Income
Statement Review
Net
Income
Net
income was $34.0 million, or $0.67, per diluted share for the third quarter
of
2007, a $3.3 million, or 10.9%, increase compared with net income of $30.7
million, or $0.59, per diluted share for the same quarter a year ago. Return
on
average assets was 1.46% and return on average stockholders’ equity was 14.45%
for the third quarter of 2007 compared with a return on average assets of 1.60%
and a return on average stockholders’ equity of 13.76% for the three months
ended September 30, 2006.
Financial
Performance
|
|
Third
Quarter 2007
|
|
Third
Quarter 2006
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
34.0
million
|
|
$
|
30.7
million
|
|
Basic
earnings per share
|
|
$
|
0.68
|
|
$
|
0.60
|
|
Diluted
earnings per share
|
|
$
|
0.67
|
|
$
|
0.59
|
|
Return
on average assets
|
|
|
1.46
|
%
|
|
1.60
|
%
|
Return
on average stockholders’ equity
|
|
|
14.45
|
%
|
|
13.76
|
%
|
Efficiency
ratio
|
|
|
37.46
|
%
|
|
38.62
|
%
|
Net
Interest Income Before Provision for Loan Losses
The
comparability of financial information is affected by our acquisitions.
Operating results included the operations of acquired entities from the date
of
acquisition.
Net
interest income before provision for loan losses increased $9.1 million, or
12.9%, to $79.8 million during the third quarter of 2007 from $70.7 million
during the same quarter a year ago. The increase was due primarily to the strong
growth in loans and securities.
The
net
interest margin, on a fully taxable-equivalent basis, was 3.69% for the third
quarter of 2007. The net interest margin decreased 9 basis points from 3.78%
in
the second quarter of 2007 and decreased 37 basis points from 4.06% in the
third
quarter of 2006. The decrease in the net interest margin from the same quarter
a
year ago was primarily a result of the repricing of time deposits to reflect
higher market interest rates, and increased reliance on more expensive wholesale
deposits and borrowings.
For
the
third quarter of 2007, the yield on average interest-earning assets was 7.34%
on
a fully taxable-equivalent basis, and the cost of funds on average
interest-bearing liabilities equaled 4.24%. In comparison, for the third quarter
of 2006, the yield on average interest-earning assets was 7.42% and cost of
funds on average interest-bearing liabilities equaled 4.01%. The interest
spread, defined as the difference between the yield on average interest-earning
assets and the cost of funds on average interest-bearing liabilities, decreased
to 3.10% for the quarter ended September 30, 2007 from 3.41% for the same
quarter a year ago primarily due to the reasons discussed above.
Average
daily balances, together with the total dollar amounts, on a taxable-equivalent
basis, of interest income and interest expense, and the weighted-average
interest rate and net interest margin for the periods indicated are as
follows:
Interest-Earning
Assets and Interest-Bearing
Liabilities
|
Three
months ended September 30,
|
|
2007
|
|
2006
|
|
|
|
|
|
Interest
|
|
Average
|
|
|
|
Interest
|
|
Average
|
|
Taxable-equivalent
basis
|
|
Average
|
|
Income/
|
|
Yield/
|
|
Average
|
|
Income/
|
|
Yield/
|
|
(Dollars
in thousands)
|
|
Balance
|
|
Expense
|
|
Rate
(1)(2)
|
|
Balance
|
|
Expense
|
|
Rate
(1)(2)
|
|
Interest
Earning Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
loans
|
|
$
|
1,320,611
|
|
$
|
27,110
|
|
|
8.14
|
%
|
$
|
1,126,348
|
|
$
|
23,755
|
|
|
8.37
|
%
|
Residential
mortgage
|
|
|
622,793
|
|
|
9,769
|
|
|
6.27
|
|
|
499,690
|
|
|
7,454
|
|
|
5.97
|
|
Commercial
mortgage
|
|
|
3,560,243
|
|
|
68,869
|
|
|
7.67
|
|
|
3,165,728
|
|
|
62,608
|
|
|
7.85
|
|
Real
estate construction loans
|
|
|
768,117
|
|
|
17,801
|
|
|
9.19
|
|
|
656,995
|
|
|
16,242
|
|
|
9.81
|
|
Other
loans and leases
|
|
|
26,688
|
|
|
376
|
|
|
5.59
|
|
|
30,195
|
|
|
262
|
|
|
3.44
|
|
Total
loans and leases (1)
|
|
|
6,298,452
|
|
|
123,925
|
|
|
7.81
|
|
|
5,478,956
|
|
|
110,321
|
|
|
7.99
|
|
Taxable
securities
|
|
|
1,769,245
|
|
|
25,127
|
|
|
5.63
|
|
|
1,345,854
|
|
|
17,779
|
|
|
5.24
|
|
Tax-exempt
securities (3)
|
|
|
55,217
|
|
|
921
|
|
|
6.62
|
|
|
83,368
|
|
|
1,463
|
|
|
6.96
|
|
FHLB
& FRB Stock
|
|
|
50,297
|
|
|
639
|
|
|
5.04
|
|
|
34,974
|
|
|
383
|
|
|
4.34
|
|
Interest
bearing deposits
|
|
|
71,843
|
|
|
1,248
|
|
|
6.89
|
|
|
10,837
|
|
|
105
|
|
|
3.84
|
|
Federal
funds sold & securities purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
under
agreements to resell
|
|
|
371,413
|
|
|
7,615
|
|
|
8.13
|
|
|
2,293
|
|
|
30
|
|
|
5.19
|
|
Total
interest-earning assets
|
|
|
8,616,467
|
|
|
159,475
|
|
|
7.34
|
|
|
6,956,282
|
|
|
130,081
|
|
|
7.42
|
|
Non-interest
earning assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
|
84,176
|
|
|
|
|
|
|
|
|
100,869
|
|
|
|
|
|
|
|
Other
non-earning assets
|
|
|
639,999
|
|
|
|
|
|
|
|
|
601,042
|
|
|
|
|
|
|
|
Total
non-interest earning assets
|
|
|
724,175
|
|
|
|
|
|
|
|
|
701,911
|
|
|
|
|
|
|
|
Less:
Allowance for loan losses
|
|
|
(65,902
|
)
|
|
|
|
|
|
|
|
(65,743
|
)
|
|
|
|
|
|
|
Deferred
loan fees
|
|
|
(11,584
|
)
|
|
|
|
|
|
|
|
(13,385
|
)
|
|
|
|
|
|
|
Total
assets
|
|
$
|
9,263,156
|
|
|
|
|
|
|
|
$
|
7,579,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing demand accounts
|
|
$
|
233,116
|
|
$
|
755
|
|
|
1.28
|
|
$
|
228,854
|
|
$
|
726
|
|
|
1.26
|
|
Money
market accounts
|
|
|
699,679
|
|
|
5,610
|
|
|
3.18
|
|
|
606,914
|
|
|
4,352
|
|
|
2.84
|
|
Savings
accounts
|
|
|
342,971
|
|
|
873
|
|
|
1.01
|
|
|
375,043
|
|
|
904
|
|
|
0.96
|
|
Time
deposits
|
|
|
3,935,125
|
|
|
47,305
|
|
|
4.77
|
|
|
3,409,894
|
|
|
37,377
|
|
|
4.35
|
|
Total
interest-bearing deposits
|
|
|
5,210,891
|
|
|
54,543
|
|
|
4.15
|
|
|
4,620,705
|
|
|
43,359
|
|
|
3.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
funds purchased
|
|
|
22,863
|
|
|
279
|
|
|
4.84
|
|
|
39,359
|
|
|
531
|
|
|
5.35
|
|
Securities
sold under agreement to repurchase
|
|
|
1,041,577
|
|
|
9,865
|
|
|
3.76
|
|
|
415,652
|
|
|
4,658
|
|
|
4.45
|
|
Other
borrowings
|
|
|
978,759
|
|
|
11,475
|
|
|
4.65
|
|
|
695,321
|
|
|
9,162
|
|
|
5.23
|
|
Long-term
debt
|
|
|
171,136
|
|
|
3,182
|
|
|
7.38
|
|
|
55,101
|
|
|
1,207
|
|
|
8.69
|
|
Total
interest-bearing liabilities
|
|
|
7,425,226
|
|
|
79,344
|
|
|
4.24
|
|
|
5,826,138
|
|
|
58,917
|
|
|
4.01
|
|
Non-interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
deposits
|
|
|
774,513
|
|
|
|
|
|
|
|
|
767,217
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
129,855
|
|
|
|
|
|
|
|
|
101,888
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
933,562
|
|
|
|
|
|
|
|
|
883,822
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
9,263,156
|
|
|
|
|
|
|
|
$
|
7,579,065
|
|
|
|
|
|
|
|
Net
interest spread (4)
|
|
|
|
|
|
|
|
|
3.10
|
%
|
|
|
|
|
|
|
|
3.41
|
%
|
Net
interest income (4)
|
|
|
|
|
$
|
80,131
|
|
|
|
|
|
|
|
$
|
71,164
|
|
|
|
|
Net
interest margin (4)
|
|
|
|
|
|
|
|
|
3.69
|
%
|
|
|
|
|
|
|
|
4.06
|
%
|
(1)
|
Yields
and amounts of interest earned include loan fees. Non-accrual loans
are
included in the average balance.
|
(2)
|
Calculated
by dividing net interest income by average outstanding interest-earning
assets.
|
(3)
|
The
average yield has been adjusted to a fully taxable-equivalent basis
for
certain securities of states and political subdivisions and other
securities held using a statutory Federal income tax rate of 35%.
|
(4)
|
Net
interest income, net interest spread, and net interest margin on
interest-earning assets have been adjusted to a fully taxable-equivalent
basis using a statutory Federal income tax rate of 35%.
