Company Quick10K Filing
Cathay General Bancorp
Price35.26 EPS3
Shares80 P/E10
MCap2,832 P/FCF9
Net Debt-665 EBIT530
TEV2,168 TEV/EBIT4
TTM 2019-09-30, in MM, except price, ratios
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8-K 2018-01-30

CATY 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 ex31-1.htm
EX-31.2 ex31-2.htm
EX-32.1 ex32-1.htm
EX-32.2 ex32-2.htm

Cathay General Bancorp Earnings 2015-03-31

Balance SheetIncome StatementCash Flow
2016128402012201420172020
Assets, Equity
0.10.10.10.00.00.02016201720182020
Rev, G Profit, Net Income
0.60.30.1-0.2-0.4-0.72012201420172020
Ops, Inv, Fin

10-Q 1 caty20150331_10q.htm FORM 10-Q caty20150331_10q.htm

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

March 31, 2015                                                        

OR

[    ] 

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 001-31830

 Cathay General Bancorp

 (Exact name of registrant as specified in its charter)

 Delaware

 

 95-4274680

 (State of other jurisdiction of incorporation

 

 (I.R.S. Employer

 or organization)

 

 Identification No.)

 777 North Broadway, Los Angeles, California

 

 90012

 (Address of principal executive offices)

 

 (Zip Code)

Registrant's telephone number, including area code:

(213) 625-4700  

 


(Former name, former address and former fiscal year, if changed since last report)

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 ☑          No ☐

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 ☑          No ☐

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,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer    ☑

Accelerated filer   ☐

Non-accelerated filer      ☐ (Do not check if a smaller reporting company)

Smaller reporting company  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).                                                             Yes ☐          No ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Common stock, $.01 par value, 79,912,799 shares outstanding as of April 30, 2015.

 

 
1

 

 

CATHAY GENERAL BANCORP AND SUBSIDIARies

1st quarter 2015 REPORT ON FORM 10-Q

table of contents

 

 

PART I – FINANCIAL INFORMATION

  5
     

Item 1.

FINANCIAL STATEMENTS (Unaudited).   5
 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited).

8

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.   35

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   58

Item 4.

CONTROLS AND PROCEDURES.   59
     

PART II - OTHER INFORMATION

  60
     

Item 1.

LEGAL PROCEEDINGS.

60

Item 1A

RISK FACTORS.   60

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

60

Item 3.

DEFAULTS UPON SENIOR SECURITIES.

60

Item 4.

MINE SAFETY DISCLOSURES.

61

Item 5.

OTHER INFORMATION.

61

Item 6.

EXHIBITS.

61

     
     
     
     

SIGNATURES

62

 

 
2

 

 

 

Forward-Looking Statements

 

In this Quarterly Report on Form 10-Q, the term “Bancorp” refers to Cathay General Bancorp and the term “Bank” refers to Cathay Bank. The terms “Company,” “we,” “us,” and “our” refer to Bancorp and the Bank collectively.

 

The statements in this report include forward-looking statements within the meaning of the applicable provisions of the Private Securities Litigation Reform Act of 1995 regarding management’s beliefs, projections, and assumptions concerning future results and events. We intend such forward-looking statements to be covered by the safe harbor provision for forward-looking statements in these provisions. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including statements about anticipated future operating and financial performance, financial position and liquidity, growth opportunities and growth rates, growth plans, acquisition and divestiture opportunities, business prospects, strategic alternatives, business strategies, financial expectations, regulatory and competitive outlook, investment and expenditure plans, financing needs and availability, and other similar forecasts and statements of expectation and statements of assumptions underlying any of the foregoing. Words such as “aims,” “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “hopes,” “intends,” “may,” “optimistic,” “plans,” “potential,” “possible,” “predicts,” “projects,” “seeks,” “shall,” “should,” “will,” and variations of these words and similar expressions are intended to identify these forward-looking statements. Forward-looking statements by us are based on estimates, beliefs, projections, and assumptions of management and are not guarantees of future performance. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. Such risks and uncertainties and other factors include, but are not limited to, adverse developments or conditions related to or arising from:

 

 

U.S. and international business and economic conditions;

 

 

possible additional provisions for loan losses and charge-offs;

 

 

credit risks of lending activities and deterioration in asset or credit quality;

 

 

extensive laws and regulations and supervision that we are subject to, including potential supervisory action by bank supervisory authorities;

 

 

increased costs of compliance and other risks associated with changes in regulation, including the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”);

 

