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BBCN > SEC Filings for BBCN > Form 10-Q on 12-Nov-2013All Recent SEC Filings

Show all filings for BBCN BANCORP INC

Form 10-Q for BBCN BANCORP INC


12-Nov-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     At or for the Nine Months Ended
                                               September 30,                        September 30,
                                          2013               2012              2013               2012
                                                         (Dollars in thousands, except
                                                           share and per share data)
Income Statement Data:
Interest income                      $     72,035       $     65,455      $    208,157       $    200,953
Interest expense                            7,675              7,224            21,978             22,361
Net interest income                        64,360             58,231           186,179            178,592
Provision for loan losses                     744              6,900             9,050             16,682
Net interest income after provision
for loan losses                            63,616             51,331           177,129            161,910
Noninterest income                         10,799              7,664            31,357             29,531
Noninterest expense                        35,746             28,770           103,450             90,282
Income before income tax provision         38,669             30,225           105,036            101,159
Income tax provision                       15,117             11,827            41,352             39,463
Net income                           $     23,552       $     18,398      $     63,684       $     61,696
Dividends and discount accretion on
preferred stock                                 -                  -                 -             (5,640 )
Net income available to common
stockholders                         $     23,552       $     18,398      $     63,684       $     56,056
Per Share Data:
Earnings per common share - basic    $       0.30       $       0.24      $       0.81       $       0.72
Earnings per common share - diluted  $       0.30       $       0.24      $       0.80       $       0.72
Book value per common share (period
end, excluding preferred stock and
warrants)                            $      10.11       $       9.41      $      10.11       $       9.41
Cash dividends declared per common
share                                $        .05       $          -      $       .175       $          -
Tangible book value per common share
(period end, excluding preferred
stock and warrants) (11)             $       8.52       $       8.21      $       8.52       $       8.21
Number of common shares outstanding
(period end)                           79,247,719         78,016,260        79,247,719         78,016,260
Weighted average shares - basic        79,223,636         78,015,960        78,914,360         78,004,458
Weighted average shares - diluted      79,334,865         78,103,795        79,122,060         78,082,059
Tangible common equity ratio (9)            10.87 %            12.23 %           10.87 %            12.23 %
Statement of Financial Condition
Data - at Period End:
Assets                               $  6,340,987       $  5,331,979      $  6,340,987       $  5,331,979
Securities available for sale             708,566            687,059           708,566            687,059
Gross loans, net of deferred loan
fees and costs (excludes loans held
for sale)                               4,898,939          4,069,494         4,898,939          4,069,494
Deposits                                5,021,102          4,052,524         5,021,102          4,052,524
FHLB advances                             421,446            460,815           421,446            460,815
Subordinated debentures                    57,303             41,809            57,303             41,809
Stockholders' equity                      801,230            734,455           801,230            734,455


