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 goodwill, net of any related deferred income tax liability. At December 31, 2012, the amount of trust preferred securities included in Tier I capital was $105.0 million. While our existing trust preferred securities are currently grandfathered as Tier 1 capital under the Dodd-Frank Wall Street Reform and Consumer Protection Act, proposed regulatory capital guidelines would phase them out of Tier 1 capital over a period of 10 years, beginning in 2013, until they are fully-phased out on January 1, 2022. New issuances of trust preferred securities will not qualify as Tier 1 capital. If trust preferred securities are excluded from regulatory capital, we remain "well capitalized."

Interest payments made by the Company on subordinated debentures are considered dividend payments under the Board of Governors of the Federal Reserve System ("FRB") regulations. Notification to the FRB is required prior to our declaring and paying a dividend to our stockholders during any period in which our quarterly and/or cumulative twelve-month net earnings are insufficient to fund the dividend amount. This notification requirement is included in regulatory guidance regarding safety and soundness surrounding capital and includes other non-financial measures such as asset quality and credit concentrations. Should the FRB object to our dividend payments, we would be precluded from paying interest on our subordinated debentures. Payments would not commence until approval is received or we no longer need to provide notice under applicable guidance.

The following table summarizes the terms of each issuance of the subordinated debentures outstanding as of the dates indicated:

	December 31,

	2012					2011
	2012					2011					Date Issued		Maturity Date			Next Reset Date
Series	Amount		Rate⁽¹⁾			Amount		Rate⁽²⁾			Date Issued		Maturity Date		Rate Index	Next Reset Date
	(Dollars in thousands)
Trust V	$	10,310		3.41	%	$	10,310		3.66	%		8/15/03		9/17/33	3 month LIBOR + 3.10		3/14/13
Trust VI		10,310		3.36	%		10,310		3.60	%		9/3/03		9/15/33	3 month LIBOR + 3.05		3/13/13
Trust CII		5,155		3.26	%		5,155		3.51	%		9/17/03		9/17/33	3 month LIBOR + 2.95		3/14/13
Trust VII		61,856		3.05	%		61,856		3.30	%		2/5/04		4/23/34	3 month LIBOR + 2.75		4/26/13
Trust CIII		20,619		2.00	%		20,619		2.24	%		8/15/05		9/15/35	3 month LIBOR + 1.69		3/13/13
Trust CI		—		—			10,310		11.00	%		3/23/00		3/8/30	N/A—Fixed Rate		N/A
Trust I		—		—			8,248		10.60	%		9/7/00		9/7/30	N/A—Fixed Rate		N/A

Gross subordinated debentures		108,250					126,808
Unamortized premium⁽³⁾		—					2,463

Net subordinated debentures	$	108,250				$	129,271

⁽¹⁾: As of January 28, 2013.
⁽²⁾: As of January 27, 2012.
⁽³⁾: Represents the unamortized fair value adjustment on the Trust CI subordinated debenture, which was redeemed in March 2012.