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BBCN > SEC Filings for BBCN > Form 10-Q on 8-May-2013All Recent SEC Filings

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Form 10-Q for BBCN BANCORP INC


8-May-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2012 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 March 31,
                                                                     2013                       2012
                                                                      (Dollars in thousands, except
                                                                        share and per share data)
Income Statement Data:
Interest income                                             $             66,743       $             68,555
Interest expense                                                           7,027                      7,696
Net interest income                                                       59,716                     60,859
Provision for loan losses                                                  7,506                      2,600
Net interest income after provision for loan losses                       52,210                     58,259
Non-interest income                                                        9,940                     11,645
Non-interest expense                                                      33,275                     30,435
Income before income tax provision                                        28,875                     39,469
Income tax provision                                                      11,414                     15,535
Net income                                                  $             17,461       $             23,934
Dividends and discount accretion on preferred stock         $                  -       $             (1,869 )
Net income available to common stockholders                 $             17,461       $             22,065
Per Share Data:
Earnings per common share - basic                           $               0.22       $                  -
Earnings per common share - diluted                         $               0.22       $                  -
Book value per common share (period end, excluding
preferred stock and warrants)                               $               9.79       $               8.92
Cash dividends declared per common share                    $                .05       $                  -
Tangible book value per common share (period end, excluding
preferred stock and warrants) (11)                          $               8.57       $               7.72
Number of common shares outstanding (period end)                      78,812,140                 77,996,391
Weighted average shares - basic                                       78,389,434                 77,987,342
Weighted average shares - diluted                                     78,480,671                 78,101,818
Tangible common equity ratio (9)                                           11.77 %                    11.86 %
Statement of Financial Condition Data - at Period End:
Assets                                                      $          5,833,597       $          5,169,315
Securities available for sale                                            717,441                    697,808
Gross loans, net of deferred loan fees and costs (excludes
loans held for sale)                                                   4,500,046                  3,737,199
Deposits                                                               4,555,674                  3,920,464
FHLB advances                                                            421,632                    332,109
Subordinated debentures                                                   45,996                     52,137
Stockholders' equity                                                     772,275                    818,166


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                                                                At or for the Three Months Ended
                                                                            March 31,
                                                                   2013                   2012
                                                                     (Dollars in thousands)
Average Balance Sheet Data:
Assets                                                      $      5,727,738       $      5,139,396
Securities available for sale                                        691,984                725,728
Gross loans, including loans held for sale                         4,444,320              3,777,495
Deposits                                                           4,447,970              3,903,661
Stockholders' equity                                                 765,230                806,384
Selected Performance Ratios:
Return on average assets (1) (8)                                        1.22 %                 1.86 %
Return on average stockholders' equity (1) (8)                          9.13 %                11.87 %
Average stockholders' equity to average assets                         13.36 %                15.69 %
Return on average tangible equity (1) (8) (10)                         10.42 %                13.44 %
Dividend payout ratio (dividends per share / earnings per
share)                                                                 22.73 %                    - %
Pre-Tax Pre-Provision income to average assets (1)                      2.54 %                 3.27 %
Efficiency ratio (2)                                                   47.77 %                41.98 %
Net interest spread                                                     4.26 %                 4.83 %
Net interest margin (3)                                                 4.49 %                 5.11 %
Regulatory Capital Ratios (4)
Leverage capital ratio (5)                                             12.64 %                15.08 %
Tier 1 risk-based capital ratio                                        14.63 %                18.85 %
Total risk-based capital ratio                                         15.88 %                20.11 %
Tier 1 common risk-based capital ratio (12)                            13.72 %                14.63 %
Asset Quality Ratios:
Allowance for loan losses to gross loans, excluding loans
held for sale                                                           1.63 %                 1.67 %
Allowance for loan losses to nonaccrual loans                         173.34 %               156.03 %
Allowance for loan losses to nonperforming loans (6)                   76.21 %                75.91 %
Allowance for loan losses to nonperforming assets (7)                  70.07 %                71.03 %
Nonaccrual loans to gross loans, excluding loans held for
sale                                                                    0.94 %                 1.06 %
Nonperforming loans to gross loans, excluding loans held
for sale (6)                                                            2.14 %                 2.19 %
Nonperforming assets to gross loans and OREO (7)                        2.32 %                 2.34 %
Nonperforming assets to total assets (7)                                1.79 %                 1.70 %

(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) Nonperforming loans include nonaccrual 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) Nonperforming assets include nonaccrual loans, loans past due 90 days or more and still accruing interest, OREO, and accruing restructured loans.