|
The
following table summarizes the changes in interest income and interest expense
attributable to changes in volume and changes in interest rates for the periods
indicated:
Taxable-Equivalent
Net Interest Income — Changes Due to Rate and
Volume(1)
|
|
|
Three
months ended September 30,
|
|
|
|
2007-2006
|
|
|
|
Increase
(Decrease) in
|
|
|
|
Net
Interest Income Due to:
|
|
(Dollars
in thousands)
|
|
Changes
in Volume
|
|
Changes
in Rate
|
|
Total
Change
|
|
|
|
|
|
|
|
|
|
Interest-Earning
Assets:
|
|
|
|
|
|
|
|
|
|
|
Loans
and leases
|
|
|
16,138
|
|
|
(2,534
|
)
|
|
13,604
|
|
Taxable
securities
|
|
|
5,932
|
|
|
1,416
|
|
|
7,348
|
|
Tax-exempt
securities (2)
|
|
|
(473
|
)
|
|
(69
|
)
|
|
(542
|
)
|
FHLB
and FRB stocks
|
|
|
187
|
|
|
69
|
|
|
256
|
|
Deposits
with other banks
|
|
|
1,002
|
|
|
141
|
|
|
1,143
|
|
Federal
funds sold and securities purchased
|
|
|
|
|
|
|
|
|
|
|
under
agreements to resell
|
|
|
7,558
|
|
|
27
|
|
|
7,585
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
increase in interest income
|
|
|
30,344
|
|
|
(950
|
)
|
|
29,394
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing demand accounts
|
|
|
14
|
|
|
15
|
|
|
29
|
|
Money
market accounts
|
|
|
710
|
|
|
548
|
|
|
1,258
|
|
Savings
accounts
|
|
|
(79
|
)
|
|
48
|
|
|
(31
|
)
|
Time
deposits
|
|
|
6,099
|
|
|
3,829
|
|
|
9,928
|
|
Federal
funds purchased
|
|
|
(205
|
)
|
|
(47
|
)
|
|
(252
|
)
|
Securities
sold under agreement to repurchase
|
|
|
6,019
|
|
|
(812
|
)
|
|
5,207
|
|
Other
borrowed funds
|
|
|
3,398
|
|
|
(1,085
|
)
|
|
2,313
|
|
Long-term
debt
|
|
|
2,180
|
|
|
(205
|
)
|
|
1,975
|
|
Total
increase in interest expense
|
|
|
18,136
|
|
|
2,291
|
|
|
20,427
|
|
Changes
in net interest income
|
|
$
|
12,208
|
|
$
|
(3,241
|
)
|
$
|
8,967
|
|
(1)
|
Changes
in interest income and interest expense attributable to changes
in both
volume and rate have been allocated proportionately to changes
due to
volume and changes due to rate.
|
(2)
|
The
amount of interest earned on certain securities of states and
political
subdivisions and other securities held has been adjusted to a
fully
taxable-equivalent basis, using a statutory federal income tax
rate of
35%.
|
Provision
for Loan Losses
The
provision for loan losses was $2.2 million for the third quarter of 2007
compared to negative $1.0 million provision for loan losses for the third
quarter of 2006 and a $2.1 million provision for loan losses for the second
quarter of 2007. The provision for loan losses was $5.3 million for the first
nine months of 2007 and $2.0 million for same period of 2006. The provision
for
loan losses was based on the review of the adequacy of the allowance for loan
losses at September 30, 2007. The provision for loan losses represents the
charge or credit against current earnings that is determined by management,
through a credit review process, as the amount needed to establish an allowance
that management believes to be sufficient to absorb loan losses inherent in
the
Company’s loan portfolio. The following table summarizes the charge-offs and
recoveries for the periods as indicated:
|
|
For
the three months ended September 30,
|
|
For
the nine months ended September 30,
|
|
(Dollars
in thousands)
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
loans
|
|
$
|
511
|
|
$
|
33
|
|
$
|
6,253
|
|
$
|
838
|
|
Construction
loans
|
|
|
-
|
|
|
-
|
|
|
190
|
|
|
-
|
|
Real
estate loans
|
|
|
912
|
|
|
3
|
|
|
1,030
|
|
|
3
|
|
Installment
and other loans
|
|
|
-
|
|
|
-
|
|
|
1
|
|
|
4
|
|
Total
charge-offs
|
|
|
1,423
|
|
|
36
|
|
|
7,474
|
|
|
845
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
loans
|
|
|
138
|
|
|
300
|
|
|
2,911
|
|
|
944
|
|
Construction
loans
|
|
|
|
|
|
-
|
|
|
190
|
|
|
-
|
|
Real
estate loans
|
|
|
-
|
|
|
1
|
|
|
202
|
|
|
4
|
|
Installment
and other loans
|
|
|
2
|
|
|
9
|
|
|
27
|
|
|
25
|
|
Total
recoveries
|
|
|
140
|
|
|
310
|
|
|
3,330
|
|
|
973
|
|
Net
Charge-offs / (Recoveries)
|
|
$
|
1,283
|
|
$
|
(274
|
)
|
$
|
4,144
|
|
$
|
(128
|
)
|
Non-Interest
Income
Non-interest
income, which includes revenues from depository service fees, letters of credit
commissions, securities gains (losses), gains (losses) on loan sales, wire
transfer fees, gains from sales of premises and equipment and other sources
of
fee income, was $8.9 million for the third quarter of 2007, an increase of
$3.5
million, or 63.9%, compared to the non-interest income of $5.4 million for
the
third quarter of 2006.
In
the
third quarter of 2007, the Company recorded a gain of $2.7 million from sale
of
a property housing a former branch. In the third quarter of 2007, wealth
management commissions increased $356,000, or 110%, to $681,000, venture capital
income increased $319,000 as a result of partnership distributions, and letter
of credit commissions increased by $181,000, or 12.6%, compared to the same
quarter a year ago.
Non-Interest
Expense
Non-interest
expense increased $3.8 million, or 13.1%, to $33.2 million in the third quarter
of 2007 compared to $29.4 million in the same quarter a year ago. The efficiency
ratio was 37.46% for the third quarter of 2007 compared to 38.62% in the year
ago quarter and 39.06% for the second quarter of 2007.
The
increase of non-interest expense in the third quarter of 2007 compared to the
same period a year ago was primarily due to the following:
|
·
|
Salaries
and employee benefits increased $944,000, or 5.9%, due primarily
to the
Company’s acquisitions and the hiring of additional staff.
|
|
·
|
Occupancy
expense increased $522,000, or 19.8%, primarily due to the additions
of
new branches through acquisitions and new branch openings.
|
|
·
|
Computer
and equipment expense increased $556,000, or 29.6%, primarily due
to a
$474,000 increase in software license fees under new data processing
contracts.
|
|
·
|
Professional
services expense increased $212,000, or 9.7%, due primarily to increases
of $146,000 in consulting expenses related to a new telephone
system.
|
|
·
|
Expense
from operations of affordable housing investments
increased
$1.1 million, or 77.7%, to $2.5 million compared to $1.4 million
in the
same quarter a year ago as a result of a $752,000 adjustment for
additional prior year’s operating losses and additional investments in
affordable housing projects.
|
|
·
|
Other
operating expense increased $611,000, or 24.3%, primarily due to
increases
in training expenses of $165,000 related to the new Hong Kong branch,
increases in postage expenses of $164,000, and a write-off of $295,000
of
previously capitalized due diligence costs related to the proposed
investment in First Sino Bank which the Company is no longer
pursuing.
|
Income
taxes
The
effective tax rate was 36.2% for the third quarter of 2007, compared to 35.7%
for the same quarter a year ago and 36.4% for the full year 2006.
As
previously disclosed, on December 31, 2003, the California Franchise Tax Board
(FTB) announced its intent to list certain transactions that in its view
constitute potentially abusive tax shelters. Included in the transactions
subject to this listing were transactions utilizing regulated investment
companies (RICs) and real estate investment trusts (REITs). While the Company
continues to believe that the tax benefits recorded in 2000, 2001, and 2002
with
respect to its regulated investment company were appropriate and fully
defensible under California law, the Company participated in Option 2 of the
Voluntary Compliance Initiative of the Franchise Tax Board, and paid all
California taxes and interest on these disputed 2000 through 2002 tax benefits,
and at the same time filed a claim for refund for these years while avoiding
certain potential penalties. The Company retains potential exposure for
assertion of an accuracy-related penalty should the FTB prevail in its position
in addition to the risk of not being successful in its refund claims.
The
FASB
issued Interpretation No. 48 Accounting for Uncertainty in Income Taxes (“FIN
48”) which requires that the amount of recognized tax benefit should be the
maximum amount which is more-likely-than-not to be realized and that amounts
previously recorded that do not meet the requirements of FIN 48 be charged
as a
cumulative effect adjustment to retained earnings. As of December 31, 2006,
the
Company reflected a $12.1 million net state tax receivable related to payments
it made in April 2004 under the Voluntary Compliance Initiative program for
the
years 2000, 2001, and 2002, after giving effect to reserves for loss
contingencies on the refund claims. The Company has determined that its refund
claim related to its regulated investment company is not more-likely-than-not
to
be realized and consequently, charged a total of $8.5 million, comprised of
the
$7.9 million after tax amount related to its refund claims as well as a $0.6
million after tax amount related to California Net Operating Losses generated
in
2001 as a result of its regulated investment company, to the opening balance
of
retained earnings as of the January 1, 2007, effective date of FIN 48.
Year-to-Date
Income Statement Review
Net
income was $94.5 million, or $1.84 per diluted share for the nine months ended
September 30, 2007, an increase of $7.5 million, or 8.6%, in net income over
the
$87.0 million, or $1.69 per diluted share for the same period a year ago due
primarily to increases in net interest income. The net interest margin for
the
nine months ended September 30, 2007, decreased 46 basis points to 3.76%
compared to 4.22% for the same period a year ago.
Return
on
average stockholders’ equity was 13.49% and return on average assets was 1.43%
for the nine months ended September 30, 2007, compared to a return on average
stockholders’ equity of 13.83% and a return on average assets of 1.62% for the
same period of 2006. The efficiency ratio for the nine months ended September
30, 2007 was 38.30% compared to 37.55% for the same period a year
ago.
