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
|
September 30,
2008
|
|
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
|
0-18630
|
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
R
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
R
|
|
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
R
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, 49,506,699 shares outstanding as of October 31,
2008.
CATHAY
GENERAL BANCORP AND SUBSIDIARIES
3RD
QUARTER 2008 REPORT ON FORM 10-Q
TABLE
OF CONTENTS
PART I –
|
FINANCIAL
INFORMATION
|
4
|
|
|
|
Item 1.
|
FINANCIAL
STATEMENTS (Unaudited)
|
4
|
|
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
|
|
Item 2.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
20
|
Item 3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
45
|
Item 4.
|
CONTROLS
AND PROCEDURES
|
46
|
|
|
|
PART II -
|
OTHER
INFORMATION
|
46
|
|
|
|
Item 1.
|
LEGAL
PROCEEDINGS
|
46
|
Item 1A.
|
RISK
FACTORS
|
47
|
Item 2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
48
|
Item 3.
|
DEFAULTS
UPON SENIOR SECURITIES
|
48
|
Item 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
48
|
Item 5.
|
OTHER
INFORMATION
|
49
|
Item 6.
|
EXHIBITS
|
49
|
|
|
|
SIGNATURES
|
50
|
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. These forward-looking statements may include, but are not
limited to, such words as "believes," "expects," "anticipates," "intends,"
"plans," "estimates," "may," "will," "should," "could," "predicts," "potential,"
"continue," or the negative of such terms and other comparable terminology
or
similar expressions. Forward-looking statements are not guarantees. They involve
known and unknown risks, uncertainties, and other factors that may cause the
actual results, performance, or achievements of the Company to be materially
different from any future results, performance, or achievements expressed or
implied by such forward-looking statements. Such risks and uncertainties and
other factors include, but are not limited to adverse developments or conditions
related to or arising from:
|
|
significant
volatility and deterioration in the credit and financial markets
and
adverse changes in economic conditions resulting from a prolonged
economic
downturn;
|
|
|
successful
consummation of the purchase of preferred securities by the U.S.
Treasury
pursuant to its Capital Purchase
Program;
|
|
·
|
the
impact of any goodwill impairment that may be
determined;
|
|
·
|
deterioration
in asset or credit quality;
|
|
·
|
acquisitions
of other banks, if any;
|
|
·
|
fluctuations
in interest rates;
|
|
·
|
expansion
into new market areas;
|
|
·
|
earthquake,
wildfire or other natural
disasters;
|
|
·
|
legislative
and regulatory developments; and
|
|
·
|
general
economic or business conditions in California and other regions where
the
Bank has operations.
|
These
and
other factors are further described in the Company’s Annual Report on Form 10-K
for the year ended December 31, 2007, (at Item 1A in particular) its reports
and
registration statements filed with the Securities and Exchange Commission
(“SEC”) and other filings it makes in the future 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, we caution
readers not to place undue reliance on any forward-looking statements, which
speak to the date of this report. The Company has no intention and undertakes
no
obligation to update any forward-looking statement or to publicly announce
the
results of any revision of any forward-looking statement to reflect future
developments or events.
The
Company’s filings with the SEC are available to the public at the website
maintained by the SEC at
http://www.sec.gov
,
or by
requests directed to Cathay General Bancorp, 777 North Broadway, Los Angeles,
California 90012, Attn: Investor Relations (213) 625-4749.
PART
I – FINANCIAL INFORMATION
Item
1. FINANCIAL STATEMENTS
(Unaudited)
CATHAY
GENERAL BANCORP AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
September 30, 2008
|
|
December 31, 2007
|
|
% change
|
|
|
|
(In thousands, except share and per share data)
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
82,923
|
|
$
|
118,437
|
|
|
(30
|
)
|
Short-term
investments
|
|
|
5,185
|
|
|
2,278
|
|
|
128
|
|
Securities
purchased under agreements to resell
|
|
|
150,000
|
|
|
516,100
|
|
|
(71
|
)
|
Long-term
certificates of deposit
|
|
|
-
|
|
|
50,000
|
|
|
(100
|
)
|
Securities
available-for-sale (amortized cost of $2,619,804 in 2008 and $2,348,606
in
2007)
|
|
|
2,592,331
|
|
|
2,347,665
|
|
|
10
|
|
Trading
securities
|
|
|
19
|
|
|
5,225
|
|
|
(100
|
)
|
Loans
|
|
|
7,499,281
|
|
|
6,683,645
|
|
|
12
|
|
Less:
Allowance for loan losses
|
|
|
(92,068
|
)
|
|
(64,983
|
)
|
|
42
|
|
Unamortized
deferred loan fees, net
|
|
|
(10,290
|
)
|
|
(10,583
|
)
|
|
(3
|
)
|
Loans,
net
|
|
|
7,396,923
|
|
|
6,608,079
|
|
|
12
|
|
Federal
Home Loan Bank stock
|
|
|
67,672
|
|
|
65,720
|
|
|
3
|
|
Other
real estate owned, net
|
|
|
43,410
|
|
|
16,147
|
|
|
169
|
|
Affordable
housing investments, net
|
|
|
105,748
|
|
|
94,000
|
|
|
12
|
|
Premises
and equipment, net
|
|
|
98,182
|
|
|
76,848
|
|
|
28
|
|
Customers’
liability on acceptances
|
|
|
52,460
|
|
|
53,148
|
|
|
(1
|
)
|
Accrued
interest receivable
|
|
|
41,394
|
|
|
53,032
|
|
|
(22
|
)
|
Goodwill
|
|
|
319,557
|
|
|
319,873
|
|
|
(0
|
)
|
Other
intangible assets, net
|
|
|
30,945
|
|
|
36,097
|
|
|
(14
|
)
|
Other
assets
|
|
|
68,573
|
|
|
39,883
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
11,055,322
|
|
$
|
10,402,532
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing
demand deposits
|
|
$
|
821,233
|
|
$
|
785,364
|
|
|
5
|
|
Interest-bearing
deposits:
|
|
|
|
|
|
|
|
|
|
|
NOW
deposits
|
|
|
270,763
|
|
|
231,583
|
|
|
17
|
|
Money
market deposits
|
|
|
785,119
|
|
|
681,783
|
|
|
15
|
|
Savings
deposits
|
|
|
340,316
|
|
|
331,316
|
|
|
3
|
|
Time
deposits under $100,000
|
|
|
1,550,433
|
|
|
1,311,251
|
|
|
18
|
|
Time
deposits of $100,000 or more
|
|
|
3,081,306
|
|
|
2,937,070
|
|
|
5
|
|
Total
deposits
|
|
|
6,849,170
|
|
|
6,278,367
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
funds purchased
|
|
|
33,000
|
|
|
41,000
|
|
|
(20
|
)
|
Securities
sold under agreements to repurchase
|
|
|
1,550,000
|
|
|
1,391,025
|
|
|
11
|
|
Advances
from the Federal Home Loan Bank
|
|
|
1,276,713
|
|
|
1,375,180
|
|
|
(7
|
)
|
Other
borrowings from financial institutions
|
|
|
-
|
|
|
8,301
|
|
|
(100
|
)
|
Other
borrowings for affordable housing investments
|
|
|
19,541
|
|
|
19,642
|
|
|
(1
|
)
|
Long-term
debt
|
|
|
171,136
|
|
|
171,136
|
|
|
-
|
|
Acceptances
outstanding
|
|
|
52,460
|
|
|
53,148
|
|
|
(1
|
)
|
Minority
interest in consolidated subsidiary
|
|
|
8,500
|
|
|
8,500
|
|
|
-
|
|
Other
liabilities
|
|
|
92,649
|
|
|
84,314
|
|
|
10
|
|
Total
liabilities
|
|
|
10,053,169
|
|
|
9,430,613
|
|
|
7
|
|
Commitments
and contingencies
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Stockholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.01 par value; 10,000,000 shares authorized, none
issued
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Common
stock, $0.01 par value, 100,000,000 shares authorized, 53,685,271
issued
and 49,477,706 outstanding at September 30, 2008 and 53,543,752 issued
and
49,336,187 outstanding at December 31, 2007
|
|
|
537
|
|
|
535
|
|
|
0
|
|
Additional
paid-in-capital
|
|
|
488,446
|
|
|
480,557
|
|
|
2
|
|
Accumulated
other comprehensive loss, net
|
|
|
(15,921
|
)
|
|
(545
|
)
|
|
2,821
|
|
Retained
earnings
|
|
|
654,827
|
|
|
617,108
|
|
|
6
|
|
Treasury
stock, at cost (4,207,565 shares at September 30, 2008 and at December
31,
2007)
|
|
|
(125,736
|
)
|
|
(125,736
|
)
|
|
-
|
|
Total
stockholders’ equity
|
|
|
1,002,153
|
|
|
971,919
|
|
|
3
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
11,055,322
|
|
$
|
10,402,532
|
|
|
6
|
|
See
Accompanying Notes to Unaudited Condensed Consolidated Financial
Statements
CATHAY
GENERAL BANCORP AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited
)
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(In thousands, except share and per share data)
|
|
|
|
|
|
INTEREST
AND DIVIDEND INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
receivable, including loan fees
|
|
$
|
114,005
|
|
$
|
123,925
|
|
$
|
341,880
|
|
$
|
356,841
|
|
Investment
securities- taxable
|
|
|
27,575
|
|
|
25,127
|
|
|
84,507
|
|
|
71,381
|
|
Investment
securities- nontaxable
|
|
|
284
|
|
|
443
|
|
|
974
|
|
|
1,625
|
|
Federal
Home Loan Bank stock
|
|
|
1,004
|
|
|
639
|
|
|
2,685
|
|
|
1,689
|
|
Agency
preferred stock
|
|
|
313
|
|
|
174
|
|
|
1,621
|
|
|
512
|
|
Federal
funds sold and securities purchased under agreements to
resell
|
|
|
2,899
|
|
|
7,615
|
|
|
12,294
|
|
|
15,382
|
|
Deposits
with banks
|
|
|
42
|
|
|
1,248
|
|
|
523
|
|
|
3,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest and dividend income
|
|
|
146,122
|
|
|
159,171
|
|
|
444,484
|
|
|
450,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST
EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time
deposits of $100,000 or more
|
|
|
26,226
|
|
|
34,475
|
|
|
86,398
|
|
|
97,527
|
|
Other
deposits
|
|
|
17,100
|
|
|
20,068
|
|
|
49,519
|
|
|
56,739
|
|
Securities
sold under agreements to repurchase
|
|
|
15,174
|
|
|
9,865
|
|
|
44,716
|
|
|
23,126
|
|
Advances
from Federal Home Loan Bank
|
|
|
11,785
|
|
|
11,472
|
|
|
35,229
|
|
|
34,930
|
|
Long-term
debt
|
|
|
2,030
|
|
|
3,182
|
|
|
6,889
|
|
|
8,057
|
|
Short-term
borrowings
|
|
|
206
|
|
|
282
|
|
|
828
|
|
|
1,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest expense
|
|
|
72,521
|
|
|
79,344
|
|
|
223,579
|
|
|
221,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income before provision for credit losses
|
|
|
73,601
|
|
|
79,827
|
|
|
220,905
|
|
|
229,076
|
|
Provision
for credit losses
|
|
|
15,800
|
|
|
2,200
|
|
|
43,800
|
|
|
5,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income after provision for credit losses
|
|
|
57,801
|
|
|
77,627
|
|
|
177,105
|
|
|
223,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
(losses)/gains, net
|
|
|
(15,313
|
)
|
|
88
|
|
|
(12,980
|
)
|
|
268
|
|
Letters
of credit commissions
|
|
|
1,465
|
|
|
1,622
|
|
|
4,281
|
|
|
4,349
|
|
Depository
service fees
|
|
|
1,189
|
|
|
1,146
|
|
|
3,636
|
|
|
3,529
|
|
Gains
from sale of premises and equipment
|
|
|
-
|
|
|
2,705
|
|
|
21
|
|
|
2,714
|
|
Other
operating income
|
|
|
4,290
|
|
|
3,298
|
|
|
12,372
|
|
|
10,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-interest income
|
|
|
(8,369
|
)
|
|
8,859
|
|
|
7,330
|
|
|
20,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST
EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
16,376
|
|
|
16,893
|
|
|
50,643
|
|
|
50,756
|
|
Occupancy
expense
|
|
|
3,393
|
|
|
3,159
|
|
|
9,918
|
|
|
9,035
|
|
Computer
and equipment expense
|
|
|
1,848
|
|
|
2,432
|
|
|
6,024
|
|
|
7,209
|
|
Professional
services expense
|
|
|
3,410
|
|
|
2,388
|
|
|
8,890
|
|
|
6,659
|
|
FDIC
and State assessments
|
|
|
1,336
|
|
|
284
|
|
|
3,172
|
|
|
804
|
|
Marketing
expense
|
|
|
584
|
|
|
608
|
|
|
2,449
|
|
|
2,413
|
|
Other
real estate owned expense
|
|
|
1,182
|
|
|
23
|
|
|
1,806
|
|
|
284
|
|
Operations
of affordable housing investments , net
|
|
|
2,840
|
|
|
2,540
|
|
|
5,361
|
|
|
4,928
|
|
Amortization
of core deposit intangibles
|
|
|
1,722
|
|
|
1,767
|
|
|
5,196
|
|
|
5,298
|
|
Other
operating expense
|
|
|
2,480
|
|
|
3,128
|
|
|
7,422
|
|
|
8,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-interest expense
|
|
|
35,171
|
|
|
33,222
|
|
|
100,881
|
|
|
95,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income tax expense
|
|
|
14,261
|
|
|
53,264
|
|
|
83,554
|
|
|
148,945
|
|
Income
tax expense
|
|
|
7,370
|
|
|
19,258
|
|
|
30,133
|
|
|
54,392
|
|
Net
income
|
|
|
6,891
|
|
|
34,006
|
|
|
53,421
|
|
|
94,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive loss, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
holding (losses)/gains arising during the period
|
|
|
(5,833
|
)
|
|
5,968
|
|
|
(18,106
|
)
|
|
2,358
|
|
Less:
reclassification adjustments included in net income
|
|
|
(8,910
|
)
|
|
(10
|
)
|
|
(2,730
|
)
|
|
(210
|
)
|
Total
other comprehensive loss, net of tax
|
|
|
3,077
|
|
|
5,978
|
|
|
(15,376
|
)
|
|
2,568
|
|
Total
comprehensive income
|
|
$
|
9,968
|
|
$
|
39,984
|
|
$
|
38,045
|
|
$
|
97,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.14
|
|
$
|
0.68
|
|
$
|
1.08
|
|
$
|
1.87
|
|
Diluted
|
|
$
|
0.14
|
|
$
|
0.67
|
|
$
|
1.08
|
|
$
|
1.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends paid per common share
|
|
$
|
0.105
|
|
$
|
0.105
|
|
$
|
0.315
|
|
$
|
0.300
|
|
Basic
average common shares outstanding
|
|
|
49,441,621
|
|
|
49,828,379
|
|
|
49,392,655
|
|
|
50,683,650
|
|
Diluted
average common shares outstanding
|
|
|
49,530,272
|
|
|
50,417,332
|
|
|
49,497,171
|
|
|
51,283,317
|
|
See
Accompanying Notes to Unaudited Condensed Consolidated Financial
Statements.
CATHAY
GENERAL BANCORP AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited
)
|
|
Nine Months Ended September 30
|
|
|
|
2008
|
|
2007
|
|
|
|
(In thousands)
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
53,421
|
|
$
|
94,553
|
|
Adjustments
to reconcile net income to net cash provided by operting
activities:
|
|
|
|
|
|
|
|
Provision
for credit losses
|
|
|
43,800
|
|
|
5,300
|
|
Provision
for losses on other real estate owned
|
|
|
1,248
|
|
|
210
|
|
Deferred
tax benefit
|
|
|
(24,489
|
)
|
|
(3,162
|
)
|
Depreciation
|
|
|
3,184
|
|
|
3,183
|
|
Net
gains on sale of other real estate owned
|
|
|
(75
|
)
|
|
(29
|
)
|
Net
gains on sale of loans held for sale
|
|
|
(245
|
)
|
|
(125
|
)
|
Proceeds
from sale of loans held for sale
|
|
|
10,599
|
|
|
2,532
|
|
Originations
of loans held for sale
|
|
|
(10,395
|
)
|
|
(2,375
|
)
|
Purchase
of trading securities
|
|
|
-
|
|
|
(5,000
|
)
|
Write-downs
on venture capital investments
|
|
|
270
|
|
|
630
|
|
Write-downs
on impaired securities
|
|
|
33,654
|
|
|
-
|
|
Gain
on sales and calls of securities
|
|
|
(20,674
|
)
|
|
(268
|
)
|
Decrease
in fair value of warrants
|
|
|
26
|
|
|
90
|
|
Amortization
of security premiums, net
|
|
|
1,651
|
|
|
1,310
|
|
Amortization
of intangibles
|
|
|
5,277
|
|
|
5,474
|
|
Excess
tax short-fall / (benefit) from share-based payment
arrangements
|
|
|
240
|
|
|
(503
|
)
|
Stock
based compensation expense
|
|
|
5,828
|
|
|
5,694
|
|
Gain
on sale of premises and equipment
|
|
|
(21
|
)
|
|
(2,714
|
)
|
Decrease
/ (increase) in accrued interest receivable
|
|
|
11,638
|
|
|
(14,775
|
)
|
Decrease
in other assets, net
|
|
|
7,519
|
|
|
2,238
|
|
Increase
in other liabilities
|
|
|
5,028
|
|
|
10,637
|
|
Net
cash provided by operating activities
|
|
|
127,484
|
|
|
102,900
|
|
Cash
Flows from Investing Activities
|
|
|
|
|
|
|
|
Increase
in short-term investments
|
|
|
(2,907
|
)
|
|
(773
|
)
|
Decrease
/ (increase) in long-term investment
|
|
|
50,000
|
|
|
(50,000
|
)
|
Decrease/
(increase) in securities purchased under agreements to
resell
|
|
|
366,100
|
|
|
(360,000
|
)
|
Purchase
of investment securities available-for-sale
|
|
|
(1,503,844
|
)
|
|
(944,144
|
)
|
Proceeds
from maturity and call of investment securities
available-for-sale
|
|
|
819,939
|
|
|
231,465
|
|
Proceeds
from sale of investment securities available-for-sale
|
|
|
586,932
|
|
|
101,169
|
|
Purchase
of mortgage-backed securities available-for-sale
|
|
|
(1,580,092
|
)
|
|
-
|
|
Proceeds
from repayment and sale of mortgage-backed securities
available-for-sale
|
|
|
1,391,236
|
|
|
107,909
|
|
Purchase
of Federal Home Loan Bank stock
|
|
|
(4,765
|
)
|
|
(15,248
|
)
|
Redemption
of Federal Home Loan Bank stock
|
|
|
5,498
|
|
|
1,093
|
|
Net
increase in loans
|
|
|
(860,456
|
)
|
|
(654,072
|
)
|
Purchase
of premises and equipment
|
|
|
(20,766
|
)
|
|
(6,907
|
)
|
Proceeds
from sales of premises and equipment.