 

higher capital requirements from the implementation of the Basel III capital standards;

 

 

compliance with the Bank Secrecy Act and other money laundering statutes and regulations;

 

 

potential goodwill impairment;

 

 

liquidity risk;

 

 

fluctuations in interest rates;

 

 

risks associated with acquisitions and the expansion of our business into new markets;

 

 

inflation and deflation;

 

 

real estate market conditions and the value of real estate collateral;

 

 

environmental liabilities;

 

 

 
3

 

 

 

our ability to compete with larger competitors;

 

 

our ability to retain key personnel;

 

 

successful management of reputational risk;

 

 

natural disasters and geopolitical events;

 

 

general economic or business conditions in Asia, and other regions where the Bank has operations;

 

 

failures, interruptions, or security breaches of our information systems;

 

 

our ability to adapt our systems to technological changes;

 

 

risk management processes and strategies;

 

 

adverse results in legal proceedings;

 

 

certain provisions in our charter and bylaws that may affect acquisition of the Company;

 

 

changes in accounting standards or tax laws and regulations;

 

 

market disruption and volatility;

 

 

restrictions on dividends and other distributions by laws and regulations and by our regulators and our capital structure;

 

 

issuance of preferred stock;

 

 

successfully raising additional capital, if needed, and the resulting dilution of interests of holders of our common stock; and

 

 

the soundness of other financial institutions.

 

 

These and other factors are further described in Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2014 (Item 1A in particular), other reports and registration statements filed with the Securities and Exchange Commission (“SEC”), and other filings it makes with the SEC from time to time. Actual results in any future period may also vary from the past results discussed in this report. Given these risks and uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements, which speak to the date of this report. We have no intention and undertake no obligation to update any forward-looking statement or to publicly announce any revision of any forward-looking statement to reflect future developments or events, except as required by law.

 

Bancorp’s filings with the SEC are available at the website maintained by the SEC at http://www.sec.gov, or by request directed to Cathay General Bancorp, 9650 Flair Drive, El Monte, California 91731, Attention: Investor Relations (626) 279-3286.

 

 
4

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. FINANCIAL STATEMENTS (Unaudited)

 

CATHAY GENERAL BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

(In thousands, except share and per share data)

 

March 31, 2015

   

December 31, 2014

 
                 

Assets

               

Cash and due from banks

  $ 182,159     $ 176,830  

Short-term investments and interest bearing deposits

    618,726       489,614  

Securities available-for-sale (amortized cost of $1,197,922 in 2015 and $1,324,408 in 2014)

    1,203,682       1,318,935  

Loans held for sale

    -       973  

Loans

    9,224,797       8,914,080  

Less:  Allowance for loan losses

    (156,089 )     (161,420 )

Unamortized deferred loan fees, net

    (11,116 )     (12,392 )

Loans, net

    9,057,592       8,740,268  

Federal Home Loan Bank stock

    25,000       30,785  

Other real estate owned, net

    30,799       31,477  

Affordable housing investments, net

    129,829       104,579  

Premises and equipment, net

    98,512       99,682  

Customers’ liability on acceptances

    17,956       35,656  

Accrued interest receivable

    26,584       25,364  

Goodwill

    316,340       316,340  

Other intangible assets, net

    3,084       3,237  

Other assets

    199,826       143,106  

Total assets

  $ 11,910,089     $ 11,516,846  
                 

Liabilities and Stockholders’ Equity

               

Deposits

               

Non-interest-bearing demand deposits

  $ 1,691,173     $ 1,664,914  

Interest-bearing deposits:

               

NOW deposits

    822,940       778,691  

Money market deposits

    1,551,453       1,538,187  

Savings deposits

    557,924       533,940  

Time deposits under $100,000

    1,241,529       1,162,547  

Time deposits of $100,000 or more

    3,248,231       3,105,181  

Total deposits

    9,113,250       8,783,460  
                 

Securities sold under agreements to repurchase

    400,000       450,000  

Advances from the Federal Home Loan Bank

    485,000       425,000  

Other borrowings for affordable housing investments

    22,482       19,934  

Long-term debt

    119,136       119,136  

Acceptances outstanding

    17,956       35,656  

Other liabilities

    118,019       80,772  

Total liabilities

    10,275,843       9,913,958  

Commitments and contingencies

    -       -  

Stockholders’ Equity

               

Common stock, $0.01 par value, 100,000,000 shares authorized, 84,108,607 issued and 79,901,042 outstanding at March 31, 2015, and 84,022,118 issued and 79,814,553 outstanding at December 31, 2014