The
average daily balances, together with the total dollar amounts, on a
taxable-equivalent basis, of interest income and interest expense, and the
weighted-average interest rates, the net interest spread and the net interest
margins for the periods indicated are as follows:
Interest-Earning
Assets and Interest-Bearing
Liabilities
|
Nine
months ended September 30,
|
|
2007
|
|
2006
|
|
|
|
|
|
Interest
|
|
Average
|
|
|
|
Interest
|
|
Average
|
|
Taxable-equivalent
basis
|
|
Average
|
|
Income/
|
|
Yield/
|
|
Average
|
|
Income/
|
|
Yield/
|
|
(Dollars
in thousands)
|
|
Balance
|
|
Expense
|
|
Rate
(1)(2)
|
|
Balance
|
|
Expense
|
|
Rate
(1)(2)
|
|
Interest
Earning Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
loans
|
|
$
|
1,274,468
|
|
$
|
77,969
|
|
|
8.18
|
%
|
$
|
1,094,120
|
|
$
|
65,421
|
|
|
7.99
|
%
|
Residential
mortgage
|
|
|
598,438
|
|
|
27,931
|
|
|
6.22
|
|
|
462,411
|
|
|
20,627
|
|
|
5.95
|
|
Commercial
mortgage
|
|
|
3,404,720
|
|
|
198,193
|
|
|
7.78
|
|
|
3,007,743
|
|
|
173,997
|
|
|
7.73
|
|
Real
estate construction loans
|
|
|
729,250
|
|
|
51,739
|
|
|
9.49
|
|
|
608,320
|
|
|
43,789
|
|
|
9.62
|
|
Other
loans and leases
|
|
|
27,450
|
|
|
1,009
|
|
|
4.91
|
|
|
30,699
|
|
|
732
|
|
|
3.19
|
|
Total
loans and leases (1)
|
|
|
6,034,326
|
|
|
356,841
|
|
|
7.91
|
|
|
5,203,293
|
|
|
304,566
|
|
|
7.83
|
|
Taxable
securities
|
|
|
1,694,897
|
|
|
71,381
|
|
|
5.63
|
|
|
1,257,303
|
|
|
46,305
|
|
|
4.92
|
|
Tax-exempt
securities (3)
|
|
|
65,583
|
|
|
3,205
|
|
|
6.54
|
|
|
85,160
|
|
|
4,356
|
|
|
6.84
|
|
FHLB
and FRB stocks
|
|
|
48,493
|
|
|
1,689
|
|
|
4.66
|
|
|
31,653
|
|
|
1,100
|
|
|
4.64
|
|
Interest
bearing deposits
|
|
|
62,702
|
|
|
3,288
|
|
|
7.01
|
|
|
15,773
|
|
|
259
|
|
|
2.20
|
|
Federal
funds sold & securities purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
under
agreements to resell
|
|
|
269,137
|
|
|
15,382
|
|
|
7.64
|
|
|
4,878
|
|
|
160
|
|
|
4.39
|
|
Total
interest-earning assets
|
|
|
8,175,138
|
|
|
451,786
|
|
|
7.39
|
|
|
6,598,060
|
|
|
356,746
|
|
|
7.23
|
|
Non-interest
earning assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
|
88,915
|
|
|
|
|
|
|
|
|
100,107
|
|
|
|
|
|
|
|
Other
non-earning assets
|
|
|
630,396
|
|
|
|
|
|
|
|
|
555,039
|
|
|
|
|
|
|
|
Total
non-interest earning assets
|
|
|
719,311
|
|
|
|
|
|
|
|
|
655,146
|
|
|
|
|
|
|
|
Less:
Allowance for loan losses
|
|
|
(65,877
|
)
|
|
|
|
|
|
|
|
(63,469
|
)
|
|
|
|
|
|
|
Deferred
loan fees
|
|
|
(11,890
|
)
|
|
|
|
|
|
|
|
(12,948
|
)
|
|
|
|
|
|
|
Total
assets
|
|
$
|
8,816,682
|
|
|
|
|
|
|
|
$
|
7,176,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing demand accounts
|
|
$
|
233,012
|
|
$
|
2,230
|
|
|
1.28
|
|
$
|
239,033
|
|
$
|
2,057
|
|
|
1.15
|
|
Money
market accounts
|
|
|
680,751
|
|
|
15,882
|
|
|
3.12
|
|
|
586,764
|
|
|
11,430
|
|
|
2.60
|
|
Savings
accounts
|
|
|
346,951
|
|
|
2,606
|
|
|
1.00
|
|
|
379,516
|
|
|
2,517
|
|
|
0.89
|
|
Time
deposits
|
|
|
3,758,715
|
|
|
133,548
|
|
|
4.75
|
|
|
3,255,741
|
|
|
95,789
|
|
|
3.93
|
|
Total
interest-bearing deposits
|
|
|
5,019,429
|
|
|
154,266
|
|
|
4.11
|
|
|
4,461,054
|
|
|
111,793
|
|
|
3.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
funds purchased
|
|
|
27,621
|
|
|
1,075
|
|
|
5.20
|
|
|
43,227
|
|
|
1,597
|
|
|
4.94
|
|
Securities
sold under agreement to repurchase
|
|
|
831,430
|
|
|
23,126
|
|
|
3.72
|
|
|
365,714
|
|
|
11,183
|
|
|
4.09
|
|
Other
borrowings
|
|
|
961,589
|
|
|
35,118
|
|
|
4.88
|
|
|
558,969
|
|
|
20,498
|
|
|
4.90
|
|
Junior
subordinated notes
|
|
|
144,853
|
|
|
8,057
|
|
|
7.44
|
|
|
54,364
|
|
|
3,359
|
|
|
8.26
|
|
Total
interest-bearing liabilities
|
|
|
6,984,922
|
|
|
221,642
|
|
|
4.24
|
|
|
5,483,328
|
|
|
148,430
|
|
|
3.62
|
|
Non-interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
deposits
|
|
|
776,946
|
|
|
|
|
|
|
|
|
753,855
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
117,457
|
|
|
|
|
|
|
|
|
98,181
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
937,357
|
|
|
|
|
|
|
|
|
841,425
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
8,816,682
|
|
|
|
|
|
|
|
$
|
7,176,789
|
|
|
|
|
|
|
|
Net
interest spread (4)
|
|
|
|
|
|
|
|
|
3.15
|
%
|
|
|
|
|
|
|
|
3.61
|
%
|
Net
interest income (4)
|
|
|
|
|
$
|
230,144
|
|
|
|
|
|
|
|
$
|
208,316
|
|
|
|
|
Net
interest margin (4)
|
|
|
|
|
|
|
|
|
3.76
|
%
|
|
|
|
|
|
|
|
4.22
|
%
|
(1)
|
Yields
and amounts of interest earned include loan fees. Non-accrual
loans are
included in the average balance.
|
(2)
|
Calculated
by dividing net interest income by average outstanding interest-earning
assets.
|
(3)
|
The
average yield has been adjusted to a fully taxable-equivalent
basis for
certain securities of states and political subdivisions and other
securities held using a statutory Federal income tax rate of
35%.
|
(4)
|
Net
interest income, net interest spread, and net interest margin
on
interest-earning assets have been adjusted to a fully taxable-equivalent
basis using a statutory Federal income tax rate of 35%.
|
The
following table summarizes the changes in interest income and interest expense
attributable to changes in volume and changes in interest rates for the periods
indicated:
Taxable-Equivalent
Net Interest Income — Changes Due to Rate and
Volume(1)
|
|
|
Nine
months ended September 30,
|
|
|
|
2007-2006
|
|
|
|
Increase
(Decrease) in
|
|
|
|
Net
Interest Income Due to:
|
|
(Dollars
in thousands)
|
|
Changes
in Volume
|
|
Changes
in Rate
|
|
Total
Change
|
|
|
|
|
|
|
|
|
|
Interest-Earning
Assets:
|
|
|
|
|
|
|
|
|
|
|
Loans
and leases
|
|
|
49,113
|
|
|
3,162
|
|
|
52,275
|
|
Taxable
securities
|
|
|
17,754
|
|
|
7,322
|
|
|
25,076
|
|
Tax-exempt
securities (2)
|
|
|
(969
|
)
|
|
(182
|
)
|
|
(1,151
|
)
|
FHLB
and FRB stocks
|
|
|
584
|
|
|
5
|
|
|
589
|
|
Deposits
with other banks
|
|
|
1,744
|
|
|
1,285
|
|
|
3,029
|
|
Federal
funds sold and securities purchased uncer agreements to
resell
|
|
|
15,016
|
|
|
206
|
|
|
15,222
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
increase in interest income
|
|
|
83,242
|
|
|
11,798
|
|
|
95,040
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing demand accounts
|
|
|
(53
|
)
|
|
226
|
|
|
173
|
|
Money
market accounts
|
|
|
1,993
|
|
|
2,459
|
|
|
4,452
|
|
Savings
accounts
|
|
|
(228
|
)
|
|
317
|
|
|
89
|
|
Time
deposits
|
|
|
16,109
|
|
|
21,650
|
|
|
37,759
|
|
Federal
funds purchased
|
|
|
(604
|
)
|
|
82
|
|
|
(522
|
)
|
Securities
sold under agreement to repurchase
|
|
|
13,044
|
|
|
(1,101
|
)
|
|
11,943
|
|
Other
borrowed funds
|
|
|
14,705
|
|
|
(85
|
)
|
|
14,620
|
|
Long-term
debt
|
|
|
5,066
|
|
|
(368
|
)
|
|
4,698
|
|
Total
increase in interest expense
|
|
|
50,032
|
|
|
23,180
|
|
|
73,212
|
|
Changes
in net interest income
|
|
$
|
33,210
|
|
$
|
(11,382
|
)
|
$
|
21,828
|
|
(1)
|
Changes
in interest income and interest expense attributable to changes
in both
volume and rate have been allocated proportionately to changes
due to
volume and changes due to rate.
|
(2)
|
The
amount of interest earned on certain securities of states and political
subdivisions and other securities held has been adjusted to a fully
taxable-equivalent basis, using a statutory federal income tax
rate of
35%.
|
Balance
Sheet Review
Assets
Total
assets increased by $1.6 billion, or 20.0%, to $9.6 billion at September 30,
2007, from year-end 2006 assets of $8.0 billion. The increase in total assets
was represented primarily by increases in loans, securities purchased under
agreements to resell, and investment securities funded by growth of deposits
and
borrowings.