|
|
|
21
|
|
|
6,948
|
|
Proceeds
from sale of other real estate owned
|
|
|
105
|
|
|
1,717
|
|
Net
increase in investment in affordable housing
|
|
|
(11,517
|
)
|
|
(10,873
|
)
|
Acquisition,
net of cash acquired
|
|
|
-
|
|
|
(3,655
|
)
|
Net
cash used in investing activities
|
|
|
(764,516
|
)
|
|
(1,595,371
|
)
|
Cash
Flows from Financing Activities
|
|
|
|
|
|
|
|
Net
increase/(decrease) in demand deposits, NOW accounts, money market
and
saving deposits
|
|
|
187,385
|
|
|
(10,769
|
)
|
Net
increase in time deposits
|
|
|
383,418
|
|
|
352,103
|
|
Net
increase in federal funds purchased and securities sold under agreement
to
repurchase
|
|
|
150,975
|
|
|
756,710
|
|
Advances
from Federal Home Loan Bank
|
|
|
2,598,533
|
|
|
2,668,000
|
|
Repayment
of Federal Home Loan Bank borrowings
|
|
|
(2,697,000
|
)
|
|
(2,293,000
|
)
|
Cash
dividends
|
|
|
(15,555
|
)
|
|
(15,294
|
)
|
Issuance
of long-term debt
|
|
|
-
|
|
|
65,000
|
|
Proceeds
from other borrowings
|
|
|
20,629
|
|
|
22,351
|
|
Repayment
of other borrowings
|
|
|
(28,930
|
)
|
|
(29,000
|
)
|
Proceeds
from shares issued to Dividend Reinvestment Plan
|
|
|
1,931
|
|
|
1,837
|
|
Proceeds
from exercise of stock options
|
|
|
372
|
|
|
1,416
|
|
Excess
tax (short-fall)/benefits from share-based payment
arrangements
|
|
|
(240
|
)
|
|
503
|
|
Purchases
of treasury stock
|
|
|
-
|
|
|
(76,908
|
)
|
Net
cash provided by financing activities
|
|
|
601,518
|
|
|
1,442,949
|
|
Decrease
in cash and cash equivalents
|
|
|
(35,514
|
)
|
|
(49,522
|
)
|
Cash
and cash equivalents, beginning of the period
|
|
|
118,437
|
|
|
132,798
|
|
Cash
and cash equivalents, end of the period
|
|
$
|
82,923
|
|
$
|
83,276
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information
|
|
|
|
|
|
|
|
Cash
paid during the period:
|
|
|
|
|
|
|
|
Interest
|
|
$
|
226,210
|
|
$
|
217,353
|
|
Income
taxes
|
|
$
|
56,699
|
|
$
|
51,679
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
Net
change in unrealized holding loss on securities available-for-sale,
net of
tax
|
|
$
|
(15,376
|
)
|
$
|
2,568
|
|
Cumulative
effect adjustment as result of adoption of FASB Interpretation No
48
|
|
|
|
|
|
|
|
Adjustment
to initially apply FASB Interpretation 48
|
|
$
|
-
|
|
$
|
(8,524
|
)
|
Adjustment
to initially apply EITF 06-4
|
|
$
|
(147
|
)
|
$
|
-
|
|
Transfers
to other real estate owned
|
|
$
|
28,357
|
|
$
|
373
|
|
Loans
to facilitate the sale of other real estate owned
|
|
$
|
-
|
|
$
|
3,360
|
|
Loans
to facilitate the sale of fixed assets
|
|
$
|
-
|
|
$
|
1,940
|
|
See
Accompanying Notes to Unaudited Condensed Consolidated Financial
Statements.
CATHAY
GENERAL BANCORP AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
Business
Cathay
General Bancorp (the “Bancorp”) is the holding company for Cathay Bank (the
“Bank”), six limited partnerships investing in affordable housing investments in
which the Bank is the sole limited partner, and GBC Venture Capital, Inc. The
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 September 30, 2008,
the Bank operates twenty one branches in Southern California, ten branches
in
Northern California, nine branches in New York State, three branches in
Illinois, three branches in Washington State, two branches Texas, one branch
in
Massachusetts, one branch in New Jersey, 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.
Acquisitions
and Investments
We
continue to look for opportunities to expand the Bank’s branch network by
seeking new branch locations and/or by acquiring other financial institutions
to
diversify our customer base in order to compete for new deposits and loans,
and
to be able to serve our customers more effectively.
For
each
acquisition, we developed an integration plan for the consolidated company
that
addressed, among other things, requirements for staffing, systems platforms,
branch locations and other facilities. The established plans are evaluated
regularly during the integration process and modified as required. Merger and
integration expenses are summarized in the following primary categories:
(i) severance and employee-related charges; (ii) system conversion and
integration costs, including contract termination charges; (iii) asset
write-downs, lease termination costs for abandoned space and other
facilities-related costs; and (iv) other charges. Other charges include
investment banking fees, legal fees, other professional fees relating to due
diligence activities and expenses associated with preparation of securities
filings, as appropriate. These costs were included in the allocation of the
purchase price at the acquisition date based on our formal integration
plans
.
As
of
September 30, 2008, goodwill was $319.6 million, a decrease of $316,000 compared
to December 31, 2007, due to a reversal of accrued penalties of $528,000 as
a
result of the settlement with the California Franchise Board for a claim related
to GBC Bancorp’s 2001 California tax return and a tax refund of $60,000 related
to New Asia Bancorp’s 2006 tax year offset by a $196,000 deferred tax receivable
write-off of state net operating loss carry-forwards from United Heritage Bank
and a $76,000 tax payment related to GBC Bancorp’s 2002 California tax return.
Merger-related lease liability was $464,000 as of September 30, 2008, with
cash
outlays of $45,000 for the three months and $142,000 for the nine months ended
September 30, 2008.
3.
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, 2008. For further information, refer to the audited consolidated
financial statements and footnotes included in the Company’s annual report on
Form 10-K for the year ended December 31, 2007.
The
preparation of the 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 estimate
subject to change relates to the allowance for loan losses and goodwill
impairment.
4.
Recent Accounting Pronouncements
SFAS No. 141,
“Business Combinations (Revised 2007).”
SFAS 141R
replaces SFAS 141, “Business Combinations,” and applies to all transactions and
other events in which one entity obtains control over one or more other
businesses. SFAS 141R requires an acquirer, upon initially obtaining
control of another entity, to recognize the assets, liabilities and any
non-controlling interest in the acquiree at fair value as of the acquisition
date. Contingent consideration is required to be recognized and measured at
fair
value on the date of acquisition rather than at a later date when the amount
of
that consideration may be determinable beyond a reasonable doubt. This fair
value approach replaces the cost-allocation process required under SFAS 141
whereby the cost of an acquisition was allocated to the individual assets
acquired and liabilities assumed based on their estimated fair value.
SFAS 141R requires acquirers to expense acquisition-related costs as
incurred rather than allocating such costs to the assets acquired and
liabilities assumed, as was previously the case under SFAS 141. Under
SFAS 141R, the requirements of SFAS 146, Accounting for Costs
Associated with Exit or Disposal Activities,” would have to be met in order to
accrue for a restructuring plan in purchase accounting. Pre-acquisition
contingencies are to be recognized at fair value, unless it is a non-contractual
contingency that is not likely to materialize, in which case, nothing should
be
recognized in purchase accounting and, instead, that contingency would be
subject to the probable and estimable recognition criteria of SFAS 5,
“Accounting for Contingencies.” SFAS 141R is expected to have a significant
impact on the Company’s accounting for business combinations closing on or after
January 1, 2009.
In
February 2008, the FASB issued Staff Position (FSP) 157-2,
Effective
Date of FASB Statement No. 157
.
This
FSP delays the effective date of FAS 157 for all non-financial assets and
non-financial liabilities, except those that are recognized or disclosed at
fair
value on a recurring basis (at least annually) to fiscal years beginning after
November 15, 2008, and interim periods within those fiscal years. The
Company does not expect a material impact on its consolidated financial
statements from adoption of SFAS 157-2. In October 2008, the FASB issued Staff
Position (FSP) 157-3,
Determining
the Fair Value of a Financial Assets When the Market for that Asset is not
Active.
This
FSP
clarifies the application of FAS 157 in a market that is not active. SFAS 157-3
was effected upon issuance. The adoption of SFAS 157-3 did not have an impact
on
the Company’s consolidated financial statements
SFAS No. 160,
“Noncontrolling Interest in Consolidated Financial Statements, an amendment
of
ARB Statement No. 51.”
SFAS 160
amends Accounting Research Bulletin (ARB) No. 51, “Consolidated Financial
Statements,” to establish accounting and reporting standards for the
non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS 160 clarifies that a non-controlling interest in a
subsidiary, which is sometimes referred to as minority interest, is an ownership
interest in the consolidated entity that should be reported as a component
of
equity in the consolidated financial statements. Among other requirements,
SFAS 160 requires consolidated net income to be reported at amounts that
include the amounts attributable to both the parent and the non-controlling
interest. It also requires disclosure, on the face of the consolidated income
statement, of the amounts of consolidated net income attributable to the parent
and to the non-controlling interest. SFAS 160 is effective for the Company
on January 1, 2009, and is not expected to have a significant impact on the
Company’s financial statements.
SFAS No. 162,
“The Hierarchy of General Accepted Accounting Principles”
SFAS 162
states that the business entity itself is responsible for selecting accounting
principles for financial statements that are presented in conformity with GAAP.
This statement makes the GAAP hierarchy explicitly and directly applicable
to
preparers of financial statements. SFAS 162 is effective 60 days following
the
Securities and Exchange Commission’s approval of the Public Company Accounting
Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.” The Company does not
expect a material impact on its consolidated financial statements from adoption
of SFAS 162.
Emerging
Issues Task Force (“EITF”) Issue No. 06-4, “Accounting for Deferred
Compensation and Postretirement Benefit Aspects of Endorsement Split Dollar
Life
Insurance Arrangements.”
EITF 06-4
requires the recognition of a liability and related compensation expense for
endorsement split-dollar life insurance policies that provide a benefit to
an
employee that extends to post-retirement periods. Under EITF 06-4, life
insurance policies purchased for the purpose of providing such benefits do
not
effectively settle an entity’s obligation to the employee. Accordingly, the
entity must recognize a liability and related compensation expense during the
employee’s active service period based on the future cost of insurance to be
incurred during the employee’s retirement. If the entity has agreed to provide
the employee with a death benefit, then the liability for the future death
benefit should be recognized by following the guidance in SFAS 106,
“Employer’s Accounting for Postretirement Benefits Other Than Pensions.” The
Company adopted EITF 06-4 effective as of January 1, 2008, and charged
a $147,000 cumulative effect adjustment to the opening balance of retained
earnings as of January 1, 2008.
EITF
Issue No. 08-5, “Fair-Value Measurements of Liabilities with Third-Party
Credit Enhancements.”
EITF 08-5
requires issuers of liability instruments with third-party credit enhancements
to exclude the effect of the credit enhancement when measuring the liability’s
fair value. Upfront fees paid by the issuer for the credit enhancement would
not
be deferred for liabilities recorded at fair value. EITF 08-5 will be effective
for the reporting period beginning after December 15, 2008. The Company does
not
expect a material impact on its consolidated financial statements from adoption
of EITF 08-5.
EITF
Issue No. 08-6, “Equity-Method Investment Accounting.”
EITF 08-6
concludes that the cost basis of a new equity-method investment would be
determined using a cost-accumulation model, which would continue the practice
of
including transaction costs in the cost of investment and would exclude the
value of contingent consideration. Equity-method investment should be subject
to
other-than-temporary impairment analysis. It also requires that a gain or loss
to be recognized on the portion of the investor’s ownership sold. EITF 08-6 will
be effective for the reporting period beginning after December 15, 2008. The
Company does not expect a material impact on its consolidated financial
statements from adoption of EITF 08-6.
EITF
Issue No. 08-7, “Defensive Intangible Assets.”
EITF 08-7
requires an acquiring entity to account defensive intangible assets as a
separate unit of accounting. Defensive intangible assets should not be included
as part of the cost of the acquirer’s existing intangible assets because the
defensive intangible assets are separately identifiable. Defensive intangible
assets must be recognized at fair value in accordance with SFAS 141R and SFAS
157. EITF 08-7 will be effective for the reporting period beginning after
December 15, 2008. The Company does not expect a material impact on its
consolidated financial statements from adoption of EITF 08-7.
FASB
Staff Positions (“FSP”) Accounting Principles Board Opinions (“APB”) Issue
No. 14-1, “Accounting for Convertible Debt Instruments That May Be Settled
in Cash upon Conversion (Including Partial Cash Settlement).”
APB
14-1
requires issuers of convertible debt that may be settled wholly or partly in
cash to account for the debt and equity components separately. The APB 14-1
is
effective for financial statements issued for fiscal years beginning after
December 15, 2008. The Company does not expect a material impact on its
consolidated financial statements from adoption of APB 14-1.
5.
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.
Outstanding
stock options with anti-dilutive effect were not included in the computation
of
diluted earnings per share. The following table sets forth basic and diluted
earnings per share calculations and the average shares of stock options with
anti-dilutive effect:
|
|
For the three months ended September 30,
|
|
For the nine months ended September 30,
|
|
(Dollars
in thousands, except share and per share data)
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Net
income
|
|
$
|
6,891
|
|
$
|
34,006
|
|
$
|
53,421
|
|
$
|
94,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted-average number of common shares outstanding
|
|
|
49,441,621
|
|
|
49,828,379
|
|
|
49,392,655
|
|
|
50,683,650
|
|
Dilutive
effect of weighted-average outstanding common shares
equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Options
|
|
|
83,147
|
|
|
580,602
|
|
|
102,398
|
|
|
593,503
|
|
Restricted
Stock
|
|
|
5,504
|
|
|
8,351
|
|
|
2,118
|
|
|
6,164
|
|
Diluted
weighted-average number of common shares outstanding
|
|
|
49,530,272
|
|
|
50,417,332
|
|
|
49,497,171
|
|
|
51,283,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
shares of stock options with anti-dilutive effect
|
|
|
4,808,696
|
|
|
1,438,436
|
|
|
4,429,533
|
|
|
1,446,152
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.14
|
|
$
|
0.68
|
|
$
|
1.08
|
|
$
|
1.87
|
|
Diluted
|
|
$
|
0.14
|
|
$
|
0.67
|
|
$
|
1.08
|
|
$
|
1.84
|
|
6.
Stock-Based Compensation
In
1998,
the Board adopted the Cathay Bancorp, Inc. Equity Incentive Plan. Under the
Equity Incentive Plan, as amended in September, 2003, directors and eligible
employees may be granted incentive or non-statutory stock options and/or
restricted stock units, or awarded non-vested stock, for up to
7,000,000 shares of the Company’s common stock on a split adjusted basis.
In May 2005, the stockholders of the Company approved the 2005 Incentive Plan
which provides that 3,131,854 shares of the Company’s common stock may be
granted as incentive or non-statutory stock options, and/or restricted stock
units, or as non-vested stock. In conjunction with the approval of the 2005
Incentive Plan, the Bancorp agreed to cease granting awards under the Equity
Incentive Plan. As of September 30, 2008, the only options granted by the
Company under the 2005 Incentive Plan 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 options
granted to the Chief Executive Officer of the Company for 245,060 shares granted
on March 22, 2005, of which 30% vested immediately, 10% vested on November
20,
2005, 20% each vested on November 20, 2006 and on November 20, 2007, and an
additional 20% would vest on November 20, 2008, 264,694 shares granted on May
22, 2005, of which 40% vested on November 20, 2005, 20% each vested on November
20, 2006 and on November 20, 2007, and an additional 20% would vest on November
20 2008, and 100,000 shares granted on February 21, 2008, of which 50% would
vest on February 21, 2009, and the remaining 50% would vest on February 21,
2010. If such options expire or terminate without having been exercised, any
shares not purchased will again be available for future grants or awards. Stock
options are typically granted in the first quarter of the year. There were
no
options granted in 2007. The Board of Directors of the Company was in the
process of reviewing the relative merits of granting restricted stock or
restricted stock units either in place of or in combination with stock options.
As a result, the Company deferred the granting of any stock option awards until
2008. In 2008, the Company granted options of 689,200 shares and restricted
stock units of 82,291 shares to selected bank officers and non-employee
directors. The Company expects to issue new shares to satisfy stock option
exercises and the vesting of restricted stock units.
Stock-based
compensation expense for stock options is calculated based on the fair value
of
the award at the grant date for those options expected to vest, and is
recognized as an expense over the vesting period of the grant. The Company
uses
the Black-Scholes option pricing model to estimate the value of granted options.
This model takes into account the option exercise price, the expected life,
the
current price of the underlying stock, the expected volatility of the Company’s
stock, expected dividends on the stock and a risk-free interest rate. The
Company estimates the expected volatility based on the Company’s historical
stock prices for the period corresponding to the expected life of the stock
options.
Based
on
SAB 107 and SAB 110, the Company has estimated the expected life of the options
based on the average of the contractual period and the vesting period and has
consistently applied the simplified method to all options granted starting
from
2005.
Option
compensation expense totaled $5.1 million for the nine months ended September
30, 2008, and $5.2 million for the nine months ended September 30, 2007. For
the
three months ended September 30, option compensation expense totaled $1.7
million for 2008 and $1.7 million for 2007. Stock-based compensation is
recognized ratably over the requisite service period for all awards.
Unrecognized stock-based compensation expense related to stock options totaled
$11.8 million at September 30, 2008, and is expected to be recognized over
the
next 2.5 years.
