Pacific Capital Bancorp Reports Third Quarter 2008 Financial Results

SANTA BARBARA, Calif.--(BUSINESS WIRE)--Pacific Capital Bancorp (Nasdaq: PCBC), a community bank holding company with $7.7 billion in assets, today announced financial results for the third quarter ended September 30, 2008.

The Company’s net loss for the third quarter of 2008 was $47.5 million, or ($1.03) per diluted share, compared to net income of $3.9 million, or $0.08 per diluted share, in the same period of the prior year. Financial results for the third quarter of 2008 include the following items:

  • A provision for loan losses of $64.0 million, which increases the Company’s allowance for loan losses to 2.13% of total loans and 73% of non-performing loans
  • A $22.1 million non-cash charge to reflect an impairment of Goodwill related to the Company’s Commercial Banking segment

Provision for Loan Loss

The third quarter 2008 provision for loan losses included:

  • $18.1 million to cover net charge-offs
  • $9.8 million related to the increase in problem loans and higher specific reserves against impaired loans
  • $14.1 million added to the quantitative factors portion of the allowance to reflect higher historical loss rates
  • $25.7 million added to the qualitative factors portion of the allowance to reflect inherent losses associated with deteriorating economic conditions
  • A $3.7 million reversal of allowance related to the refund anticipation loan (RAL) program due to higher than expected collections

Commenting on the third quarter of 2008, George Leis, President and Chief Executive Officer of Pacific Capital Bancorp, said, “While our asset quality remained generally stable during the third quarter, the outlook for general economic conditions and the impact on our loan portfolio changed considerably. Accordingly, we significantly increased both the quantitative and qualitative factors of our allowance for loan loss to reflect higher historical loss rates and inherent probable losses due to weakness in the national and state economies. The provision taken in the third quarter raises our allowance to 2.13% of total loans, which is in line with our peer group.

“We are also very pleased to have received preliminary approval to participate in the U.S. Treasury’s Capital Purchase Program. The capital infusion of approximately $188 million will significantly strengthen our capital ratios and increase our ability to finance quality lending opportunities within our markets,” said Leis.

Goodwill Impairment

As is the case with most banks, Pacific Capital’s goodwill was created by transactions which occurred during more robust economic environments. The Company completed a stringent review of each of its reporting units in its annual SFAS 142 Goodwill Impairment analysis. Due to declining valuations within the marketplace, the Company recorded a $22.1 million charge for an impairment of Goodwill related to the Commercial Banking segment.

Income Statement

As discussed in the Non-GAAP Financial Information section later in the press release, “Core Bank” represents all activities of the Company other than the RAL and RT programs.

The Company’s net interest income for the third quarter of 2008 was $60.8 million, compared with $60.0 million in the same quarter of 2007. Net interest income for the Core Bank was $61.5 million in the third quarter of 2008, compared with $60.5 million in the same period of the prior year. The increase in Core Bank net interest income is primarily attributable to an increase in earning assets, partially offset by a decline in net interest margin.

The Company’s net interest margin for the third quarter of 2008 was 3.57%, which compares with 3.65% in the third quarter of 2007. This also compares with a net interest margin of 3.74% for the Core Bank in the second quarter of 2008. The sequential quarter decline in net interest margin was primarily attributable to a decline in loan interest rates that could not be fully offset by reductions in interest expense on deposits and borrowings.

The Company’s non-interest income was $16.7 million in the third quarter of 2008, compared with $17.3 million in the third quarter of 2007. The decline was primarily attributable to a mortgage-backed securities impairment loss of $797,000, offset by trading portfolio gains of $374,000.

Non-interest expense was $82.2 million in the third quarter of 2008, compared with $52.2 million in the third quarter of 2007. The majority of the increase in non-interest expense was primarily attributable to the following items:

  • A $22.1 million goodwill impairment charge
  • A $2.8 million accrual in recognition of a probable settlement of litigation
  • A $2.7 million reserve for off-balance sheet credit commitments

Excluding the items listed above, non-interest expense was $54.6 million in the third quarter of 2008.