    841       840  

Additional paid-in-capital

    787,956       789,519  

Accumulated other comprehensive loss, net

    (646 )     (5,569 )

Retained earnings

    971,831       943,834  

Treasury stock, at cost (4,207,565 shares at March 31, 2015, and at December 31, 2014)

    (125,736 )     (125,736 )

Total equity

    1,634,246       1,602,888  

Total liabilities and equity

  $ 11,910,089     $ 11,516,846  

 

See accompanying notes to unaudited condensed consolidated financial statements

 

 
5

 

 

CATHAY GENERAL BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME

(Unaudited)

 

   

Three months ended March 31,

 
   

2015

   

2014

 
   

(In thousands, except share and per share data)

 

Interest and Dividend Income

               

Loans receivable, including loan fees

  $ 100,100     $ 92,732  

Investment securities

    3,774       7,576  

Federal Home Loan Bank stock

    581       450  

Deposits with banks

    479       449  

Total interest and dividend income

    104,934       101,207  
                 

Interest Expense

               

Time deposits of $100,000 or more

    6,773       6,664  

Other deposits

    4,793       4,028  

Securities sold under agreements to repurchase

    3,925       6,930  

Advances from Federal Home Loan Bank

    93       199  

Long-term debt

    1,424       728  

Total interest expense

    17,008       18,549  
                 

Net interest income before provision for credit losses

    87,926       82,658  

Reversal of provision for loan losses

    (5,000 )     -  
                 

Net interest income after credit for loan losses

    92,926       82,658  
                 

Non-Interest Income

               

Securities (losses)/gains, net

    (21 )     5,960  

Letters of credit commissions

    1,268       1,468  

Depository service fees

    1,301       1,363  

Other operating income

    6,001       5,768  

Total non-interest income

    8,549       14,559  
                 

Non-Interest Expense

               

Salaries and employee benefits

    22,616       23,451  

Occupancy expense

    4,021       3,862  

Computer and equipment expense

    2,502       2,302  

Professional services expense

    5,352       5,156  

FDIC and State assessments

    2,260       2,154  

Marketing expense

    820       564  

Other real estate owned expense

    483       759  

Operations of affordable housing investments, net

    2,383       2,436  

Amortization of core deposit intangibles

    177       172  

Costs associated with debt redemption

    -       3,376  

Other operating expense

    3,517       3,836  

Total non-interest expense

    44,131       48,068  
                 

Income before income tax expense

    57,344       49,149  

Income tax expense

    21,364       17,890  

Net income

    35,980       31,259  
                 

Other comprehensive income, net of tax

               

Unrealized holding gain on securities available-for-sale

    6,499       11,094  

Less: reclassification adjustments included in net income

    (12 )     3,455  

Unrealized holding loss on cash flow hedge derivatives

    (1,588 )     -  

Total other comprehensive gain, net of tax

    4,923       7,639  

Total comprehensive income

  $ 40,903     $ 38,898  
                 

Net income per common share:

               

Basic

  $ 0.45     $ 0.39  

Diluted

  $ 0.45     $ 0.39  

Cash dividends paid per common share

  $ 0.10     $ 0.05  

Average common shares outstanding

               

Basic

    79,835,628       79,595,757  

Diluted

    80,309,383       80,039,382  

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 
6

 

 

CATHAY GENERAL BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   

Three months ended March 31

 
   

2015

   

2014

 
   

(In thousands)

 

Cash Flows from Operating Activities

               

Net income

  $ 35,980     $ 31,259  

Adjustments to reconcile net income to net cash provided by/(used in) operating activities:

         

Credit for loan losses

    (5,000 )     -  

Provision for losses on other real estate owned

    181       617  

Deferred tax liability

    6,840       6,012  

Depreciation

    1,732       1,742  

Net losses/(gains) on sale and transfer of other real estate owned

    154       (559 )

Net gains on sale of loans

    (596 )     (128 )

Proceeds from sales of loans

    10,360       4,525  

Originations of loans held-for-sale

    (8,791 )     (4,397 )

Net change in trading securities

    -       4,936  

Write-downs on venture capital investments

    224       75  

Net losses/(gains) on sales and calls of securities

    21       (5,960 )

Amortization/accretion of security premiums/discounts, net

    502       867  

Amortization of other intangible assets

    197       196  

Excess tax short-fall from share-based payment arrangements

    4,395       1,227  

Stock based compensation and stock issued to officers as compensation

    1,570       1,353  

Net change in accrued interest receivable and other assets

    6,631       3,285  

Net change in other liabilities

    1,379       1,374  

Net cash provided by operating activities

    55,779       46,424  
                 

Cash Flows from Investing Activities

               

