EAST WEST BANCORP INC - Quarter Report: 2013 September (Form 10-Q)
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 September 30, 2013
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 000-24939
EAST WEST BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware |
|
95-4703316 |
(State or other jurisdiction of |
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(I.R.S. Employer |
incorporation or organization) |
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Identification No.) |
135 N. Los Robles Ave, 7th Floor, Pasadena, California 91101
(Address of principal executive offices) (Zip Code)
(626) 768-6000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
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 x No o
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 and accelerated filer in Rule 12b-2 of the Exchange Act.
Large accelerated filer x |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Number of shares outstanding of the issuers common stock on the latest practicable date: 137,767,583 shares of common stock as of October 31, 2013.
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Notes to Condensed Consolidated Financial Statements (Unaudited) |
10 |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
64 | |
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90 | ||
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92 |
Forward-Looking Statements
Certain matters discussed in this Quarterly Report contain or incorporate statements that we believe are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Exchange Act), and Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended, and Rule 3b-6 promulgated thereunder. These statements relate to our financial condition, results of operations, plans, objectives, future performance or business. They usually can be identified by the use of forward-looking language, such as will likely result, may, are expected to, is anticipated, estimate, forecast, projected, intends to, or may include other similar words or phrases, such as believes, plans, trend, objective, continue, remain, or similar expressions, or future or conditional verbs, such as will, would, should, could, might, can, or similar verbs. You should not place undue reliance on these statements, as they are subject to risks and uncertainties, including, but not limited to, those described in the documents incorporated by reference. When considering these forward-looking statements, you should keep in mind these risks and uncertainties, as well as any cautionary statements we make. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information then actually known to us.
There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such a difference include, but are not limited to:
· our ability to complete the acquisition of MetroCorp Bancshares, Inc. (MetroCorp) and to successfully integrate and achieve the projected synergies of this acquisition;
· our ability to manage the loan portfolio acquired from FDIC-assisted acquisitions within the limits of the loss protection provided by the FDIC;
· changes in our borrowers performance on loans;
· changes in the commercial and consumer real estate markets;
· changes in our costs of operation, compliance and expansion;
· changes in the U.S. economy, including inflation;
· changes in government interest rate policies;
· changes in laws or the regulatory environment;
· changes in the economy of and monetary policy in the Peoples Republic of China;
· changes in critical accounting policies and judgments;
· changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other regulatory agencies;
· changes in the equity and debt securities markets;
· changes in competitive pressures on financial institutions;
· effect of the new Consumer Financial Protection Bureau ability to repay rules on our single family lending;
· effect of additional provision for loan losses;
· effect of government budget cuts and government shut down;
· fluctuations of our stock price;
· success and timing of our business strategies;
· impact of reputational risk created by these developments on such matters as business generation and retention, funding and liquidity;
· impact of the European debt crisis;
· impact of potential federal tax increases and spending cuts;
· impact of adverse judgments or settlements in litigation against the Company;
· changes in our ability to receive dividends from our subsidiaries; and
· political developments, wars or other hostilities that may disrupt or increase volatility in securities or otherwise affect economic conditions.
For a more detailed discussion of some of the factors that might cause such differences, see the Companys 2012 Form 10-K under the heading ITEM 1A. RISK FACTORS and the information set forth under RISK FACTORS in this Form 10-Q. The Company does not undertake, and specifically disclaims any obligation to update any forward-looking statements to reflect the occurrence of events or circumstances after the date of such statements except as required by law.
PART I FINANCIAL INFORMATION
EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
|
|
September 30, |
|
December 31, |
| ||
|
|
2013 |
|
2012 |
| ||
ASSETS |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
1,322,383 |
|
$ |
1,323,106 |
|
Short-term investments |
|
293,092 |
|
366,378 |
| ||
Securities purchased under resale agreements |
|
1,300,000 |
|
1,450,000 |
| ||
Investment securities available-for-sale, at fair value (with amortized cost of $2,936,290 at September 30, 2013 and $2,599,018 at December 31, 2012) |
|
2,892,761 |
|
2,607,029 |
| ||
Loans held for sale |
|
232,309 |
|
174,317 |
| ||
Loans receivable, excluding covered loans (net of allowance for loan losses of $234,236 at September 30, 2013 and $229,382 at December 31, 2012) |
|
14,338,787 |
|
11,710,190 |
| ||
Covered loans (net of allowance for loan losses of $8,665 at September 30, 2013 and $5,153 at December 31, 2012) |
|
2,359,504 |
|
2,935,595 |
| ||
Total loans receivable, net |
|
16,698,291 |
|
14,645,785 |
| ||
FDIC indemnification asset |
|
145,034 |
|
316,313 |
| ||
Other real estate owned, net |
|
20,184 |
|
32,911 |
| ||
Other real estate owned covered, net |
|
26,940 |
|
26,808 |
| ||
Total other real estate owned |
|
47,124 |
|
59,719 |
| ||
Investment in Federal Home Loan Bank stock, at cost |
|
75,426 |
|
107,275 |
| ||
Investment in Federal Reserve Bank stock, at cost |
|
48,212 |
|
48,003 |
| ||
Investment in affordable housing partnerships |
|
171,624 |
|
185,645 |
| ||
Premises and equipment, net |
|
185,130 |
|
107,517 |
| ||
Accrued interest receivable |
|
113,350 |
|
94,837 |
| ||
Due from customers on acceptances |
|
26,434 |
|
28,612 |
| ||
Premiums on deposits acquired, net |
|
49,153 |
|
56,285 |
| ||
Goodwill |
|
337,438 |
|
337,438 |
| ||
Cash surrender value of life insurance policies |
|
112,247 |
|
110,133 |
| ||
Other assets |
|
448,827 |
|
517,718 |
| ||
TOTAL |
|
$ |
24,498,835 |
|
$ |
22,536,110 |
|
|
|
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
| ||
Customer deposit accounts: |
|
|
|
|
| ||
Noninterest-bearing |
|
$ |
5,757,341 |
|
$ |
4,535,877 |
|
Interest-bearing |
|
14,601,799 |
|
13,773,477 |
| ||
Total deposits |
|
20,359,140 |
|
18,309,354 |
| ||
Federal Home Loan Bank advances |
|
314,557 |
|
312,975 |
| ||
Securities sold under repurchase agreements |
|
995,000 |
|
995,000 |
| ||
Other borrowings |
|
|
|
20,000 |
| ||
Bank acceptances outstanding |
|
26,434 |
|
28,612 |
| ||
Long-term debt |
|
187,178 |
|
137,178 |
| ||
Accrued expenses and other liabilities |
|
304,650 |
|
350,869 |
| ||
Total liabilities |
|
22,186,959 |
|
20,153,988 |
| ||
|
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|
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| ||
COMMITMENTS AND CONTINGENCIES (Note 12) |
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STOCKHOLDERS EQUITY |
|
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Preferred stock, $0.001 par value, 5,000,000 shares authorized; Series A, non-cumulative convertible, 200,000 shares issued; no shares outstanding as of September 30, 2013 and 85,710 shares outstanding as of December 31, 2012 |
|
|
|
83,027 |
| ||
Common stock, $0.001 par value, 200,000,000 shares authorized; 163,060,192 and 157,160,193 shares issued in 2013 and 2012, respectively; 137,739,423 and 140,294,092 shares outstanding in 2013 and 2012, respectively |
|
163 |
|
157 |
| ||
Additional paid in capital |
|
1,564,105 |
|
1,464,739 |
| ||
Retained earnings |
|
1,305,164 |
|
1,151,828 |
| ||
Treasury stock, at cost 25,320,769 shares in 2013 and 16,866,101 shares in 2012 |
|
(532,378 |
) |
(322,298 |
) | ||
Accumulated other comprehensive (loss) income, net of tax |
|
(25,178 |
) |
4,669 |
| ||
Total stockholders equity |
|
2,311,876 |
|
2,382,122 |
| ||
TOTAL |
|
$ |
24,498,835 |
|
$ |
22,536,110 |
|
See accompanying notes to condensed consolidated financial statements.
EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
September 30, |
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September 30, |
| ||||||||
|
|
2013 |
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2012 |
|
2013 |
|
2012 |
| ||||
INTEREST AND DIVIDEND INCOME |
|
|
|
|
|
|
|
|
| ||||
Loans receivable, including fees |
|
$ |
259,105 |
|
$ |
232,195 |
|
$ |
710,554 |
|
$ |
691,270 |
|
Investment securities |
|
11,039 |
|
10,380 |
|
30,843 |
|
48,525 |
| ||||
Securities purchased under resale agreements |
|
5,168 |
|
5,530 |
|
16,132 |
|
14,602 |
| ||||
Investment in Federal Home Loan Bank stock |
|
1,395 |
|
127 |
|
2,945 |
|
514 |
| ||||
Investment in Federal Reserve Bank stock |
|
723 |
|
719 |
|
2,164 |
|
2,146 |
| ||||
Due from banks and short-term investments |
|
4,276 |
|
5,211 |
|
12,844 |
|
17,517 |
| ||||
Total interest and dividend income |
|
281,706 |
|
254,162 |
|
775,482 |
|
774,574 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
INTEREST EXPENSE |
|
|
|
|
|
|
|
|
| ||||
Customer deposit accounts |
|
15,099 |
|
18,202 |
|
47,691 |
|
57,543 |
| ||||
Federal funds purchased |
|
|
|
|
|
|
|
2 |
| ||||
Federal Home Loan Bank advances |
|
1,049 |
|
1,468 |
|
3,135 |
|
4,963 |
| ||||
Securities sold under repurchase agreements |
|
10,323 |
|
11,664 |
|
31,069 |
|
34,977 |
| ||||
Long-term debt |
|
985 |
|
920 |
|
2,402 |
|
3,106 |
| ||||
Total interest expense |
|
27,456 |
|
32,254 |
|
84,297 |
|
100,591 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net interest income before provision for loan losses |
|
254,250 |
|
221,908 |
|
691,185 |
|
673,983 |
| ||||
Provision for loan losses, excluding covered loans |
|
4,535 |
|
13,321 |
|
12,050 |
|
46,395 |
| ||||
(Reversal of) provision for loan losses on covered loans |
|
(964 |
) |
5,179 |
|
4,848 |
|
5,705 |
| ||||
Net interest income after provision for loan losses |
|
250,679 |
|
203,408 |
|
674,287 |
|
621,883 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
NONINTEREST (LOSS) INCOME |
|
|
|
|
|
|
|
|
| ||||
Impairment loss on investment securities |
|
|
|
|
|
|
|
(5,165 |
) | ||||
Less: Noncredit-related impairment loss recorded in other comprehensive income |
|
|
|
|
|
|
|
5,066 |
| ||||
Net impairment loss on investment securities recognized in earnings |
|
|
|
|
|
|
|
(99 |
) | ||||
Decrease in FDIC indemnification asset and receivable |
|
(74,456 |
) |
(26,757 |
) |
(154,260 |
) |
(72,520 |
) | ||||
Branch fees |
|
8,123 |
|
7,720 |
|
23,896 |
|
23,204 |
| ||||
Net gain on sales of investment securities |
|
1,084 |
|
93 |
|
12,006 |
|
647 |
| ||||
Net gain on sale of fixed assets |
|
993 |
|
40 |
|
1,345 |
|
113 |
| ||||
Letters of credit fees and commissions |
|
5,615 |
|
5,001 |
|
16,103 |
|
13,814 |
| ||||
Foreign exchange income |
|
2,940 |
|
2,165 |
|
8,925 |
|
4,524 |
| ||||
Ancillary loan fees |
|
2,125 |
|
1,817 |
|
6,811 |
|
6,013 |
| ||||
Income from life insurance policies |
|
952 |
|
982 |
|
2,820 |
|
2,931 |
| ||||
Net gain on sales of loans |
|
3,945 |
|
5,346 |
|
3,685 |
|
16,900 |
| ||||
Other operating income |
|
7,258 |
|
6,344 |
|
22,795 |
|
17,309 |
| ||||
Total noninterest (loss) income |
|
(41,421 |
) |
2,751 |
|
(55,874 |
) |
12,836 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
NONINTEREST EXPENSE |
|
|
|
|
|
|
|
|
| ||||
Compensation and employee benefits |
|
41,482 |
|
40,509 |
|
129,239 |
|
129,781 |
| ||||
Occupancy and equipment expense |
|
14,697 |
|
14,162 |
|
42,211 |
|
40,737 |
| ||||
Amortization of investments in affordable housing partnerships and other investments |
|
4,693 |
|
3,378 |
|
14,040 |
|
12,269 |
| ||||
Amortization of premiums on deposits acquired |
|
2,347 |
|
2,734 |
|
7,131 |
|
8,445 |
| ||||
Deposit insurance premiums and regulatory assessments |
|
4,191 |
|
3,461 |
|
11,848 |
|
10,776 |
| ||||
Loan related expenses |
|
2,752 |
|
4,011 |
|
9,909 |
|
12,667 |
| ||||
Other real estate owned expense (gain on sale) |
|
157 |
|
2,683 |
|
(2,015 |
) |
18,034 |
| ||||
Legal expense |
|
9,001 |
|
8,213 |
|
18,912 |
|
19,536 |
| ||||
Prepayment penalty for FHLB advances and other borrowings |
|
|
|
42 |
|
|
|
3,699 |
| ||||
Data processing |
|
2,159 |
|
2,313 |
|
6,796 |
|
6,974 |
| ||||
Deposit related expenses |
|
1,635 |
|
1,388 |
|
4,725 |
|
4,472 |
| ||||
Consulting expense |
|
1,264 |
|
2,692 |
|
2,721 |
|
5,727 |
| ||||
Other operating expenses |
|
15,974 |
|
15,370 |
|
45,610 |
|
44,210 |
| ||||
Total noninterest expense |
|
100,352 |
|
100,956 |
|
291,127 |
|
317,327 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
INCOME BEFORE PROVISION FOR INCOME TAXES |
|
108,906 |
|
105,203 |
|
327,286 |
|
317,392 |
| ||||
PROVISION FOR INCOME TAXES |
|
35,749 |
|
34,093 |
|
108,023 |
|
107,642 |
| ||||
NET INCOME |
|
73,157 |
|
71,110 |
|
219,263 |
|
209,750 |
| ||||
PREFERRED STOCK DIVIDENDS |
|
|
|
1,714 |
|
3,428 |
|
5,142 |
| ||||
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS |
|
$ |
73,157 |
|
$ |
69,396 |
|
$ |
215,835 |
|
$ |
204,608 |
|
|
|
|
|
|
|
|
|
|
| ||||
EARNINGS PER SHARE AVAILABLE TO COMMON STOCKHOLDERS |
|
|
|
|
|
|
|
|
| ||||
BASIC |
|
$ |
0.53 |
|
$ |
0.49 |
|
$ |
1.56 |
|
$ |
1.42 |
|
DILUTED |
|
$ |
0.53 |
|
$ |
0.48 |
|
$ |
1.56 |
|