Balance Sheet

The Company’s total gross loans held for investment were $5.72 billion at September 30, 2008, compared with $5.69 billion at June 30, 2008, and $5.56 billion at September 30, 2007. At September 30, 2008, the Company had $145.4 million of loans classified in loans held for sale consisting primarily of residential mortgage loans, which are being sold as part of the Company’s liquidity and balance sheet management strategy. Including loans held for sale, total gross loans increased 12.3% annualized during the third quarter of 2008. The increase was primarily attributable to growth in the commercial real estate portfolio, partially driven by commercial construction loans migrating to permanent financing as the properties are completed and demonstrate stable cash flows.

The Company’s total deposits were $4.94 billion at September 30, 2008, compared to $4.64 billion at June 30, 2008, and $4.85 billion at September 30, 2007. The sequential quarter increase in deposits is primarily attributable to higher balances of certificates of deposit, driven by retail CD campaigns and increased brokered CDs added in preparation for the funding of the 2009 RAL program.

Asset Quality

Total non-performing assets were $171.6 million at September 30, 2008, compared to $161.8 million at June 30, 2008. The following table provides comparative asset quality data for the comparable three-month periods of the Core Bank (dollars in millions):

         

September 30,

June 30,

2008

2008

 
Allowance for loan losses $ 122.1 $ 73.3
Allowance for loan losses/total loans 2.13 % 1.29 %
 
Total non-performing assets $ 171.6 $ 161.8
Total non-performing assets/total assets 2.23 % 2.16 %
 
Allowance to non-performing loans 73 % 46 %
 
Net charge-offs $ 18.1 $ 28.5
Annualized net charge-offs/total average loans 1.25 % 2.05 %
 

At September 30, 2008, qualitative factors accounted for approximately 57% of the Company’s allowance for loan losses.

Capital Ratios

All of the Company’s capital ratios continue to exceed the regulatory definition of “well capitalized.”

The Company’s Tier 1 tangible asset ratios as of September 30, 2008, and June 30, 2008, were 7.7% and 8.4%, respectively.

The Company’s total risk weighted capital ratios as of September 30, 2008, and June 30, 2008, were 11.9% and 13.1%, respectively.

2009 RAL and RT Programs

The disruption in the credit markets has restricted the availability of funding for the 2009 RAL and RT season. As a result, the Company may not be able to establish a securitization vehicle for the 2009 RAL program. As a potential alternative, the Company is currently in the process of securing commitments from a variety of institutions that would participate in a RAL syndication program. It is possible that the Company will also retain more RALs on its own balance sheet in the 2009 program. When funding commitments are finalized, the Company will provide an update on its expectations for the 2009 RAL and RT programs.

Outlook

Commenting on the outlook for Pacific Capital Bancorp, Leis said, “Given the significant increase in our loan loss reserves, we believe we are better positioned to manage through a prolonged economic downturn. Going forward, we expect to see a moderation in loan growth due to more caution on the part of borrowers, a declining net interest margin due to reductions in prevailing interest rates, and a downward trend in expense levels. Our key priorities will be further increasing our base of retail and commercial deposits, focusing on growing our commercial loan production, and finalizing the funding for the 2009 RAL program.

“While the turmoil in the financial markets is creating challenges for our near-term financial performance, we are optimistic about the opportunities emerging to enhance our competitive position in our regional markets. The dislocation in the financial services industry is creating opportunities for Pacific Capital to win new business relationships and add talented bankers that can help us further grow our franchise over the longer-term,” said Leis.

Conference Call and Webcast

The Company will hold a conference call today at 11:00 a.m. Eastern time / 8:00 a.m. Pacific time to discuss its third quarter 2008 results. To access a live webcast of the conference call, log on at the Investor Relations page of the Company’s website at www.pcbancorp.com. For those who cannot listen to the live broadcast, a replay of the conference call will be available shortly after the call at the same location.

About Pacific Capital Bancorp

Pacific Capital Bancorp is the parent company of Pacific Capital Bank, N.A., a nationally chartered bank that operates 48 branches under the local brand names of Santa Barbara Bank & Trust, First National Bank of Central California, South Valley National Bank, San Benito Bank and First Bank of San Luis Obispo.