(8) Based on net income before effect of dividends and discount accretion on preferred stock.


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(9) Excludes TARP preferred stock, net of discount, of $0 and $119.7 million and stock warrants of $378 thousand and $2.8 million at March 31, 2013 and 2012, respectively.

(10) 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 March 31,
                                                                  2013                 2012
                                                                   (Dollars in thousands)
Net income                                                  $       17,461       $       23,934

Average stockholders' equity                                $      765,230       $      806,384
Less: Average goodwill and other intangible assets, net            (95,021 )            (94,197 )
Average tangible equity                                     $      670,209       $      712,187

Net income (annualized) to average tangible equity                   10.42 %              13.44 %

(11) 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.

                                             March 31, 2013     March 31, 2012
                                                      (In thousands)
Total stockholders' equity                  $      772,275     $      818,166
Less: Preferred stock, net of discount                   0           (119,694 )
Common stock warrant                                  (378 )           (2,760 )
Goodwill and other intangible assets, net          (96,805 )          (93,820 )
Tangible common equity                      $      675,092     $      601,892

Common shares outstanding                       78,812,140         77,996,391

Tangible common equity per share            $         8.57     $         7.72

(12) Tier 1 common risk-based capital 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.

                                                        March 31, 2013      March 31, 2012
                                                                  (In thousands)
Tier 1 capital                                         $      711,574      $      759,784
Less: Preferred stock, net of discount                              0            (119,694 )
Trust preferred securities less unamortized
acquisition discount                                          (44,447 )           (50,312 )
Tier 1 common risk-based capital                       $      667,127      $      589,778

Total risk weighted assets less disallowed allowance
for loan losses                                             4,864,169           4,030,387

Tier 1 common risk-based capital ratio                          13.72 %             14.63 %


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Results of Operations
Overview
Total assets increased $192.9 million from $5.64 billion at December 31, 2012 to $5.83 billion at March 31, 2013. The increase in total assets was primarily due to a $197.5 million increase in loans receivable, net of allowance for loan losses, from $4.23 billion at December 31, 2012 to $4.43 billion at March 31, 2013 and a $13.0 million increase in securities available for sale from $704.4 million at December 31, 2012 to $717.4 million at March 31, 2013 These increases were partially offset by a $32.1 million decrease in cash and cash equivalents from $312.9 million at December 31, 2012 to $280.8 million at March 31, 2013. The increase in total assets was funded by a $171.6 million increase in deposits from $4.38 billion at December 31, 2012 to $4.56 billion at March 31, 2013, a $910 thousand increase in FHLB advances from $420.7 million at December 31, 2012 to $421.6 million at March 31, 2013 and net income available to common stockholders of $17.5 million.
The net income available to common stockholders for the first quarter of 2013 was $17.5 million, or $0.22 per diluted common share, compared to the net income available to common stockholders of $22.1 million, or $0.28 per diluted common share, for the same period of 2012, a decrease of $4.6 million, or 20.87%. The acquisitions impact the comparability of the operating results for the first quarter of 2013 and 2012 because the acquisitions resulted in increases in interest earning assets, interest bearing liabilities, employees and branch locations. In addition, the acquired assets and liabilities were recorded at fair value and certain acquisition premiums and discounts are being amortized or accreted into income or expense as adjustments to the yield/cost of the related asset or liability. The operating results for the three months ended March 31, 2013 and 2012 include the following major pre-tax acquisition accounting adjustments and expenses related to acquisitions.

                                                                 Three Months Ended March 31,
                                                                   2013                2012
                                                                    (Dollars in thousands)
Accretion of discounts on acquired performing loans           $      4,076       $        6,887
Accretion of discounts on acquired credit impaired loans             1,522                2,757
Amortization of premiums on assumed FHLB advances                       91                1,231
Accretion of discounts on assumed subordinated debt                    (43 )                (35 )
Amortization of premiums on assumed time deposits                      438                1,275
Increase to pre-tax income                                    $      6,084       $       12,115

The annualized return on average assets, before the effect of dividends and discount accretion on preferred stock on average assets, was 1.22% for the first quarter of 2013, compared to 1.86% for the same period of 2012. The annualized return on average stockholders' equity, before the effect of dividends and discount accretion on preferred stock, was 9.13% for the first quarter of 2013, compared to 11.87% for the same period of 2012. The efficiency ratio was 47.77% for the first quarter of 2013 compared to 41.98% for the same period of 2012.