The
weighted average per share fair value on the date of grant of the options
granted was $6.86 during the first quarter of 2008. There were no options
granted in 2007 and in the second quarter and third quarter of 2008. The Company
estimated the expected life of the options based on the average of the
contractual period and the vesting period. The fair value of stock options
has
been determined using the Black-Scholes option pricing model with the following
assumptions:
|
|
Nine months ended
|
|
|
|
September 30, 2008
|
|
Expected
life- number of years
|
|
|
6.4
|
|
Risk-free
interest rate
|
|
|
3.09
|
%
|
Volatility
|
|
|
30.04
|
%
|
Dividend
yield
|
|
|
1.80
|
%
|
During
the nine-month period, exercised option shares were 20,906 shares in 2008 and
84,236 shares in 2007. Exercised options shares were 2,000 shares for the third
quarter of 2008 and 6,000 shares for the third quarter of 2007. The table below
summarizes cash received and aggregate intrinsic value from options
exercised:
|
|
For the three months ended September 30,
|
|
For the nine months ended September 30,
|
|
(In thousands, except shares)
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Shares of option
exercised
|
|
|
2,000
|
|
|
6,000
|
|
|
20,906
|
|
|
84,236
|
|
Cash
received from option exercised
|
|
$
|
17
|
|
$
|
75
|
|
$
|
372
|
|
$
|
1,416
|
|
Aggregate
intrinsic value for option exercised
|
|
$
|
28
|
|
$
|
132
|
|
$
|
136
|
|
$
|
1,420
|
|
The
table
below summarizes stock option activity for the periods indicated:
|
|
|
|
|
|
Weighted-Average
|
|
Aggregate
|
|
|
|
|
|
Weighted-Average
|
|
Remaining Contractual
|
|
Intrinsic
|
|
|
|
Shares
|
|
Exercise Price
|
|
Life (in years)
|
|
Value (in thousands)
|
|
Balance
at December 31, 2007
|
|
|
4,574,280
|
|
$
|
28.36
|
|
|
6.1
|
|
$
|
24,487
|
|
Granted
|
|
|
689,200
|
|
|
23.37
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(16,784
|
)
|
|
32.63
|
|
|
|
|
|
|
|
Exercised
|
|
|
(18,906
|
)
|
|
18.81
|
|
|
|
|
|
|
|
Balance
at March 31, 2008
|
|
|
5,227,790
|
|
$
|
27.72
|
|
|
6.4
|
|
$
|
2,901
|
|
Granted
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(4,822
|
)
|
|
33.53
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Balance
at June 30, 2008
|
|
|
5,222,968
|
|
$
|
27.72
|
|
|
6.1
|
|
$
|
28
|
|
Granted
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(8,258
|
)
|
|
30.40
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,000
|
)
|
|
8.25
|
|
|
|
|
|
|
|
Balance
at September 30, 2008
|
|
|
5,212,710
|
|
$
|
27.72
|
|
|
5.9
|
|
$
|
6,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at September 30, 2008
|
|
|
3,418,587
|
|
$
|
26.69
|
|
|
4.9
|
|
$
|
5,926
|
|
At
September 30, 2008, 1,542,022 shares were available under the Company’s 2005
Incentive Plan for future grants.
The
Company grants non-vested stock to its Chairman of the Board, President, and
Chief Executive Officer. The shares vest ratably over certain years if certain
annual performance criteria are met. The following table presents information
relating to the non-vested stock grants as of September 30, 2008:
|
|
Date Granted
|
|
|
|
January 31, 2007
|
|
January 25, 2006
|
|
Shares
granted
|
|
|
20,000
|
|
|
30,000
|
|
Vested
ratably over
|
|
|
2
years
|
|
|
3
years
|
|
Price
per share at grant date
|
|
$
|
34.66
|
|
$
|
36.24
|
|
Vested
shares
|
|
|
10,000
|
|
|
20,000
|
|
Non-vested
shares
|
|
|
10,000
|
|
|
10,000
|
|
The
stock
compensation expense recorded related to the non-vested stock above was $532,000
for the nine months ended September 30, 2008, and $503,000 for the nine months
ended September 30, 2007. For the three months ended September 30, non-vested
stock compensation expense was $177,000 for 2008 and $177,000 for 2007.
Unrecognized stock-based compensation expense related to non-vested stock awards
was $236,000 at September 30, 2008, and is expected to be recognized over the
next 4 months.
In
addition to stock options and restricted stock awards above, in February 2008,
the Company also granted restricted stock units on 82,291 shares of the
Company’s common stock to its eligible employees. On the date of granting of
these restricted stock units, the closing price of the Company’s stock was
$23.37 per share. Such restricted stock units have a maximum term of five years
and vest in approximately 20% annual increments subject to employees’ continued
employment with the Company. The following table presents information relating
to the restricted stock units grant as of September 30, 2008:
|
|
|
|
Weighted-Average
|
|
|
|
|
|
Remaining Contractual
|
|
|
|
Units
|
|
Life (in years)
|
|
Balance
at December 31, 2007
|
|
|
-
|
|
|
-
|
|
Granted
|
|
|
82,291
|
|
|
3.0
|
|
Forfeited
|
|
|
(2,191
|
)
|
|
|
|
Balance
at September 30, 2008
|
|
|
80,100
|
|
|
2.4
|
|
The
compensation expense recorded related to the restricted stock units above was
$82,000 for the three months ended and $191,000 for the nine months ended
September 30, 2008. Unrecognized stock-based compensation expense related to
restricted stock units was $1.4 million at September 30, 2008, and is expected
to be recognized over the next 4.4 years.
Prior
to
2006, the Company presented the entire amount of the tax benefit on options
exercised as operating activities in the consolidated statements of cash flows.
After adoption of SFAS No. 123R in January 2006, the Company reports only the
benefits of tax deductions in excess of grant-date fair value as cash flows
from
operating activity and financing activity. The following table summarizes the
tax benefit (short-fall) from share-based payment arrangements:
|
|
For the three months ended September 30,
|
|
For the nine months ended September 30,
|
|
(Dollars in thousands)
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
(Short-fall)/Benefit
of tax deductions in excess of grant-date fair value
|
|
$
|
(3
|
)
|
$
|
53
|
|
$
|
(240
|
)
|
$
|
503
|
|
Benefit
of tax deductions on grant-date fair value
|
|
|
15
|
|
|
3
|
|
|
297
|
|
|
94
|
|
Total
benefit of tax deductions
|
|
$
|
12
|
|
$
|
56
|
|
$
|
57
|
|
$
|
597
|
|
7.
Securities Purchased Under Agreement
s
to Resell
Securities
purchased under agreements to resell are usually collateralized by U.S.
government agency and mortgage-backed securities. The counter-parties to these
agreements are nationally recognized investment banking firms that meet
credit
requirements
of the Company and with whom a master repurchase agreement has been duly
executed. As of September 30, 2008, the Company had three outstanding long-term
resale agreements totaling $150.0 million compared to nine long-term resale
agreements totaling $450.0 million at December 31, 2007. The agreements have
terms from seven to ten years with interest rates ranging from 7.00% to 7.15%.
The counterparty has the right to a quarterly call. All $150.0 million resale
agreements are callable as of September 30, 2008. When the callable term starts
if certain conditions are met, there may be no interest earned for those days
when the certain conditions are met.
Securities
purchased under agreements to resell were $150.0 million at a weighted average
interest rate of 7.10% at September 30, 2008, compared to $516.1 million at
a
weighted average interest rate of 7.44% at December 31, 2007.
For
those
securities obtained under the resale agreements, the collateral is either held
by a third party custodian or by the counter-party and is segregated under
written agreements that recognize the Company’s interest in the securities.
Interest income associated with securities purchased under resale agreements
totaled $2.8 million for the third quarter of 2008 and $12.0 million for the
first nine months of 2008 compared to $7.4 million for the same quarter a year
ago and to $14.7 million for the first nine months of 2007.
8.
Commitments and Contingencies
In
the
normal course of business, the Company becomes a party to financial instruments
with off-balance sheet risk to meet the financing needs of its customers. These
financial instruments include commitments to extend credit in the form of loans,
or through commercial or standby letters of credit, and financial guarantees.
These instruments represent varying degrees of exposure to risk in excess of
the
amounts included in the accompanying condensed consolidated balance sheets.
The
contractual or notional amount of these instruments indicates a level of
activity associated with a particular class of financial instrument and is
not a
reflection of the level of expected losses, if any.
The
Company's exposure to credit loss in the event of non-performance by the other
party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Company uses
the
same credit policies in making commitments and conditional obligations as it
does for on-balance sheet instruments. The following table summarizes the
outstanding commitments as of the dates indicated:
(In thousands)
|
|
At September 30, 2008
|
|
At December 31, 2007
|
|
Commitments
to extend credit
|
|
$
|
2,089,619
|
|
$
|
2,310,887
|
|
Standby
letters of credit
|
|
|
73,844
|
|
|
62,413
|
|
Other
letters of credit
|
|
|
70,434
|
|
|
71,089
|
|
Bill
of lading guarantees
|
|
|
353
|
|
|
323
|
|
Total
|
|
$
|
2,234,250
|
|
$
|
2,444,712
|
|
As
of
September 30, 2008, $25.7 million unfunded commitments for affordable housing
investments were recorded under other liabilities compared to $19.2 million
at
December 31, 2007.
Commitments
to extend credit are agreements to lend to a customer provided there is no
violation of any condition established in the commitment agreement. These
commitments generally have fixed expiration dates and the total commitment
amounts do not necessarily represent future cash requirements. The Company
evaluates each customer’s creditworthiness on a case-by-case basis. The amount
of collateral obtained if deemed necessary by the Company upon extension of
credit is based on management's credit evaluation of the borrower. Letters
of
credit, including standby letters of credit and bill of lading guarantees,
are
conditional commitments issued by the Company to guarantee the performance
of a
customer to a third party. The credit risk involved in issuing these types
of
instrument is essentially the same as that involved in making loans to
customers.
9.
Securities Sold Under Agreements to Repurchase
Securities
sold under agreements to repurchase were $1.6 billion with a weighted average
rate of 3.83% at September 30, 2008, compared to $1.4 billion with a weighted
average rate of 3.57% at December 31, 2007. Seventeen floating-to-fixed rate
agreements totaling $900.0 million are with initial floating rates for a period
of time ranging from six months to one year, with the floating rates ranging
from the three-month LIBOR minus 100 basis points to the three-month LIBOR
minus
340 basis points. Thereafter, the rates are fixed for the remainder of the
term,
with interest rates ranging from 4.29% to 5.07%. After the initial floating
rate
term, the counterparties have the right to terminate the transaction at par
at
the fixed rate reset date and quarterly thereafter. Thirteen fixed-to-floating
rate agreements totaling $650.0 million are with initial fixed rates ranging
from 1.00% and 3.50% with initial fixed rate terms ranging from six months
to
eighteen months. For the remainder of the seven year term, the rates float
at 8%
minus the three-month LIBOR rate with a maximum rate ranging from 3.25% to
3.75%
and minimum rate of 0.0%. After the initial fixed rate term, the counterparties
have the right to terminate the transaction at par at the floating rate reset
date and quarterly thereafter.
At
September 30, 2008, included in long-term transactions are twenty-three
repurchase agreements totaling $1.2 billion that were callable but which had
not
been called. Six fixed-to-floating rate repurchase agreements of $50.0 million
each have variable interest rates currently at a range from 3.50% to 3.75%
maximum rate until their final maturities in September 2014. Four
floating-to-fixed rate repurchase agreements of $50.0 million each have fixed
interest rates ranging from 4.89% to 5.07%, until their final maturities in
January 2017. Ten floating-to-fixed rate repurchase agreements totaled $550.0
million have fixed interest rates ranging from 4.29% to 4.78%, until their
final
maturities in 2014. Two floating-to-fixed rate repurchase agreements of $50.0
million each have fixed interest rates at 4.75% and 4.79%, until their final
maturities in 2011. One floating-to-fixed rate repurchase agreement of $50.0
million has fixed interest rate at 4.83% until its final maturity in 2012.
These
transactions are accounted for as collateralized financing transactions and
recorded at the amounts at which the securities were sold. The Company may
have
to provide additional collateral for the repurchase agreements, as necessary.
The underlying collateral pledged for the repurchase agreements consists of
U.S.
Treasury securities, U.S. government agency security debt, and mortgage-backed
securities with a fair value of $1.7 billion as of September 30, 2008, and
$1.5
billion as of December 31, 2007.
10.Advances
from the Federal Home Loan Bank
Total
advances from the FHLB of San Francisco decreased $98.5 million to $1.3 billion
at September 30, 2008 from $1.4 billion at December 31, 2007. Non-puttable
advances totaled $576.7 million with a weighted rate of 3.54% and puttable
advances totaled $700.0 million with a weighted average rate of 4.42% at
September 30, 2008. The FHLB has the right to terminate the puttable transaction
at par at each three-month anniversary after the first puttable date. FHLB
advances of $300.0 million at a weighted average rate of 4.31% were puttable
as
of September 30, 2008. The remaining puttable FHLB advances of $400.0 million
at
a weighted average rate of 4.50% are puttable at the second anniversary date
in
2009.
11.
Subordinated Note and Junior Subordinated Debt
On
September 29, 2006, the Bank issued $50.0 million in subordinated debt in a
private placement transaction. This instrument matures on September 29, 2016,
and bears interest at a per annum rate based on the three month LIBOR plus
110
basis points, payable on a quarterly basis. At September 30, 2008, the per
annum
interest rate on the subordinated debt was 4.86% compared to 5.93% at December
31, 2007. The subordinated debt was issued through the Bank and qualifies as
Tier 2 capital for regulatory reporting purposes and is included in long-term
debt in the accompanying condensed consolidated balance sheets.
The
Bancorp established three special purpose trusts in 2003 and two in 2007 for
the
purpose of issuing trust preferred securities to outside investors (Capital
Securities). The trusts exist for the purpose of issuing the Capital Securities
and investing the proceeds thereof, together with proceeds from the purchase
of
the common stock of the trusts by the Bancorp, in junior subordinated notes
issued by the Bancorp. The five special purpose trusts are considered variable
interest entities under FIN 46R. Because the Bancorp is not the primary
beneficiary of the trusts, the financial statements of the trusts are not
included in the consolidated financial statements of the Company. At September
30, 2008, junior subordinated debt securities totaled $121.1 million with a
weighted average interest rate of 5.24% compared to $121.1 million with a
weighted average rate of 7.13% at December 31, 2007. The junior subordinated
debt securities have a stated maturity term of 30 years and are currently
included in the Tier 1 capital of the Bancorp for regulatory capital
purposes.
12.
Implementation
of FASB Interpretation No. 48
As
previously disclosed, on December 31, 2003, the California Franchise Tax Board
(FTB) announced its intent to list certain transactions that in its view
constitute potentially abusive tax shelters. Included in the transactions
subject to this listing were transactions utilizing regulated investment
companies (RICs) and real estate investment trusts (REITs). While the Company
continues to believe that the tax benefits recorded in 2000, 2001, and 2002
with
respect to its regulated investment company were appropriate and fully
defensible under California law, the Company participated in Option 2 of the
Voluntary Compliance Initiative of the Franchise Tax Board, and paid all
California taxes and interest on these disputed 2000 through 2002 tax benefits,
and at the same time filed a claim for refund for these years while avoiding
certain potential penalties. The Company retains potential exposure for
assertion of an accuracy-related penalty should the FTB prevail in its position
in addition to the risk of not being successful in its refund claims. In June
2008, the Company received a notice from the FTB indicating that the FTB intends
to deny the Company’s claim for refund for its 2000 through 2002 tax years. The
Company is in discussions with the FTB to resolve this matter.
The
FASB
issued Interpretation No. 48 Accounting for Uncertainty in Income Taxes (“FIN
48”) which requires that the amount of recognized tax benefit should be the
maximum amount which is more-likely-than-not to be realized and that amounts
previously recorded that do not meet the requirements of FIN 48 be charged
as a
cumulative effect adjustment to retained earnings. As of December 31, 2006,
the
Company reflected a $12.1 million net state tax receivable related to payments
it made in April 2004 under the Voluntary Compliance Initiative program for
the
years 2000, 2001, and 2002, after giving effect to reserves for loss
contingencies on the refund claims. The Company has determined that its refund
claim related to its regulated investment company is not more-likely-than-not
to
be realized and consequently, charged a total of $8.5 million, comprised of
the
$7.9 million after tax amount related to its refund claims as well as a $0.6
million after tax amount related to California Net Operating Losses generated
in
2001 as a result of its regulated investment company, to the balance of retained
earnings as of the January 1, 2007, the effective date of FIN 48.
At
the
January 1, 2007, adoption date of FIN 48, the total amount of the Company’s
unrecognized tax benefits was $5.5 million, of which $1.6 million, if
recognized, would affect the effective tax rate. The Company recognizes interest
and penalties accrued related to unrecognized tax benefits in income tax
expense. At January 1, 2007, the adoption date of FIN 48, the total amount
of
accrued interest and penalties was $1.7 million. In February 2008, the Company
withdrew, with the agreement of the California Franchise Tax Board, a claim
related to GBC Bancorp’s 2001 California tax return and reversed $0.5 million of
accrued penalties with a corresponding decrease in goodwill. The amount of
additional unrecognized tax benefits expected to be recognized during 2008
is
not expected to be significant.
The
Company’s tax returns are open for audits by the Internal Revenue Service back
to 2004 and by the Franchise Tax Board of the State of California back to 2000.
The Company is currently under audit by the California
Franchise
Tax Board for the years 2000 to 2004. During the second quarter of 2007, the
Internal Revenue Service completed an examination of the Company’s 2004 and 2005
tax returns and did not propose any adjustments deemed to be
material.
13.
Stock Repurchase Program
On
November 2007, the Company announced that its Board of Directors had approved
a
new stock repurchase program to buy back up to an aggregate of one million
shares of the Company’s common stock following the completion of the stock
repurchase program of May 2007. During 2007, the Company repurchased 2,829,203
shares of common stock for $92.4 million, or an average price of $32.67 per
share. No shares were purchased during the first nine months of 2008. At
September 30, 2008, 622,500 shares remain under the Company’s November 2007
repurchase program.
14.
Fair Value Measurements
SFAS
No.