Increase in short-term investments

    (129,112 )     (103,368 )

Purchase of investment securities available-for-sale

    (703,305 )     (246,498 )

Proceeds from sale of investment securities available-for-sale

    741,992       139,671  

Proceeds from repayments, maturities and calls of investment securities available-for-sale

    12,102       133,369  

Purchase of Federal Home Loan Bank stock

    -       (4,901 )

Redemptions of Federal Home Loan Bank stock

    5,785       -  

Net increase in loans

    (305,651 )     (220,402 )

Purchase of premises and equipment

    (562 )     (2,081 )

Proceeds from sales of other real estate owned

    1,043       6,379  

Net increase in investment in affordable housing

    (1,351 )     (1,894 )

Net cash used in investing activities

    (379,059 )     (299,725 )
                 

Cash Flows from Financing Activities

               
                 

Net increase in deposits

    329,724       251,032  

Net decrease in federal funds purchased and securities sold under agreements to repurchase

    (50,000 )     (100,000 )

Advances from Federal Home Loan Bank

    2,242,000       5,127,400  

Repayment of Federal Home Loan Bank borrowings

    (2,182,000 )     (5,012,400 )

Cash dividends paid

    (7,983 )     (3,980 )

Proceeds from shares issued under Dividend Reinvestment Plan

    1,289       386  

Proceeds from exercise of stock options

    88       -  

Taxes paid related to net share settlement of RSUs

    (114 )     -  

Excess tax short-fall from share-based payment arrangements

    (4,395 )     (1,227 )

Net cash provided by financing activities

    328,609       261,211  
                 

Increase in cash and cash equivalents

    5,329       7,910  

Cash and cash equivalents, beginning of the period

    176,830       153,747  

Cash and cash equivalents, end of the period

  $ 182,159     $ 161,657  
                 

Supplemental disclosure of cash flow information

               

Cash paid during the period:

               

Interest

  $ 17,370     $ 19,533  

Income taxes paid

  $ 11,884     $ 12,444  

Non-cash investing and financing activities:

               

Net change in unrealized holding gain on securities available-for-sale, net of tax

  $ 6,511     $ 7,639  

Net change in unrealized holding loss on interest rate swaps

  $ (1,588 )   $ -  

Transfers to other real estate owned from loans held for investment

  $ 701     $ -  

 

See accompanying notes to unaudited condensed consolidated financial statements.    

 

 
7

 

 

CATHAY GENERAL BANCORP AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

1. Business

 

Cathay General Bancorp (“Bancorp”) is the holding company for Cathay Bank (the “Bank” and, together, the “Company”), seven limited partnerships investing in affordable housing investments in which the Bank is the sole limited partner, and GBC Venture Capital, Inc. Bancorp also owns 100% of the common stock of five statutory business trusts created for the purpose of issuing capital securities. The Bank was founded in 1962 and offers a wide range of financial services. As of March 31, 2015, the Bank operated 21 branches in Southern California, 12 branches in Northern California, nine branches in New York State, three branches in Illinois, three branches in Washington State, two branches in Texas, one branch in Massachusetts, one branch in New Jersey, one branch in Nevada, one branch in Hong Kong, and a representative office in Shanghai and in Taipei. Deposit accounts at the Hong Kong branch are not insured by the Federal Deposit Insurance Corporation (the “FDIC”).

 

2. Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. For further information, refer to the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

 

The preparation of the condensed consolidated financial statements in accordance with GAAP requires management of the Company to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. The most significant estimates subject to change are the allowance for loan losses, goodwill impairment, and other-than-temporary impairment.

 

3. Recent Accounting Pronouncements

 

In June 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.” ASU No. 2014-12 requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. An entity should recognize compensation cost in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. ASU 2014-12 becomes effective for interim and annual periods beginning on or after December 15, 2015. Adoption of ASU 2014-12 is not expected to have a significant impact on the Company’s consolidated financial statements.

 

 
8

 

 

ASU 2014-15, “Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”, issued by the FASB in August 2014, requires an entity’s management to evaluate and disclose conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.  In addition, an entity’s management is to disclose management’s plans that alleviated or that are intended to mitigate the conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern.  ASU 2014-15 becomes effective for interim and annual periods beginning on or after December 15, 2016.  Adoption of ASU 2014-15 is not expected to have a significant impact on the Company’s consolidated financial statements.

