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| BBCN > SEC Filings for BBCN > Form 10-Q on 8-Nov-2012 | All Recent SEC Filings |
8-Nov-2012
Quarterly Report
The following discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2011 and the unaudited consolidated financial statements and notes set forth elsewhere in this report.
GENERAL
Selected Financial Data
The following table sets forth certain selected financial data concerning the
periods indicated:
At or for the Three Months Ended September 30, At or for the Nine Months Ended September
30,
2012 2011 2012 2011
(Dollars in thousands, except
share and per share data)
Income Statement Data:
Interest income $ 65,455 $ 38,927 $ 200,953 $ 113,415
Interest expense 7,224 7,874 22,361 24,148
Net interest income 58,231 31,053 178,592 89,267
Provision for loan losses 6,900 3,483 16,682 18,792
Net interest income after provision
for loan losses 51,331 27,570 161,910 70,475
Non-interest income 7,664 4,258 29,531 16,452
Non-interest expense 28,770 16,817 90,282 50,398
Income before income tax expense 30,225 15,011 101,159 36,529
Income tax expense 11,827 5,196 39,463 13,650
Net income $ 18,398 $ 9,815 $ 61,696 $ 22,879
Dividends and discount accretion on
preferred stock $ 0 $ (1,077 ) $ (5,640 ) $ (3,227 )
Gain on repurchase of stock warrant 193 0 193 0
Net income available to common
stockholders $ 18,591 $ 8,738 $ 56,249 $ 19,652
Per Share Data:
Earnings per common share - basic $ 0.24 $ 0.23 $ 0.72 $ 0.52
Earnings per common share - diluted $ 0.24 $ 0.23 $ 0.72 $ 0.52
Book value per common share (period
end, excluding preferred stock and
warrants) $ 9.41 $ 8.30 $ 9.41 $ 8.30
Tangible book value per common share
(period end, excluding preferred
stock and warrants) (12) $ 8.21 $ 8.23 $ 8.21 $ 8.23
Number of common shares outstanding
(period end) 78,016,260 38,095,260 78,016,260 38,095,260
Weighted average shares - basic 78,015,960 38,098,142 78,004,458 38,044,625
Weighted average shares - diluted 78,103,795 38,103,683 78,082,059 38,070,141
Tangible common equity ratio (9) 12.23 % 10.40 % 12.23 % 10.40 %
Statement of Financial Condition Data
- at Period End:
Assets $ 5,331,979 $ 3,016,127 $ 5,331,979 $ 3,016,127
Securities available for sale 687,059 455,789 687,059 455,789
Gross loans, net of deferred loan
fees and costs (excludes loans held
for sale) 4,069,494 2,257,667 4,069,494 2,257,667
Deposits 4,052,524 2,267,196 4,052,524 2,267,196
Federal Home Loan Bank borrowings 460,815 300,000 460,815 300,000
Subordinated debentures 41,809 39,268 41,809 39,268
Stockholders' equity 734,455 383,615 734,455 383,615
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At or for the Three Months Ended At or for the Nine Months Ended
September 30, September 30,
2012 2011 2012 2011
(Dollars in thousands)
Average Balance Sheet Data:
Assets $ 5,179,186 $ 2,987,441 $ 5,140,591 $ 2,952,371
Securities available for sale 679,764 486,009 699,225 504,402
Gross loans, including loans held
for sale 4,007,402 2,248,544 3,878,080 2,202,535
Deposits 3,962,379 2,244,808 3,906,834 2,199,023
Stockholders' equity 728,038 377,654 785,875 370,155
Selected Performance Ratios:
Return on average assets (1) (8) 1.42 % 1.31 % 1.60 % 1.03 %
Return on average stockholders'
equity (1) (8) 10.11 % 10.40 % 10.47 % 8.24 %
Return on average tangible equity
(1) (8) (11) 11.60 % 10.48 % 11.89 % 8.31 %
Pre Tax- Pre Provision income to
average assets (1) 2.87 % 2.48 % 3.06 % 2.50 %
Efficiency ratio (2) 43.66 % 47.63 % 43.38 % 47.67 %
Net interest margin (3) 4.79 % 4.29 % 4.97 % 4.20 %
Regulatory Capital Ratios (4)
Leverage capital ratio (5) 13.15 % 13.50 % 13.15 % 13.50 %
Tier 1 risk-based capital ratio 15.22 % 16.71 % 15.22 % 16.71 %
Total risk-based capital ratio 16.48 % 17.98 % 16.48 % 17.98 %
Tier 1 common -risk based capital
ratio (13) 14.26 % 12.42 % 14.26 % 12.42 %
Asset Quality Ratios:
Allowance for loan losses to gross