157 defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. The Company adopted SFAS No. 157 on January 1, 2008, and
determined the fair values of our financial instruments based on the three-level
fair value hierarchy established in SFAS 157. The three-level inputs to measure
the fair value of assets and liabilities are as follows:
|
·
|
Level
1 - Quoted prices in active markets for identical assets or
liabilities.
|
|
·
|
Level
2 - Observable prices in active markets for similar assets or liabilities;
prices for identical or similar assets or liabilities in markets
that are
not active; directly observable market inputs for substantially the
full
term of the asset and liability; market inputs that are not directly
observable but are derived from or corroborated by observable market
data.
|
|
·
|
Level
3 – Unobservable inputs based on the Company’s own judgments about
the assumptions that a market participant would
use.
|
The
Company uses the following methodologies to measure the fair value of its
financial assets on a recurring basis:
|
Securities
available for sale- For certain actively traded trust preferred
securities, agency preferred stocks, and U.S. Treasury securities,
the
Company measures the fair value based on quoted market prices in
active
exchange markets at the reporting date, a Level 1 measurement. The
Company
measures all other securities by using quoted market prices for similar
securities or dealer quotes, a Level 2 measurement. This category
generally includes U.S. Government agency securities, state and municipal
securities, mortgage-backed securities (“MBS”), commercial MBS,
collateralized mortgage obligations, asset-backed securities and
corporate
bonds.
|
|
Trading
securities- The Company measures the fair value of trading securities
based on quoted market prices in active exchange markets at the reporting
date, a Level 1 measurement.
|
|
Impaired
loans- The Company does not record loans at fair value on a recurring
basis. However, from time to time, nonrecurring fair value adjustments
to
collateral dependent impaired loans are recorded based on either
current
appraised value of the collateral, a Level 2 measurement, or management’s
judgment and estimation of value reported on old appraisals which
are then
adjusted based on recent market trends, a Level 3 measurement.
|
|
Equity
investment- The Company does not record equity investment at fair
value on
a recurring basis. However, from time to time, nonrecurring fair
value
adjustments to equity investment are recorded based on quoted market
prices in active exchange market at the reporting date, a Level 1
measurement.
|
|
|
Warrants-
The Company measures the fair value of warrants based on unobservable
inputs based on assumption and management judgment, a Level 3
measurement.
|
The
following table presents the Company’s hierarchy for its assets and liabilities
measured at fair value on a recurring and non-recurring basis at September
30,
2008:
|
|
Fair
Value Measurements Using
|
|
Total
at
|
|
(In
thousands)
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
Fair
Value
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On
a Recurring Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
available-for-sale
|
|
$
|
77,374
|
|
$
|
2,514,957
|
|
$
|
-
|
|
$
|
2,592,331
|
|
Trading
securities
|
|
|
19
|
|
|
-
|
|
|
-
|
|
|
19
|
|
Warrants
|
|
|
-
|
|
|
-
|
|
|
108
|
|
|
108
|
|
On
a Non-recurring Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
loans
|
|
|
-
|
|
|
37,252
|
|
|
7,074
|
|
|
44,326
|
|
Equity
investment
|
|
|
1,868
|
|
|
-
|
|
|
-
|
|
|
1,868
|
|
Total
assets
|
|
$
|
79,261
|
|
$
|
2,552,209
|
|
$
|
7,182
|
|
$
|
2,638,652
|
|
The
Company measured the fair value of its warrants on a recurring basis using
significant unobservable inputs. The fair value of warrants was $108,000 at
September 30, 2008, compared to $125,000 at December 31, 2007. The fair value
adjustment of $17,000 was included in other operating income during the first
nine months of 2008.
15.
Goodwill and Goodwill Impairment
The
Company’s policy is to assess goodwill for impairment at the reporting unit
level on an annual basis or between annual assessments if an triggering event
occurs or circumstances change that would more likely than not reduce the fair
value of a reporting unit below its carrying amount. Impairment is
the condition that exists when the carrying amount of goodwill exceeds its
implied fair value. Accounting standards require management to
estimate the fair value of each reporting unit in making the assessment of
impairment at least annually.
As
a
result of ongoing volatility in the financial services industry, the Company’s
market capitalization decreased to a level below book value as of June 30,
2008.
The Company engaged an independent valuation firm to compute the fair value
estimates of each reporting unit as part of its impairment
assessment. The independent valuation utilized two separate valuation
methodologies and applied a weighted average to each methodology in order to
determine fair value for each reporting unit.
The
impairment testing process conducted by the Company begins by assigning net
assets and goodwill to its three reporting units- Commercial Lending, Retail
Banking, and East Coast Operations. The Company then completes “step
one” of the impairment test by comparing the fair value of each reporting unit
(as determined based on the discussion below) with the recorded book value
(or
“carrying amount”) of its net assets, with goodwill included in the computation
of the carrying amount. If the fair value of a reporting unit exceeds
its carrying amount, goodwill of that reporting unit is not considered impaired,
and “step two” of the impairment test is not necessary. If the
carrying amount of a reporting unit exceeds its fair value, step two of the
impairment test is performed to determine the amount of
impairment. Step two of the impairment test compares the carrying
amount of the reporting unit’s goodwill to the “implied fair value” of that
goodwill. The implied fair value of goodwill is computed by assuming
all assets and liabilities of the reporting unit would be adjusted to the
current fair value, with the offset as an adjustment to
goodwill. This adjusted goodwill balance is the implied fair value
used in step two. An impairment charge is recognized for the amount
by which the carrying amount of goodwill exceeds its implied fair value. In
connection with obtaining the independent valuation, management provided certain
data and information that was utilized by the third party in its determination
of fair value. This information included forecasted earnings of the
Company at the reporting unit level. Management believes that this
information is a critical assumption underlying the estimate of fair
value.
The
valuation as of June 30, 2008, indicated that the fair value for the Retail
Banking and East Coast Operations, the only two reporting units with allocated
goodwill, exceeded their carrying amounts. Consequently, no goodwill
impairment charge was recorded as of June 30, 2008. While management uses the
best information available to estimate future performance for each reporting
unit, future adjustments to management’s projections may be necessary if
conditions differ substantially from the assumptions used in making the
estimates. At September 30, 2008, the Company’s market capitalization was above
book value and there was no triggering event that required the Company to assess
goodwill for impairment.
I
tem
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS
.
The
following discussion is given based on the assumption that the reader has access
to and has read the Annual Report on Form 10-K for the year ended December
31,
2007, of Cathay General Bancorp (“Bancorp”) and its wholly-owned subsidiary
Cathay Bank (the “Bank” and, together, the “Company” or “we”, “us,” or
“our”).
Recent
Developments
There
have been significant disruptions in the U.S. and international financial system
during the period covered by this report. As a result, available credit has
been
reduced or ceased to exist. The availability of credit, confidence in the entire
financial sector, and volatility in financial markets has been adversely
affected. The U.S. government, the governments of other countries, and
multinational institutions have provided vast amounts of liquidity and capital
into the banking system.
In
response to the financial crises affecting the overall banking system and
financial markets in the United States, on October 3, 2008, the Emergency
Economic Stabilization Act of 2008 (“EESA”) was enacted to provide up to $700
billion to the United States Department of Treasury ("U.S. Treasury”) to
purchase mortgages, mortgage backed securities and certain other financial
instruments from financial institutions for the purpose of stabilizing and
providing liquidity to the U.S. financial markets.
On
October 14, 2008, under the authority of EESA, the U.S. Treasury announced
the
Troubled Asset Relief Program (“TARP”) Capital Purchase Program. Under this
program, the U.S. Treasury will purchase up to $250 billion of senior preferred
shares from qualified U.S. financial institutions. The general terms of the
senior preferred investment include:
|
·
|
senior
preferred shares will pay cumulative compounding dividends at a rate
of 5 percent per year for the first five years, and thereafter at
a rate
of 9 percent per year;
|
|
·
|
senior
preferred shares are non-voting, other than class voting rights on
matters
that could adversely affect the
shares;
|
|
·
|
senior
preferred shares will be callable at par after three years. Prior
to the
end of three years, the senior preferred shares may only be redeemed
with the proceeds from one or more qualified equity
offerings;
|
|
·
|
in
conjunction with the purchase of senior preferred shares, the U.S.
Treasury will receive warrants to purchase common stock with an aggregate
market price equal to 15 percent of the senior preferred amount based
on
the date of investment. Exercise price on warrants shall be the
market price of the participating institutions’ common stock based on the
date the U.S. Treasury accepts the financial institution's application
to
participate in the program and uses a 20-trading day
trailing average;
|
|
·
|
common
stock dividends cannot be increased for three years while the U.S.
Treasury is an investor unless preferred stock is redeemed, has been
transferred to third parties, or consent from the U.S. Treasury is
received;
|
|
·
|
participating
institutions must also adopt the U.S. Treasury’s standards for executive
compensation and corporate governance, for the period during which
the U.S. Treasury holds equity issued under this
program.
|
The
terms
of this Capital Purchase Program could reduce investment returns to
participating banks’ shareholders by restricting dividends to common
shareholders, diluting existing shareholders’ interests, and restricting capital
management practices. Although both the Company and its banking subsidiary
meet
all applicable regulatory capital requirements and remain well capitalized,
the
Company has applied for participation in the Capital Purchase Program.
Federal
and state governments could pass additional legislation responsive to current
credit conditions. As an example, the Company could experience higher credit
losses because of federal or state legislation or regulatory action that reduces
the principal amount or interest rate under existing loan contracts. Also,
the
Company could experience higher credit losses because of federal or state
legislation or regulatory action that limits the Bank’s ability to foreclose on
property or other collateral or makes foreclosure less economically feasible.
The
Federal Deposit Insurance Corporation (“FDIC”) insures deposits at FDIC insured
financial institutions up to certain limits. The FDIC charges insured financial
institutions premiums to maintain the Deposit Insurance Fund. Current economic
conditions have increased expectations for bank failures, in which case the
FDIC
would take control of failed banks and ensure payment of deposits up to insured
limits using the resources of the Deposit Insurance Fund. In such case, the
FDIC
may increase premium assessments to maintain adequate funding of the Deposit
Insurance Fund, including requiring riskier institutions to pay a larger share
of the premiums. An increase in premium assessments would increase the Company’s
expenses. The EESA included a provision for a temporary increase in the amount
of deposits insured by FDIC to $250,000 until December 2009. On October 14,
2008, the FDIC announced a new program — the Temporary Liquidity Guarantee
Program that provides unlimited deposit insurance coverage on funds in
non-interest bearing transaction deposit accounts not otherwise covered by
the
existing temporary deposit insurance limit of $250,000. All eligible
institutions will be covered under the program for the first 30 days without
incurring any costs. After the initial period, participating institutions will
be assessed an annualized 10 basis point surcharge on the additional insured
deposits. The behavior of depositors in regard to the level of FDIC insurance
could cause the Bank’s existing customers to reduce the amount of deposits held
at the Bank, and or could cause new customers to open deposit accounts at the
Bank. The level and composition of the Bank’s deposit portfolio directly impacts
the Bank’s funding cost and net interest margin. As a result of these measures,
it is likely that the premiums the Bank pays for FDIC insurance will increase,
which would adversely affect net income. The impact of such measures cannot
be
assessed at this time.
The
actions described above, together with additional actions announced by the
U.S.
Treasury and other regulatory agencies continue to develop. It is not clear
at
this time what impact, EESA, TARP, other liquidity and funding initiatives
of
the U.S. Treasury and other bank regulatory agencies that have been previously
announced, and any additional programs that may be initiated in the future
will
have on the financial markets and the financial services industry. The extreme
levels of volatility and limited credit availability currently being experienced
could continue to effect the U.S. banking industry and the broader U.S. and
global economies, which will have an affect on all financial institutions,
including the Company.
Critical
Accounting Policies
The
discussion and analysis of the Company’s unaudited condensed consolidated
balance sheets and results of operations are based upon its unaudited condensed
consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these consolidated financial statements requires management
to
make estimates and judgments that affect the reported amounts of assets and
liabilities, revenues and expenses, and related disclosures of contingent assets
and liabilities at the date of our financial statements. Actual results may
differ from these estimates under different assumptions or
conditions.
Accounting
for the allowance for credit losses involves significant judgments and
assumptions by management, which have a material impact on the carrying value
of
net loans; management considers this accounting policy to be a critical
accounting policy. The judgments and assumptions used by management are based
on
historical experience and other factors, which are believed to be reasonable
under the circumstances as described under the heading “Accounting for the
Allowance for Loan Losses” in the Company’s annual report on Form 10-K for the
year ended December 31, 2007.
Accounting
for investment securities involves significant judgments and assumptions by
management, which have a material impact on the carrying value of securities
and
the recognition of any “other-than-temporary” impairment to our investment
securities. The judgments and assumptions used by management are described
under
the heading “Investment Securities” in the Company’s annual report on Form 10-K
for the year ended December 31, 2007.
Accounting
for income taxes involves significant judgments and assumptions by management,
which have a material impact on the amount of taxes currently payable and the
income tax expense recorded in the financial statements. The judgments and
assumptions used by management are described under the heading “Income Taxes” in
the Company’s annual report on Form 10-K for the year ended December 31,
2007.
Under
SFAS No. 142, Goodwill and Other Intangibles, goodwill must be allocated to
reporting units and tested for impairment. The Company tests goodwill for
impairment at least annually or more frequently if events or circumstances,
such
as adverse changes in the business, indicate that there may be justification
for
conducting an interim test. Impairment testing is performed at the
reporting-unit level utilizing an independent valuation. The Company then
completes “step one” of the impairment test by comparing the fair value of each
reporting unit (as determined based on the discussion above) with the recorded
book value (or “carrying amount”) of its net assets, with goodwill included in
the computation of the carrying amount. If the fair value of a
reporting unit exceeds its carrying amount, goodwill of that reporting unit
is
not considered impaired, and “step two” of the impairment test is not
necessary. If the carrying amount of a reporting unit exceeds its
fair value, step two of the impairment test is performed to determine the amount
of impairment. Step two of the impairment test compares the carrying
amount of the reporting unit’s goodwill to the “implied fair value” of that
goodwill. The implied fair value of goodwill is computed by assuming
all assets and liabilities of the reporting unit would be adjusted to the
current fair value, with the offset as an adjustment to
goodwill. This adjusted goodwill balance is the implied fair value
used in step two. An impairment charge is recognized for the amount
by which the carrying amount of goodwill exceeds its implied fair
value.
In
connection with obtaining the independent valuation, management provides certain
data and information that is utilized by the third party in its determination
of
fair value. This information includes forecasted earnings of the
Company at the reporting unit level. Management believes that this
information is a critical assumption underlying the estimate of fair
value.
HIGHLIGHTS
·
|
Third
quarter earnings of $6.9 million decreased $27.1 million, or 79.7%,
compared to the same quarter a year
ago.
|
·
|
Fully
diluted earnings per share was $0.14, a 79.1% decrease from the same
quarter a year ago.
|
·
|
Return
on average assets was 0.25% for the quarter ended September 30, 2008,
compared to 0.73% for the quarter ended June 30, 2008, and compared
to
1.46% for the same quarter a year ago.
|
·
|
Return
on average stockholders’ equity was 2.71% for the quarter ended September
30, 2008, compared to 7.66% for the quarter ended June 30, 2008,
and
compared to 14.45% for the same quarter a year ago.
|
·
|
Gross
loans increased by $171.6 million, or 2.3%, for the quarter to $7.5
billion at September 30, 2008, from $7.3 billion at June 30,
2008.
|
·
|
Total
deposits increased by $107.1 million, or 1.6%, for the quarter to
$6.8
billion at September 30, 2008, from $6.7 billion at June 30,
2008.
|
Income
Statement Review
Net
Income
Net
income for the third quarter of 2008 was $6.9 million, or $0.14 per diluted
share, a $27.1 million, or 79.7%, decrease compared with net income of $34.0
million, or $0.67 per diluted share for the same quarter a year ago. Return
on
average assets was 0.25% and return on average stockholders’ equity was 2.71%
for the third quarter of 2008 compared with a return on average assets of 1.46%
and a return on average stockholders’ equity of 14.45% for the third quarter of
2007.
Financial
Performance
|
|
Third Quarter 2008
|
|
Third Quarter 2007
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
6.9
million
|
|
$
|
34.0
million
|
|
Basic
earnings per share
|
|
$
|
0.14
|
|
$
|
0.68
|
|
Diluted
earnings per share
|
|
$
|
0.14
|
|
$
|
0.67
|
|
Return
on average assets
|
|
|
0.25
|
%
|
|
1.46
|
%
|
Return
on average stockholders’ equity
|
|
|
2.71
|
%
|
|
14.45
|
%
|
Efficiency
ratio
|
|
|
53.92
|
%
|
|
37.46
|
%
|
Net
Interest Income Before Provision for Credit Losses
Net
interest income before provision for credit losses decreased to $73.6 million
during the third quarter of 2008, a decline of $6.2 million, or 7.8%, compared
to the $79.8 million during the same quarter a year ago. The decrease was due
primarily to the decline in the net interest margin which was partially offset
by strong growth in loans and investment securities.
The
net
interest margin, on a fully taxable-equivalent basis, was 2.88% for the third
quarter of 2008. The net interest margin decreased 6 basis points from 2.94%
in
the second quarter of 2008 and decreased 81 basis points from 3.69% in the
third
quarter of 2007. The decrease in the net interest margin from the prior year
primarily resulted from the lag in the downward repricing of certificates of
deposit following the decreases in the prime rate, a change in the mix of
investment securities, and the increase in the borrowing rate on our long term
repurchase agreements. The decrease in the net interest margin from the second
quarter primarily resulted from the increase in the borrowing rates on
securities sold under agreements to repurchase and other borrowed
funds.
For
the
third quarter of 2008, the yield on average interest-earning assets was 5.70%
on
a fully taxable-equivalent basis, and the cost of funds on average
interest-bearing liabilities equaled 3.21%. In comparison, for the third quarter
of 2007, the yield on average interest-earning assets was 7.34% and cost of
funds on average interest-bearing liabilities equaled 4.24%. The interest
spread, defined as the difference between the yield on average interest-earning
assets and the cost of funds on average interest-bearing liabilities, decreased
61 basis points to 2.49% for the quarter ended September 30, 2008, from 3.10%
for the same quarter a year ago, primarily due to the reasons discussed
above.