$ |
1.40 |
|
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING |
|
|
|
|
|
|
|
|
| ||||
BASIC |
|
137,036 |
|
139,621 |
|
137,404 |
|
142,348 |
| ||||
DILUTED |
|
137,467 |
|
145,358 |
|
140,199 |
|
148,051 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
DIVIDENDS DECLARED PER COMMON SHARE |
|
$ |
0.15 |
|
$ |
0.10 |
|
$ |
0.45 |
|
$ |
0.30 |
|
See accompanying notes to condensed consolidated financial statements.
EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
September 30, |
|
September 30, |
| ||||||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
Net income |
|
$ |
73,157 |
|
$ |
71,110 |
|
$ |
219,263 |
|
$ |
209,750 |
|
Other comprehensive (loss) income, net of tax: |
|
|
|
|
|
|
|
|
| ||||
Unrealized (loss) gain on investment securities available-for-sale: |
|
|
|
|
|
|
|
|
| ||||
Unrealized holding (losses) gains arising during period |
|
(2,876 |
) |
15,355 |
|
(22,905 |
) |
36,627 |
| ||||
Reclassification adjustment for net gains included in net income |
|
(629 |
) |
(54 |
) |
(6,964 |
) |
(375 |
) | ||||
Noncredit-related impairment loss on securities |
|
|
|
|
|
|
|
(2,938 |
) | ||||
Foreign currency translation adjustments |
|
|
|
(900 |
) |
|
|
(900 |
) | ||||
Unrealized gains on other investments |
|
5 |
|
5 |
|
22 |
|
24 |
| ||||
Reclassification adjustment for net gains included in net income |
|
|
|
|
|
|
|
(15 |
) | ||||
Other comprehensive (loss) income |
|
(3,500 |
) |
14,406 |
|
(29,847 |
) |
32,423 |
| ||||
COMPREHENSIVE INCOME |
|
$ |
69,657 |
|
$ |
85,516 |
|
$ |
189,416 |
|
$ |
242,173 |
|
See accompanying notes to condensed consolidated financial statements.
EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(In thousands, except share data)
(Unaudited)
|
|
|
|
Additional |
|
|
|
Additional |
|
|
|
|
|
Accumulated |
|
|
| ||||||||
|
|
|
|
Paid In |
|
|
|
Paid In |
|
|
|
|
|
Other |
|
|
| ||||||||
|
|
|
|
Capital |
|
|
|
Capital |
|
|
|
|
|
Comprehensive |
|
Total |
| ||||||||
|
|
Preferred |
|
Preferred |
|
Common |
|
Common |
|
Retained |
|
Treasury |
|
(Loss) Income, |
|
Stockholders |
| ||||||||
|
|
Stock |
|
Stock |
|
Stock |
|
Stock |
|
Earnings |
|
Stock |
|
Net of Tax |
|
Equity |
| ||||||||
BALANCE, JANAURY 1, 2012 |
|
$ |
|
|
$ |
83,027 |
|
$ |
157 |
|
$ |
1,443,883 |
|
$ |
934,617 |
|
$ |
(116,001 |
) |
$ |
(33,940 |
) |
$ |
2,311,743 |
|
Net income |
|
|
|
|
|
|
|
|
|
209,750 |
|
|
|
|
|
209,750 |
| ||||||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
32,423 |
|
32,423 |
| ||||||||
Stock compensation costs |
|
|
|
|
|
|
|
11,567 |
|
|
|
|
|
|
|
11,567 |
| ||||||||
Tax benefit from stock compensation plans, net |
|
|
|
|
|
|
|
461 |
|
|
|
|
|
|
|
461 |
| ||||||||
Issuance of 299,964 shares of common stock pursuant to various stock compensation plans and agreements |
|
|
|
|
|
|
|
3,136 |
|
|
|
|
|
|
|
3,136 |
| ||||||||
Issuance of 26,151 shares pursuant to Director retainer fee |
|
|
|
|
|
|
|
570 |
|
|
|
|
|
|
|
570 |
| ||||||||
Cancellation of 154,508 shares of common stock due to forfeitures of issued restricted stock |
|
|
|
|
|
|
|
2,653 |
|
|
|
(2,653 |
) |
|
|
|
| ||||||||
130,577 shares of restricted stock surrendered due to employee tax liability |
|
|
|
|
|
|
|
|
|
|
|
(2,867 |
) |
|
|
(2,867 |
) | ||||||||
Preferred stock dividends |
|
|
|
|
|
|
|
|
|
(5,142 |
) |
|
|
|
|
(5,142 |
) | ||||||||
Common stock dividends |
|
|
|
|
|
|
|
|
|
(43,482 |
) |
|
|
|
|
(43,482 |
) | ||||||||
Purchase of 9,068,105 shares of treasury stock pursuant to the Stock Repurchase Program |
|
|
|
|
|
|
|
|
|
|
|
(199,950 |
) |
|
|
(199,950 |
) | ||||||||
BALANCE, SEPTEMBER 30, 2012 |
|
$ |
|
|
$ |
83,027 |
|
$ |
157 |
|
$ |
1,462,270 |
|
$ |
1,095,743 |
|
$ |
(321,471 |
) |
$ |
(1,517 |
) |
$ |
2,318,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
BALANCE, JANAURY 1, 2013 |
|
$ |
|
|
$ |
83,027 |
|
$ |
157 |
|
$ |
1,464,739 |
|
$ |
1,151,828 |
|
$ |
(322,298 |
) |
$ |
4,669 |
|
$ |
2,382,122 |
|
Net income |
|
|
|
|
|
|
|
|
|
219,263 |
|
|
|
|
|
219,263 |
| ||||||||
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,847 |
) |
(29,847 |
) | ||||||||
Stock compensation costs |
|
|
|
|
|
|
|
9,263 |
|
|
|
|
|
|
|
9,263 |
| ||||||||
Tax benefit from stock compensation plans, net |
|
|
|
|
|
|
|
3,301 |
|
|
|
|
|
|
|
3,301 |
| ||||||||
Issuance of 285,921 shares of common stock pursuant to various stock compensation plans and agreements |
|
|
|
|
|
|
|
2,112 |
|
|
|
|
|
|
|
2,112 |
| ||||||||
Issuance of 19,998 shares pursuant to Director retainer fee |
|
|
|
|
|
|
|
630 |
|
|
|
|
|
|
|
630 |
| ||||||||
Cancellation of 58,929 shares of common stock due to forfeitures of issued restricted stock |
|
|
|
|
|
|
|
1,039 |
|
|
|
(1,039 |
) |
|
|
|
| ||||||||
368,932 shares of restricted stock surrendered due to employee tax liability |
|
|
|
|
|
|
|
|
|
|
|
(9,049 |
) |
|
|
(9,049 |
) | ||||||||
Preferred stock dividends |
|
|
|
|
|
|
|
|
|
(3,428 |
) |
|
|
|
|
(3,428 |
) | ||||||||
Common stock dividends |
|
|
|
|
|
|
|
|
|
(62,499 |
) |
|
|
|
|
(62,499 |
) | ||||||||
Conversion of 85,710 shares of Series A preferred stock into 5,594,080 shares of common stock |
|
|
|
(83,027 |
) |
6 |
|
83,021 |
|
|
|
|
|
|
|
|
| ||||||||