loans, excluding loans held for sale 1.62 % 2.66 % 1.62 % 2.66 %
Allowance for loan losses to legacy
loans (10) 2.00 % 2.66 % 2.00 % 2.66 %
Allowance for loan losses to
non-accrual loans 224.56 % 215.94 % 224.56 % 215.94 %
Allowance for loan losses to
non-performing loans (6) 89.13 % 116.90 % 89.13 % 116.90 %
Allowance for loan losses to
non-performing assets (7) 84.41 % 106.83 % 84.41 % 106.83 %
Nonaccrual loans to gross loans,
excluding loans held for sale 0.72 % 1.23 % 0.72 % 1.23 %
Nonperforming loans to gross loans,
excluding loans held for sale (6) 1.82 % 2.26 % 1.82 % 2.26 %
Nonperforming assets to gross loans
and OREO (7) 1.92 % 2.47 % 1.92 % 2.47 %
Total non-performing assets to total
assets (7) 1.47 % 1.86 % 1.47 % 1.86 %
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(1) Annualized.
(2) Efficiency ratio is defined as non-interest expense divided by the sum of net interest income before provision for loan losses and non-interest income.
(3) Net interest margin is calculated by dividing annualized net interest income by average total interest-earning assets.
(4) The ratios required to meet the definition of a "well-capitalized" institution under certain banking regulations are 5% leverage capital, 6% tier I risk-based capital and 10% total risk-based capital.
(5) Calculations are based on average quarterly asset balances.
(6) Non-performing loans include non-accrual loans, loans past due 90 days or more and still accruing interest, and accruing restructured loans. Loans 90 days or more past due and still accruing consist of acquired loans that were originally recorded at fair value upon acquisitions. These loans are considered to be accruing as we can reasonably estimate future cash flows on acquired loans and we expect to fully collect the carrying value of these loans.
(7) Non-performing assets include non-accrual loans, loans past due 90 days or more and still accruing interest, other real estate owned, and accruing restructured loans.
(8) Based on net income before effect of dividends and discount accretion on preferred stock.
(9) Excludes TARP preferred stock, net of discount, of $0 and $64.9 million and stock warrants of $378 thousand and $2.4 million at September 30, 2012 and 2011, respectively.
(10) Legacy loans are those loans accounted for under the amortized cost method and do not include loans acquired from Center Financial Corporation on November 30, 2011. This is a non-GAAP measure that we believe provides investors with information
that is useful in understanding our financial performance and position.
Allowance for loan losses to legacy loans is calculated by dividing the gross
legacy loan balance by allowance for loan losses.
(11) Average tangible equity is calculated by subtracting average goodwill and
average other intangibles from average stockholders' equity. This is a
non-GAAP measure that we believe provides investors with information that
is useful in understanding our financial performance and position.
Three Months Ended September 30, Nine Months Ended September 30,
2012 2011 2012 2011
(Dollars in thousands)
Net income $ 18,398 $ 9,815 $ 61,696 $ 22,879
Average stockholders' equity $ 728,038 $ 377,654 $ 785,875 $ 370,155
Less: Average goodwill and other
intangible assets, net (93,407 ) (2,861 ) (93,771 ) (2,938 )
Average tangible equity $ 634,631 $ 374,793 $ 692,104 $ 367,217
Net income (annualized) to average
tangible equity 11.60 % 10.48 % 11.89 % 8.31 %
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(12) Tangible book value per share is calculated by subtracting goodwill and other intangible assets from total stockholders' equity and dividing the difference by the number of shares of common stock outstanding. This is a non-GAAP measure that we believe provides investors with information that is useful in understanding our financial performance and position.
