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EAST WEST BANCORP INC - Quarter Report: 2013 September (Form 10-Q)

Table of Contents

 

 

 

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

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

135 N. Los Robles Ave, 7th Floor, Pasadena, California 91101

(Address of principal executive offices) (Zip Code)

 

(626) 768-6000

(Registrant’s 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

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

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 issuer’s common stock on the latest practicable date: 137,767,583 shares of common stock as of October 31, 2013.

 

 

 



Table of Contents

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION

5

 

 

 

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

5

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

10

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

64

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

90

 

 

 

 

 

Item 4.

Controls and Procedures

90

 

 

PART II - OTHER INFORMATION

90

 

 

 

 

 

Item 1.

Legal Proceedings

90

 

 

 

 

 

Item 1A.

Risk Factors

90

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

91

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

91

 

 

 

 

 

Item 4.

Mine Safety Disclosures

91

 

 

 

 

 

Item 5.

Other Information

91

 

 

 

 

 

Item 6.

Exhibits

91

 

 

 

 

SIGNATURE

92

 

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Table of Contents

 

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 People’s 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

 

3



Table of Contents

 

·                                          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 Company’s 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.

 

4



Table of Contents

 

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

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES (Note 12)

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

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.

 

5



Table of Contents

 

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,

 

September 30,

 

 

 

2013

 

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.

 

6



Table of Contents

 

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.

 

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Table of Contents

 

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.

 

8



Table of Contents

 

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.

 

9



Table of Contents

 

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 Company’s 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 Company’s 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 Company’s 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.

 

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Table of Contents

 

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 Company’s 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 Company’s 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.

 

11



Table of Contents

 

·                                          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.

 

12



Table of Contents

 

 

 

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

)

 

13



Table of Contents

 

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 management’s 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 Company’s 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.

 

14



Table of Contents

 

 

 

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 Company’s 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.

 

15



Table of Contents

 

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
Available-for-Sale

 

 

 

 

 

Corporate Debt
Securities

 

 

 

 

 

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
Available-for-Sale

 

 

 

 

 

Corporate Debt
Securities

 

 

 

 

 

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.

 

16



Table of Contents

 

 

 

Investment Securities
Available-for-Sale

 

 

 

 

 

Corporate Debt
Securities

 

 

 

 

 

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
Available-for-Sale

 

 

 

 

 

Corporate Debt
Securities

 

 

 

 

 

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