Purchase of 8,026,807 shares of treasury stock pursuant to the Stock Repurchase Program |
|
|
|
|
|
|
|
|
|
|
|
(199,992 |
) |
|
|
(199,992 |
) | ||||||||
BALANCE, SEPTEMBER 30, 2013 |
|
$ |
|
|
$ |
|
|
$ |
163 |
|
$ |
1,564,105 |
|
$ |
1,305,164 |
|
$ |
(532,378 |
) |
$ |
(25,178 |
) |
$ |
2,311,876 |
|
See accompanying notes to condensed consolidated financial statements.
EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
Nine Months Ended |
| ||||
|
|
September 30, |
| ||||
|
|
2013 |
|
2012 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
| ||
Net income |
|
$ |
219,263 |
|
$ |
209,750 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
Depreciation and amortization |
|
69,907 |
|
58,978 |
| ||
(Accretion) of discount and amortization of premiums, net |
|
(180,119 |
) |
(152,297 |
) | ||
Decrease in FDIC indemnification asset and receivable |
|
154,260 |
|
72,520 |
| ||
Stock compensation costs |
|
9,893 |
|
12,137 |
| ||
Deferred tax expense |
|
34,107 |
|
12,131 |
| ||
Provision for loan losses |
|
16,898 |
|
52,100 |
| ||
Impairment on other real estate owned |
|
2,102 |
|
13,342 |
| ||
Net gain on sales of investment securities, loans and other assets |
|
(23,354 |
) |
(22,654 |
) | ||
Prepayment penalty for Federal Home Loan Bank advances, net |
|
|
|
3,699 |
| ||
Originations and purchases of loans held for sale |
|
(99,258 |
) |
(58,237 |
) | ||
Proceeds from sales of loans held for sale |
|
6,272 |
|
|
| ||
Net proceeds from FDIC shared-loss agreements |
|
51,890 |
|
83,801 |
| ||
Net change in accrued interest receivable and other assets |
|
83,335 |
|
(71,753 |
) | ||
Net change in accrued expenses and other liabilities |
|
(47,735 |
) |
(15,983 |
) | ||
Other net operating activities |
|
(6,121 |
) |
(3,293 |
) | ||
Total adjustments |
|
72,077 |
|
(15,509 |
) | ||
Net cash provided by operating activities |
|
291,340 |
|
194,241 |
| ||
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
| ||
Net (increase) decrease in: |
|
|
|
|
| ||
Loans |
|
(1,549,830 |
) |
88,965 |
| ||
Short-term investments |
|
73,286 |
|
(285,167 |
) | ||
Federal funds sold |
|
|
|
(20,000 |
) | ||
Purchases of: |
|
|
|
|
| ||
Securities purchased under resale agreements |
|
(450,000 |
) |
(750,000 |
) | ||
Investment securities available-for-sale |
|
(1,113,667 |
) |
(1,250,317 |
) | ||
Loans receivable |
|
(577,811 |
) |
(371,352 |
) | ||
Premises and equipment |
|
(87,443 |
) |
(5,826 |
) | ||
Investments in affordable housing partnerships and other investments |
|
(25,860 |
) |
(45,500 |
) | ||
Proceeds from sale of: |
|
|
|
|
| ||
Investment securities available-for-sale |
|
386,108 |
|
1,130,024 |
| ||
Loans receivable |
|
184,679 |
|
61,979 |
| ||
Loans held for sale originated for investment |
|
|
|
338,022 |
| ||
Other real estate owned |
|
47,892 |
|
76,239 |
| ||
Premises and equipment |
|
1,818 |
|
12 |
| ||
Repayments, maturities and redemptions of investment securities available-for-sale |
|
376,593 |
|
999,518 |
| ||
Paydowns, maturities and termination of securities purchased under resale agreements |
|
600,000 |
|
436,434 |
| ||
Redemption of Federal Home Loan Bank stock |
|
31,849 |
|
18,943 |
| ||
Other net investing activities |
|
(210 |
) |
(360 |
) | ||
Net cash (used in) provided by investing activities |
|
(2,102,596 |
) |
421,614 |
| ||
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
| ||
Net increase (decrease) in: |
|
|
|
|
| ||
Deposits |
|
2,049,786 |
|
213,425 |
| ||
Short-term borrowings |
|
(20,000 |
) |
(25,208 |
) | ||
Proceeds from: |
|
|
|
|
| ||
Increase in long-term borrowing |
|
50,000 |
|
|
| ||
Issuance of common stock pursuant to various stock plans and agreements |
|
2,112 |
|
3,136 |
| ||
Payment for: |
|
|
|
|
| ||
Repayment of FHLB advances |
|
|
|
(57,615 |
) | ||
Modification of Federal Home Loan Bank advances |
|
|
|
(37,678 |
) | ||
Repayment of long-term debt |
|
|
|
(75,000 |
) | ||
Repurchase of shares of treasury stock pursuant to the Stock Repurchase Plan |
|
(199,992 |
) |
(199,950 |
) | ||
Cash dividends |
|
(65,625 |
) |
(48,472 |
) | ||
Other net financing activities |
|
(5,748 |
) |
(2,406 |
) | ||
Net cash provided by (used in) financing activities |
|
1,810,533 |
|
(229,768 |
) | ||
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
(900 |
) | ||
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
|
(723 |
) |
385,187 |
| ||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
|
1,323,106 |
|
1,431,185 |
| ||
CASH AND CASH EQUIVALENTS, END OF PERIOD |
|
$ |
1,322,383 |
|
$ |
1,816,372 |
|
SUPPLEMENTAL CASH FLOW INFORMATION: |
|
|
|
|
| ||
Cash paid during the period for: |
|
|
|
|
| ||
Interest |
|
$ |
84,643 |
|
$ |
104,829 |
|
Income tax payments, net of refunds |
|
118,408 |
|
188,739 |
| ||
Noncash investing and financing activities: |
|
|
|
|
| ||
Loans transferred to loans held for sale, net |
|
13,912 |
|
148,755 |
| ||
Transfers to other real estate owned |
|
33,685 |
|
62,755 |
| ||
Conversion of preferred stock to common stock |
|
83,027 |
|
|
| ||
Loans to facilitate sales of other real estate owned and short sales |
|
139 |
|
3,060 |
| ||
Loans to facilitate sales of loans |
|
|
|
1,018 |
|
See accompanying notes to condensed consolidated financial statements.