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                                      At or for the Three Months Ended     At or for the Nine Months Ended
                                               September 30,                        September 30,
                                          2013               2012              2013               2012
                                                             (Dollars in thousands)
Average Balance Sheet Data:
Assets                               $  6,160,132       $  5,179,186      $  5,924,397       $  5,140,591
Securities available for sale             714,660            679,764           704,124            699,225
Gross loans, including loans held
for sale                                4,771,022          4,007,402         4,588,464          3,878,080
Deposits                                4,845,402          3,961,484         4,629,925          3,906,834
Stockholders' equity                      794,737            728,038           781,159            785,875
Selected Performance Ratios:
Return on average assets (1) (8)             1.53 %             1.42 %            1.43 %             1.60 %
Return on average stockholders'
equity (1) (8)                              11.85 %            10.11 %           10.87 %            10.47 %
Average stockholders' equity to
average assets                              12.90 %            14.06 %           13.19 %            15.29 %
Return on average tangible equity
(1) (8) (10)                                13.90 %            11.60 %           12.52 %            11.89 %
Dividend payout ratio (dividends per
share / earnings per share)                 25.00 %              0.0 %           21.60 %              0.0 %
Pre-Tax Pre-Provision income to
average assets (1)                           2.56 %             2.87 %            2.57 %             3.06 %
Efficiency ratio (2)                        47.56 %            43.66 %           47.56 %            43.38 %
Net interest spread                          4.19 %             4.51 %            4.23 %             4.68 %
Net interest margin (3)                      4.42 %             4.79 %            4.46 %             4.97 %
Regulatory Capital Ratios (4)
Leverage capital ratio (5)                  12.06 %            13.15 %           12.06 %            13.15 %
Tier 1 risk-based capital ratio             13.64 %            15.22 %           13.64 %            15.22 %
Total risk-based capital ratio              14.89 %            16.48 %           14.89 %            16.48 %
Tier 1 common risk-based capital
ratio (12)                                  12.60 %            14.30 %           12.60 %            14.30 %
Asset Quality Ratios:
Allowance for loan losses to gross
loans, excluding loans held for sale         1.34 %             1.62 %            1.34 %             1.62 %
Allowance for loan losses to
nonaccrual loans                           181.89 %           212.06 %          181.89 %           212.06 %
Allowance for loan losses to
nonperforming loans (6)                     91.08 %           123.70 %           91.08 %           123.70 %
Allowance for loan losses to
nonperforming assets (7)                    47.18 %            80.86 %           47.18 %            80.86 %
Nonaccrual loans to gross loans,
excluding loans held for sale                0.74 %             0.76 %            0.74 %             0.76 %
Nonperforming loans to gross loans,
excluding loans held for sale (6)            2.28 %             1.90 %            2.28 %             1.90 %
Nonperforming assets to gross loans
and OREO (7)                                 2.83 %             2.00 %            2.83 %             2.00 %
Nonperforming assets to total
assets (7)                                   2.20 %             1.53 %            2.20 %             1.53 %

(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 noninterest 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 $0 million and stock warrants of $378 thousand and $378 thousand at September 30, 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 September 30,           Nine Months Ended September 30,
                                             2013                 2012                 2013                 2012
                                                                   (Dollars in thousands)
Net income                            $        23,552       $        18,398     $        63,684       $        61,696

Average stockholders' equity          $       794,737       $       728,038     $       781,159       $       785,875
Less: Average goodwill and other
intangible assets, net                       (116,885 )             (93,407 )          (102,935 )             (93,771 )
Average tangible equity               $       677,852       $       634,631     $       678,224       $       692,104

Net income (annualized) to average
tangible equity                                 13.90 %               11.60 %             12.52 %               11.89 %

(11) Tangible book value per common 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, 2013     September 30, 2012
                                                          (In thousands)
Total stockholders' equity                  $         801,230      $         734,455
Less: Preferred stock, net of discount                      -                      -
Common stock warrant                                     (378 )                 (378 )
Goodwill and other intangible assets, net            (125,444 )              (93,217 )
Tangible common equity                      $         675,408      $         640,860

Common shares outstanding                          79,247,719             78,016,260

Tangible book value per common share        $            8.52      $            8.21

(12) The Tier 1 common risk-based capital ratio is calculated by dividing 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 by total risk-weighted assets less the disallowed allowance for loan losses.

                                                        September 30, 2013      September 30, 2012
                                                                      (In thousands)
Tier 1 capital                                         $         727,053       $         668,710
Less: Preferred stock, net of discount                                 -                       -
Trust preferred securities less unamortized
acquisition discount                                             (55,414 )               (40,384 )
Tier 1 common risk-based capital                       $         671,639       $         628,326

Total risk weighted assets less disallowed allowance
for loan losses                                                5,330,009               4,392,505

Tier 1 common risk-based capital ratio                             12.60 %                 14.30 %