Securities
purchased under agreements to resell increased $360.0 million and long-term
certificates of deposit increased $50.0 million during the first nine months
of
2007 due to attractive rates available to the Company on these investments.
Securities available-for-sale increased by $521.3 million during the first
nine
months of 2007 primarily due to purchases of callable agency securities which
provided collateral for repurchase agreements.
Securities
Total
securities were $2.0 billion, or 21.2%, of total assets at September 30, 2007,
compared with $1.5 billion, or 19.0%, of total assets at December 31, 2006.
The
increase of $521.3 million, or 34.2%, was primarily due to purchases of $944.1
million of securities offset primarily by pay-downs, matured and called
securities totaling $339.4 million and the sales of securities of $101.2 million
during the first nine months of 2007. The acquisition of United Heritage Bank
on
March 30, 2007 increased securities by $14.3 million.
The
net
unrealized loss on securities available-for-sale, which represented the
difference between fair value and amortized cost, totaled $17.0 million at
September 30, 2007, compared to a net unrealized loss of $21.4 million at
year-end 2006. The change was primarily caused by decreases in market interest
rates. Net unrealized gains(losses) in the securities available-for-sale are
included in accumulated other comprehensive income or loss, net of
tax.
The
average taxable-equivalent yield on investment securities increased 32 basis
points to 5.66% for the three months ended September 30, 2007, compared with
5.34% for the same period a year ago, as lower yielding securities matured,
prepaid, or were sold and the proceeds were reinvested at the higher prevailing
interest rates.
The
following tables summarize the composition, amortized cost, gross unrealized
gains, gross unrealized losses, and fair value of securities available-for-sale,
as of September 30, 2007, and December 31, 2006:
|
|
September
30, 2007
|
|
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair
Value
|
|
|
|
(In
thousands)
|
|
U.S.
government sponsored entities
|
|
$
|
790,034
|
|
$
|
1,645
|
|
$
|
240
|
|
$
|
791,439
|
|
State
and municipal securities
|
|
|
34,750
|
|
|
377
|
|
|
47
|
|
|
35,080
|
|
Mortgage-backed
securities
|
|
|
683,094
|
|
|
833
|
|
|
13,834
|
|
|
670,093
|
|
Commercial
mortgage-backed securities
|
|
|
15,991
|
|
|
-
|
|
|
446
|
|
|
15,545
|
|
Collateralized
mortgage obligations
|
|
|
222,753
|
|
|
47
|
|
|
6,378
|
|
|
216,422
|
|
Asset-backed
securities
|
|
|
636
|
|
|
-
|
|
|
2
|
|
|
634
|
|
Corporate
bonds
|
|
|
201,534
|
|
|
203
|
|
|
696
|
|
|
201,041
|
|
Preferred
stock of government sponsored entities
|
|
|
11,750
|
|
|
1,725
|
|
|
-
|
|
|
13,475
|
|
Foreign
corporate bonds
|
|
|
100,000
|
|
|
13
|
|
|
213
|
|
|
99,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,060,542
|
|
$
|
4,843
|
|
$
|
21,856
|
|
$
|
2,043,529
|
|
|
|
December
31, 2006
|
|
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair
Value
|
|
|
|
(In
thousands)
|
|
U.S.
treasury securities
|
|
$
|
994
|
|
$
|
-
|
|
$
|
1
|
|
$
|
993
|
|
U.S.
government sponsored entities
|
|
|
364,988
|
|
|
67
|
|
|
3,556
|
|
|
361,499
|
|
State
and municipal securities
|
|
|
54,843
|
|
|
769
|
|
|
80
|
|
|
55,532
|
|
Mortgage-backed
securities
|
|
|
549,150
|
|
|
687
|
|
|
15,070
|
|
|
534,767
|
|
Commercial
mortgage-backed securities
|
|
|
20,554
|
|
|
-
|
|
|
588
|
|
|
19,966
|
|
Collateralized
mortgage obligations
|
|
|
251,997
|
|
|
46
|
|
|
6,417
|
|
|
245,626
|
|
Asset-backed
securities
|
|
|
783
|
|
|
-
|
|
|
3
|
|
|
780
|
|
Corporate
bonds
|
|
|
206,008
|
|
|
325
|
|
|
396
|
|
|
205,937
|
|
Preferred
stock of government sponsored entities
|
|
|
19,350
|
|
|
2,660
|
|
|
-
|
|
|
22,010
|
|
Foreign
corporate bonds
|
|
|
75,000
|
|
|
126
|
|
|
13
|
|
|
75,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,543,667
|
|
$
|
4,680
|
|
$
|
26,124
|
|
$
|
1,522,223
|
|
The
following table summarizes the scheduled maturities by security type of
securities available-for-sale, as of September 30, 2007:
|
|
Maturity
Distribution
|
|
|
|
As
of September 30, 2007
|
|
|
|
|
|
After
One
|
|
After
Five
|
|
|
|
|
|
|
|
One
Year
|
|
Year
to
|
|
Years
to
|
|
Over
Ten
|
|
|
|
|
|
or
Less
|
|
Five
Years
|
|
Ten
Years
|
|
Years
|
|
Total
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
government sponsored entities
|
|
$
|
12,288
|
|
$
|
773,917
|
|
$
|
3,992
|
|
$
|
1,242
|
|
$
|
791,439
|
|
State
and municipal securities
|
|
|
1,091
|
|
|
8,011
|
|
|
21,673
|
|
|
4,305
|
|
|
35,080
|
|
Mortgage-backed
securities(1)
|
|
|
118
|
|
|
22,562
|
|
|
2,392
|
|
|
645,021
|
|
|
670,093
|
|
Commercial
mortgage-backed securities(1)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
15,545
|
|
|
15,545
|
|
Collateralized
mortgage obligations(1)
|
|
|
-
|
|
|
-
|
|
|
6,864
|
|
|
209,558
|
|
|
216,422
|
|
Asset-backed
securities(1)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
634
|
|
|
634
|
|
Corporate
bonds
|
|
|
1,276
|
|
|
249
|
|
|
199,516
|
|
|
-
|
|
|
201,041
|
|
Preferred
stock of government sponsored entities (2)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
13,475
|
|
|
13,475
|
|
Foreign
corporate bonds
|
|
|
-
|
|
|
-
|
|
|
99,800
|
|
|
-
|
|
|
99,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,773
|
|
$
|
804,739
|
|
$
|
334,237
|
|
$
|
889,780
|
|
$
|
2,043,529
|
|
(1)
|
Securities
reflect stated maturities and do not reflect the impact of
anticipated
prepayments.
|
(2)
|
These
securities have no final maturity
date.
|
Between
2002 and 2004, the Company purchased a number of collateralized mortgage
obligations comprised of interests in non-agency guaranteed residential
mortgages. At September 30, 2007, the remaining par value of these securities
was $204.6 million which represents 10.0% of the fair value of the Company’s
security available-for-sale and 2.1% of the Company’s total assets. At September
30, 2007, the unrealized loss for these securities was $6.3 million which
represented 3.1% of the par amount of these non-agency guaranteed residential
mortgages. Based on the Company’s analysis at September 30, 2007, there was no
“other-than-temporary” impairment in these securities due to the short remaining
expected life of 4.5 years, the low loan to value ratio for the loans underlying
these securities and the credit support provided by junior tranches of these
securitizations.
The
Company has the ability and intent to hold the securities, including the
non-agency securities discussed above with unrealized losses of $6.3 million
and
$503.3 million of agency mortgaged back securities with unrealized losses of
$13.8 million, for a period of time sufficient for a recovery of cost for those
issues with unrealized losses. The temporarily impaired securities represent
45.9% of the fair value of the Company’s securities as of September 30, 2007.
Unrealized
losses for securities with unrealized losses for less than twelve months
represent 0.4%, and securities with unrealized losses for twelve months or
more
represent 3.1% of the historical cost of these securities and generally resulted
from increases in interest rates subsequent to the date that these securities
were purchased.
At
September 30, 2007, 114 issues of securities had unrealized losses for 12 months
or longer and 39 issues of securities had unrealized losses of less than 12
months. All of these securities are investment grade, as of September 30, 2007.
At
September 30, 2007, management believes the impairment is temporary and,
accordingly, no impairment loss has been recognized in the Company’s
consolidated statements of income. The table below shows the fair value,
unrealized losses and number of issuances as of September 30, 2007, of the
temporarily impaired securities in the Company’s available-for-sale securities
portfolio:
|
|
Temporarily
Impaired Securities as of September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
than 12 months
|
|
12
months or longer
|
|
Total
|
|
|
|
Fair
|
|
Unrealized
|
|
No.
of
|
|
Fair
|
|
Unrealized
|
|
No.
of
|
|
Fair
|
|
Unrealized
|
|
No.
of
|
|
|
|
Value
|
|
Losses
|
|
Issuances
|
|
Value
|
|
Losses
|
|
Issuances
|
|
Value
|
|
Losses
|
|
Issuances
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
of securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
government sponsored entities
|
|
$
|
727
|
|
$
|
25
|
|
|
4
|
|
$
|
26,766
|
|
$
|
215
|
|
|
2
|
|
$
|
27,493
|
|
$
|
240
|
|
|
6
|
|
State
and municipal securities
|
|
|
764
|
|
|
9
|
|
|
2
|
|
|
1,448
|
|
|
38
|
|
|
3
|
|
|
2,212
|
|
|
47
|
|
|
5
|
|
Mortgage-backed
securities
|
|
|
105,392
|
|
|
185
|
|
|
18
|
|
|
397,868
|
|
|
13,649
|
|
|
73
|
|
|
503,260
|
|
|
13,834
|
|
|
91
|
|
Commercial
mortgage-backed securities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
15,545
|
|
|
446
|
|
|
2
|
|
|
15,545
|
|
|
446
|
|
|
2
|
|
Collateralized
mortgage obligations
|
|
|
6,645
|
|
|
89
|
|
|
3
|
|
|
207,375
|
|
|
6,290
|
|
|
32
|
|
|
214,020
|
|
|
6,379
|
|
|
35
|
|
Asset-backed
securities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
634
|
|
|
2
|
|
|
2
|
|
|
634
|
|
|
2
|
|
|
2
|
|
Corporate
bonds
|
|
|
125,189
|
|
|
696
|
|
|
10
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
125,189
|
|
|
696
|
|
|
10
|
|
Foreign
corporate bonds
|
|
|
49,788
|
|
|
212
|
|
|
2
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
49,788
|
|
|
212
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
288,505
|
|
$
|
1,216
|
|
|
39
|
|
$
|
649,636
|
|
$
|
20,640
|
|
|
114
|
|
$
|
938,141
|
|
$
|
21,856
|
|
|
153
|
|
Loans
Gross
loans at September 30, 2007, were $6.4 billion compared with $5.7 billion at
year-end 2006. Gross loan growth during the nine months in 2007 equaled $691.9
million, an increase of 12.0% from December 31, 2006, reflecting increases
in
all major loan categories. The acquisition of United Heritage Bank on March
30,
2007 increased loans by $38.6 million.