 

In February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810).” This update requires that limited partnerships or similar legal entities must provide partners with either substantive kick-out rights or substantive participating rights over the general partner to be qualified as voting interest entities (“VIE”). Limited partnerships that qualify as voting interest entities and with a controlling financial interest should consolidate a limited partnership. ASU 2015-02 eliminates the specialized consolidate model and guidance for limited partnerships. There is no longer a presumption that a general partner should consolidate a limited partnership. This update specifies that fees paid to a decision maker are excluded from the evaluation of the economics criterion if the fees are both customary and commensurate with the level of effort required for the services provided. In instances in which no single party has a controlling financial interest in a VIE, related party relationships must be considered indirectly on a proportionate basis, rather than in their entirety. ASU 2015-02 becomes effective for interim and annual periods beginning on or after December 15, 2015.  Adoption of ASU 2015-02 is not expected to have a significant impact on the Company’s consolidated financial statements.

 

In April 2015, the FASB issued ASU 2015-03, “Interest- Imputation of Interest (Subtopic 835-30).” This update simplifies the presentation of debt issuance costs and requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. ASU 2015-03 becomes effective for interim and annual periods beginning on or after December 15, 2015.  Adoption of ASU 2015-03 is not expected to have a significant impact on the Company’s consolidated financial statements.

 

4. Earnings per Share

 

Basic earnings per share excludes dilution and is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock and resulted in the issuance of common stock that then shared in earnings.

 

 
9

 

 

Outstanding stock options with anti-dilutive effect were not included in the computation of diluted earnings per share. The following table sets forth earnings per common share calculations:

 

   

Three months ended March 31,

 

(Dollars in thousands, except share and per share data)

 

2015

   

2014

 

Net income

  $ 35,980     $ 31,259  
                 

Weighted-average shares:

               

Basic weighted-average number of common shares outstanding

    79,835,628       79,595,757  

Dilutive effect of weighted-average outstanding common share equivalents

               

Warrants

    344,919       298,535  

Options

    108,457       101,698  

Restricted stock units

    20,379       43,392  

Diluted weighted-average number of common shares outstanding

    80,309,383       80,039,382  
                 

Average stock options and warrants with anti-dilutive effect

    1,670,231       1,985,848  

Earnings per common share:

               

Basic

  $ 0.45     $ 0.39  

Diluted

  $ 0.45     $ 0.39  

 

 

5. Stock-Based Compensation

 

Under the Company’s equity incentive plans, directors and eligible employees may be granted incentive or non-statutory stock options and/or restricted stock units, or awarded non-vested stock. As of March 31, 2015, the only options granted by the Company were non-statutory stock options to selected Bank officers and non-employee directors at exercise prices equal to the fair market value of a share of the Company’s common stock on the date of grant. Such options have a maximum ten-year term and vest in 20% annual increments (subject to early termination in certain events) except certain options granted to the Chief Executive Officer of the Company in 2005 and 2008. If such options expire or terminate without having been exercised, any shares not purchased will again be available for future grants or awards. There were no options granted during the first quarter of 2015 or during 2014.

 

 
10

 

 

Option compensation expense was zero for the three months ended March 31, 2015, and for the three months ended March 31, 2014. Stock-based compensation was fully recognized over the requisite service period for all awards. For the first quarter ended March 31, stock options covering 3,750 shares were exercised in 2015 compared to zero in the first quarter of 2014. Cash received totaled $88,000 and the aggregate intrinsic value totaled $10,000 from the exercise of stock options during the first quarter ended March 31, 2015. The table below summarizes stock option activity for the periods indicated:

  

                   

Weighted-average

     
           

Weighted-average

   

Remaining

Contractual

   

Aggregate

Intrinsic

 
   

Shares

   

Exercise Price

   

Life (in years)

   

Value (in thousands)

 

Balance, December 31, 2014

    2,332,904     $ 32.34       1.2     $ 1,388  

Exercised

    (3,750 )     23.37                  

Forfeited

    (808,670 )     35.63                  

Balance, March 31, 2015

    1,520,484     $ 30.62       1.6     $ 3,156  
                                 

Exercisable, March 31, 2015

    1,520,484     $ 30.62       1.6     $ 3,156  

 

In addition to stock options, the Company also grants restricted stock units to eligible employees which vest subject to continued employment at the vesting dates.