EAST WEST BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of East West Bancorp, Inc. (referred to herein on an unconsolidated basis as East West and on a consolidated basis as the Company) and its wholly-owned subsidiaries, East West Bank and subsidiaries (East West Bank or the Bank) and East West Insurance Services, Inc. Intercompany transactions and accounts have been eliminated in consolidation. East West also has seven wholly-owned subsidiaries that are statutory business trusts (the Trusts). In accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 810, the Trusts are not consolidated into the accounts of East West Bancorp, Inc.
The interim condensed consolidated financial statements, presented in accordance with accounting principles generally accepted in the United States of America (GAAP), are unaudited and reflect all adjustments that, in the opinion of management, are necessary for a fair statement of financial condition and results of operations for the interim periods. All adjustments are of a normal and recurring nature. Results for the three months and nine months ended September 30, 2013 are not necessarily indicative of results that may be expected for any other interim period or for the year as a whole. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted. Events subsequent to the condensed consolidated balance sheet date have been evaluated through the date the financial statements are issued for inclusion in the accompanying financial statements. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Companys Annual Report on Form 10-K for the year ended December 31, 2012.
Certain prior year balances have been reclassified to conform to current year presentation.
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES
Recent Accounting Standards
In October 2012, the FASB issued ASU 2012-06, Business Combinations (Topic 805): Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution. ASU 2012-06 clarifies the applicable guidance for subsequently measuring an indemnification asset recognized as a result of a government-assisted acquisition of a financial institution. The standard instructs that when a reporting entity recognizes an indemnification asset, it should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification. Any amortization of changes in value should be limited to the contractual term of the indemnification agreement. The amended guidance is effective for interim and annual periods beginning on or after December 15, 2012. The adoption of this guidance did not have a material effect on the Companys condensed consolidated financial statements, as the Company had applied this methodology prior to the issuance of this ASU.
In January 2013, the FASB issued ASU 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. ASU 2013-01 clarifies that the scope of ASU 2011-01 applies to derivatives, repurchase agreements, and securities lending transactions to the extent that they are (1) offset in the financial statements or (2) subject to an enforceable master netting arrangement or similar agreement. The amended guidance is effective for interim and annual periods beginning on or after January 1, 2013. The adoption of this guidance did not have a material effect on the Companys condensed consolidated financial statements. The Company did include additional disclosure in the notes to the condensed consolidated financial statements to comply with the requirements of the ASU.
In February 2013, the FASB issued ASU 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. ASU 2013-02 enhances the reporting of reclassifications out of accumulated other comprehensive income by requiring entities to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income. For other amounts that are not required under GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under GAAP that provide additional detail about those amounts. The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. The amendments are effective for interim and annual periods beginning on or after December 15, 2012. The adoption of this guidance did not have a material effect on the Companys condensed consolidated financial statements. The Company did include additional disclosure in the notes to the condensed consolidated financial statements to comply with the requirements of the ASU.
In July 2013, the FASB issued ASU 2013-10, Derivatives and Hedging (Topic 815): Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes. ASU 2013-10 permits the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) to be used as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815, in addition to interest rates on direct Treasury obligations of the U.S. government and the London Interbank Offered Rate (LIBOR). ASU 2013-10 is effective prospectively for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013. The Company does not expect the adoption of this guidance to have a material effect on the Companys condensed consolidated financial statements.
NOTE 3 FAIR VALUE
Fair value is defined as the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various methods including market and income approaches. Based on these approaches, the Company utilizes certain assumptions that market participants would use in pricing the asset or liability. These inputs can be readily observable, market corroborated, or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy noted below. The hierarchy is based on the quality and reliability of the information used to determine fair values. The hierarchy gives the highest priority to quoted prices available in active markets and the lowest priority to data lacking transparency. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:
· Level 1 Quoted prices for identical instruments that are highly liquid, observable and actively traded in over-the-counter markets. Level 1 financial instruments typically include U.S. Treasury securities.
· Level 2 Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable and can be corroborated by market data. Level 2 financial instruments typically include U.S. Government debt and agency mortgage-backed securities, municipal securities, corporate debt securities, single issuer trust preferred securities, equity swap agreements, foreign exchange options and interest rate swaps.
· Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value is not solely based on observable market inputs and requires management judgment or estimation. This category typically includes pooled trust preferred securities, impaired loans, other real estate owned (OREO) and derivatives payable.
The Company records investment securities available-for-sale, equity swap agreements, derivative liabilities, foreign exchange options, interest rate swaps and short-term foreign exchange contracts at fair value on a recurring basis. Certain other assets such as impaired loans, other real estate owned, loans held for sale, goodwill, premiums on acquired deposits and other investments are recorded at fair value on a nonrecurring basis. Nonrecurring fair value measurements typically involve assets that are periodically evaluated for impairment and for which any impairment is recorded in the period in which the remeasurement is performed.