Commercial
mortgage loans increased $417.7 million, or 12.9%, to $3.6 billion at September
30, 2007, compared to $3.2 billion at year-end 2006. At September 30, 2007,
this
portfolio represented approximately 56.6% of the Bank’s gross loans compared to
56.1% at year-end 2006. Commercial loans increased $128.8 million, or 10.4%,
to
$1.4 billion at September 30, 2007, compared to $1.2 billion at year-end 2006.
Residential mortgage loans totaled $537.6 million at September 30, 2007 which
increased $81.7 million, or 17.9%, from $455.9 million at December 31, 2006.
Real estate construction loans increased $78.2 million, or 11.4%, to $763.4
million at September 30, 2007, compared to $685.2 million at year-end 2006.
The
following table sets forth the classification of loans by type, mix, and
percentage change as of the dates indicated:
(Dollars
in thousands)
|
|
September
30, 2007
|
|
%
of Gross Loans
|
|
December
31, 2006
|
|
%
of Gross Loans
|
|
%
Change
|
|
Type
of Loans
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
1,372,554
|
|
|
21.3
|
%
|
$
|
1,243,756
|
|
|
21.7
|
%
|
|
10.4
|
%
|
Residential
mortgage
|
|
|
537,565
|
|
|
8.3
|
|
|
455,949
|
|
|
7.9
|
|
|
17.9
|
|
Commercial
mortgage
|
|
|
3,644,371
|
|
|
56.6
|
|
|
3,226,658
|
|
|
56.1
|
|
|
12.9
|
|
Equity
lines
|
|
|
101,825
|
|
|
1.6
|
|
|
118,473
|
|
|
2.1
|
|
|
(14.1
|
)
|
Real
estate construction
|
|
|
763,403
|
|
|
11.9
|
|
|
685,206
|
|
|
11.9
|
|
|
11.4
|
|
Installment
|
|
|
16,949
|
|
|
0.3
|
|
|
13,257
|
|
|
0.2
|
|
|
27.8
|
|
Other
|
|
|
2,740
|
|
|
0.0
|
|
|
4,247
|
|
|
0.1
|
|
|
(35.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
loans and leases
|
|
$
|
6,439,407
|
|
|
100
|
%
|
$
|
5,747,546
|
|
|
100
|
%
|
|
12.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
|
(66,277
|
)
|
|
|
|
|
(64,689
|
)
|
|
|
|
|
2.5
|
|
Unamortized
deferred loan fees
|
|
|
(11,054
|
)
|
|
|
|
|
(11,984
|
)
|
|
|
|
|
(7.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
loans and leases, net
|
|
$
|
6,362,076
|
|
|
|
|
$
|
5,670,873
|
|
|
|
|
|
12.2
|
%
|
Asset
Quality Review
Non-performing
Assets
Non-performing
assets to gross loans and other real estate owned was 0.79% at September 30,
2007, compared to 0.62% at December 31, 2006. Total non-performing assets
increased $15.0 million to $50.6 million at September 30, 2007, compared with
$35.6 million at December 31, 2006, primarily due to a $24.0 million increase
in
non-accrual loans partially offset by a $4.1 million decrease in accruing loans
past due 90 days or more and by a $4.9 million decrease in other real estate
owned.
At
September 30, 2007, total non-accrual loans included $24.4 million in loans
secured by real estate collateral in Texas comprised of a $9.6 million apartment
loan, a $6.7 million shopping center construction loan that became Other Real
Estate Owned on October 2, 2007, a $4.9 million shopping center construction
loan that is expected to be paid off by the end of November, a $2.2 million
apartment loan and a $1.0 million residential construction loan. Also included
in non-accrual loans at September 30, 2007 are a $5.3 million condo construction
loan in Massachusetts and a $4.5 million office building loan in Northern
California. Included in troubled debt restructured loans at September 30, 2007
is a $12.2 million condominium conversion construction
loan
for
a project in Southern California where the interest rate has been reduced to
6.0%.
The
allowance for loan losses amounted to $66.3 million at September 30, 2007,
and
represented the amount that the Company believes to be sufficient to absorb
loan
losses inherent in the Company’s loan portfolio. The allowance for loan losses
represented 1.03% of period-end gross loans and 132% of non-performing loans
at
September 30, 2007. The comparable ratios were 1.13% of gross loans and 213%
of
non-performing loans at December 31, 2006.
The
following table sets forth the detail of non-performing assets by category
as of
the dates indicated:
(Dollars
in thousands)
|
|
September
30, 2007
|
|
December
31, 2006
|
|
Non-performing
assets
|
|
|
|
|
|
Accruing
loans past due 90 days or more
|
|
$
|
3,903
|
|
$
|
8,008
|
|
Non-accrual
loans:
|
|
|
|
|
|
|
|
Construction
|
|
|
19,082
|
|
|
5,786
|
|
Commercial
real estate
|
|
|
21,098
|
|
|
1,276
|
|
Commercial
|
|
|
4,592
|
|
|
14,424
|
|
Real
Estate mortgage
|
|
|
1,529
|
|
|
836
|
|
Other
|
|
|
17
|
|
|
-
|
|
Total
non-accrual loans:
|
|
|
46,318
|
|
|
22,322
|
|
Total
non-performing loans
|
|
|
50,221
|
|
|
30,330
|
|
Other
real estate owned
|
|
|
374
|
|
|
5,259
|
|
Total
non-performing assets
|
|
$
|
50,595
|
|
$
|
35,589
|
|
Troubled
debt restructurings
|
|
$
|
13,176
|
|
$
|
955
|
|
|
|
|
|
|
|
|
|
Non-performing
assets as a percentage of gross loans and OREO
|
|
|
0.79
|
%
|
|
0.62
|
%
|
Allowance
for loan losses as a percentage of gross loans and leases
|
|
|
1.03
|
%
|
|
1.13
|
%
|
Allowance
for loan losses as a percentage of non-performing loans
|
|
|
131.97
|
%
|
|
213.28
|
%
|
Non-accrual
Loans
Non-accrual
loans increased by $24.0 million to $46.3 million at September 30, 2007, from
$22.3 million at December 31, 2006.
The
following table presents non-accrual loans by type of collateral securing the
loans, as of the dates indicated
:
|
|
September
30, 2007
|
|
December
31, 2006
|
|
|
|
Real
|
|
|
|
|
|
Real
|
|
|
|
|
|
Estate
(1)
|
|
Commercial
|
|
Other
|
|
Estate
(1)
|
|
Commercial
|
|
|
|
(In
thousands)
|
|
Type
of Collateral
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single/
multi-family residence
|
|
$
|
28,306
|
|
$
|
277
|
|
$
|
-
|
|
$
|
7,111
|
|
$
|
180
|
|
Commercial
real estate
|
|
|
12,669
|
|
|
-
|
|
|
-
|
|
|
674
|
|
|
1,265
|
|
Land
|
|
|
734
|
|
|
-
|
|
|
-
|
|
|
113
|
|
|
-
|
|
UCC
|
|
|
-
|
|
|
4,243
|
|
|
-
|
|
|
-
|
|
|
12,779
|
|
Unsecured
|
|
|
-
|
|
|
72
|
|
|
17
|
|
|
-
|
|
|
200
|
|
Total
|
|
$
|
41,709
|
|
$
|
4,592
|
|
$
|
17
|
|
$
|
7,898
|
|
$
|
14,424
|
|
(1)
|
Real
estate includes commercial mortgage loans, real estate construction
loans,
and residential mortgage
loans.
|
The
following table presents non-accrual loans by type of businesses in which the
borrowers are engaged, as of the dates indicated:
|
|
September
30, 2007
|
|
December
31, 2006
|
|
|
|
Real
|
|
|
|
|
|
Real
|
|
|
|
|
|
Estate
(1)
|
|
Commercial
|
|
Other
|
|
Estate
(1)
|
|
Commercial
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
Type
of Business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate development
|
|
$
|
39,561
|
|
$
|
-
|
|
$
|
-
|
|
$
|
6,651
|
|
$
|
-
|
|
Wholesale/Retail
|
|
|
618
|
|
|
1,899
|
|
|
17
|
|
|
130
|
|
|
8,631
|
|
Food/Restaurant
|
|
|
-
|
|
|
92
|
|
|
-
|
|
|
282
|
|
|
3,126
|
|
Import/Export
|
|
|
-
|
|
|
2,601
|
|
|
-
|
|
|
-
|
|
|
2,667
|
|
Other
|
|
|
1,530
|
|
|
-
|
|
|
-
|
|
|
835
|
|
|
-
|
|
Total
|
|
$
|
41,709
|
|
$
|
4,592
|
|
$
|
17
|
|
$
|
7,898
|
|
$
|
14,424
|
|
(1)
|
Real
estate includes commercial mortgage loans, real estate construction
loans,
and residential mortgage
loans.
|
Troubled
Debt Restructurings
A
troubled debt restructuring (“TDR”) is a formal restructure of a loan when the
lender, for economic or legal reasons related to the borrower’s financial
difficulties, grants a concession to the borrower. The concession may be granted
in various forms, including reduction in the stated interest rate, reduction
in
the loan balance or accrued interest, or extension of the maturity
date.