 

The Company granted restricted stock units of 37,675 shares at an average closing price of $27.53 per share in the first quarter of 2015 compared to 17,601 shares at an average closing price of $24.66 per share in 2014. The restricted stock units granted are scheduled to vest two years from grant date for 2014 grants and to vest three years from grant date for 2015 grants.

 

The Company granted performance share unit awards in which the number of units earned is calculated based on the relative total shareholder return (“TSR”) of the Company’s common stock as compared to the TSR of the KBW Regional Banking Index. In addition, the Company granted performance share unit awards in which the number of units earned is determined by comparison to the targeted EPS as defined in the award for the next three years. In December 2014, the Company granted performance TSR restricted stock units for 60,456 shares and performance EPS restricted stock units for 57,642 shares to six executive officers. Both the performance TSR and performance EPS units awarded in 2014 are scheduled to vest at December 31, 2017.

 

The following table presents restricted stock unit activity from December 31, 2014, to March 31, 2015:

 

   

Units

 

Balance at December 31, 2014

    386,465  

Granted

    37,675  

Vested

    (16,709 )

Forfeited

    (7,265 )

Balance at March 31, 2015

    400,166  

 

The compensation expense recorded for restricted stock units was $1.1 million for the first quarter ended March 31, 2015, compared to $1.0 million in the same period a year ago. Unrecognized stock-based compensation expense related to restricted stock units was $6.5 million at March 31, 2015, and is expected to be recognized over the next 2.3 years.

 

At March 31, 2015, 3,562,168 shares were available under the Company’s 2005 Incentive Plan for future grants calculated based on maximum number of earned shares from TSR and EPS restricted stock units.

 

 

 
11

 

 

The following table summarizes the tax benefit (short-fall) from share-based payment arrangements:

 

 

   

Three months ended March 31,

 

(Dollars in thousands)

 

2015

   

2014

 

Short-fall of tax deductions in excess of grant-date fair value

  $ (4,395 )   $ (1,227 )

Benefit of tax deductions on grant-date fair value

    4,442       1,227  

Total benefit of tax deductions

  $ 47     $ -  

 

 

6. Investment Securities

 

 

Investment securities were $1.20 billion at March 31, 2015, compared to $1.32 billion at December 31, 2014. The following tables reflect the amortized cost, gross unrealized gains, gross unrealized losses, and fair value of investment securities as of March 31, 2015, and December 31, 2014:

 

 

   

March 31, 2015

 
           

Gross

   

Gross

         
   

Amortized

   

Unrealized

   

Unrealized

         
   

Cost

   

Gains

   

Losses

   

Fair Value

 
   

(In thousands)

 
                                 

Securities Available-for-Sale

                               

U.S. treasury securities

  $ 349,830     $ 353     $ -     $ 350,183  

Mortgage-backed securities

    756,758       3,904       333       760,329  

Collateralized mortgage obligations

    74       -       32       42  

Corporate debt securities

    74,946       730       1,165       74,511  

Mutual funds

    6,000       -       79       5,921  

Preferred stock of government sponsored entities

    6,686       844       3,584       3,946  

Other equity securities

    3,628       5,125       3       8,750  

Total

  $ 1,197,922     $ 10,956     $ 5,196     $ 1,203,682  

 

 

 

   

December 31, 2014

 
           

Gross

   

Gross

         
   

Amortized

   

Unrealized

   

Unrealized

         
   

Cost

   

Gains

   

Losses

   

Fair Value

 
   

(In thousands)

 

Securities Available-for-Sale

                               

U.S. treasury securities

  $ 664,206     $ 63     $ 265     $ 664,004  

Mortgage-backed securities

    549,296       1,393       6,386       544,303  

Collateralized mortgage obligations

    79       -       34       45  

Corporate debt securities

    94,943       776       1,247       94,472  

Mutual funds

    6,000       -       134       5,866  

Preferred stock of government sponsored entities

    6,276       681       3,733       3,224  

Other equity securities

    3,608       3,413       -       7,021  

Total

  $ 1,324,408     $ 6,326     $ 11,799     $ 1,318,935  

 

 

The amortized cost and fair value of investment securities at March 31, 2015, by contractual maturities, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or repay obligations with or without call or repayment penalties.  

