Note 22 - Regulatory Matters

12 Months Ended

Dec. 31, 2012

Regulatory Capital Requirements under Banking Regulations [Text Block]

22.   Regulatory Matters

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies.  Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.  The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.  See Note 11 for discussion of possible future disallowance of Capital Securities as Tier 1 capital.

        The Federal Deposit Insurance Corporation has established five capital ratio categories: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.” A well capitalized institution must have a Tier 1 capital ratio of at least 6%, a total risk-based capital ratio of at least 10%, and a leverage ratio of at least 5%.  At December 31, 2011 and 2009, the Bank qualified as well capitalized under the regulatory framework for prompt corrective action.

        The Bancorp’s and the Bank’s capital and leverage ratios as of December 31, 2012, and December 31, 2011, are presented in the tables below:

	As of December 31, 2012										As of December 31, 2011
	Company					Bank					Company					Bank
	Balance		Percentage			Balance		Percentage			Balance		Percentage			Balance		Percentage
	(Dollars in thousands)
Tier I Capital (to risk-weighted assets)	$	1,426,566		17.36	%	$	1,259,005		15.33	%	$	1,318,948		15.97	%	$	1,289,747		15.64	%
Tier I Capital minimum requirement		328,713		4.00			328,440		4.00			330,355		4.00			329,928		4.00
Excess	$	1,097,853		13.36	%	$	930,565		11.33	%	$	988,593		11.97	%	$	959,819		11.64	%
Total Capital (to risk-weighted assets)	$	1,571,060		19.12	%	$	1,402,691		17.08	%	$	1,474,496		17.85	%	$	1,444,165		17.51	%
Total Capital minimum requirement		657,426		8.00			656,880		8.00			660,710		8.00			659,855		8.00
Excess	$	913,634		11.12	%	$	745,811		9.08	%	$	813,786		9.85	%	$	784,310		9.51	%
Tier I Capital (to average assets)Leverage ratio	$	1,426,566		13.82	%	$	1,259,005		12.22	%	$	1,318,948		12.93	%	$	1,289,747		12.66	%
Minimum leverage requirement		412,844		4.00			412,272		4.00			408,146		4.00			407,643		4.00
Excess	$	1,013,722		9.82	%	$	846,733		8.22	%	$	910,802		8.93	%	$	882,104		8.66	%
Total average assets (1)	$	10,321,104				$	10,306,790				$	10,203,647				$	10,191,078
Risk-weighted assets	$	8,217,821				$	8,211,004				$	8,258,878				$	8,248,190

(1) Average assets represent average balances for the fourth quarter of each year presented.

 On December 17, 2009, the Bancorp entered into a memorandum of understanding with Federal Reserve Bank of San Francisco (the “FRB SF”) under which it agreed that it will not, without the FRB SF’s prior written approval, (i) receive any dividends or any other form of payment or distribution representing a reduction of capital from the Bank, or (ii) declare or pay any dividends, make any payments on trust preferred securities, or make any other capital distributions.  Under the memorandum, the Bancorp agreed to submit to the FRB SF for review and approval a plan to maintain sufficient capital at the Bancorp on a consolidated basis and at the Bank, a dividend policy for the Bancorp, a plan to improve management of its liquidity position and funds management practices, and a liquidity policy and contingency funding plan for the Bancorp.  As part of its compliance with the memorandum, on January 22, 2010, the Bancorp submitted to the FRB SF a Three-Year Capital and Strategic Plan that updates a previously submitted plan and establishes, among other things, targets for its Tier 1 risk-based capital ratio, total risk-based capital ratio, Tier 1 leverage capital ratio and tangible common risk-based ratio, each of which, where applicable, are above the minimum requirements for a well-capitalized institution.  In addition, the Bancorp agreed to notify the FRB SF prior to effecting certain changes to its senior executive officers and board of directors and it is limited and/or prohibited, in certain circumstances, in its ability to enter into contracts to pay and to make golden parachute severance and indemnification payments.  The Bancorp also agreed in the memorandum that we will not, without the prior written approval of the FRB SF, directly or indirectly, (i) incur, renew, increase or guaranty any debt, (ii) issue any additional trust preferred securities, or (iii) purchase, redeem, or otherwise acquire any stock.

Until it was terminated as of November 7, 2012, the Bank was subject to a memorandum of understanding with the California Department of Financial Institutions (“DFI”) and the Federal Deposit Insurance Corporation (“FDIC’) that was entered into on March 1, 2010, by which the Bank agreed to undertake certain steps to strengthen its operations. The Bank was required to develop and implement, within specified time periods, plans satisfactory to the DFI and the FDIC to reduce commercial real estate concentrations, to enhance and to improve the quality of our stress testing of the Bank’s loan portfolio, and to revise our loan policy in connection therewith; to develop and adopt a strategic plan addressing improved profitability and capital ratios and to reduce the Bank’s overall risk profile; to develop and adopt a capital plan; to develop and implement a plan to improve asset quality, including the methodology for calculating the loss reserve allocation and evaluating its adequacy; and to develop and implement a plan to reduce dependence on wholesale funding. In addition, we were required to report our progress to the DFI and FDIC on a quarterly basis. As part of our compliance with the Bank memorandum, on April 30, 2010, we submitted to the DFI and the FDIC a Three-Year Capital Plan that updated the Three-Year Capital and Strategic Plan previously submitted to the FRB SF on January 22, 2010, and established, among other things, targets for our Tier 1 risk-based capital ratio and total risk-based capital ratio, each of which are above the minimum requirements for a well-capitalized institution and effective June 30, 2010, a target Tier 1 to total tangible assets ratio.  We were in compliance with the applicable target ratios through the date of termination of the memorandum.