As
of
September 30, 2007 troubled debt restructurings was comprised of four loans
totaling $13.2 million which increased $12.2 million from $955,000 as of
December 31, 2006 primarily due to a condominium conversion
construction
loan
of
$12.2 million in Southern California where the interest rate has been reduced
to
6.0% during the third quarter of 2007.
Impaired
Loans
A
loan is
considered impaired when it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan agreement
based on current circumstances and events. The assessment for impairment occurs
when and while such loans are on non-accrual, or the loan has been restructured.
Those loans less than our defined selection criteria, generally the loan amount
less than $100,000, are treated as a homogeneous portfolio. If loans meeting
the
defined criteria are not collateral dependent, we measure the impairment based
on the present value of the expected future cash flows discounted at the loan’s
effective interest rate. If loans meeting the defined criteria are collateral
dependent, we measure the impairment by using the loan’s observable market price
or the fair value of the collateral. If the measurement of the impaired loan
is
less than the recorded amount of the loan, we then recognize impairment by
creating or adjusting an existing valuation allowance with a corresponding
charge to the provision for loan losses.
None
of
the loans acquired as part of the acquisition of UHB were determined to be
impaired and therefore were all excluded from the scope of Statement of Position
(SOP) 03-3, “Accounting for Certain Loans or Debt Securities Acquired in a
Transfer”.
The
Company identified impaired loans with a recorded investment of $46.3 million
at
September 30, 2007, compared with $22.3 million at year-end 2006. The Company
considers all non-accrual loans to be impaired.
The following table presents impaired loans and the related allowance, as of
the
dates indicated:
|
|
At
September 30, 2007
|
|
At
December 31, 2006
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
Balance
of impaired loans with no allocated allowance
|
|
$
|
42,335
|
|
$
|
10,522
|
|
Balance
of impaired loans with an allocated allowance
|
|
|
3,983
|
|
|
11,800
|
|
|
|
|
|
|
|
|
|
Total
recorded investment in impaired loans
|
|
$
|
46,318
|
|
$
|
22,322
|
|
|
|
|
|
|
|
|
|
Amount
of the allowance allocated to impaired loans
|
|
$
|
2,652
|
|
$
|
4,310
|
|
Loan
Concentration
Most
of
the Company’s business activity is with customers located in the predominantly
Asian areas of Southern and Northern California; New York City; Dallas and
Houston, Texas; Seattle, Washington; Boston, Massachusetts; Chicago, Illinois;
and New Jersey. The Company has no specific industry concentration, and
generally its loans are collateralized with real property or other pledged
collateral. Loans are generally expected to be paid off from the operating
profits of the borrowers, refinancing by another lender, or through sale by
the
borrowers of the secured collateral.
There
were no loan concentrations to multiple borrowers in similar activities which
exceeded 10% of total loans as of September 30, 2007, or December 31,
2006.
Allowance
for Loan Losses
The
Bank’s management is committed to managing the risk in its loan portfolio by
maintaining the allowance for loan losses at a level that is considered to
be
equal to the estimated and known risks in the loan portfolio. With a risk
management objective, the Bank’s management has an established monitoring system
that is designed to identify impaired and potential problem loans, and to permit
periodic evaluation of impairment and the adequacy level of the allowance for
loan losses in a timely manner.
In
addition, our Board of Directors has established a written loan policy that
includes a loan review and control system which it believes should be effective
in ensuring that the Bank maintains an adequate allowance for loan losses.
The
Board of Directors provides oversight for the allowance evaluation process,
including quarterly evaluations, and judges that the allowance is adequate
to
absorb inherent losses in the loan portfolio. The determination of the amount
of
the allowance for loan losses and the provision for loan losses is based on
management’s current judgment about the credit quality of the loan portfolio and
takes into consideration known relevant internal and external factors that
affect collectibility when determining the appropriate level for the allowance
for loan losses. The nature of the process by which the Bank determines the
appropriate allowance for loan losses requires the exercise of considerable
judgment. Additions to the allowance for loan losses are made by charges to
the
provision for loan losses. While management utilizes its best judgment and
information available, the ultimate adequacy of the allowance is dependent
upon
a variety of factors beyond the Bank’s control, including the performance of the
Bank’s loan portfolio, the economy, changes in interest rates, and the view of
the regulatory authorities toward loan classifications. Identified credit
exposures that are determined to be uncollectible are charged against the
allowance for loan losses. Recoveries of previously charged off amounts, if
any,
are credited to the allowance for loan losses. A weakening of the economy or
other factors that adversely affect asset quality could result in an increase
in
the number of delinquencies, bankruptcies, or defaults, and a higher level
of
non-performing assets, net charge-offs, and provision for loan losses in future
periods.
The
allowance for loan losses amounted to $66.3 million at September 30, 2007,
and
represented the amount that the Company believes to be sufficient to absorb
loan
losses inherent in the Company’s loan portfolio. The allowance for loan losses
represented 1.03% of period-end gross loans and 132% of non-performing loans
at
September 30, 2007. The comparable ratios were 1.13% of gross loans and 213%
of
non-performing loans at December 31, 2006.
The
following table sets forth information relating to the allowance for loan losses
for the periods indicated:
|
|
For
the nine months ended
September
30, 2007
|
|
For
the year ended
December
31, 2006
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period
|
|
$
|
64,689
|
|
$
|
60,251
|
|
Provision
of loan losses
|
|
|
5,300
|
|
|
2,000
|
|
Loans
charged off
|
|
|
(7,474
|
)
|
|
(2,030
|
)
|
Recoveries
of loans charged off
|
|
|
3,330
|
|
|
1,315
|
|
Allowance
from acquisitions
|
|
|
432
|
|
|
3,153
|
|
Balance
at end of period
|
|
$
|
66,277
|
|
$
|
64,689
|
|
|
|
|
|
|
|
|
|
Average
loans outstanding during the period
|
|
$
|
6,034,326
|
|
$
|
5,310,564
|
|
Total
gross loans outstanding, at period-end
|
|
$
|
6,439,407
|
|
$
|
5,747,546
|
|
Total
non-performing loans, at period-end
|
|
$
|
50,221
|
|
$
|
30,330
|
|
Ratio
of net charge-offs to average loans outstanding during the period
(annualized)
|
|
|
0.09
|
%
|
|
0.01
|
%
|
Provision
for loan losses to average loans outstanding during the period
(annualized)
|
|
|
0.12
|
%
|
|
0.04
|
%
|
Allowance
to non-performing loans, at period-end
|
|
|
131.97
|
%
|
|
213.28
|
%
|
Allowance
to gross loans, at period-end
|
|
|
1.03
|
%
|
|
1.13
|
%
|
For
impaired loans, we provide specific allowances based on an evaluation of
impairment. For the portfolio of classified loans we determine an allowance
based on an assigned loss percentage. The percentage assigned depends on a
number of factors including loan classification, the current financial condition
of the borrowers and guarantors, the prevailing value of the underlying
collateral, charge-off history, management’s knowledge of the portfolio, and
general economic conditions. During the third quarter of 2007, we revised our
minimum loss rates for loans rated Special Mention and Substandard to
incorporate the results of a classification migration model reflecting actual
losses beginning in 2003. In addition, beginning in the third quarter of 2007,
minimum loss rates have been specifically assigned for loans graded minimally
acceptable instead of grouping these loans with the unclassified portfolio
discussed below.
The
unclassified portfolio is segmented on a group basis. Segmentation is determined
by loan type and by identifying risk characteristics that are common to the
groups of loans. The allowance is provided to each segmented group based on
the
group’s historical loan loss experience, the trends in delinquencies and
non-accrual loans, and other significant factors, such as national and local
economy, trends and conditions, strength of management and loan staff,
underwriting standards and the concentration of credit.
To
determine the allowance, the Bank employs two primary methodologies: the
classification process and the individual loan review analysis methodology.
These methodologies support the basis for determining allocations between the
various loan categories and the overall adequacy of the Bank’s allowance to
provide for probable loss in the loan portfolio. These methodologies are further
supported by additional analysis of relevant factors such as the historical
losses in the portfolio, trends in the non-performing/non-accrual loans, loan
delinquencies, the volume of the portfolio, peer group comparisons, and federal
regulatory policy for loan and lease losses. Other significant factors of
portfolio analysis include changes in lending policies/underwriting standards,
portfolio composition, concentrations of credit, and trends in the national
and
local economy.
The
table
set forth below reflects management’s allocation of the allowance for loan
losses by loan category and the ratio of each loan category to the total loans
as of the dates indicated:
|
|
|
|
|
|
(Dollars
in thousands)
|
|
September
30, 2007
|
|
December
31, 2006
|
|
|
|
|
|
Percentage
of
|
|
|
|
Percentage
of
|
|
|
|
|
|
Loans
in Each
|
|
|
|
Loans
in Each
|
|
|
|
|
|
Category
|
|
|
|
Category
|
|
|
|
|
|
to
Average
|
|
|
|
to
Average
|
|
Type
of Loans:
|
|
Amount
|
|
Gross
Loans
|
|
Amount
|
|
Gross
Loans
|
|
Commercial
loans
|
|
$
|
30,414
|
|
|
21.1
|
%
|
$
|
35,569
|
|
|
20.9
|
%
|
Residential
mortgage loans
|
|
|
1,268
|
|
|
9.9
|
|
|
1,510
|
|
|
9.1
|
|
Commercial
mortgage loans
|
|
|
25,443
|
|
|
56.4
|
|
|
22,160
|
|
|
57.6
|
|
Real
estate construction loans
|
|
|
9,113
|
|
|
12.1
|
|
|
5,431
|
|
|
11.8
|
|
Installment
loans
|
|
|
39
|
|
|
0.3
|
|
|
10
|
|
|
0.3
|
|
Other
loans
|
|
|
-
|
|
|
0.2
|
|
|
9
|
|
|
0.3
|
|
Total
|
|
$
|
66,277
|
|
|
100
|
%
|
$
|
64,689
|
|
|
100
|
%
|
The
allowance allocated to commercial loans decreased from $35.6 million at December
31, 2006, to $30.4 million at September 30, 2007, due primarily to charge-offs
of certain impaired commercial loans and the decrease in the reserve factor
based on a 5-year moving average of loss experience in commercial loans.