 

 
12

 

 

   

Securities Available-For-Sale

 
   

Amortized cost

   

Fair value

 
   

(In thousands)

 

Due in one year or less

  $ 174,987     $ 175,062  

Due after one year through five years

    194,247       195,198  

Due after five years through ten years

    65,595       65,057  

Due after ten years (1)

    763,093       768,365  

Total

  $ 1,197,922     $ 1,203,682  
                 
                 

(1) Equity securities are reported in this category

         

 

 

Proceeds from sales of mortgage-backed securities were $406.9 million and from repayments, maturities and calls of mortgage-backed securities were $12.1 million during the first quarter of 2015 compared to proceeds from sales of $123.7 million and proceeds of $20.5 million from repayments, maturities, and calls during the same period a year ago. Proceeds from sales of other investment securities were $335.1 million during the first quarter of 2015 compared to $16.0 million during the same period a year ago. Proceeds from maturities and calls of other investment securities were zero during the first quarter of 2015 compared to $112.9 million during the same period a year ago. Gains of $1.7 million and losses of $1.7 million were realized on sales of investment securities during the first quarter of 2015 compared to gains of $6.0 million and losses of $67,000 realized during the same period a year ago.

 

The tables below show the fair value and unrealized losses of the temporarily impaired securities in our investment securities portfolio as of March 31, 2015, and December 31, 2014:

 

 

   

March 31, 2015

 
   

Temporarily impaired securities

 
   

Less than 12 months

   

12 months or longer

   

Total

 
   

Fair

   

Unrealized

   

Fair

   

Unrealized

   

Fair

   

Unrealized

 
   

Value

   

Losses

   

Value

   

Losses

   

Value

   

Losses

 
   

(Dollars in thousands)

 
                                                 

Securities Available-for-Sale

                                               

Mortgage-backed securities

  $ 145,297     $ 332     $ 7     $ 1     $ 145,304     $ 333  

Collateralized mortgage obligations

    -       -       41       32       41       32  

Corporate debt securities

    -       -       43,835       1,165       43,835       1,165  

Mutual funds

    -       -       5,921       79       5,921       79  

Preferred stock of government sponsored entities

    2,597       3,584       -       -       2,597       3,584  

Other equity securities

    17       3       -       -       17       3  

Total

  $ 147,911     $ 3,919     $ 49,804     $ 1,277     $ 197,715     $ 5,196  

 

 

 
13

 

 


   

December 31, 2014

 
   

Temporarily impaired securities

 
   

Less than 12 months

   

12 months or longer

   

Total

 
   

Fair

   

Unrealized

   

Fair

   

Unrealized

   

Fair

   

Unrealized

 
   

Value

   

Losses

   

Value

   

Losses

   

Value

   

Losses

 
   

(Dollars in thousands)

 
                                                 

Securities Available-for-Sale

                                               

U.S. treasury securities

  $ 374,153     $ 265     $ -     $ -     $ 374,153     $ 265  

Mortgage-backed securities

    -       -       425,090       6,386       425,090       6,386  

Collateralized mortgage obligations

    -       -       45       34       45       34  

Corporate debt securities

    -       -       63,753       1,247       63,753       1,247  

Mutual funds

    -       -       5,866       134       5,866       134  

Preferred stock of government sponsored entities

    2,448       3,733       -       -       2,448       3,733  

Total

  $ 376,601     $ 3,998     $ 494,754     $ 7,801     $ 871,355     $ 11,799  

 

 

At March 31, 2015, management believed the impairment was temporary and, accordingly, no impairment loss on debt securities has been recognized in our condensed consolidated statements of operations. The Company expects to recover the amortized cost basis of its debt securities, and has no intent to sell and will not be required to sell available-for-sale debt securities that have declined below their cost before their anticipated recovery.

 

Investment securities having a carrying value of $575.5 million at March 31, 2015, and $591.3 million at December 31, 2014, were pledged to secure public deposits, other borrowings, treasury tax and loan, and securities sold under agreements to repurchase. 

 

7. Loans 

 

Most of the Company’s business activity is with Asian customers located in Southern and Northern California; New York City, New York; Houston and Dallas, Texas; Seattle, Washington; Boston, Massachusetts; Chicago, Illinois; Edison, New Jersey; Las Vegas, Nevada, and Hong Kong. The Company has no specific industry concentration, and generally its loans are secured by real property or other collateral of the borrowers. Loans are generally expected to be paid off from the operating profits of the borrowers, from refinancing by other lenders, or through sale by the borrowers of the secured collateral.