In determining the appropriate hierarchy levels, the Company performs a detailed analysis of assets and liabilities that are subject to fair value disclosure. The following tables present both financial and nonfinancial assets and liabilities that are measured at fair value on a recurring and nonrecurring basis. These assets and liabilities are reported on the condensed consolidated balance sheets at their fair values as of September 30, 2013 and December 31, 2012. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to their fair value measurement. There were no transfers for assets measured on a recurring basis in and out of Levels 1 and 3 or Levels 2 and 3 during the first nine months of 2013 and 2012.
|
|
Assets (Liabilities) Measured at Fair Value on a Recurring Basis |
| ||||||||||
|
|
as of September 30, 2013 |
| ||||||||||
|
|
|
|
Quoted Prices in |
|
Significant |
|
|
| ||||
|
|
Fair Value |
|
Active Markets |
|
Other |
|
Significant |
| ||||
|
|
Measurements |
|
for Identical |
|
Observable |
|
Unobservable |
| ||||
|
|
September 30, |
|
Assets |
|
Inputs |
|
Inputs |
| ||||
|
|
2013 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
| ||||
|
|
(In thousands) |
| ||||||||||
Investment securities available-for-sale: |
|
|
|
|
|
|
|
|
| ||||
U.S. Treasury securities |
|
$ |
525,707 |
|
$ |
525,707 |
|
$ |
|
|
$ |
|
|
U.S. Government agency and U.S. Government sponsored enterprise debt securities |
|
403,061 |
|
|
|
403,061 |
|
|
| ||||
U.S. Government agency and U.S. Government sponsored enterprise mortgage-backed securities: |
|
|
|
|
|
|
|
|
| ||||
Commercial mortgage-backed securities |
|
179,258 |
|
|
|
179,258 |
|
|
| ||||
Residential mortgage-backed securities |
|
977,950 |
|
|
|
977,950 |
|
|
| ||||
Municipal securities |
|
250,006 |
|
|
|
250,006 |
|
|
| ||||
Other residential mortgage-backed securities: |
|
|
|
|
|
|
|
|
| ||||
Investment grade |
|
14,692 |
|
|
|
14,692 |
|
|
| ||||
Other commercial mortgage-backed securities: |
|
|
|
|
|
|
|
|
| ||||
Investment grade |
|
51,293 |
|
|
|
51,293 |
|
|
| ||||
Corporate debt securities: |
|
|
|
|
|
|
|
|
| ||||
Investment grade |
|
465,928 |
|
|
|
465,928 |
|
|
| ||||
Non-investment grade |
|
14,942 |
|
|
|
8,810 |
|
6,132 |
| ||||
Other securities |
|
9,924 |
|
|
|
9,924 |
|
|
| ||||
Total investment securities available-for-sale |
|
$ |
2,892,761 |
|
$ |
525,707 |
|
$ |
2,360,922 |
|
$ |
6,132 |
|
Foreign exchange options |
|
$ |
5,955 |
|
$ |
|
|
$ |
5,955 |
|
$ |
|
|
Interest rate swaps |
|
25,931 |
|
|
|
25,931 |
|
|
| ||||
Short-term foreign exchange contracts |
|
4,068 |
|
|
|
4,068 |
|
|
| ||||
Derivative liabilities |
|
(38,552 |
) |
|
|
(35,041 |
) |
(3,511 |
) |
|
|
Assets (Liabilities) Measured at Fair Value on a Recurring Basis |
| ||||||||||
|
|
as of December 31, 2012 |
| ||||||||||
|
|
|
|
Quoted Prices in |
|
Significant |
|
|
| ||||
|
|
Fair Value |
|
Active Markets |
|
Other |
|
Significant |
| ||||
|
|
Measurements |
|
for Identical |
|
Observable |
|
Unobservable |
| ||||
|
|
December 31, |
|
Assets |
|
Inputs |
|
Inputs |
| ||||
|
|
2012 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
| ||||
|
|
(In thousands) |
| ||||||||||
Investment securities available-for-sale: |
|
|
|
|
|
|
|
|
| ||||
U.S. Treasury securities |
|
$ |
460,677 |
|
$ |
460,677 |
|
$ |
|
|
$ |
|
|
U.S. Government agency and U.S. Government sponsored enterprise debt securities |
|
197,855 |
|
|
|
197,855 |
|
|
| ||||
U.S. Government agency and U.S. Government sponsored enterprise mortgage-backed securities: |
|
|
|
|
|
|
|
|
| ||||
Commercial mortgage-backed securities |
|
180,665 |
|
|
|
180,665 |
|
|
| ||||
Residential mortgage-backed securities |
|
1,144,085 |
|
|
|
1,144,085 |
|
|
| ||||
Municipal securities |
|
167,093 |
|
|
|
167,093 |
|
|
| ||||
Other commercial mortgage-backed securities: |
|
|
|
|
|
|
|
|
| ||||
Investment grade |
|
17,084 |
|
|
|
17,084 |
|
|
| ||||
Corporate debt securities: |
|
|
|
|
|
|
|
|
| ||||
Investment grade |
|
411,983 |
|
|
|
411,983 |
|
|
| ||||
Non-investment grade |
|
17,417 |
|
|
|
12,617 |
|
4,800 |
| ||||
Other securities |
|
10,170 |
|
|
|
10,170 |
|
|
| ||||
Total investment securities available-for-sale |
|
$ |
2,607,029 |
|
$ |
460,677 |
|
$ |
2,141,552 |
|
$ |
4,800 |
|
Foreign exchange options |
|
$ |
5,011 |
|
$ |
|
|
$ |
5,011 |
|
$ |
|
|
Interest rate swaps |
|
36,943 |
|
|
|
36,943 |
|
|
| ||||
Short-term foreign exchange contracts |
|
896 |
|
|
|
896 |
|
|
| ||||
Derivative liabilities |
|
(42,060 |
) |
|
|
(39,008 |
) |
(3,052 |
) |
Assets measured at fair value on a nonrecurring basis using significant unobservable inputs include certain impaired loans and OREO. The inputs and assumptions for nonrecurring Level 3 fair value measurements for impaired loans and OREO include adjustments to external and internal appraisals for change in the market, assumptions by appraiser embedded into appraisals, probability weighting of brokered price opinions, and managements adjustments for other relevant factors and market trends.