Non-accrual commercial loans by collateral type were $4.6 million, or 9.9%
of
non-accrual loans at September 30, 2007, compared to $14.4 million, or 64.6%
at
December 31, 2006.
The
allowance allocated to residential mortgage loans decreased $242,000 from $1.5
million at December 31, 2006, to $1.3 million at September 30, 2007 due to
a
decrease in the environmental risk identification reserve factor.
The
allowance allocated to commercial mortgage loans increased from $22.2 million
at
December 31, 2006, to $25.4 million at September 30, 2007, due to loan growth
and the increase in the level of problem loans. As of September 30, 2007, there
were $21.1 million commercial mortgage loans on non-accrual status. Non-accrual
commercial mortgage loans as a percentage to total non-accrual loans was 45.6%
at September 30, 2007.
The
allowance allocated to construction loans has increased from $5.4 million at
December 31, 2006, to $9.1 million at September 30, 2007, due primarily to
an
increase in the amount of construction loans risk graded as Special Mention
and
Substandard during 2007 as a result of slower housing sales and lower selling
prices in California. The allowance allocated to construction loans as a
percentage of total construction loans was 1.2% of construction loans at
September 30, 2007 compared to 0.9% at December 31, 2006. At September 30,
2007,
there were seven construction loans totaling $19.1 million on non-accrual status
which comprised 41.2% of non-accrual loans.
Allowances
for other risks of potential loan losses equaling $2.4 million as of September
30, 2007, compared to $2.5 million at December 31, 2006, have been included
in
the allocations above. Based on the assessment of the risk of higher energy
prices on the ability of the Bank’s borrowers to service their loans, management
has determined that the allowance of $2.4 million at September 30, 2007 was
appropriate.
Deposits
Total
deposits increased $395.5 million, or 7.0%, to $6.1 billion at September 30,
2007, from $5.7 billion at December 31, 2006. Deposit growth was primarily
due
to increases in money market deposits and time deposits. The acquisition of
United Heritage Bank at March 30, 2007, increased deposits by $54.2 million.
Non-interest-bearing demand deposits, interest-bearing demand deposits, and
savings deposits comprised 33.7% of total deposits at September 30, 2007, time
deposit accounts of less than $100,000 comprised 18.0% of total deposits, while
the remaining 48.3% was comprised of time deposit accounts of $100,000 or more.
The
following table displays the deposit mix as of the dates indicated:
|
|
September
30, 2007
|
|
%
of Total
|
|
December
31, 2006
|
|
%
of Total
|
|
%
Change
|
|
Deposits
|
|
(Dollars
in thousands)
|
|
Non-interest-bearing
demand
|
|
$
|
778,690
|
|
|
12.8
|
%
|
$
|
781,492
|
|
|
13.8
|
%
|
|
(0.4
|
)%
|
NOW
|
|
|
228,659
|
|
|
3.8
|
|
|
239,589
|
|
|
4.2
|
|
|
(4.6
|
)
|
Money
market
|
|
|
697,721
|
|
|
11.5
|
|
|
657,689
|
|
|
11.6
|
|
|
6.1
|
|
Savings
|
|
|
336,743
|
|
|
5.6
|
|
|
358,827
|
|
|
6.3
|
|
|
(6.2
|
)
|
Time
deposits under $100,000
|
|
|
1,095,348
|
|
|
18.0
|
|
|
1,007,637
|
|
|
17.8
|
|
|
8.7
|
|
Time
deposits of $100,000 or more
|
|
|
2,933,645
|
|
|
48.3
|
|
|
2,630,072
|
|
|
46.3
|
|
|
11.5
|
|
Total
deposits
|
|
$
|
6,070,806
|
|
|
100.0
|
%
|
$
|
5,675,306
|
|
|
100.0
|
%
|
|
7.0
|
%
|
For
the
nine months ended September 30, 2007, brokered deposits increased $141.2 million
to $388.9 million from $247.7 million at December 31, 2006.
Borrowings
Borrowings
include Federal funds purchased, securities sold under agreements to repurchase,
advances from the Federal Home Loan Bank (“FHLB”) of San Francisco, borrowing
from other financial institutions, subordinated and junior subordinated notes
issued.
Federal
funds purchased were $98.0 million with a weighted average rate of 5.29% as
of
September 30, 2007, compared to $50.0 million with a weighted average rate
of
5.31% as of December 31, 2006.
Securities
sold under agreements to repurchase were $1.1 billion with a weighted average
rate of 3.74% at September 30, 2007, compared to $400.0 million with a weighted
average rate of 4.40% at December 31, 2006. Seventeen agreements totaling $900.0
million are with initial floating rates for a period of time ranging from six
months to one year, with the floating rates ranging from the three-month LIBOR
minus 100 basis points to the three-month LIBOR minus 340 basis points.
Thereafter, the rates are fixed for the remainder of the term, with interest
rates ranging from 4.29% to 5.07%. After the initial floating rate term, the
counterparties have the right to terminate the transaction at par at the fixed
rate reset date and quarterly thereafter. Two agreements of $50.0 million each
are with initial fixed rates of 3.33% and 3.50%, respectively, for six months.
For the remainder of the seven year term, the rates float at 8% minus the
three-month LIBOR rate with a maximum rate of 3.75% and minimum rate of 0.0%.
After the initial fixed rate term, the counterparties have the right to
terminate the transaction at par at the floating rate reset date and quarterly
thereafter. The Company may be required to provide additional collateral for
the
repurchase agreements.
In
addition, there were three short term repurchase agreements totaling $108.7
million which will mature in the fourth quarter of 2007 with a weighted average
interest rate of 5.45% at September 30, 2007. At September 30, 2007, included
in
long-term transactions are seven repurchase agreements totaling $350.0 million
that were callable but had not been called. Two repurchase agreements, $50.0
million each, have fixed interest rates at 4.75% and 4.79% until their final
maturities in March 2011. Five repurchase agreements, $50.0 million each, have
fixed interest rates ranging from 4.29% to 4.61%, until their final maturities
in the first half of 2014.
Total
advances from the FHLB of San Francisco increased $375.0 million to $1.1 billion
at September 30, 2007 from $714.7 million at December 31, 2006. Non-puttable
advances totaled $389.7 million with a weighted rate of 5.22% and puttable
advances totaled $700.0 million with a weighted average rate of 4.42% at
September 30, 2007. The FHLB has the right to terminate the puttable transaction
at par on the first anniversary date in the first quarter of 2008 and quarterly
thereafter for $300.0 million of the advances and on the second anniversary
date
in 2009 and quarterly thereafter for $400.0 million of the advances.
On
May 31, 2005, the Bancorp entered into a $30.0 million 364-day unsecured
revolving loan agreement with a commercial bank bearing an interest rate of
LIBOR plus 90 basis points and a commitment fee of 12.5 basis points on unused
commitments. This loan was paid off in April, 2007.
Long-term
Debt
On
September 29, 2006, the Bank issued $50.0 million in subordinated debt. The
debt
has a maturity term of 10 years and bears interest at a rate of three-month
LIBOR plus 110 basis points. As of September 30, 2007, $50.0 million was
outstanding with a rate of 6.30% under this note compared to $50.0 million
at a
rate of 6.46% at December 31, 2006.
The
Company issued additional junior subordinated debt securities of $46.4 million
at March 30, 2007, and $20.6 million at May 31, 2007. The securities of $46.4
million issued on March 30, 2007 have a scheduled maturity of June 15, 2037,
and
bear interest at a per annum rate based on the three-month LIBOR plus 148 basis
points, payable on a quarterly basis. The securities of $20.6 million issued
on
May 31, 2007 have a scheduled maturity of September 7, 2037, and bear interest
at a per annum rate based on the three-month LIBOR plus 140 basis points,
payable on a quarterly basis.
At
September 30, 2007, junior subordinated debt securities totaled $121.1 million
with a weighted average interest rate of 7.73% compared to $54.1 million with
a
weighted average rate of 8.39% at December 31, 2006. The junior subordinated
debt issued qualifies as Tier 1 capital for regulatory reporting purposes.