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Results of Operations
Overview
Total assets increased $700.3 million from $5.64 billion at December 31, 2012 to $6.34 billion at September 30, 2013. The increase in total assets was primarily due to a $603.9 million increase in loans receivable, net of allowance for loan losses, from $4.23 billion at December 31, 2012 to $4.83 billion at September 30, 2013 and a $32.4 million increase in cash and due from banks, from $312.9 million at December 31, 2012 to $345.4 million at September 30, 2013. The increase in total assets was funded by a $637.1 million increase in deposits from $4.38 billion at December 31, 2012 to $5.02 billion at September 30, 2013, a $724 thousand increase in FHLB advances from $420.7 million at December 31, 2012 to $421.4 million at September 30, 2013, a $15.5 million increase in subordinated debentures from $41.8 million at December 31, 2012 to $57.3 at September 30, 2013 and net income available to common stockholders of $63.7 million.
The net income available to common stockholders for the third quarter of 2013 was $23.6 million, or $0.30 per diluted common share, compared to $18.4 million, or $0.24 per diluted common share, for the same period of 2012, an increase of $5.2 million, or 28.0%. The net income available to common stockholders for the nine months ended September 30, 2012 was $63.7 million, or $0.80 per diluted common share, compared to $56.1 million, or $0.72 per diluted common share, for the same period of 2012, an increase of $7.6 million, or 13.6%. Acquisitions impact the comparability of the operating results for the third quarter and the nine months ended September 30 of 2013 and 2012, because 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. In addition, the PIB and Foster acquisitions resulted in increases in interest earning assets, interest bearing liabilities, employees and branch locations in 2013. The operating results for the three months ended September 30, 2013 and 2012 and the nine months ended September 30, 2013 and 2012 include the following major pre-tax acquisition accounting adjustments and expenses related to acquisitions.

                                                  Three Months Ended September 30,           Nine Months Ended September 30,
                                                     2013                   2012                2013                 2012
                                                                           (Dollars in thousands)
Accretion of discounts on acquired
performing loans                              $         4,074         $         4,890     $       14,787       $       16,983
Accretion of discounts on acquired credit
impaired loans                                          2,806                   1,215              5,360                6,462
Amortization of premiums on assumed FHLB
advances                                                   94                     307                277                2,442
Accretion of discounts on assumed
subordinated debt                                         (81 )                   (37 )             (172 )               (108 )
Amortization of premiums on assumed time
deposits                                                  308                     650                993                2,712
Increase to pre-tax income                    $         7,201         $         7,025     $       21,245       $       28,491

The annualized return on average assets, before the effect of dividends and discount accretion on preferred stock on average assets, was 1.53% for the third quarter of 2013, compared to 1.42% 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 11.85% for the third quarter of 2013, compared to 10.11% for the same period of 2012. The efficiency ratio was 47.56% for the third quarter of 2013, compared to 43.66% for the same period of 2012. The annualized return on average assets, before the effect of dividends and discount accretion on preferred stock on average assets, was 1.43% for the nine months ended September 30, 2013, compared to 1.60% 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 10.87% for the nine months ended September 30, 2013, compared to 10.47% for the same period of 2012. The efficiency ratio was 47.56% for the nine months ended September 30, 2013, compared to 43.38% 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


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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, 2013 with the Same Period of 2012 Net interest income before provision for loan losses was $64.4 million for the third quarter of 2013, an increase of $6.1 million, or 10.5%, compared to $58.2 million for the same period of 2012. The increase was principally attributable to the increase in interest earnings assets, which was partially offset by the decline in the net interest margin.
Interest income for the third quarter of 2013 was $72.0 million, an increase of $6.6 million, or 10.1%, compared to $65.5 million for the same period of 2012. The increase resulted from an $11.6 million increase in interest income due to an increase in average interest earning assets and partially offset by a $5.0 million decrease in interest income due to a decrease in the yield on average interest earnings assets.
Comparison of Nine Months Ended September 30, 2013 with the Same Period of 2012 Net interest income before provision for loan losses was $186.2 million for the nine months ended September 30, 2013, an increase of $7.6 million, or 4.2%, compared to $178.6 million for the same period of 2012. The increase was principally attributable to the increase in average interest earning assets, which was partially offset by the decline in the net interest margin. Interest income for the nine months ended September 30, 2013 was $208.2 million, an increase of $7.2 million, or 3.6%, compared to $201.0million for the same period of 2012. The increase resulted from a $32.0 million increase in interest income due to an increase in average interest earning assets and partially offset by a $24.8 million decrease in interest income due to a decrease in the yield on average interest earnings assets.