|
|
Assets Measured at Fair Value on a Non-Recurring Basis |
| |||||||||||||
|
|
as of and for the Three Months Ended September 30, 2013 |
| |||||||||||||
|
|
|
|
Quoted Prices in |
|
Significant |
|
|
|
Total Gains |
| |||||
|
|
Fair Value |
|
Active Markets |
|
Other |
|
Significant |
|
(Losses) for the |
| |||||
|
|
Measurements |
|
for Identical |
|
Observable |
|
Unobservable |
|
Three Months Ended |
| |||||
|
|
September 30, |
|
Assets |
|
Inputs |
|
Inputs |
|
September 30, |
| |||||
|
|
2013 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
2013 |
| |||||
|
|
(In thousands) |
| |||||||||||||
Non-covered impaired loans: |
|
|
|
|
|
|
|
|
|
|
| |||||
Total residential |
|
$ |
10,980 |
|
$ |
|
|
$ |
|
|
$ |
10,980 |
|
$ |
(96 |
) |
Total commercial real estate |
|
33,486 |
|
|
|
|
|
33,486 |
|
1,412 |
| |||||
Total commercial and industrial |
|
14,370 |
|
|
|
|
|
14,370 |
|
(7,172 |
) | |||||
Total consumer |
|
|
|
|
|
|
|
|
|
|
| |||||
Total non-covered impaired loans |
|
$ |
58,836 |
|
$ |
|
|
$ |
|
|
$ |
58,836 |
|
$ |
(5,856 |
) |
Non-covered OREO |
|
$ |
300 |
|
$ |
|
|
$ |
|
|
$ |
300 |
|
$ |
(17 |
) |
Covered OREO (1) |
|
$ |
2,250 |
|
$ |
|
|
$ |
|
|
$ |
2,250 |
|
$ |
(219 |
) |
|
|
Assets Measured at Fair Value on a Non-Recurring Basis |
| |||||||||||||
|
|
as of and for the Three Months Ended September 30, 2012 |
| |||||||||||||
|
|
|
|
Quoted Prices in |
|
Significant |
|
|
|
Total Gains |
| |||||
|
|
Fair Value |
|
Active Markets |
|
Other |
|
Significant |
|
(Losses) for the |
| |||||
|
|
Measurements |
|
for Identical |
|
Observable |
|
Unobservable |
|
Three Months Ended |
| |||||
|
|
September 30, |
|
Assets |
|
Inputs |
|
Inputs |
|
September 30, |
| |||||
|
|
2012 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
2012 |
| |||||
|
|
(In thousands) |
| |||||||||||||
Non-covered impaired loans: |
|
|
|
|
|
|
|
|
|
|
| |||||
Total residential |
|
$ |
24,978 |
|
$ |
|
|
$ |
|
|
$ |
24,978 |
|
$ |
(4,509 |
) |
Total commercial real estate |
|
13,671 |
|
|
|
|
|
13,671 |
|
(6,414 |
) | |||||
Total commercial and industrial |
|
9,557 |
|
|
|
|
|
9,557 |
|
(1,379 |
) | |||||
Total consumer |
|
|
|
|
|
|
|
|
|
|
| |||||
Total non-covered impaired loans |
|
$ |
48,206 |
|
$ |
|
|
$ |
|
|
$ |
48,206 |
|
$ |
(12,302 |
) |
Non-covered OREO |
|
$ |
5,528 |
|
$ |
|
|
$ |
|
|
$ |
5,528 |
|
$ |
(1,470 |
) |
Covered OREO (1) |
|
$ |
8,688 |
|
$ |
|
|
$ |
|
|
$ |
8,688 |
|
$ |
(1,597 |
) |
(1) Covered OREO results from the WFIB and UCB FDIC-assisted acquisitions for which the Company entered into shared-loss agreements with the FDIC whereby the FDIC will reimburse the Company for 80% of eligible losses. As such, the Companys liability for losses is 20% of the $219 thousand in losses, or $44 thousand, and 20% of the $1.6 million in losses, or $319 thousand, for the three months ended September 30, 2013 and 2012, respectively.
|
|
Assets Measured at Fair Value on a Non-Recurring Basis |
| |||||||||||||
|
|
as of and for the Nine Months Ended September 30, 2013 |
| |||||||||||||
|
|
|
|
Quoted Prices in |
|
Significant |
|
|
|
Total Gains |
| |||||
|
|
Fair Value |
|
Active Markets |
|
Other |
|
Significant |
|
(Losses) for the |
| |||||
|
|
Measurements |
|
for Identical |
|
Observable |
|
Unobservable |
|
Nine Months Ended |
| |||||
|
|
September 30, |
|
Assets |
|
Inputs |
|
Inputs |
|
September 30, |
| |||||
|
|
2013 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
2013 |
| |||||
|
|
(In thousands) |
| |||||||||||||
Non-covered impaired loans: |
|
|
|
|
|
|
|
|
|
|
| |||||
Total residential |
|
$ |
9,257 |
|
$ |
|
|
$ |
|
|
$ |
9,257 |
|
$ |
(677 |
) |
Total commercial real estate |
|
23,201 |
|
|
|
|
|
23,201 |
|
(1,706 |
) | |||||
Total commercial and industrial |
|
19,938 |
|
|
|
|
|
19,938 |
|
(8,599 |
) | |||||
Total consumer |
|
286 |
|
|
|
|
|
286 |
|
(112 |
) | |||||
Total non-covered impaired loans |
|
$ |
52,682 |
|
$ |
|
|
$ |
|
|
$ |
52,682 |
|
$ |
(11,094 |
) |
Non-covered OREO |
|
$ |
12,998 |
|
$ |
|
|
$ |
|
|
$ |
12,998 |
|
$ |
(1,420 |
) |
Covered OREO (1) |
|
$ |
12,780 |
|
$ |
|
|
$ |
|
|
$ |
12,780 |
|
$ |
(1,344 |
) |
|
|
Assets Measured at Fair Value on a Non-Recurring Basis |
| |||||||||||||
|
|
as of and for the Nine Months Ended September 30, 2012 |
| |||||||||||||
|
|
|
|
Quoted Prices in |
|
Significant |
|
|
|
Total Gains |
| |||||
|
|
Fair Value |
|
Active Markets |
|
Other |
|
Significant |
|
(Losses) for the |
| |||||
|
|
Measurements |
|
for Identical |
|
Observable |
|
Unobservable |
|
Nine Months Ended |
| |||||
|
|
September 30, |
|
Assets |
|
Inputs |
|
Inputs |
|
September 30, |
| |||||
|
|
2012 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
2012 |
| |||||
|
|
(In thousands) |
| |||||||||||||
Non-covered impaired loans: |
|
|
|
|
|
|
|
|
|
|
| |||||
Total residential |
|
$ |
31,090 |
|
$ |
|
|
$ |
|
|
$ |
31,090 |
|
$ |
(6,660 |
) |
Total commercial real estate |
|
24,730 |
|
|
|
|
|
24,730 |
|
(8,527 |
) | |||||
Total commercial and industrial |
|
9,835 |
|
|
|
|
|
9,835 |
|
(9,827 |
) | |||||
Total consumer |
|
379 |
|
|
|
|
|
379 |
|
(321 |
) | |||||
Total non-covered impaired loans |
|
$ |
66,034 |
|
$ |
|
|
$ |
|
|
$ |
66,034 |
|
$ |
(25,335 |
) |
Non-covered OREO |
|
$ |
7,286 |
|
$ |
|
|
$ |
|
|
$ |
7,286 |
|
$ |
(4,145 |
) |
Covered OREO (1) |
|
$ |
15,919 |
|
$ |
|
|
$ |
|
|
$ |
15,919 |
|
$ |
(9,286 |
) |
Loans held for sale |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
(4,730 |
) |
(1) Covered OREO results from the WFIB and UCB FDIC-assisted acquisitions for which the Company entered into shared-loss agreements with the FDIC whereby the FDIC will reimburse the Company for 80% of eligible losses. As such, the Companys liability for losses is 20% of the $1.3 million in losses, or $269 thousand, and 20% of the $9.3 million in losses, or $1.9 million, for the nine months ended September 30, 2013 and 2012, respectively.