Average
daily balances, together with the total dollar amounts, on a taxable-equivalent
basis, of interest income and interest expense, and the weighted-average
interest rate and net interest margin are as follows:
Interest-Earning
Assets and Interest-Bearing Liabilities
Three
months ended September 30,
|
|
2008
|
|
2007
|
|
|
|
|
|
Interest
|
|
Average
|
|
|
|
Interest
|
|
Average
|
|
Taxable-equivalent
basis
|
|
Average
|
|
Income/
|
|
Yield/
|
|
Average
|
|
Income/
|
|
Yield/
|
|
(Dollars in thousands)
|
|
Balance
|
|
Expense
|
|
Rate (1)(2)
|
|
Balance
|
|
Expense
|
|
Rate (1)(2)
|
|
Interest
Earning Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
loans
|
|
$
|
1,606,864
|
|
$
|
21,171
|
|
|
5.24
|
%
|
$
|
1,320,611
|
|
$
|
27,110
|
|
|
8.14
|
%
|
Residential
mortgage
|
|
|
772,460
|
|
|
10,983
|
|
|
5.69
|
|
|
622,793
|
|
|
9,769
|
|
|
6.27
|
|
Commercial
mortgage
|
|
|
4,126,133
|
|
|
68,364
|
|
|
6.59
|
|
|
3,560,243
|
|
|
68,869
|
|
|
7.67
|
|
Real
estate construction loans
|
|
|
898,728
|
|
|
13,247
|
|
|
5.86
|
|
|
768,117
|
|
|
17,801
|
|
|
9.19
|
|
Other
loans and leases
|
|
|
21,633
|
|
|
240
|
|
|
4.41
|
|
|
26,688
|
|
|
376
|
|
|
5.59
|
|
Total
loans and leases (1)
|
|
|
7,425,818
|
|
|
114,005
|
|
|
6.11
|
|
|
6,298,452
|
|
|
123,925
|
|
|
7.81
|
|
Taxable
securities
|
|
|
2,484,473
|
|
|
27,575
|
|
|
4.42
|
|
|
1,769,245
|
|
|
25,127
|
|
|
5.63
|
|
Tax-exempt
securities (3)
|
|
|
47,938
|
|
|
868
|
|
|
7.20
|
|
|
55,217
|
|
|
921
|
|
|
6.62
|
|
Federal
Home Loan Bank Stock
|
|
|
64,228
|
|
|
1,004
|
|
|
6.22
|
|
|
50,297
|
|
|
639
|
|
|
5.04
|
|
Interest
bearing deposits
|
|
|
8,941
|
|
|
42
|
|
|
1.87
|
|
|
71,843
|
|
|
1,248
|
|
|
6.89
|
|
Federal
funds sold & securities purchased under agreements to
resell
|
|
|
188,522
|
|
|
2,899
|
|
|
6.12
|
|
|
371,413
|
|
|
7,615
|
|
|
8.13
|
|
Total
interest-earning assets
|
|
|
10,219,920
|
|
|
146,393
|
|
|
5.70
|
|
|
8,616,467
|
|
|
159,475
|
|
|
7.34
|
|
Non-interest
earning assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
|
82,102
|
|
|
|
|
|
|
|
|
84,176
|
|
|
|
|
|
|
|
Other
non-earning assets
|
|
|
724,950
|
|
|
|
|
|
|
|
|
639,999
|
|
|
|
|
|
|
|
Total
non-interest earning assets
|
|
|
807,052
|
|
|
|
|
|
|
|
|
724,175
|
|
|
|
|
|
|
|
Less:
Allowance for loan losses
|
|
|
(90,162
|
)
|
|
|
|
|
|
|
|
(65,902
|
)
|
|
|
|
|
|
|
Deferred
loan fees
|
|
|
(10,527
|
)
|
|
|
|
|
|
|
|
(11,584
|
)
|
|
|
|
|
|
|
Total
assets
|
|
$
|
10,926,283
|
|
|
|
|
|
|
|
$
|
9,263,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing demand accounts
|
|
$
|
268,802
|
|
$
|
382
|
|
|
0.57
|
|
$
|
233,116
|
|
$
|
755
|
|
|
1.28
|
|
Money
market accounts
|
|
|
760,679
|
|
|
3,466
|
|
|
1.81
|
|
|
699,679
|
|
|
5,610
|
|
|
3.18
|
|
Savings
accounts
|
|
|
337,538
|
|
|
261
|
|
|
0.31
|
|
|
342,971
|
|
|
873
|
|
|
1.01
|
|
Time
deposits
|
|
|
4,708,290
|
|
|
39,217
|
|
|
3.31
|
|
|
3,935,125
|
|
|
47,305
|
|
|
4.77
|
|
Total
interest-bearing deposits
|
|
|
6,075,309
|
|
|
43,326
|
|
|
2.84
|
|
|
5,210,891
|
|
|
54,543
|
|
|
4.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
funds purchased
|
|
|
39,842
|
|
|
206
|
|
|
2.06
|
|
|
22,863
|
|
|
279
|
|
|
4.84
|
|
Securities
sold under agreements to repurchase
|
|
|
1,550,000
|
|
|
15,174
|
|
|
3.89
|
|
|
1,041,577
|
|
|
9,865
|
|
|
3.76
|
|
Other
borrowings
|
|
|
1,157,430
|
|
|
11,785
|
|
|
4.05
|
|
|
978,759
|
|
|
11,475
|
|
|
4.65
|
|
Long-term
debt
|
|
|
171,136
|
|
|
2,030
|
|
|
4.72
|
|
|
171,136
|
|
|
3,182
|
|
|
7.38
|
|
Total
interest-bearing liabilities
|
|
|
8,993,717
|
|
|
72,521
|
|
|
3.21
|
|
|
7,425,226
|
|
|
79,344
|
|
|
4.24
|
|
Non-interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
deposits
|
|
|
788,028
|
|
|
|
|
|
|
|
|
774,513
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
134,035
|
|
|
|
|
|
|
|
|
129,855
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
1,010,503
|
|
|
|
|
|
|
|
|
933,562
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
10,926,283
|
|
|
|
|
|
|
|
$
|
9,263,156
|
|
|
|
|
|
|
|
Net
interest spread (4)
|
|
|
|
|
|
|
|
|
2.49
|
%
|
|
|
|
|
|
|
|
3.10
|
%
|
Net
interest income (4)
|
|
|
|
|
$
|
73,872
|
|
|
|
|
|
|
|
$
|
80,131
|
|
|
|
|
Net
interest margin (4)
|
|
|
|
|
|
|
|
|
2.88
|
%
|
|
|
|
|
|
|
|
3.69
|
%
|
(1)
|
Yields
and amounts of interest earned include loan fees. Non-accrual loans
are
included in the average balance.
|
(2)
|
Calculated
by dividing net interest income by average outstanding interest-earning
assets
|
(3)
|
The
average yield has been adjusted to a fully taxable-equivalent basis
for
certain securities of states and political subdivisions and other
securities held using a statutory Federal income tax rate of
35%
|
(4)
|
Net
interest income, net interest spread, and net interest margin on
interest-earning assets have been adjusted to a fully taxable-equivalent
basis using a statutory Federal income tax rate of
35%
|
The
following table summarizes the changes in interest income and interest expense
attributable to changes in volume and changes in interest rates:
Taxable-Equivalent
Net Interest Income — Changes Due to Rate and Volume(1)
|
|
Three months ended September 30,
|
|
|
|
2008-2007
|
|
|
|
Increase (Decrease) in
|
|
|
|
Net Interest Income Due to:
|
|
(Dollars in thousands)
|
|
Changes in
Volume
|
|
Changes in
Rate
|
|
Total Change
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Earning
Assets:
|
|
|
|
|
|
|
|
|
|
|
Loans
and leases
|
|
|
19,664
|
|
|
(29,584
|
)
|
|
(9,920
|
)
|
Taxable
securities
|
|
|
8,619
|
|
|
(6,171
|
)
|
|
2,448
|
|
Tax-exempt
securities (2)
|
|
|
(128
|
)
|
|
75
|
|
|
(53
|
)
|
Federal
Home Loan Bank Stock
|
|
|
198
|
|
|
167
|
|
|
365
|
|
Deposits
with other banks
|
|
|
(658
|
)
|
|
(548
|
)
|
|
(1,206
|
)
|
Federal
funds sold and securities purchased under agreements to
resell
|
|
|
(3,137
|
)
|
|
(1,579
|
)
|
|
(4,716
|
)
|
Total
increase in interest income
|
|
|
24,558
|
|
|
(37,640
|
)
|
|
(13,082
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing demand accounts
|
|
|
100
|
|
|
(473
|
)
|
|
(373
|
)
|
Money
market accounts
|
|
|
445
|
|
|
(2,589
|
)
|
|
(2,144
|
)
|
Savings
accounts
|
|
|
(14
|
)
|
|
(598
|
)
|
|
(612
|
)
|
Time
deposits
|
|
|
8,049
|
|
|
(16,137
|
)
|
|
(8,088
|
)
|
Federal
funds purchased
|
|
|
138
|
|
|
(211
|
)
|
|
(73
|
)
|
Securities
sold under agreements to repurchase
|
|
|
4,940
|
|
|
369
|
|
|
5,309
|
|
Other
borrowed funds
|
|
|
1,903
|
|
|
(1,593
|
)
|
|
310
|
|
Long-term
debts
|
|
|
-
|
|
|
(1,152
|
)
|
|
(1,152
|
)
|
Total
increase in interest expense
|
|
|
15,561
|
|
|
(22,384
|
)
|
|
(6,823
|
)
|
Changes
in net interest income
|
|
$
|
8,997
|
|
$
|
(15,256
|
)
|
$
|
(6,259
|
)
|
|
(1)
|
Changes
in interest income and interest expense attributable to changes in
both
volume and rate have been allocated proportionately to changes due
to
volume and changes due to rate.
|
|
(2)
|
The
amount of interest earned on certain securities of states and political
subdivisions and other securities held has been adjusted to a fully
taxable-equivalent basis, using a statutory federal income tax rate
of
35%.
|
Provision
for Loan Losses
The
provision for credit losses was $15.8 million for the third quarter of 2008
compared to $2.2 million for the third quarter of 2007 and $20.5 million for
the
second quarter of 2008. The provision for credit losses was based on the review
of the adequacy of the allowance for loan losses at September 30, 2008. The
provision for credit losses represents the charge or credit against current
earnings that is determined by management, through a credit review process,
as
the amount needed to establish an allowance that management believes to be
sufficient to absorb credit losses inherent in the Company’s loan portfolio.
Non-Interest
Income
Non-interest
income, which includes revenues from depository service fees, letters of credit
commissions, securities gains (losses), gains (losses) on loan sales, wire
transfer fees, and other sources of fee income, was $8.4 million loss for the
third quarter of 2008, a decrease of $17.3 million compared to the non-interest
income of $8.9 million for the third quarter of 2007. The decrease in
non-interest income primarily resulted from the “Other-than-temporary
impairment” charge of $27.8 million on agency preferred stock, which had a
carrying value of $2.5 million after the impairment write-down, which was
partially offset by net gains of $12.5 million from sale of agency mortgage
backed securities.
Letters
of credit commissions decreased $157,000, or 9.7%, to $1.5 million in the third
quarter of 2008 from $1.6 million in the same quarter a year ago, primarily
due
to decreased international transactions as a result of the slowdown in the
economy.
Gains
from sale of premises and equipment decreased $2.7 million compared to the
third
quarter of 2007 because the year ago quarter included a gain from the sale
of a
former bank branch building in September 2007. Other operating income increased
$992,000, or 30.1%, to $4.3 million in the third quarter of 2008 from $3.3
million in the same quarter a year ago, primarily due to higher gains from
foreign currency and exchange transactions of $1.6 million, which amount was
partially offset by a $275,000 reduction in official check rebate commissions
and a $235,000 reduction in wealth management commissions compared to the third
quarter of 2007.
Non-Interest
Expense
Non-interest
expense increased $2.0 million, or 5.9%, to $35.2 million in the third quarter
of 2008 compared to $33.2 million in the same quarter a year ago. The efficiency
ratio was 53.92%, or 37.80% excluding the $27.8 million pre-tax impairment
charge, compared to 37.46% for the same period a year ago, and 41.52%, or 38.74%
excluding the $5.8 million pre-tax impairment charge for the second quarter
of
2008.
Federal
Deposit Insurance Corporation (“FDIC”) and State assessments increased to $1.3
million in the third quarter of 2008 from $284,000 in the same quarter a year
ago as a result of the utilization of the remaining credit for prior years’ FDIC
insurance premiums in March 2008. Professional service expense increased $1.0
million, or 42.8%, primarily due to increases in information technology
consulting expenses of $518,000, appraisal expenses of $217,000 and legal
expenses of $213,000. Other real estate owned (“OREO”) expense increased $1.2
million due to a $1.3 million write-down on the Company’s Texas apartment
foreclosure. Expense from operations of affordable housing investments increased
$300,000, or 11.8%, to $2.8 million compared to $2.5 million in the same quarter
a year ago as a result of adjustments to estimated losses and additional
investments in affordable housing projects.
Offsetting
the above described increases were decreases of $584,000 in computer and
equipment expense due primarily to the decrease in software license fees as
a
result of the Company’s new data processing contract, $517,000 in salaries and
employee benefits as a result of lower current year bonus accrual, $253,000
in
recruiting and education expenses, and $201,000 in litigation expenses in the
third quarter of 2008 compared to the same quarter a year ago.
Income
Taxes
The
effective tax rate was 51.7% for the third quarter of 2008 and 36.1% for the
first nine months of 2008, compared to 36.2% for the same quarter a year ago
and
36.2% for the full year 2007. The higher effective tax rate for the third
quarter of 2008 resulted from the lack of tax benefits from that portion of
the
“other-than-temporary” impairment on agency preferred stock in excess of
available capital gains. During the fourth quarter of 2008, an additional tax
benefit of $4.6 million will be recognized as a result of the enactment on
October 3 of the Emergency Economic Stabilization Act of 2008 which amended
the
tax code to permit the loss on sale of agency preferred stock by a financial
institution to be treated as an ordinary loss instead of a capital
loss.
Year-to-Date
Income Statement Review
Net
income was $53.4 million, or $1.08 per diluted share for the nine months ended
September 30, 2008, a decrease of $41.1 million, or 43.5%, in net income
compared to $94.5 million, or $1.84 per diluted share for the same period a
year
ago due primarily to increases in the provision for loan losses and the
“other-than-temporary” impairment charge. The net interest margin for the nine
months ended September 30, 2008, decreased 77 basis points to 2.99% compared
to
3.76% for the same period a year ago.
Return
on
average stockholders’ equity was 7.09% and return on average assets was 0.67%
for the nine months ended September 30, 2008, compared to a return on average
stockholders’ equity of 13.49% and a return on average assets of 1.43% for the
same period of 2007. The efficiency ratio for the nine months ended September
30, 2008 was 44.20% compared to 38.30% for the same period a year
ago.
The
average daily balances, together with the total dollar amounts, on a
taxable-equivalent basis, of interest income and interest expense, and the
weighted-average interest rates, the net interest spread and the net interest
margins are as follows:
Interest-Earning
Assets and Interest-Bearing Liabilities
Nine
months ended September 30,
|
|
2008
|
|
2007
|
|
|
|
|
|
Interest
|
|
Average
|
|
|
|
Interest
|
|
Average
|
|
Taxable-equivalent basis
|
|
Average
|
|
Income/
|
|
Yield/
|
|
Average
|
|
Income/
|
|
Yield/
|
|
(Dollars in thousands)
|
|
Balance
|
|
Expense
|
|
Rate (1)(2)
|
|
Balance
|
|
Expense
|
|
Rate (1)(2)
|
|
Interest
Earning Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
loans
|
|
$
|
1,538,657
|
|
$
|
65,866
|
|
|
5.72
|
%
|
$
|
1,274,468
|
|
$
|
77,969
|
|
|
8.18
|
%
|
Residential
mortgage
|
|
|
722,149
|
|
|
31,290
|
|
|
5.78
|
|
|
598,438
|
|
|
27,931
|
|
|
6.22
|
|
Commercial
mortgage
|
|
|
3,980,427
|
|
|
202,127
|
|
|
6.78
|
|
|
3,404,720
|
|
|
198,193
|
|
|
7.78
|
|
Real
estate construction loans
|
|
|
853,477
|
|
|
41,766
|
|
|
6.54
|
|
|
729,250
|
|
|
51,739
|
|
|
9.49
|
|
Other
loans and leases
|
|
|
24,063
|
|
|
831
|
|
|
4.61
|
|
|
27,450
|
|
|
1,009
|
|
|
4.91
|
|
Total
loans and leases (1)
|
|
|
7,118,773
|
|
|
341,880
|
|
|
6.42
|
|
|
6,034,326
|
|
|
356,841
|
|
|
7.91
|
|
Taxable
securities
|
|
|
2,404,666
|
|
|
84,507
|
|
|
4.69
|
|
|
1,694,897
|
|
|
71,381
|
|
|
5.63
|
|
Tax-exempt
securities (3)
|
|
|
58,690
|
|
|
3,730
|
|
|
8.49
|
|
|
65,583
|
|
|
3,205
|
|
|
6.54
|
|
Federal
Home Loan Bank stock
|
|
|
65,283
|
|
|
2,685
|
|
|
5.49
|
|
|
48,493
|
|
|
1,689
|
|
|
4.66
|
|
Interest
bearing deposits
|
|
|
13,007
|
|
|
523
|
|
|
5.37
|
|
|
62,702
|
|
|
3,288
|
|
|
7.01
|
|
Federal
funds sold & securities purchased under agreements to
resell
|
|
|
261,613
|
|
|
12,294
|
|
|
6.28
|
|
|
269,137
|
|
|
15,382
|
|
|
7.64
|
|
Total
interest-earning assets
|
|
|
9,922,032
|
|
|
445,619
|
|
|
6.00
|
|
|
8,175,138
|
|
|
451,786
|
|
|
7.39
|
|
Non-interest
earning assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
|
83,207
|
|
|
|
|
|
|
|
|
88,915
|
|
|
|
|
|
|
|
Other
non-earning assets
|
|
|
679,754
|
|
|
|
|
|
|
|
|
630,396
|
|
|
|
|
|
|
|
Total
non-interest earning assets
|
|
|
762,961
|
|
|
|
|
|
|
|
|
719,311
|
|
|
|
|
|
|
|
Less:
Allowance for loan losses
|
|
|
(76,728
|
)
|
|
|
|
|
|
|
|
(65,877
|
)
|
|
|
|
|
|
|
Deferred
loan fees
|
|
|
(10,495
|
)
|
|
|
|
|
|
|
|
(11,890
|
)
|
|
|
|
|
|
|
Total
assets
|
|
$
|
10,597,770
|
|
|
|
|
|
|
|
$
|
8,816,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing demand accounts
|
|
$
|
253,380
|
|
$
|
1,232
|
|
|
0.65
|
|
$
|
233,012
|
|
$
|
2,230
|
|
|
1.28
|
|
Money
market accounts
|
|
|
733,578
|
|
|
10,533
|
|
|
1.92
|
|
|
680,751
|
|
|
15,882
|
|
|
3.12
|
|
Savings
accounts
|
|
|
335,193
|
|
|
981
|
|
|
0.39
|
|
|
346,951
|
|
|
2,606
|
|
|
1.00
|
|
Time
deposits
|
|
|
4,448,113
|
|
|
123,171
|
|
|
3.70
|
|
|
3,758,715
|
|
|
133,548
|
|
|
4.75
|
|
Total
interest-bearing deposits
|
|
|
5,770,264
|
|
|
135,917
|
|
|
3.15
|
|
|
5,019,429
|
|
|
154,266
|
|
|
4.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
funds purchased
|
|
|
40,299
|
|
|
798
|
|
|
2.65
|
|
|
27,621
|
|
|
1,075
|
|
|
5.20
|
|
Securities
sold under agreement to repurchase
|
|
|
1,553,622
|
|
|
44,716
|
|
|
3.84
|
|
|
831,430
|
|
|
23,126
|
|
|
3.72
|
|
Other
borrowings
|
|
|
1,149,401
|
|
|
35,259
|
|
|
4.10
|
|
|
961,589
|
|
|
35,118
|
|
|
4.88
|
|
Junior
subordinated notes
|
|
|
171,136
|
|
|
6,889
|
|
|
5.38
|
|
|
144,853
|
|
|
8,057
|
|
|
7.44
|
|
Total
interest-bearing liabilities
|
|
|
8,684,722
|
|
|
223,579
|
|
|
3.44
|
|
|
6,984,922
|
|
|
221,642
|
|
|
4.24
|
|
Non-interest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
deposits
|
|
|
777,664
|
|
|
|
|
|
|
|
|
776,946
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
129,074
|
|
|
|
|
|
|
|
|
117,457
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
1,006,310
|
|
|
|
|
|
|
|
|
937,357
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
10,597,770
|
|
|
|
|
|
|
|
$
|
8,816,682
|
|
|
|
|
|
|
|
Net
interest spread (4)
|
|
|
|
|
|
|
|
|
2.56
|
%
|
|
|
|
|
|
|
|
3.15
|
%
|
Net
interest income (4)
|
|
|
|
|
$
|
222,040
|
|
|
|
|
|
|
|
$
|
230,144
|
|
|
|
|
Net
interest margin (4)
|
|
|
|
|
|
|
|
|
2.99
|
%
|
|
|
|
|
|
|
|
3.76
|
%
|
(1)
|
Yields
and amounts of interest earned include loan fees. Non-accrual loans
are
included in the average balance.