Forward Looking Statements

This press release contains forward-looking statements with respect to the financial condition, results of operation and businesses of Pacific Capital Bancorp. These include statements that relate to or are dependent on estimates or assumptions relating to the prospects of continued loan and deposit growth, improved credit quality, the health of the capital markets, the Company’s de novo branching and acquisition efforts, the operating characteristics of the Company’s income tax refund loan and transfer programs and the economic conditions within its markets. These forward-looking statements involve certain risks and uncertainties, many of which are beyond the Company’s control. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the following possibilities: (1) deterioration in general economic conditions, internationally, nationally or in California; (2) changes in the interest rate environment reducing interest margins or increasing interest rate risk; (3) increased competitive pressure among financial services companies; (4) the occurrence of terrorist acts; (5) reduced demand for or earnings derived from the Company’s income tax refund loan and refund transfer programs; (6) legislative or regulatory changes or litigation adversely affecting the businesses in which Pacific Capital Bancorp engages; (7) unfavorable conditions in the capital markets; (8) difficulties in opening additional branches or integrating acquisitions; and (9) other risks detailed in reports filed by Pacific Capital Bancorp with the Securities and Exchange Commission. Forward-looking statements speak only as of the date they are made, and Pacific Capital Bancorp does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made. For a more detailed description of the risk factors associated with the Company’s businesses, please refer to the Company’s most recent Annual Report on Form 10-K.

Non-GAAP Amounts and Measures

This press release contains amounts and ratios that are computed excluding the results of operations of the RAL and RT programs and/or exclude asset and liability balances related to those programs. Because they relate to the filing of individual tax returns, these programs are activities conducted primarily during the first and second quarters of each year. These programs comprise one of the Company’s operating segments for purposes of segment reporting in the Company’s quarterly and annual reports to the SEC. The Company’s Management believes analysts and investors find this information useful for the same reason that Management uses it internally, namely, it provides more comparability with virtually all of the rest of the Company’s peers that do not operate such programs.

The information that excludes balances and results of the RAL and RT programs is reconciled to the consolidated information prepared in accordance with Generally Accepted Accounting Principles in several tables at the end of this release.

In addition to the non-GAAP measures computed related to the Company’s balances and results exclusive of its RAL and RT programs, this release contains other financial information determined by methods other than in accordance with GAAP. Management uses these non-GAAP measures in their analysis of the business and its performance. In particular, net interest income, net interest margin and operating efficiency are calculated on a fully tax-equivalent basis ("FTE"). Management believes that the measures calculated on a FTE basis provide a useful picture of net interest income, net interest margin and operating efficiency for comparative purposes. Net interest income and net interest margin on a FTE basis is determined by adjusting net interest income to reflect tax-exempt interest income on an equivalent before-tax basis. The efficiency ratio also uses net interest income on a FTE basis.

The assets, liabilities, and results of operations of the Company’s refund programs are reported in its periodic filings with the SEC as a segment of its business. Because these are activities conducted by very few other financial institutions, users of the financial statements have indicated that they are interested in information for the Company exclusive of these programs so that they may compare the results of operations with financial institutions that have no comparable programs. The amounts and ratios may generally be computed from the information provided in the note to its financial statements that discloses segment information, but are computed and included in the press release for the convenience of those users.