Net Interest Income and Net Interest Margin Net Interest Income
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 March 31, 2013 with the Same Period of 2012 Net interest income before provision for loan losses was $59.7 million for the first quarter of 2013, a decrease of $1.1 million, or 1.88%, compared to $60.9 million for the same period of 2012. The decrease was principally attributable to the decline in the net interest margin, which was partially offset by the increase in average interest earning assets.
Interest income for the first quarter of 2012 was $66.7 million, a decrease of $1.8 million, or 2.64%, compared to $68.6 million for the same period of 2012. The decrease resulted from a $11.4 million decrease in interest income due to a decrease


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in the yield on average interest-earnings assets and partially offset by a $9.6 million increase in interest income due to an increase in average interest-earning assets

Net Interest Margin

The net interest margin for the first quarter of 2013 was 4.49%, a decrease of
62 basis points from 5.11% for the same period of 2012. The decrease in the net
interest margin was principally due to the effect of acquisition accounting
adjustments, as summarized in the following table.
                                                                 Three Months Ended March 31,
                                                                     2013              2012
Net interest margin, excluding the effect of acquisition
accounting adjustments                                              3.97 %              4.04 %
Acquisition accounting adjustments(1)                               0.52                1.07
Reported net interest margin                                        4.49 %              5.11 %


(1) Acquisition accounting adjustments is calculated by subtracting net interest margin, excluding effect of acquisition accounting adjustments, from reported net interest margin.

Excluding the effect of acquisition accounting adjustments, the net interest margin for the first quarter of 2013 decreased 7 basis points to 3.97% compared to 4.04% for the same period of 2012. The decrease was primarily due to continued pricing pressure on loan interest rates which was partially offset by decreases in the rates paid on deposits and borrowings.

The weighted average yield on loans decreased to 5.75% for the first quarter of 2013 from 6.75% for the first quarter of 2012. The change in the yield was due to continued pricing pressure on loan interest rates and the decline in the effects of acquisition accounting adjustments, as summarized in the following table.

                                                                  Three Months Ended March 31,
                                                                      2013               2012
The weighted average yield on loans, excluding the effect of
acquisition accounting adjustments                                  5.15 %               5.61 %
Acquisition accounting adjustments(1)                               0.60                 1.14
Reported weighted average yield on loans                            5.75 %               6.75 %


(1) Acquisition accounting adjustments is calculated by subtracting the weighted average yield on loans, excluding the effect of acquisition accounting adjustments, from the reported weighted average yield on loans.

Excluding the effects of acquisition accounting adjustments, the weighted average yield on loans for the first quarter of 2013 decreased 46 basis points to 5.15% compared to 5.61% for the same period of 2012. This decrease was primarily due to the lower yields on acquired loan portfolios and the reduction in market rates compared to a year ago due to continued pricing pressures. At March 31, 2013, fixed rate loans accounted for 40% of the loan portfolio, compared to 39% at March 31, 2012, reflecting the Company's focus on variable rate business loans. The weighted average yield on the variable rate and fixed rate loan portfolios (excluding loan discount accretion) at March 31, 2013 was 4.49% and 5.47%, respectively, compared with 4.61% and 6.49% at March 31, 2012.

The weighted average yield on securities available for sale for the first quarter of 2013 was 1.98%, compared to 2.71% for the same period of 2012. The decrease was primarily attributable to the replacement of maturing securities with lower yielding investments as market interest rates declined.

The weighted average cost of deposits for the first quarter of 2013 was 0.49%, a decrease of 7 basis points from 0.56% for the same period of 2012. The amortization of the premium on time deposits assumed in the acquisition positively affected the weighted average cost of deposits, as summarized in the following table.


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                                                                 Three Months Ended March
                                                                           31,
                                                                   2013            2012
The weighted average cost of deposits, excluding effect of
acquisition accounting adjustments                                 0.53  %         0.69  %
Acquisition accounting adjustments(1)                             (0.04 )         (0.13 )
Reported weighted average cost of deposits                         0.49  %         0.56  %


(1) Acquisition accounting adjustments is calculated by subtracting the weighted average cost of deposits, excluding the effect of acquisition accounting adjustments, from the reported weighted average cost of deposits.