September 30, 2012 September 30, 2011
(In thousands)
Total stockholders' equity $ 734,455 $ 383,615
Less: Preferred stock, net of discount 0 (64,918 )
Common stock warrant (378 ) (2,383 )
Goodwill and other intangible assets, net (93,216 ) (2,811 )
Tangible common equity $ 640,861 $ 313,503
Common shares outstanding 78,016,260 38,095,260
Tangible common equity per share $ 8.21 $ 8.23
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(13) Tier 1 common is calculated as Tier 1 capital less non-common elements, including perpetual preferred stock and related surplus, minority interest in subsidiaries, trust preferred securities and mandatory convertible preferred securities.
September 30, 2012 September 30, 2011
(In thousands)
Tier 1 capital $ 666,652 $ 401,441
Less: Preferred stock, net of discount 0 (64,918 )
Trust preferred securities less unamortized
acquisition discount of $5,616 (40,384 ) (38,000 )
Tier 1 common-risk based capital $ 626,268 $ 298,523
Total risk weighted assets less disallowed allowance
for loan losses 4,392,505 2,402,920
Tier 1 common-risk based capital ratio 14.26 % 12.42 %
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Three Months Ended September 30, Nine Months Ended September 30,
2012 2011 2012 2011
(In thousands)
Accretion of discount on Center loans (1) $ 6,105 $ 0 $ 23,445 $ 0
Amortization of premiums on Center FHLB
borrowings (2) 307 0 2,442 0
Accretion of discount on Center
subordinated debt (3) (37 ) 0 (108 ) 0
Amortization of premium on Center time
deposits (4) 650 0 2,712 0
Amortization of core deposit intangibles
from Center (5) (253 ) 0 (796 ) 0
Accretion of discounts on other Center
assets (6) 158 0 272 0
Amortization of unfavorable lease liability
(7) 53 0 168 0
Merger and integration expense (8) (183 ) (574 ) (3,304 ) (1,466 )
Increase (decrease) to pre-tax income $ 6,800 $ (574 ) $ 24,831 $ (1,466 )
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(1) The fair value of the Center loans was estimated to be $118.0 million below
the principal amount of such loans on the Merger date. The accretable portion of
the discounts on the loans is being accreted into interest income over the
remaining lives of the acquired loans.
(2) The fair value of the outstanding FHLB borrowings assumed from Center was
estimated to be above the face amount of such debt. The premiums on FHLB
borrowings are being amortized into interest expense over the remaining term of
the debt.
(3) The fair value of the outstanding subordinated debt assumed from Center was
estimated to be below the face amount of such debt. The discounts on the
subordinated debt are being accreted into interest expense over the remaining
term of the debt.
(4) The fair value of time deposits assumed from Center was estimated to be
above the face amount of such deposits. The premiums on certificates of deposits
are being amortized into interest expense over the remaining term of the
deposits.
(5) A core deposit intangible arises in an acquisition of a financial
institution or a financial institution branch having a deposit base comprised of
stable customer relationships. These customer relationships provide a future
benefit to the acquiring institution due to their favorable interest rates in
comparison to market rates for alternative funding sources with terms similar to
the length of time the customer relationships are expected to be retained. The
initial value assigned to a core deposit intangible represents the present value
of this future economic benefit. The core deposit intangible asset recognized as
part of the Merger is being amortized over its estimated useful life of
approximately seven years utilizing an accelerated amortization method.
(6) Discounts on other assets primarily relate to servicing assets, investments
in affordable housing partnerships and the fair value of the favorable operating
leases.
(7) Unfavorable lease liability relates to the Center facility lease contracts
which had rental rates that exceeded market rental rates on the Merger date.
(8) Direct costs related to the Center merger were expensed as incurred. During
the three months ended September 30, 2012, we incurred $183 thousand in merger
and integration expenses, including $33 thousand in salaries and benefits and
$150 thousand in professional fees. During the three months ended September 30,
2011, we incurred $574 thousand in merger and integration expenses. During the
nine months ended September 30, 2012, we incurred $3.3 million in merger and
integration expenses, including $1.1 million in salaries and benefits and $2.2
million in professional fees. During the nine months ended September 30, 2011,
we incurred $1.5 million in merger and integration expenses.