           
Consolidated Balance Sheets % Change
(dollars in thousands) As of 9/30/2008 vs.   09/30/2008 vs.
      9/30/2008 6/30/2008 3/31/2008 12/31/2007 9/30/2007 6/30/2008 9/30/2007
(unaudited) (unaudited) (unaudited) (unaudited) (Annualized)
Assets
Cash and due from banks $ 122,991 $ 149,343 $ 179,328 $ 141,086 $ 163,418 (70.6 %) (24.7 %)
Federal funds sold 55,000 — 20,000 — 87,400 N/A (37.1 %)
Trading securities 202,557 62,324 65,885 146,862 — 900.0 % N/A
Available-for-sale securities 990,083 1,118,229 1,095,876 1,176,887 976,161 (45.8 %) 1.4 %
Loans held for sale 145,350 — — 68,343 — N/A N/A
Loans held for investment
Real estate
Residential 1,100,608 1,175,267 1,098,606 1,075,663 1,401,282 (25.4 %) (21.5 %)
Multi-family residential 265,261 279,922 285,241 278,935 285,779 (21.0 %) (7.2 %)
Commercial 1,929,225 1,713,846 1,625,242 1,558,761 1,517,370 50.3 % 27.1 %
Construction 605,563 677,678 696,577 651,307 655,424 (42.6 %) (7.6 %)
Commercial loans 1,194,805 1,233,030 1,184,956 1,196,808 1,112,027 (12.4 %) 7.4 %
Home equity loans 426,921 413,832 393,732 394,331 379,564 12.7 % 12.5 %
Consumer loans 196,164 196,066 199,171 200,094 206,312 0.2 % (4.9 %)
Tax refund loans (RALs) 1,600 1,000 61,102 — 2,695 240.0 % (40.6 %)
Other loans   2,067   2,411   2,836   3,257   2,759 (57.1 %) (25.1 %)
Gross loans held for investment 5,722,214 5,693,052 5,547,463 5,359,156 5,563,212 2.0 % 2.9 %
Allowance for loan losses   122,097   73,288   65,491   44,843   40,375 266.4 % 202.4 %
Total loans held for investment, net 5,600,117 5,619,764 5,481,972 5,314,313 5,522,837 (1.4 %) 1.4 %
Premises and equipment, net 79,409 79,636 84,210 86,921 88,981 (1.1 %) (10.8 %)
Goodwill 128,710 150,354 150,354 145,749 145,749 (57.6 %) (11.7 %)
Other intangible assets 11,022 11,480 12,058 10,037 7,555 (16.0 %) 45.9 %
Other assets   353,409   294,193   309,698   284,148   294,975 80.5 % 19.8 %
Total assets $ 7,688,648 $ 7,485,323 $ 7,399,381 $ 7,374,346 $ 7,287,076 10.9 % 5.5 %
 
Liabilities
Deposits
Non-interest-bearing demand deposits $ 989,025 $ 991,570 $ 1,116,182 $ 1,002,281 $ 1,067,401 (1.0 %) (7.3 %)
Interest-bearing deposits
NOW accounts 995,181 1,037,582 1,119,338 1,145,655 1,142,055 (16.3 %) (12.9 %)
Money market deposit accounts 561,297 631,925 727,147 748,417 812,654 (44.7 %) (30.9 %)
Other savings deposits 261,085 240,795 244,443 254,273 266,651 33.7 % (2.1 %)
Time certificates of $100,000 or more 1,234,196 1,204,150 1,094,486 1,063,271 987,480 10.0 % 25.0 %
Other time deposits   900,520   533,177   533,608   749,915   572,406 275.6 % 57.3 %
Total interest-bearing deposits   3,952,279   3,647,629   3,719,022   3,961,531   3,781,246 33.4 % 4.5 %
Total deposits 4,941,304 4,639,199 4,835,204 4,963,812 4,848,647 26.0 % 1.9 %

 

Federal funds purchased and securities sold under agreements to repurchase

358,124 424,739 327,640 272,673 246,293 (62.7 %) 45.4 %
Long-term debt and other borrowings 1,660,986 1,643,766 1,343,530 1,405,602 1,441,628 4.2 % 15.2 %
Other liabilities   85,885   67,949   159,446   63,903   82,696 105.6 % 3.9 %
Total liabilities 7,046,299 6,775,653 6,665,820 6,705,990 6,619,264 16.0 % 6.5 %
 
Shareholders' equity   642,349   709,670   733,561   668,356   667,812 (37.9 %) (3.8 %)
Total liabilities and shareholders' equity $ 7,688,648 $ 7,485,323 $ 7,399,381 $ 7,374,346 $ 7,287,076 10.9 % 5.5 %
 

Consolidated Statements of Income (unaudited)              
(dollars in thousands) For the Three-Month Periods Ended September 30,
        2008 2007
Consolidated Core Bank RAL and RT Consolidated Core Bank RAL and RT Consolidated % Change
Interest income
Loans $ 88,109 $ 88,109 — $ 101,404 $ 101,292 $ 112 (13.1 %)
Trading securities 2,484 2,484 — — — — N/A
Available-for-sale securities 12,021 12,021 — 11,736 11,736 — 2.4 %