 

 

 
14

 

 

The components of loans in the condensed consolidated balance sheets as of March 31, 2015, and December 31, 2014, were as follows:

 

 

   

March 31, 2015

   

December 31, 2014

 
   

(In thousands)

 

Type of Loans:

               

Commercial loans

  $ 2,434,550     $ 2,382,493  

Residential mortgage loans

    1,600,269       1,570,059  

Commercial mortgage loans

    4,663,051       4,486,443  

Equity lines

    175,997       172,879  

Real estate construction loans

    345,560       298,654  

Installment and other loans

    5,370       3,552  

Gross loans

    9,224,797       8,914,080  

Less:

               

Allowance for loan losses

    (156,089 )     (161,420 )

Unamortized deferred loan fees

    (11,116 )     (12,392 )

Total loans, net

  $ 9,057,592     $ 8,740,268  

Loans held for sale

  $ -     $ 973  

 

 

At March 31, 2015, recorded investment in impaired loans totaled $180.7 million and was comprised of non-accrual loans of $80.3 million and accruing troubled debt restructured loans (“TDRs) of $100.4 million. At December 31, 2014, recorded investment in impaired loans totaled $174.5 million and was comprised of non-accrual loans of $70.2 million and accruing TDRs of $104.3 million. For impaired loans, the amounts previously charged off represent 17.0% at March 31, 2015, and 17.1% at December 31, 2014, of the contractual balances for impaired loans. The following table presents the average balance and interest income recognized related to impaired loans for the periods indicated:

 

   

Impaired Loans

 
   

Average Recorded Investment

   

Interest Income Recognized

 
   

Three months ended

   

Three months ended

 
   

March 31,

   

March 31,

 
   

2015

   

2014

   

2015

   

2014

 
   

(In thousands)

 

Commercial loans

  $ 25,426     $ 30,844     $ 229     $ 226  

Real estate construction loans

    22,990       34,060       65       65  

Commercial mortgage loans

    110,293       111,305       917       1,134  

Residential mortgage loans and equity lines

    17,280       19,156       124       95  

Total impaired loans

  $ 175,989     $ 195,365     $ 1,335     $ 1,520  

 

 
15

 

 

The following tables present impaired loans and the related allowance for credit losses as of the dates indicated:

 

 

   

Impaired Loans

 
   

March 31, 2015

   

December 31, 2014

 
   

Unpaid Principal Balance

   

Recorded Investment

   

Allowance

   

Unpaid Principal Balance

   

Recorded Investment

   

Allowance

 
   

(In thousands)

 
                                                 

With no allocated allowance

                                               

Commercial loans

  $ 14,176     $ 13,148     $ -     $ 19,479     $ 18,452     $ -  

Real estate construction loans

    49,076       22,874       -       32,924       17,025       -  

Commercial mortgage loans

    93,468       85,142       -       77,474       75,172       -  

Residential mortgage loans and equity lines

    2,496       2,496       -       2,518       2,518       -  

Subtotal

  $ 159,216     $ 123,660     $ -     $ 132,395     $ 113,167     $ -  

With allocated allowance

                                               

Commercial loans

  $ 15,677     $ 15,660     $ 3,911     $ 7,003     $ 5,037     $ 1,263  

Real estate construction loans

    -       -       -       19,006       8,703       1,077  

Commercial mortgage loans

    27,529       26,581       6,635       38,197       34,022       8,993  

Residential mortgage loans and equity lines

    15,393       14,816       498       14,019       13,590       465  

Subtotal

  $ 58,599     $ 57,057     $ 11,044     $ 78,225     $ 61,352     $ 11,798  

Total impaired loans

  $ 217,815     $ 180,717     $ 11,044     $ 210,620     $ 174,519     $ 11,798  

 

 

The following tables present the aging of the loan portfolio by type as of March 31, 2015, and as of December 31, 2014:

 

 

   

March 31, 2015

 
   

30-59 Days

Past Due

   

60-89 Days

Past Due

   

90 Days or

More Past

Due

   

Non-accrual Loans

   

Total Past Due

   

Loans Not

Past Due

   

Total

 

Type of Loans:

 

(In thousands)

 

Commercial loans

  $ 3,530     $ 50     $ 787     $ 12,086     $ 16,453     $ 2,418,097     $ 2,434,550  

Real estate construction loans

    -       -       -       17,126       17,126       328,434       345,560  

Commercial mortgage loans

    22,041       1,738       -       43,079       66,858       4,596,193       4,663,051  

Residential mortgage loans and equity lines

    2,175       -       -       8,033       10,208       1,766,058       1,776,266  

Installment and other loans

    -       -       -       -       -       5,370       5,370  

Total loans

  $ 27,746     $ 1,788     $ 787     $ 80,324     $ 110,645     $ 9,114,152     $