The annualized return on average assets, before the effect of dividends and
discount accretion on preferred stock on average assets, was 1.42% for the third
quarter of 2012 compared to 1.31% for the same period of 2011. The annualized
return on average stockholders' equity, before the effect of dividends and
discount accretion on preferred stock, was 10.11% for the third quarter of 2012
compared to 10.40% for the same period of 2011. The efficiency ratio was 43.66%
for the third quarter of 2012 compared to 47.63% for the same period of 2011.
The annualized return on average assets, before the effect of dividends and
discount accretion on preferred stock on average assets, was 1.60% for the nine
months ended September 30, 2012 compared to 1.03% for the same period of 2011.
The annualized return on average stockholders' equity, before the effect of
dividends and discount accretion on preferred stock, was 10.47% for the nine
months ended September 30, 2012 compared to 8.24% for the same period of 2011.
The efficiency ratio was 43.38% for the nine months ended September 30, 2012
compared to 47.67% for the same period of 2011.
Net Interest Income and Net Interest Margin
Net Interest Income and Expense
A principal component of the Company's earnings is net interest income, which is
the difference between the interest and fees earned on loans and investments and
the interest paid on deposits and borrowed funds. Net interest income expressed
as a percentage of average interest-earning assets is referred to as the net
interest margin. The net interest spread is the yield on average
interest-earning assets less the cost of average interest-bearing liabilities.
Net interest income is affected by changes in the balances of interest-earning
assets and interest-bearing liabilities and changes in the yields earned on
interest-earning assets and the rates paid on interest-bearing liabilities.
Comparison of Three Months Ended September 30, 2012 with the Same Period of 2011
Net interest income before provision for loan losses was $58.2 million for the
third quarter of 2012, an increase of $27.1 million, or 88%, compared to $31.1
million for the same period of 2011. The increase was principally attributable
to the higher level of interest earning assets and the improvement in the net
interest margin following the merger. The net interest margin increased to 4.79%
for the third quarter of 2012, compared to 4.29% for the same period of 2011.
The increase was principally due to the effect of acquisition accounting
adjustments.
Interest income for the third quarter of 2012 was $65.5 million, an increase of
$26.5 million, or 68%, compared to $38.9 million for the same period of 2011.
The increase resulted from a $28.2 million increase in interest income due to an
increase in average interest-earning assets, which was partially offset by a
$1.7 million decrease in interest income due to a decrease in the yield on
average interest-earnings assets.
Interest expense for the third quarter of 2012 was $7.2 million, a decrease of
$0.7 million, or 8%, compared to interest expense of $7.9 million for the same
period of 2011. The decrease resulted from a $3.6 million decrease in interest
expense due to a decrease in the rates paid on average interest-bearing
liabilities, which was partially offset by a $2.9 million increase in interest
expense due to an increase in average interest-bearing liabilities.
Comparison of Nine Months Ended September 30, 2012 with the Same Period of 2011
Net interest income before provision for loan losses was $178.6 million for the
nine months ended September 30, 2012, an increase of $89.3 million, or 100%,
compared to $89.3 million for the same period of 2011. The increase was
principally due to the higher level of interest earning assets and the
improvement in the net interest margin following the merger.
Interest income for the nine months ended September 30, 2012 was $201.0 million,
an increase of $87.6 million, or 77%,
compared to $113.4 million for the same period of 2011. The increase resulted
from a $2.6 million increase in interest income due to an increase in the yield
on average interest-earnings assets and a $85.0 million increase in interest
income due to an increase in average interest-earning assets.
Interest expense for the nine months ended September 30, 2012 was $22.4 million,
a decrease of $1.7 million, or 7%, compared to interest expense of $24.1 million
for the same period of 2011. The decrease resulted from a $10.1 million decrease
in interest expense due to a decrease in the average rates paid on
interest-bearing liabilities, which was partially offset by an $8.4 million
increase in interest expense due to an increase in average interest-bearing
liabilities.
Net Interest Margin
The net interest margin for the third quarter of 2012 was 4.79%, an increase of
50 basis points from 4.29% for the same period of 2011. Net interest margin for
the nine months ended September 30, 2012 was 4.97%, an increase of 77 basis
points from 4.20% for the same period of 2011. The improvement in net interest
margin was principally due to the effect of acquisition accounting adjustments,
as summarized in the following table.
Three Months Ended September Nine Months Ended
30, September 30,
2012 2011 2012 2011
. . .
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