Federal funds sold, securities purchased under resale agreements and other earning assets

  119     119     —     1,519     1,519   —   (92.2 %)
Total interest income   102,733     102,733     —     114,659     114,547   112   (10.4 %)
Interest expense
Deposits 18,565 18,547 18 32,399 32,399 — (42.7 %)

Securities sold under agreements to repurchase and federal funds purchased

3,444 3,444 — 3,450 3,450 — (0.2 %)
Long-term debt and other borrowings   19,902     19,209     693     18,842     18,149   693   5.6 %
Total interest expense   41,911     41,200     711     54,691     53,998   693   (23.4 %)
Net interest income   60,822     61,533     (711 )   59,968     60,549   (581 ) 1.4 %
Provision for loan losses
Provision for loan losses - RALs (3,697 ) — (3,697 ) 22,383 — 22,383 N/A
Provision for loan losses - Core Bank   67,659     67,659     —     2,018     2,018   —   N/A
Provision for loan losses   63,962     67,659     (3,697 )   24,401     2,018   22,383   162.1 %

Net interest (loss)/income after provision for loan losses

  (3,140 )   (6,126 )   2,986     35,567     58,531   (22,964 ) N/A
Non-interest income
Service charges and fees 8,028 7,992 36 8,551 8,361 190 (6.1 %)
Trust and investment advisory fees 6,352 6,352 — 6,009 6,009 — 5.7 %
Refund transfer fees 385 — 385 370 — 370 4.1 %
(Loss)/gain on securities, net (487 ) (487 ) — 5 5 — N/A
Other   2,462     2,462     —     2,335     2,335   —   5.4 %
Total non-interest income   16,740     16,319     421     17,270     16,710   560   (3.1 %)
Non-interest expense
Salaries and employee benefits 28,593 27,236 1,357 26,987 26,536 451 6.0 %
Goodwill Impairment 22,068 22,068 — — — — N/A
Occupancy expenses, net 6,178 5,898 280 5,552 5,322 230 11.3 %
Furniture, fixtures and equipment, net 2,291 2,152 139 2,224 2,066 158 3.0 %
Other   23,041     18,864     4,177     17,412     15,478   1,934   32.3 %
Total non-interest expense   82,171     76,218     5,953     52,175     49,402   2,773   57.5 %

(Loss)/Income before benefit for income taxes

(68,571 ) $ (66,025 ) $ (2,546 ) 662 $ 25,839 $ (25,177 ) N/A
Benefit for income taxes   (21,070 )   (3,191 ) 560.3 %

Net (loss)/Income

$ (47,501 ) $ 3,853   N/A
 

(Loss)/Income per share - basic

$ (1.03 ) $ 0.08

(Loss)/Income per share - diluted

$ (1.03 ) $ 0.08
Average number of shares - basic 46,197 46,945
Average number of shares - diluted 46,624 47,179
 
The Company's management utilizes the above "Core Bank" financial information in the evaluation of its banking operations and believes that the investment community also finds this information valuable to understand the key drivers of the business.
 

Consolidated Statements of Income (unaudited)   For the Nine-Month Periods Ended September 30,  
(dollars in thousands) 2008   2007
             
Consolidated Core Bank RAL and RT Consolidated Core Bank RAL and RT Consolidated % Change
Interest income
Loans $ 371,358 $ 262,596 $ 108,762 $ 432,869 $ 314,301 $ 118,568 (14.2 %)
Trading securities 4,121 4,121 — — — — N/A
Available -for-sale securities 39,366 39,366 — 36,276 36,276 — 8.5 %

Federal funds sold, securities purchased under resale agreements and other earning assets

  2,281     578     1,703   2,629   2,629   — (13.2 %)
Total interest income   417,126     306,661     110,465   471,774   353,206   118,568 (11.6 %)
Interest expense
Deposits 65,377 61,648 3,729 99,236 95,867 3,369 (34.1 %)