Off-Balance-Sheet
Arrangements and Contractual Obligations
The
following table summarizes the Company’s contractual obligations to make future
payments as of September 30, 2007. Payments for deposits and borrowings do
not
include interest. Payments related to leases are based on amount specified
in
the underlying contracts.
|
|
Payment
Due by Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More
than
|
|
3
years or
|
|
|
|
|
|
|
|
|
|
1
year but
|
|
more
but
|
|
|
|
|
|
|
|
1
year
|
|
less
than
|
|
less
than
|
|
5
years
|
|
|
|
|
|
or
less
|
|
3
years
|
|
5
years
|
|
or
more
|
|
Total
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
with stated maturity dates
|
|
$
|
3,939,771
|
|
$
|
87,344
|
|
$
|
1,867
|
|
$
|
11
|
|
$
|
4,028,993
|
|
Federal
funds purchased
|
|
|
98,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
98,000
|
|
Securities
sold under agreements to repurchase (1)
|
|
|
108,710
|
|
|
-
|
|
|
150,000
|
|
|
850,000
|
|
|
1,108,710
|
|
Advances
from the Federal Home Loan Bank (2)
|
|
|
244,500
|
|
|
-
|
|
|
145,180
|
|
|
700,000
|
|
|
1,089,680
|
|
Other
borrowings
|
|
|
3,351
|
|
|
-
|
|
|
-
|
|
|
19,670
|
|
|
23,021
|
|
Long-term
debt
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
171,136
|
|
|
171,136
|
|
Operating
leases
|
|
|
7,231
|
|
|
10,184
|
|
|
6,256
|
|
|
6,380
|
|
|
30,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
contractual obligations and other commitments
|
|
$
|
4,401,563
|
|
$
|
97,528
|
|
$
|
303,303
|
|
$
|
1,747,197
|
|
$
|
6,549,591
|
|
(1)
|
These
repurchase agreements have a final maturity of 5-year, 7-year
and 10-year
from origination date but are callable on a quarterly basis after
the six
months or one year anniversary according to agreements.
|
(2)
|
FHLB
advances of $700.0 million that mature in 2012 have a callable
option. On
a quarterly basis, $300.0 million are callable on the first anniversary
date and $400.0 million are callable on the second anniversary
date.
|
Capital
Resources
Stockholders’
equity of $948.9 million at September 30, 2007, increased by $5.8 million,
or
0.6%, compared to $943.1 million at December 31, 2006. The following table
summarizes the activity in stockholders’ equity:
(Dollars
in thousands)
|
|
Nine
months ended
|
|
|
|
September
30, 2007
|
|
Net
income
|
|
$
|
94,553
|
|
Proceeds
from shares issued to the Dividend Reinvestment Plan
|
|
|
1,837
|
|
Proceeds
from exercise of stock options
|
|
|
1,416
|
|
Tax
benefits from stock-based compensation expense
|
|
|
503
|
|
Share-based
compensation
|
|
|
5,694
|
|
Purchase
of treasury stock
|
|
|
(76,908
|
)
|
Changes
in other comprehensive income
|
|
|
2,568
|
|
Cumulative
effect adjustment as a result of adoption of FASB Interpretation
|
|
|
|
|
No.
48 - Accounting for Uncertainty in Income Taxes
|
|
|
(8,524
|
)
|
Cash
dividends paid
|
|
|
(15,294
|
)
|
Net
increase in stockholders' equity
|
|
$
|
5,845
|
|
During
the third quarter of 2007, the Company repurchased 175,500 shares of its common
stock for $5.4 million, or $30.77 average cost per share. During the first
nine
months of 2007, the Company repurchased 2,279,553 shares of its common stock
for
$76.9 million, or $33.74 average cost per share. At September 30, 2007, 172,150
shares remain under the Company’s May 8, 2007, repurchase program. From October
30 to November 2, 2007, the Company repurchased 172,150 shares of its common
stock for $5.1 million, or $29.66 average cost per share and thereby completed
its May 2007 repurchase program. From January 1, 2007 to November 2, 2007,
the
Company repurchased 2,451,703 shares of its common stock for $82.0 million,
or
$33.45 average cost per share.
The
Company declared a cash dividend of 9 cents per share for distribution in
January 2007 on 51,953,759 shares outstanding and declared a cash dividend
of
10.5 cents per share for distribution in April on 51,158,476 shares outstanding,
for distribution in July on 49,963,215 shares outstanding, and for distribution
in October on 49,819,381 shares outstanding. Total cash dividends paid in 2007,
including the $5.2 million paid in October, amounted to $20.5 million.
Capital
Adequacy Review
Management
seeks to maintain the Company's capital at a level sufficient to support future
growth, protect depositors and stockholders, and comply with various regulatory
requirements.
On
September 29, 2006, the Bank issued $50.0 million in subordinated debt in a
private placement transaction. This instrument matures on September 29, 2016.
The subordinated debt was issued through the Bank and qualifies as Tier 2
capital for regulatory reporting purposes.
In
the
first half of 2007, the Bancorp issued $67.0 million of junior subordinated
debt
which generated $65.0 million of Tier 1 capital.
Both
the
Bancorp’s and the Bank’s regulatory capital continued to exceed the regulatory
minimum requirements as of September 30, 2007. In addition, the capital ratios
of the Bank place it in the “well capitalized” category, which is defined as
institutions with a total risk-based ratio equal to or greater than 10.0%,
Tier
1 risk-based capital ratio equal to or greater than 6.0%, and Tier 1 leverage
capital ratio equal to or greater than 5.0%.
The
following table presents the Bancorp’s and the Bank’s capital and leverage
ratios as of September 30, 2007, and December 31, 2006:
|
|
Cathay
General Bancorp
|
|
Cathay
Bank
|
|
|
|
September
30, 2007
|
|
December
31, 2006
|
|
September
30, 2007
|
|
December
31, 2006
|
|
(Dollars
in thousands)
|
|
Balance
|
|
%
|
|
Balance
|
|
%
|
|
Balance
|
|
%
|
|
Balance
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
1 capital (to risk-weighted assets)
|
|
$
|
741,736
|
|
|
9.22
|
|
$
|
673,705
|
|
|
9.40
|
|
$
|
730,284
|
|
|
9.08
|
|
$
|
670,206
|
|
|
9.37
|
|
Tier
1 capital minimum requirement
|
|
|
321,968
|
|
|
4.00
|
|
|
286,744
|
|
|
4.00
|
|
|
321,600
|
|
|
4.00
|
|
|
286,238
|
|
|
4.00
|
|
Excess
|
|
$
|
419,768
|
|
|
5.22
|
|
$
|
386,961
|
|
|
5.40
|
|
$
|
408,684
|
|
|
5.08
|
|
$
|
383,968
|
|
|
5.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
capital (to risk-weighted assets)
|
|
$
|
857,482
|
|
|
10.65
|
|
$
|
788,284
|
|
|
11.00
|
|
$
|
847,337
|
|
|
10.54
|
|
$
|
786,092
|
|
|
10.99
|
|
Total
capital minimum requirement
|
|
|
643,937
|
|
|
8.00
|
|
|
573,488
|
|
|
8.00
|
|
|
643,201
|
|
|
8.00
|
|
|
572,476
|
|
|
8.00
|
|
Excess
|
|
$
|
213,545
|
|
|
2.65
|
|
$
|
214,796
|
|
|
3.00
|
|
$
|
204,136
|
|
|
2.54
|
|
$
|
213,616
|
|
|
2.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
1 capital (to average assets) - Leverage ratio
|
|
$
|
741,736
|
|
|
8.32
|
|
$
|
673,705
|
|
|
8.98
|
|
$
|
730,284
|
|
|
8.20
|
|
$
|
670,206
|
|
|
8.95
|
|
Minimum
leverage requirement
|
|
|
356,806
|
|
|
4.00
|
|
|
300,055
|
|
|
4.00
|
|
|
356,107
|
|
|
4.00
|
|
|
299,409
|
|
|
4.00
|
|
Excess
|
|
$
|
384,930
|
|
|
4.32
|
|
$
|
373,650
|
|
|
4.98
|
|
$
|
374,177
|
|
|
4.20
|
|
$
|
370,797
|
|
|
4.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-weighted
assets
|
|
$
|
8,049,212
|
|
|
|
|
$
|
7,168,601
|
|
|
|
|
$
|
8,040,007
|
|
|
|
|
$
|
7,155,951
|
|
|
|
|
Total
average assets (1)
|
|
$
|
8,920,152
|
|
|
|
|
$
|
7,501,371
|
|
|
|
|
$
|
8,902,667
|
|
|
|
|
$
|
7,485,214
|
|
|
|
|
(1)
|
The
quarterly total average assets reflect all debt securities at
amortized
cost, equity security with readily determinable fair values at
the lower
of cost or fair value, and equity securities without readily
determinable
fair values at historical cost.
|
Liquidity
Liquidity
is our ability to maintain sufficient cash flow to meet maturing financial
obligations and customer credit needs, and to take advantage of investment
opportunities as they are presented in the marketplace. Our principal sources
of
liquidity are growth in deposits, proceeds from the maturity or sale of
securities and other financial instruments, repayments from securities and
loans, federal funds purchased, securities sold under agreements to repurchase,
and advances from the Federal Home Loan Bank (“FHLB”). At September 30, 2007,
our liquidity ratio (defined as net cash, short-term and marketable securities
to net deposits and short-term liabilities) was at 16.4% compared to 15.4%
at
year-end 2006.
To
supplement its liquidity needs, the Bank maintains credit
lines
which total $258.0
million
for federal funds with five correspondent banks, and master agreements with
brokerage firms for the sale of securities subject to repurchase. The Bank
is
also a shareholder of the FHLB of San Francisco, enabling it to have access
to
lower cost FHLB financing when necessary
.
As of September 30, 2007, the Bank had an approved credit line with the FHLB
of
San Francisco totaling $1.3 billion. The total advances outstanding with the
FHLB of San Francisco at September 30, 2007, was $1.1 billion. These borrowings
are secured by loans and securities.
Liquidity
can also be provided through the sale of liquid assets, which consist of federal
funds sold, securities sold under agreements to repurchase, and unpledged
investment securities available-for-sale. At September 30, 2007, investment
securities available-for-sale
at
fair value totaled $2.0 billion, with $1.6 billion
pledged
as collateral for borrowings and other commitments. The remaining $444.2 million
was available as additional liquidity or to be pledged as collateral for
additional borrowings.
Approximately
98% of the Company’s time deposits are maturing within one year or less as of
September 30, 2007. Management anticipates that there may be some outflow of
these deposits upon maturity due to the keen competition in the Bank’s
marketplace. However, based on our historical runoff experience, we expect
that
the outflow will be minimal and can be replenished through our normal growth
in
deposits. Management believes the above-mentioned sources will provide adequate
liquidity to the Bank to meet its daily operating needs.
The
Bancorp obtains funding for its activities primarily through dividend income
contributed by the Bank and proceeds from the issuance of securities, including
proceeds from the issuance of its common stock pursuant to its Dividend
Reinvestment Plan and the exercise of stock options. Dividends paid to the
Bancorp by the Bank are subject to regulatory limitations. The business
activities of the Bancorp consist primarily of the operation of the Bank with
limited activities in other investments. Management believes the Bancorp’s
liquidity generated from its prevailing sources is sufficient to meet its
operational needs.