Excluding the amortization of premiums on time deposits assumed in acquisitions, the weighted average cost of deposits was 0.53% for the first quarter of 2013, compared to 0.69% for the same period of 2012. The decrease was due to reductions in the cost of interest-bearing demand deposits and an increase in the proportion of non-interest bearing demand deposits to total deposits. Non-interest bearing demand deposits accounted for 26.0% of total deposits at March 31, 2013, compared with 25.8% at March 31, 2012.

The weighted average cost of FHLB advances for the first quarter of 2013 was 1.17%, a decrease of 75 basis points from 1.92% for the same period of 2012. The decrease was attributable to decreases in FHLB advance rates, which was partially offset by the decline in the amortization of premiums on FHLB advances assumed in acquisitions, as summarized in the following table.

                                                                 Three Months Ended March
                                                                           31,
                                                                   2013            2012
The weighted average cost on FHLB advances, excluding effect
of acquisition accounting adjustments                              1.27  %         3.41  %
Acquisition accounting adjustments                                (0.10 )         (1.49 )
Reported weighted average cost on FHLB advances                    1.17  %         1.92  %


(1) Acquisition accounting adjustments is calculated by subtracting the weighted average cost on FHLB advances, excluding the effect of acquisition accounting adjustments, from reported weighted average cost on FHLB advances.

Excluding amortization of premiums on FHLB advances assumed in acquisitions, the weighted average cost of FHLB advances decreased to 1.27% for the first quarter of 2013 from 3.41% for the same period of 2012, reflecting the addition of $470.0 million in new FHLB advances at an average rate of 0.62%, which was substantially lower than the weighted average rate paid on matured borrowings. The weighted average original maturity of the new borrowings was 2.60 years. In addition, a total of $390.1 million of FHLB advances, with weighted average rates of 1.24%, matured over the past twelve months.

Prepayment penalty income for the first quarter of 2013 and 2012 was $63 thousand and $116 thousand, respectively. Nonaccrual interest income recognized (reversed) was $236 thousand and ($349) thousand for the first quarter of 2013 and 2012, respectively. Excluding the effects of both nonaccrual loan interest income and prepayment penalty income, the net interest margin for first quarter 2013 and 2012 would have been 4.46% and 5.13%, respectively.


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The following table presents our condensed consolidated average balance sheet information, together with interest rates earned and paid on the various sources and uses of funds for the periods indicated:

                               Three Months Ended March 31, 2013               Three Months Ended March 31, 2012
                                                Interest      Average                           Interest      Average
                              Average           Income/       Yield/          Average           Income/       Yield/
                              Balance           Expense       Rate *          Balance           Expense       Rate *
                                                            (Dollars in thousands)
INTEREST EARNINGS
ASSETS:
Loans(1) (2)             $      4,444,313     $   63,029        5.75 %   $      3,777,495     $   63,419        6.75 %
Securities available for
sale(3)                           691,984          3,427        1.98 %            725,728          4,909        2.71 %
FRB and FHLB stock and
other investments                 257,526            287        0.45 %            257,583            178        0.27 %
Federal funds sold                      -              -         N/A               25,780             49        0.74 %
Total interest earning
assets                   $      5,393,823     $   66,743        5.01 %   $      4,786,586     $   68,555        5.76 %
INTEREST BEARING
LIABILITIES:
Deposits:
Demand, interest-bearing $      1,265,967     $    1,873        0.60 %   $      1,232,763     $    2,123        0.69 %
Savings                           186,189            754        1.64 %            195,932            922        1.89 %
Time deposits:
$100,000 or more                1,161,322          1,730        0.60 %            767,171          1,411        0.74 %
Other                             695,802          1,051        0.61 %            722,982            947        0.53 %
Total time deposits             1,857,124          2,781        0.61 %          1,490,153          2,358        0.64 %
Total interest bearing
deposits                        3,309,280          5,408        0.66 %          2,918,848          5,403        0.74 %
FHLB advances                     422,944          1,224        1.17 %            339,964          1,626        1.92 %
Other borrowings                   42,264            395        3.74 %             50,108            667        5.26 %
. . .
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