Securities sold under agreements to repurchase and federal funds purchased

9,859 9,522 337 14,565 10,738 3,827 (32.3 %)
Long-term debt and other borrowings   55,516     52,536     2,980   55,760   51,152   4,608 (0.4 %)
Total interest expense   130,752     123,706     7,046   169,561   157,757   11,804 (22.9 %)
Net interest income   286,374     182,955     103,419   302,213   195,449   106,764 (5.2 %)
Provision for loan losses
Provision for loan losses - RALs 22,717 — 22,717 93,960 — 93,960 (75.8 %)
Provision for loan losses - Core Bank   126,806     126,806     —   14,534   14,534   — 772.5 %
Provision for loan losses   149,523     126,806     22,717   108,494   14,534   93,960 37.8 %
Net interest income after provision for loan losses   136,851     56,149     80,702   193,719   180,915   12,804 (29.4 %)
Non-interest income
Refund transfer fees 68,576 — 68,576 45,756 — 45,756 49.9 %
Gain on sale RALs, net 44,580 — 44,580 41,822 — 41,822 6.6 %
Service charges and fees 27,220 24,140 3,080 31,659 25,205 6,454 (14.0 %)
Trust and investment advisory fees 19,637 19,637 — 18,183 18,183 — 8.0 %
(Loss)/Gain on securities, net (422 ) (422 ) — 1,944 1,944 — N/A
Gain on sale of leasing portfolio — — — 24,344 24,344 — N/A
Other   4,666     4,666     —   6,663   6,633   30 (30.0 %)
Total non-interest income   164,257     48,021     116,236   170,371   76,309   94,062 (3.6 %)
Non-interest expense
Salaries and employee benefits 94,598 84,699 9,899 93,867 87,032 6,835 0.8 %
Refund program marketing and technology fees 46,257 — 46,257 44,500 — 44,500 3.9 %
Goodwill Impairment 22,068 22,068 — — — — N/A
Occupancy expenses, net 19,192 18,388 804 16,440 15,684 756 16.7 %
Furniture, fixtures and equipment, net 6,871 6,405 466 7,301 6,761 540 (5.9 %)
Other   79,722     55,604     24,118   62,024   47,653   14,371 28.5 %
Total non-interest expense   268,708     187,164     81,544   224,132   157,130   67,002 19.9 %
Income/(Loss) before provision for income taxes 32,400 $ (82,994 ) $ 115,394 139,958 $ 100,094 $ 39,864 (76.9 %)
Provision for income taxes   13,311     51,301 (74.1 %)
Net income $ 19,089   $ 88,657 (78.5 %)
 
Income per share - basic $ 0.41 $ 1.89
Income per share - diluted $ 0.41 $ 1.88
Average number of shares - basic 46,169 46,971
Average number of shares - diluted 46,490 47,244
 
The Company's management utilizes the above "Core Bank" financial information in the evaluation of its banking operations and believes that the investment community also finds this information valuable to understand the key drivers of the business.
 

Consolidated Average Balances and Annualized Yields (unaudited)          
(dollars in thousands) For the Three-Month Periods Ended September 30,
    2008 2007
Average Balance   Income Rate Average Balance Income Rate
Assets:
Commercial paper $ 6,408 $ 37 2.30 % $ — $ — —
Federal funds sold 19,287 82 1.69 % 115,006 1,519 5.24 %
Securities (1) (2)
Taxable 917,702 11,077 4.80 % 754,002 8,940 4.70 %
Non-taxable   265,132   4,807 7.25 %   206,790   3,498 6.77 %
Total securities   1,182,834   15,884 5.35 %   960,792   12,438 5.15 %
Loans (1) (3)
Commercial 1,207,890 18,914 6.23 % 1,088,061 24,320 8.87 %
Real estate - multi family & commercial 2,752,603 41,886 6.09 % 2,438,997 44,062 7.23 %
Real estate - residential 1 - 4 family 1,203,771 17,889 5.94 % 1,379,669 20,469 5.93 %
Consumer 613,796 9,831 6.37 % 613,026 12,528 8.11 %
Other   2,251   30 5.30 %   2,911   62 8.45 %
Total loans   5,780,311   88,550 6.12 %   5,522,664   101,441 7.33 %
Total interest-earning assets   6,988,840   104,553 5.95 %   6,598,462   115,398 6.94 %
Market value adjustment 18,580 11,728
Non-interest-earning assets   593,612   639,824
Total assets $ 7,601,032 $ 7,250,014
 