|
(2)
|
Calculated
by dividing net interest income by average outstanding interest-earning
assets.
|
(3)
|
The
average yield has been adjusted to a fully taxable-equivalent basis
for
certain securities of states and political subdivisions and other
securities held using a statutory Federal income tax rate of
35%.
|
(4)
|
Net
interest income, net interest spread, and net interest margin on
interest-earning assets have been adjusted to a fully taxable-equivalent
basis using a statutory Federal income tax rate of
35%.
|
Taxable-Equivalent
Net Interest Income — Changes Due to Rate and Volume(1)
|
|
Nine months ended September 30,
|
|
|
|
2008-2007
|
|
|
|
Increase (Decrease) in
|
|
|
|
Net Interest Income Due to:
|
|
(Dollars
in thousands)
|
|
Changes in
Volume
|
|
Changes in
Rate
|
|
Total Change
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Earning
Assets:
|
|
|
|
|
|
|
|
|
|
|
Loans
and leases
|
|
|
58,561
|
|
|
(73,522
|
)
|
|
(14,961
|
)
|
Taxable
securities
|
|
|
26,436
|
|
|
(13,310
|
)
|
|
13,126
|
|
Tax-exempt
securities (2)
|
|
|
(363
|
)
|
|
888
|
|
|
525
|
|
Federal
Home Loan Bank stock
|
|
|
656
|
|
|
340
|
|
|
996
|
|
Deposits
with other banks
|
|
|
(2,135
|
)
|
|
(630
|
)
|
|
(2,765
|
)
|
Federal
funds sold and securities purchased under agreements to
resell
|
|
|
(418
|
)
|
|
(2,670
|
)
|
|
(3,088
|
)
|
Total
increase in interest income
|
|
|
82,737
|
|
|
(88,904
|
)
|
|
(6,167
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing demand accounts
|
|
|
182
|
|
|
(1,180
|
)
|
|
(998
|
)
|
Money
market accounts
|
|
|
1,160
|
|
|
(6,509
|
)
|
|
(5,349
|
)
|
Savings
accounts
|
|
|
(85
|
)
|
|
(1,540
|
)
|
|
(1,625
|
)
|
Time
deposits
|
|
|
22,163
|
|
|
(32,540
|
)
|
|
(10,377
|
)
|
Federal
funds purchased
|
|
|
378
|
|
|
(655
|
)
|
|
(277
|
)
|
Securities
sold under agreement to repurchase
|
|
|
20,781
|
|
|
809
|
|
|
21,590
|
|
Other
borrowed funds
|
|
|
6,289
|
|
|
(6,148
|
)
|
|
141
|
|
Long-term
debt
|
|
|
1,309
|
|
|
(2,477
|
)
|
|
(1,168
|
)
|
Total
increase in interest expense
|
|
|
52,177
|
|
|
(50,240
|
)
|
|
1,937
|
|
Changes
in net interest income
|
|
$
|
30,560
|
|
$
|
(38,664
|
)
|
$
|
(8,104
|
)
|
|
(1)
|
Changes
in interest income and interest expense attributable to changes in
both
volume and rate have been allocated proportionately to changes due
to
volume and changes due to rate.
|
|
(2)
|
The
amount of interest earned on certain securities of states and political
subdivisions and other securities held has been adjusted to a fully
taxable-equivalent basis, using a statutory federal income tax rate
of
35%.
|
Balance
Sheet Review
Assets
Total
assets increased by $652.8 million, or 6.3%, to $11.1 billion at September
30,
2008, from $10.4 billion at December 31, 2007. The increase in total assets
was
represented primarily by increases in available- for-sale securities of $244.7
million, or 10.4%, and increases in loans of $815.6 million, or 12.2%, offset
by
decreases of $366.1 million in securities purchased under agreement to resell.
Securities
Total
securities were $2.6 billion, or 23.5%, of total assets at September 30, 2008,
compared with $2.3 billion, or 22.6%, of total assets at December 31, 2007.
The
increase of $244.7 million, or 10.4%, was primarily due to net increases of
U.S.
Treasury securities of $74.9 million and U.S. government sponsored agency
securities of $190.8 million.
The
net
unrealized losses on securities available-for-sale, which represents the
difference between fair value and amortized cost, totaled $27.5 million at
September 30, 2008, compared to net unrealized losses of $941,000 at year-end
2007. The increase in unrealized losses on securities available-for-sale was
caused by the changes in market interest rate, an increase in the spreads for
non-agency mortgage backed securities and corporate debt, and the sales of
available-for-sale securities for gains of $20.7 million during the nine months
of 2008. Net unrealized gains/losses in the securities available-for-sale are
included in accumulated other comprehensive income or loss, net of tax, as
part
of total stockholders’ equity.
The
average taxable-equivalent yield on securities available-for-sale decreased
119
basis points to 4.47% for the three months ended September 30, 2008, compared
with 5.66% for the same period a year ago, as securities matured, prepaid,
or
were called and proceeds were reinvested at lower interest rates.
The
following tables summarize the composition, amortized cost, gross unrealized
gains, gross unrealized losses, and fair value of securities available-for-sale,
as of September 30, 2008, and December 31, 2007:
|
|
September 30, 2008
|
|
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
U.S.
Treasury entities
|
|
$
|
74,662
|
|
$
|
252
|
|
$
|
-
|
|
$
|
74,914
|
|
U.S.
government sponsored entities
|
|
|
729,214
|
|
|
212
|
|
|
4,018
|
|
|
725,408
|
|
State
and municipal securities
|
|
|
24,902
|
|
|
166
|
|
|
168
|
|
|
24,900
|
|
Mortgage-backed
securities
|
|
|
1,560,283
|
|
|
2,368
|
|
|
17,164
|
|
|
1,545,487
|
|
Commercial
mortgage-backed securities
|
|
|
4,111
|
|
|
-
|
|
|
141
|
|
|
3,970
|
|
Collateralized
mortgage obligations
|
|
|
188,457
|
|
|
139
|
|
|
6,585
|
|
|
182,011
|
|
Asset-backed
securities
|
|
|
469
|
|
|
-
|
|
|
53
|
|
|
416
|
|
Corporate
bonds
|
|
|
35,246
|
|
|
14
|
|
|
2,495
|
|
|
32,765
|
|
Preferred
stock of government sponsored entities
|
|
|
2,460
|
|
|
-
|
|
|
-
|
|
|
2,460
|
|
Total
|
|
$
|
2,619,804
|
|
$
|
3,151
|
|
$
|
30,624
|
|
$
|
2,592,331
|
|
|
|
December 31, 2007
|
|
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
|
|
|
(In
thousands)
|
|
U.S.
government sponsored entities
|
|
$
|
532,894
|
|
$
|
1,735
|
|
$
|
19
|
|
$
|
534,610
|
|
State
and municipal securities
|
|
|
33,657
|
|
|
388
|
|
|
24
|
|
|
34,021
|
|
Mortgage-backed
securities
|
|
|
1,320,963
|
|
|
9,920
|
|
|
5,835
|
|
|
1,325,048
|
|
Commercial
mortgage-backed securities
|
|
|
9,189
|
|
|
-
|
|
|
271
|
|
|
8,918
|
|
Collateralized
mortgage obligations
|
|
|
215,015
|
|
|
89
|
|
|
3,867
|
|
|
211,237
|
|
Asset-backed
securities
|
|
|
603
|
|
|
-
|
|
|
2
|
|
|
601
|
|
Corporate
bonds
|
|
|
126,535
|
|
|
-
|
|
|
841
|
|
|
125,694
|
|
Preferred
stock of government sponsored entities
|
|
|
34,750
|
|
|
403
|
|
|
2,785
|
|
|
32,368
|
|
Foreign
corporate bonds
|
|
|
75,000
|
|
|
168
|
|
|
-
|
|
|
75,168
|
|
Total
|
|
$
|
2,348,606
|
|
$
|
12,703
|
|
$
|
13,644
|
|
$
|
2,347,665
|
|
The
following table summarizes the scheduled maturities by security type of
securities available-for-sale, as of September 30, 2008:
|
|
September 30, 2008
|
|
|
|
|
|
After One
|
|
After Five
|
|
|
|
|
|
|
|
One Year
|
|
Year to
|
|
Years to
|
|
Over Ten
|
|
|
|
|
|
or Less
|
|
Five Years
|
|
Ten Years
|
|
Years
|
|
Total
|
|
|
|
(In thousands)
|
|
Maturity
Distribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury entities
|
|
$
|
59,843
|
|
$
|
15,071
|
|
$
|
-
|
|
$
|
-
|
|
$
|
74,914
|
|
U.S.
government sponsored entities
|
|
|
1,502
|
|
|
723,906
|
|
|
-
|
|
|
-
|
|
|
725,408
|
|
State
and municipal securities
|
|
|
1,802
|
|
|
10,143
|
|
|
10,662
|
|
|
2,293
|
|
|
24,900
|
|
Mortgage-backed
securities (1)
|
|
|
1,562
|
|
|
17,026
|
|
|
180,997
|
|
|
1,345,902
|
|
|
1,545,487
|
|
Commercial
mortgage-backed securities (1)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,970
|
|
|
3,970
|
|
Collateralized
mortgage obligations (1)
|
|
|
-
|
|
|
-
|
|
|
62,454
|
|
|
119,557
|
|
|
182,011
|
|
Asset-backed
securities (1)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
416
|
|
|
416
|
|
Corporate
bonds
|
|
|
-
|
|
|
167
|
|
|
25,013
|
|
|
7,585
|
|
|
32,765
|
|
Preferred
stock of government sponsored entities (2)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,460
|
|
|
2,460
|
|
Total
|
|
$
|
64,709
|
|
$
|
766,313
|
|
$
|
279,126
|
|
$
|
1,482,183
|
|
$
|
2,592,331
|
|
(1)
Securities reflect stated maturities and do not reflect the impact of
anticipated prepayments.
(2)
These
is no stated maturity for equity securities.
Between
2002 and 2004, the Company purchased a number of collateralized mortgage
obligations comprised of interests in non-agency guaranteed residential
mortgages. At September 30, 2008, the remaining par value of these securities
was $176.9 million which represents 6.8% of the fair value of securities
available-for-sale and 1.6% of total assets compared to 7.0% of the fair value
of securities available-for-sale and 1.7% of total assets at June 30, 2008.
At
September 30, 2008, the unrealized loss for these securities was $7.4 million
which represented 4.2% of the par amount of these non-agency guaranteed
residential mortgages. Based on the Company’s analysis at September 30, 2008,
there was no “other-than-temporary” impairment in these securities due to the
low loan to value ratio for the loans underlying these securities, the credit
support provided by junior tranches of these securitizations, and the continued
AAA rating of these securities.
In
September 2008, the Federal Housing Finance Agency placed Fannie Mae and Freddie
Mac under receivership and suspended indefinitely the payment of future
dividends on their issues of preferred stock. In light of these developments,
the Company recognized on September 30, 2008, an other-than-temporary impairment
loss of $27.8 million on its agency preferred stocks to write down the value
of
these securities to their respective market values as of September 30, 2008.
As
of September 30, 2008, the Company held agency preferred stock with a carrying
value of $2.5 million.
The
Company has the ability and intent to hold the securities, including the
non-agency collateralized mortgage obligation securities discussed above with
unrealized losses of $7.4 million and $1.5 billion of agency mortgage-backed
securities at book value with unrealized losses of $16.3 million, for a period
of time sufficient for a recovery of cost for those issues with unrealized
losses.
The
temporarily impaired securities represent 77.8% of the fair value of securities
available-for-sale as of September 30, 2008. Unrealized losses for securities
with unrealized losses for less than twelve months represent 1.2%, and
securities with unrealized losses for twelve months or more represent 3.1%
of
the historical cost of these securities and generally resulted from increases
in
interest rates subsequent to the date that these securities were purchased.
All
of these securities are investment grade as of September 30, 2008. At September
30, 2008, 61 issues of securities had unrealized losses for 12 months or longer
and 95 issues of securities had unrealized losses of less than 12 months. The
table below shows the fair value, unrealized losses, and number of issuances
as
of September 30, 2008, of the temporarily impaired securities in the Company’s
available-for-sale securities portfolio:
|
|
Temporarily Impaired Securities as of September 30, 2008
|
|
|
|
Less than 12 months
|
|
12 months or longer
|
|
Total
|
|
|
|
Fair
|
|
Unrealized
|
|
No. of
|
|
Fair
|
|
Unrealized
|
|
No. of
|
|
Fair
|
|
Unrealized
|
|
No. of
|
|
|
|
Value
|
|
Losses
|
|
Issuances
|
|
Value
|
|
Losses
|
|
Issuances
|
|
Value
|
|
Losses
|
|
Issuances
|
|
|
|
(In thousands, except no. of issuances)
|
|
Description of
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
government sponsored entities
|
|
|
605,990
|
|
|
4,010
|
|
|
9
|
|
|
492
|
|
|
8
|
|
|
2
|
|
|
606,482
|
|
|
4,018
|
|
|
11
|
|
State
and municipal securities
|
|
|
3,095
|
|
|
139
|
|
|
8
|
|
|
1,094
|
|
|
29
|
|
|
2
|
|
|
4,189
|
|
|
168
|
|
|
10
|
|
Mortgage-backed
securities
|
|
|
1,096,456
|
|
|
14,151
|
|
|
70
|
|
|
132,010
|
|
|
3,014
|
|
|
28
|
|
|
1,228,466
|
|
|
17,165
|
|
|
98
|
|
Commercial
mortgage-backed securities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,970
|
|
|
141
|
|
|
1
|
|
|
3,970
|
|
|
141
|
|
|
1
|
|
Collateralized
mortgage obligations
|
|
|
8,693
|
|
|
514
|
|
|
4
|
|
|
157,412
|
|
|
6,071
|
|
|
26
|
|
|
166,105
|
|
|
6,585
|
|
|
30
|
|
Asset-backed
securities
|
|
|
381
|
|
|
52
|
|
|
1
|
|
|
36
|
|
|
1
|
|
|
1
|
|
|
417
|
|
|
53
|
|
|
2
|
|
Corporate
bonds
|
|
|
7,585
|
|
|
2,411
|
|
|
3
|
|
|
167
|
|
|
83
|
|
|
1
|
|
|
7,752
|
|
|
2,494
|
|
|
4
|
|
Total
|
|
$
|
1,722,200
|
|
$
|
21,277
|
|
|
95
|
|
$
|
295,181
|
|
$
|
9,347
|
|
|
61
|
|
$
|
2,017,381
|
|
$
|
30,624
|
|
|
156
|
|
Loans
Gross
loans were $7.5 billion as of September 30, 2008, compared to $6.7 billion
as of
December 31, 2007, representing an increase of $815.6 million, or 12.2%.
Commercial
mortgage loans increased $366.5 million, or 9.7%, to $4.1 billion at September
30, 2008, compared to $3.8 billion at year-end 2007. At September 30, 2008,
this
portfolio represented approximately 55.1% of the Bank’s gross loans compared to
56.3% at year-end 2007. Commercial loans increased $215.7 million, or 15.0%,
to
$1.7 billion at September 30, 2008, compared to $1.4 billion at year-end 2007.
In addition, construction loans increased $121.5 million, or 15.2%, and
residential mortgage loans increased $73.0 million, or 13.1%, during the nine
months of 2008.
The
following table sets forth the classification of loans by type, mix, and
percentage change as of the dates indicated:
(Dollars
in thousands)
|
|
September 30, 2008
|
|
% of Gross Loans
|
|
December 31, 2007
|
|
% of Gross Loans
|
|
% Change
|
|
Type
of Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
1,651,556
|
|
|
22.0
|
%
|
$
|
1,435,861
|
|
|
21.5
|
%
|
|
15.0
|
%
|
Residential
mortgage
|
|
|
628,670
|
|
|
8.4
|
|
|
555,703
|
|
|
8.3
|
|
|
13.1
|
|
Commercial
mortgage
|
|
|
4,129,201
|
|
|
55.1
|
|
|
3,762,689
|
|
|
56.3
|
|
|
9.7
|
|
Equity
lines
|
|
|
154,764
|
|
|
2.1
|
|
|
108,004
|
|
|
1.6
|
|
|
43.3
|
|
Real
estate construction
|
|
|
920,711
|
|
|
12.3
|
|
|
799,230
|
|
|
12.0
|
|
|
15.2
|
|
Installment
|
|
|
10,981
|
|
|
0.1
|
|
|
15,099
|
|
|
0.2
|
|
|
(27.3
|
)
|
Other
|
|
|
3,398
|
|
|
0.0
|
|
|
7,059
|
|
|
0.1
|
|
|
(51.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
loans and leases
|
|
$
|
7,499,281
|
|
|
100
|
%
|
$
|
6,683,645
|
|
|
100
|
%
|
|
12.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
|
(92,068
|
)
|
|
|
|
|
(64,983
|
)
|
|
|
|
|
41.7
|
|
Unamortized
deferred loan fees
|
|
|
(10,290
|
)
|
|
|
|
|
(10,583
|
)
|
|
|
|
|
(2.8
|
)
|
Total
loans and leases, net
|
|
$
|
7,396,923
|
|
|
|
|
$
|
6,608,079
|
|
|
|
|
|
11.9
|
%
|
Asset
Quality Review
Non-performing
Assets
Non-performing
assets to gross loans and other real estate owned was 1.92% at September 30,
2008, compared to 1.25% at December 31, 2007. Total non-performing assets
increased $60.8 million, or 72.7%, to $144.5 million at September 30, 2008,
compared with $83.7 million at December 31, 2007, primarily due to a $42.8
million increase in non-accrual loans and a $27.3 million increase in OREO
offset by a $9.3 million decrease in loans past due 90 days or more. There
was
no loan past due 90 days or more still accruing interest as of September 30,
2008.