At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3. The following tables provide a reconciliation of the beginning and ending balances for major asset and liability categories measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months and nine months ended September 30, 2013 and 2012:
|
|
Investment Securities |
|
|
| ||
|
|
Corporate Debt |
|
|
| ||
|
|
Non-Investment Grade |
|
Derivatives Payable |
| ||
|
|
(In thousands) |
| ||||
Opening balance, July 1, 2013 |
|
$ |
5,517 |
|
$ |
(3,257 |
) |
Total gains or (losses) for the period: (1) |
|
|
|
|
| ||
Included in earnings |
|
|
|
(254 |
) | ||
Included in other comprehensive income (unrealized) (2) |
|
619 |
|
|
| ||
Purchases, issues, sales, settlements (3) |
|
|
|
|
| ||
Purchases |
|
|
|
|
| ||
Issues |
|
|
|
|
| ||
Sales |
|
|
|
|
| ||
Settlements |
|
(4 |
) |
|
| ||
Transfer from investment grade to non-investment grade |
|
|
|
|
| ||
Transfers in and/or out of Level 3 |
|
|
|
|
| ||
Closing balance, September 30, 2013 |
|
$ |
6,132 |
|
$ |
(3,511 |
) |
Changes in unrealized losses included in earnings relating to assets and liabilities held at the end of September 30, 2013 |
|
$ |
|
|
$ |
254 |
|
|
|
Investment Securities |
|
|
| ||
|
|
Corporate Debt |
|
|
| ||
|
|
Non-Investment Grade |
|
Derivatives Payable |
| ||
|
|
(In thousands) |
| ||||
Opening balance, July 1, 2012 |
|
$ |
2,422 |
|
$ |
(2,814 |
) |
Total gains or (losses) for the period: (1) |
|
|
|
|
| ||
Included in earnings |
|
|
|
(120 |
) | ||
Included in other comprehensive income (unrealized) (2) |
|
1,428 |
|
|
| ||
Purchases, issues, sales, settlements (3) |
|
|
|
|
| ||
Purchases |
|
|
|
|
| ||
Issues |
|
|
|
|
| ||
Sales |
|
|
|
|
| ||
Settlements |
|
(1 |
) |
|
| ||
Transfer from investment grade to non-investment grade |
|
|
|
|
| ||
Transfers in and/or out of Level 3 |
|
|
|
|
| ||
Closing balance, September 30, 2012 |
|
$ |
3,849 |
|
$ |
(2,934 |
) |
Changes in unrealized losses included in earnings relating to assets and liabilities held at the end of September 30, 2012 |
|
$ |
|
|
$ |
120 |
|
(1) Total gains or losses represent the total realized and unrealized gains and losses recorded for Level 3 assets and liabilities. Realized gains or losses are reported in the condensed consolidated statements of income.
(2) Unrealized gains or losses on investment securities are reported in accumulated other comprehensive income (loss), net of tax, in the condensed consolidated statements of comprehensive income.
(3) Purchases, issuances, sales, and settlements represent Level 3 assets and liabilities that were either purchased, issued, sold, or settled during the period. The amounts are recorded at their end of period fair values.
|
|
Investment Securities |
|
|
| ||
|
|
Corporate Debt |
|
|
| ||
|
|
Non-Investment Grade |
|
Derivatives Payable |
| ||
|
|
(In thousands) |
| ||||
Beginning balance, January 1, 2013 |
|
$ |
4,800 |
|
$ |
(3,052 |
) |
Total gains or (losses) for the period: (1) |
|
|
|
|
| ||
Included in earnings |
|
|
|
(459 |
) | ||
Included in other comprehensive income (unrealized) (2) |
|
1,406 |
|
|
| ||
Purchases, issues, sales, settlements (3) |
|
|
|
|
| ||
Purchases |
|
|
|
|
| ||
Issues |
|
|
|
|
| ||
Sales |
|
|
|
|
| ||
Settlements |
|
(74 |
) |
|
| ||
Transfer from investment grade to non-investment grade |
|
|
|
|
| ||
Transfers in and/or out of Level 3 |
|
|
|
|
| ||
Closing balance, September 30, 2013 |
|
$ |
6,132 |
|
$ |
(3,511 |
) |
Changes in unrealized losses included in earnings relating to assets and liabilities held at the end of September 30, 2013 |
|
$ |
|
|
$ |
459 |
|
|
|
Investment Securities |
|
|
| ||
|
|
Corporate Debt |
|
|
| ||
|
|
Non-Investment Grade |
|
Derivatives Payable |
| ||
|
|
(In thousands) |
| ||||
Beginning balance, January 1, 2012 |
|
$ |
2,235 |
|
$ |
(2,634 |
) |
Total gains or (losses) for the period: (1) |
|
|
|
|
| ||
Included in earnings |
|
(99 |
) |
(300 |
) | ||
Included in other comprehensive income (unrealized) (2) |
|
1,758 |
|
|
| ||
Purchases, issues, sales, settlements (3) |
|
|
|
|
| ||
Purchases |
|
|
|
|
| ||
Issues |
|
|
|
|
| ||
Sales |
|
|
|
|
| ||
Settlements |
|
(45 |
) |
|
| ||
Transfer from investment grade to non-investment grade |
|
|
|
|
| ||
Transfers in and/or out of Level 3 |
|
|
|
|
| ||
Closing balance, September 30, 2012 |
|
$ |
3,849 |
|
$ |
(2,934 |
) |
Changes in unrealized losses included in earnings relating to assets and liabilities held at the end of September 30, 2012 |
|
$ |
99 |
|
$ |
300 |