Liabilities and shareholders' equity:
Interest-bearing deposits:
Savings and interest-bearing transaction accounts $ 1,891,370 4,660 0.98 % $ 2,202,366 15,095 2.72 %
Time certificates of deposit   1,849,236   13,905 2.99 %   1,560,697   17,304 4.40 %
Total interest-bearing deposits   3,740,606   18,565 1.97 %   3,763,063   32,399 3.42 %
Borrowed funds:
Repos and Federal funds purchased 436,123 3,444 3.14 % 279,404 3,450 4.90 %
Other borrowings   1,656,597   19,902 4.78 %   1,409,366   18,842 5.30 %
Total borrowings   2,092,720   23,346 4.44 %   1,688,770   22,292 5.24 %
Total interest-bearing liabilities   5,833,326   41,911 2.86 %   5,451,833   54,691 3.98 %
Non-interest-bearing demand deposits 987,336 1,020,983
Other liabilities 80,479 106,588
Shareholders' equity   699,891   670,610
Total liabilities and shareholders' equity $ 7,601,032 $ 7,250,014
 
Tax equivalent net interest income/margin 62,642 3.57 % 60,707 3.65 %

Less: non-taxable interest from securities and loans

  1,820 0.10 %   739 0.04 %
Net interest income $ 60,822 3.47 % $ 59,968 3.61 %
 
Consumer loans, Core Bank $ 613,453 $ 9,831 6.38 % $ 584,697 $ 12,416 8.42 %
Loans, Core Bank $ 5,779,968 $ 88,550 6.09 % $ 5,494,335 $ 101,329 7.32 %
 
(1)   Income and yield calculations are presented on fully taxable equivalent basis.
(2) Average securities balances are based on amortized historical cost, excluding SFAS 115 market value adjustments to fair value, which are included in other assets.
(3) Nonaccrual loans are included in loan balances. Interest income includes related fee income.
 

Consolidated Average Balances and Annualized Yields (unaudited)          
(dollars in thousands) For the Nine-Month Periods Ended September 30,
    2008 2007
Average Balance   Income Rate Average Balance Income Rate
Assets:
Commercial paper $ 25,947 $ 560 2.88 % $ — $ — —
Federal funds sold 85,179 1,721 2.70 % 66,421 2,629 5.29 %
Securities (1) (2)
Taxable 927,040 33,935 4.89 % 806,695 27,901 4.62 %
Non-taxable   244,567   13,418 7.32 %   207,427   11,708 7.53 %
Total securities   1,171,607   47,353 5.40 %   1,014,122   39,609 5.22 %
Loans (1) (3)
Commercial 1,198,260 58,181 6.49 % 1,232,286 82,096 8.91 %
Real estate - multi family & commercial 2,646,493 123,306 6.21 % 2,340,394 128,515 7.32 %
Real estate - residential 1 - 4 family 1,140,836 51,124 5.98 % 1,304,797 57,327 5.86 %
Consumer 738,478 139,156 25.17 % 1,142,874 164,961 19.30 %
Other   3,338   149 5.96 %   2,890   172 7.96 %
Total loans   5,727,405   371,916 8.67 %   6,023,241   433,071 9.60 %
Total interest-earning assets   7,010,138   421,550 8.03 %   7,103,784   475,309 8.95 %
Market value adjustment 25,957 18,821
Non-interest-earning assets   589,773   444,565
Total assets $ 7,625,868 $ 7,567,170
 
Liabilities and shareholders' equity:
Interest-bearing deposits:
Savings and interest-bearing transaction accounts $ 2,005,641 19,085 1.27 % $ 2,132,474 41,032 2.57 %
Time certificates of deposit   1,818,462   46,292 3.40 %   1,732,963   58,204 4.49 %
Total interest-bearing deposits   3,824,103   65,377 2.28 %   3,865,437   99,236 3.43 %
Borrowed funds:
Repos and Federal funds purchased 406,597 9,859 3.24 %