The
following table sets forth the breakdown of non-performing assets by category
as
of the dates indicated:
(Dollars
in thousands)
|
|
September 30, 2008
|
|
December 31, 2007
|
|
% Change
|
|
Non-performing
assets
|
|
|
|
|
|
|
|
|
|
|
Accruing
loans past due 90 days or more
|
|
$
|
-
|
|
$
|
9,265
|
|
|
(100
|
)
|
Non-accrual
loans:
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
65,524
|
|
|
29,677
|
|
|
121
|
|
Land
|
|
|
8,841
|
|
|
6,627
|
|
|
33
|
|
Commercial
real estate
|
|
|
10,743
|
|
|
13,336
|
|
|
(19
|
)
|
Commercial
|
|
|
10,646
|
|
|
6,664
|
|
|
60
|
|
Real
estate mortgage
|
|
|
5,347
|
|
|
1,971
|
|
|
171
|
|
Total
non-accrual loans:
|
|
$
|
101,101
|
|
$
|
58,275
|
|
|
73
|
|
Total
non-performing loans
|
|
|
101,101
|
|
|
67,540
|
|
|
50
|
|
Other
real estate owned
|
|
|
43,410
|
|
|
16,147
|
|
|
169
|
|
Total
non-performing assets
|
|
$
|
144,511
|
|
$
|
83,687
|
|
|
73
|
|
Troubled
debt restructurings
|
|
$
|
893
|
|
$
|
12,601
|
|
|
(93
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
gross loans outstanding, at period-end
|
|
$
|
7,499,281
|
|
$
|
6,683,645
|
|
|
12
|
|
Non-performing
assets as a percentage of gross loans and OREO
|
|
|
1.92
|
%
|
|
1.25
|
%
|
|
|
|
Non-accrual
Loans
At
September 30, 2008, total non-accrual loans of $101.1 million included thirteen
construction loans totaling $65.5 million, fourteen commercial real estate
loans
totaling $10.7 million, five land loans totaling $8.8 million, twenty-two
commercial loans totaling $10.7 million, and ten residential mortgage loans
totaling $5.4 million. The $65.5 million of construction loans included four
condo construction loans of $32.4 million in Los Angeles County, a $5.0 million
town house construction loan in Los Angeles County, a $2.7 million land
development loan in Los Angeles County, two condo conversion loans of $10.1
million in San Diego County including a $7.9 million loan that was reported
as a
troubled debt restructuring in prior quarters, a $9.2 million condo construction
loan in the state of Nevada, a $4.1 million construction loan in the Central
Valley, California and a $1.4 million condo construction loan in Boston,
Massachusetts. The $10.7 million of non-accrual commercial real estate loans
included four loans of $4.1 million secured by multi-family residences, a $1.7
million loan secured by a motel in Texas, and $4.9 million in loans secured
by
industrial buildings, a retail store and a restaurant. Non-accrual loans of
$15.8 million were paid off during the third quarter of 2008.
Non-accrual
loans increased by $42.8 million, or 73.5%, to $101.1 million at September
30,
2008, from $58.3 million at December 31, 2007. The following table presents
non-accrual loans by type of collateral securing the loans, as of the dates
indicated:
|
|
September 30, 2008
|
|
December 31, 2007
|
|
|
|
Real
|
|
|
|
Real
|
|
|
|
|
|
Estate (1)
|
|
Commercial
|
|
Estate (1)
|
|
Commercial
|
|
|
|
(In thousands)
|
|
Type
of Collateral
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single/
multi-family residence
|
|
$
|
73,270
|
|
$
|
265
|
|
$
|
26,916
|
|
$
|
163
|
|
Commercial
real estate
|
|
|
5,675
|
|
|
180
|
|
|
14,885
|
|
|
-
|
|
Land
|
|
|
11,510
|
|
|
-
|
|
|
9,810
|
|
|
-
|
|
Personal
property (UCC)
|
|
|
-
|
|
|
7,918
|
|
|
-
|
|
|
6,487
|
|
Unsecured
|
|
|
-
|
|
|
2,283
|
|
|
-
|
|
|
14
|
|
Total
|
|
$
|
90,455
|
|
$
|
10,646
|
|
$
|
51,611
|
|
$
|
6,664
|
|
|
(1)
|
Real
estate includes commercial mortgage loans, real estate construction
loans,
and residential mortgage loans.
|
The
following table presents non-accrual loans by type of businesses in which the
borrowers are engaged, as of the dates indicated:
|
|
September 30, 2008
|
|
December 31, 2007
|
|
|
|
Real
|
|
|
|
Real
|
|
|
|
|
|
Estate (1)
|
|
Commercial
|
|
Estate (1)
|
|
Commercial
|
|
|
|
(In thousands)
|
|
Type
of Business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate development
|
|
$
|
84,954
|
|
$
|
180
|
|
$
|
48,794
|
|
$
|
-
|
|
Wholesale/Retail
|
|
|
153
|
|
|
9,573
|
|
|
845
|
|
|
1,318
|
|
Food/Restaurant
|
|
|
|
|
|
141
|
|
|
-
|
|
|
92
|
|
Import/Export
|
|
|
|
|
|
752
|
|
|
-
|
|
|
5,254
|
|
Other
|
|
|
5,348
|
|
|
-
|
|
|
1,972
|
|
|
-
|
|
Total
|
|
$
|
90,455
|
|
$
|
10,646
|
|
$
|
51,611
|
|
$
|
6,664
|
|
|
(1)
|
Real
estate includes commercial mortgage loans, real estate construction
loans,
and residential mortgage loans.
|
Other
Real Estate Owned
At
September 30, 2008, other real estate owned (“OREO”) increased $14.3 million to
$43.4 million from $29.1 million at June 30, 2008. OREO was comprised of
thirteen properties, including $13.5 million land zoned for residential and
retail purposes in Riverside County, California, $11.6 million for land zoned
for apartments in Anaheim, California, an $8.1 million apartment building in
Texas, a $6.8 million shopping center in Texas, a $1.4 million hotel in Texas,
and seven other properties totaling $2.0 million.
Troubled
Debt Restructurings
A
troubled debt restructuring (“TDR”) is a formal restructure of a loan when the
lender, for economic or legal reasons related to the borrower’s financial
difficulties, grants a concession to the borrower. The concessions may be
granted in various forms, including reduction in the stated interest rate,
reduction in the loan balance or accrued interest, or extension of the maturity
date.
Troubled
debt restructurings, excluding those on non-accrual status, was comprised of
three loans totaling $893,000 at September 30, 2008, compared to four loans
totaling $12.6 million at December 31, 2007. Included in troubled debt
restructured loans at December 31, 2007, was a $11.7 million condominium
conversion construction loan for a project in San Diego County where the
interest rate has been reduced to 6.0%. This condominium conversion construction
loan was placed on non-accrual status during the third quarter of
2008.
Impaired
Loans
A
loan is
considered impaired when it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan agreement
based on current circumstances and events. The assessment for impairment occurs
when and while such loans are on non-accrual, or the loan has been restructured.
Those loans less than our defined selection criteria, generally the loan amount
less than $100,000, are treated as a homogeneous portfolio. If loans meeting
the
defined criteria are not collateral dependent, we measure the impairment based
on the present value of the expected future cash flows discounted at the loan’s
effective interest rate. If loans meeting the defined criteria are collateral
dependent, we measure the impairment by using the loan’s observable market price
or the fair value of the collateral. If the measurement of the impaired loan
is
less than the recorded amount of the loan, we then recognize impairment by
creating or adjusting an existing valuation allowance with a corresponding
charge to the provision for loan losses.
The
Company identified impaired loans with a recorded investment of $101.1 million
at September 30, 2008, compared with $70.0 million at year-end 2007, an increase
of $31.1 million, or 44.5%. The Company considers all non-accrual loans to
be
impaired. The following table presents impaired loans and the related
allowance, as of the dates indicated:
|
|
At September 30, 2008
|
|
At December 31, 2007
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
Balance
of impaired loans with no allocated allowance
|
|
$
|
45,615
|
|
$
|
50,249
|
|
Balance
of impaired loans with an allocated allowance
|
|
|
55,486
|
|
|
19,701
|
|
Total
recorded investment in impaired loans
|
|
$
|
101,101
|
|
$
|
69,950
|
|
Amount
of the allowance allocated to impaired loans
|
|
$
|
10,709
|
|
$
|
4,937
|
|
Loan
Concentration
Most
of
the Company’s business activity is with customers located in the predominantly
Asian areas of Southern and Northern California; New York City, New York; Dallas
and Houston, Texas; Seattle, Washington; Boston, Massachusetts; Chicago,
Illinois; and Edison, New Jersey. The Company has no specific industry
concentration, and generally its loans are collateralized with real property
or
other pledged collateral of the borrowers. Loans are generally expected to
be
paid off from the operating profits of the borrowers, refinancing by another
lender, or through sale by the borrowers of the secured
collateral.
There
were no loan concentrations to multiple borrowers in similar activities which
exceeded 10% of total loans as of September 30, 2008, and as of December 31,
2007.
Allowance
for Credit Losses
The
Bank
maintains the allowance for credit losses at a level that is considered to
be
equal to the estimated and known risks in the loan portfolio and off-balance
sheet unfunded credit commitments. Allowance for credit losses is comprised
of
allowance for loan losses and reserve for off-balance sheet unfunded credit
commitments. With this risk management objective, the Bank’s management has an
established monitoring system that is designed to identify impaired and
potential problem loans, and to permit periodic evaluation of impairment and
the
adequacy level of the allowance for credit losses in a timely manner.
In
addition, our Board of Directors has established a written credit policy that
includes a credit review and control system which it believes should be
effective in ensuring that the Bank maintains an adequate allowance for credit
losses. The Board of Directors provides oversight for the allowance evaluation
process, including quarterly evaluations, and determines whether the allowance
is adequate to absorb losses in the credit portfolio. The determination of
the
amount of the allowance for credit losses and the provision for credit losses
is
based on management’s current judgment about the credit quality of the loan
portfolio and takes into consideration known relevant internal and external
factors that affect collectibility when determining the appropriate level for
the allowance for credit losses. The nature of the process by which the Bank
determines the appropriate allowance for credit losses requires the exercise
of
considerable judgment. Additions to the allowance for credit losses are made
by
charges to the provision for credit losses. While management utilizes its best
judgment and information available, the ultimate adequacy of the allowance
is
dependent upon a variety of factors beyond the Bank’s control, including the
performance of the Bank’s loan portfolio, the economy, changes in interest
rates, and the view of the regulatory authorities toward loan classifications.
Identified credit exposures that are determined to be uncollectible are charged
against the allowance for credit losses. Recoveries of previously charged off
amounts, if any, are credited to the allowance for credit losses. A weakening
of
the economy or other factors that adversely affect asset quality could result
in
an increase in the number of delinquencies, bankruptcies, or defaults, and
a
higher level of non-performing assets, net charge-offs, and provision for credit
losses in future periods.
The
allowance for loan losses was $92.0 million and the allowance for off-balance
sheet unfunded credit commitments was $5.0 million at September 30, 2008, and
represented the amount that the Company believes to be sufficient to absorb
credit losses inherent in the Company’s loan portfolio. The allowance for credit
losses, the sum of allowance for loan losses and for off-balance sheet unfunded
credit commitments, was $97.0 million at September 30, 2008, compared to $69.6
million at December 31, 2007. The allowance for credit losses represented 1.29%
of period-end gross loans and 96.0% of non-performing loans at September 30,
2008. The comparable ratios were 1.04% of gross loans and 103% of non-performing
loans at December 31, 2007.
The
following table sets forth information relating to the allowance for credit
losses for the periods indicated:
|
|
For the three months ended September 30,
|
|
For the nine months ended September 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
Allowance for
Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period
|
|
$
|
84,856
|
|
$
|
60,489
|
|
$
|
64,983
|
|
$
|
60,220
|
|
Provision
for credit losses
|
|
|
15,800
|
|
|
2,200
|
|
|
43,800
|
|
|
5,300
|
|
Transfers
to reserve for off-balance sheet credit commitments
|
|
|
539
|
|
|
189
|
|
|
(399
|
)
|
|
(213
|
)
|
Charge-offs
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
loans
|
|
|
(6,796
|
)
|
|
(511
|
)
|
|
(8,917
|
)
|
|
(6,253
|
)
|
Construction
loans
|
|
|
(3,230
|
)
|
|
-
|
|
|
(8,239
|
)
|
|
(190
|
)
|
Real
estate loans
|
|
|
(172
|
)
|
|
(912
|
)
|
|
(893
|
)
|
|
(1,030
|
)
|
Installment
loans and other loans
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1
|
)
|
Total
charge-offs
|
|
|
(10,198
|
)
|
|
(1,423
|
)
|
|
(18,049
|
)
|
|
(7,474
|
)
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
loans
|
|
|
1,067
|
|
|
138
|
|
|
1,634
|
|
|
2,911
|
|
Construction
loans
|
|
|
-
|
|
|
-
|
|
|
83
|
|
|
190
|
|
Real
estate loans
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
202
|
|
Installment
loans and other loans
|
|
|
4
|
|
|
2
|
|
|
16
|
|
|
27
|
|
Total
recoveries
|
|
|
1,071
|
|
|
140
|
|
|
1,733
|
|
|
3,330
|
|
Allowance
from acquisitions
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
432
|
|
Balance
at end of period
|
|
$
|
92,068
|
|
$
|
61,595
|
|
$
|
92,068
|
|
$
|
61,595
|
|
Reserve
for off-balance sheet credit commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period
|
|
$
|
5,514
|
|
$
|
4,871
|
|
$
|
4,576
|
|
$
|
4,469
|
|
Provision
for credit losses/transfers
|
|
|
(539
|
)
|
|
(189
|
)
|
|
399
|
|
|
213
|
|
Balance
at end of period
|
|
$
|
4,975
|
|
$
|
4,682
|
|
$
|
4,975
|
|
$
|
4,682
|
|
Average
loans outstanding during period ended .
|
|
$
|
7,425,818
|
|
$
|
6,298,452
|
|
$
|
7,118,773
|
|
$
|
6,034,326
|
|
Total
gross loans outstanding, at period-end
|
|
$
|
7,499,281
|
|
$
|
6,439,407
|
|
$
|
7,499,281
|
|
$
|
6,439,407
|
|
Total
non-performing loans, at period-end
|
|
$
|
101,101
|
|
$
|
50,221
|
|
$
|
101,101
|
|
$
|
50,221
|
|
Ratio
of net charge-offs to average loans outstanding during the period
|
|
|
0.49
|
%
|
|
0.08
|
%
|
|
0.31
|
%
|
|
0.09
|
%
|
Provision
for credit losses to average loans outstanding during the period
|
|
|
0.85
|
%
|
|
0.14
|
%
|
|
0.82
|
%
|
|
0.12
|
%
|
Allowance
for credit losses to non-performing loans at period-end
|
|
|
95.99
|
%
|
|
131.97
|
%
|
|
95.99
|
%
|
|
131.97
|
%
|
Allowance
for credit losses to gross loans at period-end
|
|
|
1.29
|
%
|
|
1.03
|
%
|
|
1.29
|
%
|
|
1.03
|
%
|
Our
allowance for loan losses consists of the following:
|
•
|
Specific
allowance: For impaired loans, we provide specific allowances based
on an
evaluation of impairment, and for each criticized loan, we allocate
a
portion of the general allowance to each loan based on a loss percentage
assigned. The percentage assigned depends on a number of factors
including
loan classification, the current financial condition of the borrowers
and
guarantors, the prevailing value of the underlying collateral, charge-off
history, management’s knowledge of the portfolio, and general economic
conditions. During the third quarter of 2007, we revised our minimum
loss
rates for loans rated Special Mention and Substandard to incorporate
the
results of a classification migration model reflecting actual losses
beginning in 2003.
|
|
•
|
General
allowance: The unclassified portfolio is segmented on a group basis.
Segmentation is determined by loan type and by identifying risk
characteristics that are common to the groups of loans. The allowance
is
provided to each segmented group based on the group’s historical loan loss
experience, the trends in delinquency and non-accrual, and other
significant factors, such as national and local economy, trends and
conditions, strength of management and loan staff, underwriting standards,
and the concentration of credit. Beginning in the third quarter of
2007,
minimum loss rates have been assigned for loans graded Minimally
Acceptable instead of grouping these loans with the unclassified
portfolio.
|
To
determine the adequacy of the allowance in each of these two components, the
Bank employs two primary methodologies, the classification migration methodology
and the individual loan review analysis methodology. These methodologies support
the basis for determining allocations between the various loan categories and
the overall adequacy of the Bank’s allowance to provide for probable losses
inherent in the loan portfolio. These methodologies are further supported by
additional analysis of relevant factors such as the historical losses in the
portfolio, trends in the non-performing/non-accrual loans, loan delinquencies,
the volume of the portfolio, peer group comparisons, and federal regulatory
policy for loan and lease losses. Other significant factors of portfolio
analysis include changes in lending policies/underwriting standards, portfolio
composition, and concentrations of credit, and trends in the national and local
economy.
With
these methodologies, a general allowance is for those loans internally
classified and risk graded Pass, Special Mention, Substandard, Doubtful, or
Loss
based on historical losses in the portfolio. Additionally, the Bank’s management
allocates a specific allowance for “Impaired Credits,” in accordance with SFAS
No. 114, “Accounting by Creditors for Impairment of a Loan.” The level of the
general allowance is established to provide coverage for management’s estimate
of the credit risk in the loan portfolio by various loan segments not covered
by
the specific allowance.