Net Interest Margin

The Company's reported net interest margin is impacted by the weighted average rates it earns on interest earning assets and pays on interest earning liabilities and the effect of acquisition accounting adjustments. The net interest margin for the third quarter of 2013 was 4.42%, a decrease of 37 basis points from 4.79% for the same period of 2012. The decrease in the net interest margin was due to a decline in the weighted average yield on the Company's loan portfolio and a decline in the effect of acquisition accounting adjustments. The net interest margin for the first nine months of 2013 was 4.46%, a decrease of 51 basis points from 4.97% for the same period of 2012. The decrease in the net interest margin was principally due to a decline in the weighted average yield on the Company's loan portfolio and a decline in the effect of acquisition accounting adjustments. The change in the Company's reported net interest margin for the three and nine months ended September 30, 2013 and 2012 is summarized in the table below.

                                                 Three Months Ended September         Nine Months Ended
                                                             30,                        September 30,
                                                    2013              2012            2013           2012
Net interest margin, excluding the effect of
acquisition accounting adjustments                 3.86 %            4.14 %          3.90 %          4.29 %
Acquisition accounting adjustments(1)              0.56              0.65            0.56            0.68
Reported net interest margin                       4.42 %            4.79 %          4.46 %          4.97 %


(1) Acquisition accounting adjustments are 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 third quarter of 2013 decreased 28 basis points to 3.86% from 4.14% for the same period of 2012. Excluding the effect of acquisition accounting adjustments, the net interest margin for the nine months ended September 30, 2013 decreased 39 basis points to 3.90%, from 4.29% for the same period of 2012.
The weighted average yield on loans decreased to 5.63% for the third quarter of 2013 from 6.11% for the third quarter of 2012 and decreased to 5.72% for the nine months ended September 30, 2013 from 6.46% for the same period in 2012. The change in the yield was due to continued pricing pressure on loan interest rates and 5 basis point and 25 basis point declines in the effects of acquisition accounting adjustments for the respective periods, as summarized in the following table.


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                                                 Three Months Ended September         Nine Months Ended
                                                              30,                       September 30,
                                                    2013               2012           2013          2012
The weighted average yield on loans,
excluding the effect of acquisition
accounting adjustments                            4.96 %             5.39 %          5.04 %         5.53 %
Acquisition accounting adjustments(1)             0.67               0.72            0.68           0.93
Reported weighted average yield on loans          5.63 %             6.11 %          5.72 %         6.46 %


(1) Acquisition accounting adjustments are 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 third quarter of 2013 decreased 43 basis points to 4.96% from 5.39% 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 September 30, 2013, fixed rate loans accounted for 45% of the loan portfolio, compared to 38% at September 30, 2012, reflecting a higher mix of fixed rate loans in the acquired loan portfolios and the high demand for fixed rate loans in the current market. The weighted average yield on the variable rate and fixed rate loan portfolios (excluding loan discount accretion) at September 30, 2013 was 5.16% and 4.43%, respectively, compared with 5.97% and 4.57% at September 30, 2012.

The weighted average yield on securities available for sale for the third quarter of 2013 was 2.13%, compared to 2.23% for the same period of 2012. The weighted average yield on securities available for sale for the nine months ended September 30, 2013 was 2.04%, compared to 2.47% 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 third quarter of 2013 was 0.49%, a decrease of 3 basis points from 0.52% 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.

                                              Three Months Ended September 30,       Nine Months Ended September 30,
                                                   2013                2012             2013                  2012
The weighted average cost of deposits,
excluding effect of acquisition accounting
adjustments                                      0.51  %               0.59  %        0.52  %                   0.64  %
Acquisition accounting adjustments(1)           (0.02 )               (0.07 )        (0.03 )                   (0.09 )
Reported weighted average cost of deposits       0.49  %               0.52  %        0.49  %                   0.55  %


(1) Acquisition accounting adjustments are 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 0.51% for the third quarter of 2013, compared to 0.59% for the same period of 2012 and 0.52% for the nine months ended September 30, 2013, compared to 0.64% for the same period of 2012. The decrease was due to reductions in the cost of interest bearing demand deposits with no significant changes in the proportion of noninterest bearing demand deposits to total deposits. Noninterest bearing demand deposits accounted for 27.1% of total deposits at September 30, 2013, compared with 27.3% at September 30, 2012.

. . .

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