The
table
set forth below reflects management’s allocation of the allowance for loan
losses by loan category and the ratio of each loan category to the total average
loans as of the dates indicated:
(Dollars
in thousands)
|
|
September 30, 2008
|
|
December 31, 2007
|
|
|
|
|
|
Percentage of
|
|
|
|
Percentage of
|
|
|
|
|
|
Loans in Each
|
|
|
|
Loans in Each
|
|
|
|
|
|
Category
|
|
|
|
Category
|
|
|
|
|
|
to Average
|
|
|
|
to Average
|
|
Type of Loans:
|
|
Amount
|
|
Gross Loans
|
|
Amount
|
|
Gross Loans
|
|
Commercial
loans
|
|
$
|
36,351
|
|
|
21.6
|
%
|
$
|
24,081
|
|
|
21.1
|
%
|
Residential
mortgage loans
|
|
|
1,902
|
|
|
10.1
|
|
|
1,314
|
|
|
9.9
|
|
Commercial
mortgage loans
|
|
|
31,334
|
|
|
55.9
|
|
|
26,646
|
|
|
56.4
|
|
Real
estate construction loans
|
|
|
22,453
|
|
|
12.0
|
|
|
12,906
|
|
|
12.1
|
|
Installment
loans
|
|
|
28
|
|
|
0.2
|
|
|
36
|
|
|
0.3
|
|
Other
loans
|
|
|
-
|
|
|
0.2
|
|
|
-
|
|
|
0.2
|
|
Total
|
|
$
|
92,068
|
|
|
100
|
%
|
$
|
64,983
|
|
|
100
|
%
|
The
allowance allocated to commercial loans increased to $36.4 million at September
30, 2008, from $24.1 million at December 31, 2007, due to increases in loans
risk graded Substandard due in part to weakness in the economy. Non-accrual
commercial loans were $10.6 million, or 10.5% of non-accrual loans at September
30, 2008, compared to $6.7 million, or 11.4% at December 31, 2007.
The
allowance allocated to residential mortgage loans increased $588,000 from $1.3
million at December 31, 2007, to $1.9 million at September 30,
2008.
The
allowance allocated to commercial mortgage loans increased from $26.6 million
at
December 31, 2007, to $31.3 million at September 30, 2008, due to growth in
commercial mortgage loans and increases in loans risk graded Substandard due
in
part to the weakness in the economy. As of September 30, 2008, there were $19.6
million commercial mortgage loans on non-accrual status compared to $19.9
million at December 31, 2007. Non-accrual commercial mortgage loans comprised
19.4% of non-accrual loans at September 30, 2008, compared to 34.3% at December
31, 2007.
The
allowance allocated to construction loans has increased from $12.9 million
at
December 31, 2007, to $22.5 million at September 30, 2008, due to growth in
construction loans and increase in loans risk graded Substandard. The allowance
allocated to construction loans as a percentage of total construction loans
was
2.6% of construction loans at September 30, 2008 compared to 1.6% at December
31, 2007. At September 30, 2008, construction loans totaling $65.5 million
were
on non-accrual status which comprised 64.8% of non-accrual loans compared to
$29.7 million, or 50.9% at December 31, 2007.
Deposits
At
September 30, 2008, total deposits were $6.8 billion, an increase of $570.8
million, or 9.1%, from $6.3 billion at December 31, 2007. All categories of
deposits increased during the first nine months of 2008. Time deposit under
$100,000 increased $239.2 million, or 18.2%, time deposits of $100,000 or more
increased $144.2 million, or 4.9%, and interest-bearing demand deposits
increased $142.5 million, or 15.6%. Non-interest-bearing demand deposits,
interest-bearing demand deposits, and savings deposits comprised 32.4% of total
deposits at September 30, 2008, time deposit accounts of less than $100,000
comprised 22.6% of total deposits, while the remaining 45.0% was comprised
of
time deposit accounts of $100,000 or more.
The
following table displays the deposit mix as of the dates indicated:
|
|
September 30, 2008
|
|
% of Total
|
|
December 31, 2007
|
|
% of Total
|
|
Deposits
|
|
(Dollars in thousands)
|
|
Non-interest-bearing demand
|
|
$
|
821,233
|
|
|
12.0
|
%
|
$
|
785,364
|
|
|
12.5
|
%
|
NOW
|
|
|
270,763
|
|
|
3.9
|
|
|
231,583
|
|
|
3.7
|
|
Money
market
|
|
|
785,119
|
|
|
11.5
|
|
|
681,783
|
|
|
10.8
|
|
Savings
|
|
|
340,316
|
|
|
5.0
|
|
|
331,316
|
|
|
5.3
|
|
Time
deposits under $100,000
|
|
|
1,550,433
|
|
|
22.6
|
|
|
1,311,251
|
|
|
20.9
|
|
Time
deposits of $100,000 or more
|
|
|
3,081,306
|
|
|
45.0
|
|
|
2,937,070
|
|
|
46.8
|
|
Total
deposits
|
|
$
|
6,849,170
|
|
|
100.0
|
%
|
$
|
6,278,367
|
|
|
100.0
|
%
|
At
September 30, 2008, brokered deposits which are included in time deposits under
$100,000 increased to $888.0 million, a $255.4 million increase from $632.6
million at December 31, 2007.
Borrowings
Borrowings
include Federal funds purchased, securities sold under agreements to repurchase,
funds obtained as advances from the Federal Home Loan Bank (“FHLB”) of San
Francisco, and borrowings from other financial institutions.
Federal
funds purchased were $33.0 million with at rate of 0.5% as of September 30,
2008, compared to $41.0 million with a weighted average rate of 4.00% as of
December 31, 2007.
Securities
sold under agreements to repurchase were $1.6 billion with a weighted average
rate of 3.83% at September 30, 2008, compared to $1.4 billion with a weighted
average rate of 3.57% at December 31, 2007. Seventeen floating-to-fixed rate
agreements totaling $900.0 million are with initial floating rates for a period
of time ranging from six months to one year, with the floating rates ranging
from the three-month LIBOR minus 100 basis points to the three-month LIBOR
minus
340 basis points. Thereafter, the rates are fixed for the remainder of the
term,
with interest rates ranging from 4.29% to 5.07%. After the initial floating
rate
term, the counterparties have the right to terminate the transaction at par
at
the fixed rate reset date and quarterly thereafter. Thirteen fixed-to-floating
rate agreements totaling $650.0 million are with initial fixed rates ranging
from 1.00% and 3.50% with initial fixed rate terms ranging from six months
to
eighteen months. For the remainder of the seven year term, the rates float
at 8%
minus the three-month LIBOR rate with a maximum rate ranging from 3.25% to
3.75%
and minimum rate of 0.0%. After the initial fixed rate term, the counterparties
have the right to terminate the transaction at par at the floating rate reset
date and quarterly thereafter.
At
September 30, 2008, included in long-term transactions are twenty-three
repurchase agreements totaling $1.2 billion that were callable but which had
not
been called. Six fixed-to-floating rate repurchase agreements of $50.0 million
each have variable interest rates currently at a range from 3.50% to 3.75%
maximum rate until their final maturities in September 2014. Four
floating-to-fixed rate repurchase agreements of $50.0 million each have fixed
interest rates ranging from 4.89% to 5.07%, until their final maturities in
January 2017. Ten floating-to-fixed rate repurchase agreements totaled $550.0
million have fixed interest rates ranging from 4.29% to 4.78%, until their
final
maturities in 2014. Two floating-to-fixed rate repurchase agreements of $50.0
million each have fixed interest rates at 4.75% and 4.79%, until their final
maturities in 2011. One floating-to-fixed rate repurchase agreement of $50.0
million has a fixed interest rate at 4.83% until its final maturity in 2012.
Total
advances from the FHLB of San Francisco decreased $98.5 million to $1.3 billion
at September 30, 2008 from $1.4 billion at December 31, 2007. Non-puttable
advances totaled $576.7 million with a weighted rate of 3.54% and puttable
advances totaled $700.0 million with a weighted average rate of 4.42% at
September 30, 2008. The FHLB has the right to terminate the puttable transaction
at par at each three-month anniversary after the first puttable date. FHLB
advances of $300.0 million at a weighted average rate of 4.31% were puttable
as
of September 30, 2008. The remaining puttable FHLB advances of $400.0 million
at
a weighted average rate of 4.50% are puttable at the second anniversary date
in
2009.
Long-term
Debt
On
September 29, 2006, the Bank issued $50.0 million in subordinated debt in a
private placement transaction. This instrument matures on September 29, 2016,
and bears interest at a per annum rate based on the three month LIBOR plus
110
basis points, payable on a quarterly basis. At September 30, 2008, the per
annum
interest rate on the subordinated debt was 4.86% compared to 5.93% at December
31, 2007. The subordinated debt was issued through the Bank and qualifies as
Tier 2 capital for regulatory reporting purposes and is included in long-term
debt in the accompanying condensed consolidated balance sheets.
The
Bancorp established three special purpose trusts in 2003 and two in 2007 for
the
purpose of issuing trust preferred securities to outside investors (Capital
Securities). The trusts exist for the purpose of issuing the Capital Securities
and investing the proceeds thereof, together with proceeds from the purchase
of
the common stock of the trusts by the Bancorp, in junior subordinated notes
issued by the Bancorp. The five special purpose trusts are considered variable
interest entities under FIN 46R. Because the Bancorp is not the primary
beneficiary of the trusts, the financial statements of the trusts are not
included in the consolidated financial statements of the Company. At September
30, 2008, junior subordinated debt securities totaled $121.1 million with a
weighted average interest rate of 5.24% compared to $121.1 million with a
weighted average rate of 7.13% at December 31, 2007. The junior subordinated
debt securities have a stated maturity term of 30 years and are currently
included in the Tier 1 capital of the Bancorp for regulatory capital
purposes.
Off-Balance-Sheet
Arrangements and Contractual Obligations
The
following table summarizes the Company’s contractual obligations to make future
payments as of September 30, 2008. Payments for deposits and borrowings do
not
include interest. Payments related to leases are based on actual payments
specified in the underlying contracts.
|
|
Payment Due by Period
|
|
|
|
|
|
More than
|
|
3 years or
|
|
|
|
|
|
|
|
|
|
1 year but
|
|
more but
|
|
|
|
|
|
|
|
1 year
|
|
less than
|
|
less than
|
|
5 years
|
|
|
|
|
|
or less
|
|
3 years
|
|
5 years
|
|
or more
|
|
Total
|
|
|
|
(In thousands)
|
|
Contractual
obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
with stated maturity dates
|
|
$
|
4,542,594
|
|
$
|
87,773
|
|
$
|
1,365
|
|
$
|
7
|
|
$
|
4,631,739
|
|
Federal
funds purchased
|
|
|
33,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
33,000
|
|
Securities
sold under agreements to repurchase (1)
|
|
|
-
|
|
|
100,000
|
|
|
50,000
|
|
|
1,400,000
|
|
|
1,550,000
|
|
Advances
from the Federal Home Loan Bank (2)
|
|
|
210,000
|
|
|
334,013
|
|
|
732,700
|
|
|
-
|
|
|
1,276,713
|
|
Other
borrowings
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
19,541
|
|
|
19,541
|
|
Long-term
debt
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
171,136
|
|
|
171,136
|
|
Operating
leases
|
|
|
6,408
|
|
|
8,405
|
|
|
5,620
|
|
|
3,917
|
|
|
24,350
|
|
Total
contractual obligations and other commitments
|
|
$
|
4,792,002
|
|
$
|
530,191
|
|
$
|
789,685
|
|
$
|
1,594,601
|
|
$
|
7,706,479
|
|
(1)
|
These
repurchase agreements have a final maturity of 5-year, 7-year and
10-year
from origination date but are callable on a quarterly basis after
six
months, one year, or 18 months for the 7-year term and one year for
the
5-year and 10-year term.
|
(2)
|
FHLB
advances of $700.0 million that mature in 2012 have a callable option.
On
a quarterly basis, $300.0 million are callable at the first anniversary
date and $400.0 million are callable at the second anniversay
date.
|
Capital
Resources
Stockholders’
equity of $1.0 billion at September 30, 2008, increased by $30.2 million, or
3.1%, compared to $971.9 million at December 31, 2007. The following table
summarizes the activity in stockholders’ equity:
|
|
Nine months ended
|
|
(In thousands)
|
|
September 30, 2008
|
|
Net
income
|
|
$
|
53,421
|
|
Proceeds
from shares issued to the Dividend Reinvestment Plan
|
|
|
1,931
|
|
Proceeds
from exercise of stock options
|
|
|
372
|
|
Tax
short-fall from stock-based compensation expense
|
|
|
(240
|
)
|
Share-based
compensation
|
|
|
5,828
|
|
Changes
in other comprehensive income
|
|
|
(15,376
|
)
|
Cumulative
effect adjustment as a result of adoption of EITF No. 06-4
|
|
|
|
|
Accounting
for Deferred Compensation and Postretirement Benefit
|
|
|
|
|
Aspects
of Endorsement Split-Dollar Life Insurance Arrangements
|
|
|
(147
|
)
|
Cash
dividends paid
|
|
|
(15,555
|
)
|
Net
increase in stockholders' equity
|
|
$
|
30,234
|
|
On
November 2007, the Company announced that its Board of Directors had approved
a
new stock repurchase program to buy back up to an aggregate of one million
shares of the Company’s common stock following the completion of the stock
repurchase program of May 2007. During 2007, the Company repurchased 2,829,203
shares of common stock for $92.4 million, or an average price of $32.67 per
share. No shares were purchased during the first nine months of 2008. At
September 30, 2008, 622,500 shares remain under the Company’s November 2007
repurchase program.
The
Company declared a cash dividend of 10.5 cents per share for distribution in
January 2008 on 49,342,991 shares outstanding, in April 2008 on 49,382,350
shares outstanding, in July 2008 on 49,419,098 shares outstanding, and in
October on 49,477,706 shares outstanding. Total cash dividends paid in 2008,
including the $5.2 million paid in October, amounted to $20.8 million.
Capital
Adequacy Review
Management
seeks to maintain the Company's capital at a level sufficient to support future
growth, protect depositors and stockholders, and comply with various regulatory
requirements.
On
September 29, 2006, the Bank issued $50.0 million in subordinated debt in a
private placement transaction. This instrument matures on September 29, 2016.
The subordinated debt was issued through the Bank and qualifies as Tier 2
capital for regulatory reporting purposes.
The
Bancorp established five special purpose trusts for the purpose of issuing
trust
preferred securities to outside investors (Capital Securities). The trusts
exist
for the purpose of issuing the Capital Securities and investing the proceeds
thereof, together with proceeds from the purchase of the common stock of the
trusts by the Bancorp, in junior subordinated notes issued by the Bancorp.
The
junior subordinated debt of $121.1 million as of September 30, 2008, were
included in the Tier 1 capital of the Bancorp for regulatory capital purposes.
Both
the
Bancorp’s and the Bank’s regulatory capital continued to exceed the regulatory
minimum requirements as of September 30, 2008. In addition, the capital ratios
of the Bank place it in the “well capitalized” category which is defined as
institutions with a Tier 1 risk-based capital ratio equal to or greater than
6.0%, total risk-based ratio equal to or greater than 10.0%, and Tier 1 leverage
capital ratio equal to or greater than 5.0%.
The
following table presents the Bancorp’s and the Bank’s capital and leverage
ratios as of September 30, 2008, and December 31, 2007:
|
|
Cathay General Bancorp
|
|
Cathay Bank
|
|
|
|
September 30, 2008
|
|
December 31, 2007
|
|
September 30, 2008
|
|
December 31, 2007
|
|
(Dollars in thousands)
|
|
Balance
|
|
%
|
|
Balance
|
|
%
|
|
Balance
|
|
%
|
|
Balance
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
1 capital (to risk-weighted assets)
|
|
$
|
810,385
|
|
|
9.39
|
|
$
|
755,431
|
|
|
9.09
|
|
$
|
801,116
|
|
|
9.30
|
|
$
|
750,698
|
|
|
9.04
|
|
Tier
1 capital minimum requirement
|
|
|
345,121
|
|
|
4.00
|
|
|
332,384
|
|
|
4.00
|
|
|
344,729
|
|
|
4.00
|
|
|
332,014
|
|
|
4.00
|
|
Excess
|
|
$
|
465,264
|
|
|
5.39
|
|
$
|
423,047
|
|
|
5.09
|
|
$
|
456,387
|
|
|
5.30
|
|
$
|
418,684
|
|
|
5.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
capital (to risk-weighted assets)
|
|
$
|
956,494
|
|
|
11.09
|
|
$
|
874,056
|
|
|
10.52
|
|
$
|
948,159
|
|
|
11.00
|
|
$
|
870,257
|
|
|
10.49
|
|
Total
capital minimum requirement
|
|
|
690,243
|
|
|
8.00
|
|
|
664,768
|
|
|
8.00
|
|
|
689,459
|
|
|
8.00
|
|
|
664,027
|
|
|
8.00
|
|
Excess
|
|
$
|
266,251
|
|
|
3.09
|
|
$
|
209,288
|
|
|
2.52
|
|
$
|
258,700
|
|
|
3.00
|
|
$
|
206,230
|
|
|
2.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
1 capital (to average assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
– Leverage
ratio
|
|
$
|
810,385
|
|
|
7.65
|
|
$
|
755,431
|
|
|
7.83
|
|
$
|
801,116
|
|
|
7.58
|
|
$
|
750,698
|
|
|
7.79
|
|
Minimum
leverage requirement
|
|
|
423,518
|
|
|
4.00
|
|
|
385,812
|
|
|
4.00
|
|
|
422,927
|
|
|
4.00
|
|
|
385,269
|
|
|
4.00
|
|
Excess
|
|
$
|
386,867
|
|
|
3.65
|
|
$
|
369,619
|
|
|
3.83
|
|
$
|
378,189
|
|
|
3.58
|
|
$
|
365,429
|
|
|
3.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-weighted
assets
|
|
$
|
8,628,036
|
|
|
|
|
$
|
8,309,598
|
|
|
|
|
$
|
8,618,233
|
|
|
|
|
$
|
8,300,343
|
|
|
|
|
Total
average assets (1)
|
|
$
|
10,587,960
|
|
|
|
|
$
|
9,645,310
|
|
|
|
|
$
|
10,573,184
|
|
|
|
|
$
|
9,631,720
|
|
|
|
|
(1)
|
The
quarterly total average assets reflect all debt securities at amortized
cost, equity security with readily determinable
fair values at the lower of cost or fair value, and equity securities
without readily determinable fair values at historical
cost.
|
As
described in “Management’s Discussion and Analysis of Financial Condition and
Results of Operations – Recent Developments,” although both the Company and
its banking subsidiary meet all applicable regulatory capital requirements
and
remain well capitalized, the Company has applied for participation in the
Capital Purchase Program.
Liquidity
Liquidity
is our ability to maintain sufficient cash flow to meet maturing financial
obligations and customer credit needs, and to take advantage of investment
opportunities as they are presented in the marketplace. Our principal sources
of
liquidity are growth in deposits, proceeds from the maturity or sale of
securities and other financial instruments, repayments from securities and
loans, federal funds purchased, securities sold under agreements to repurchase,
and advances from the Federal Home Loan Bank (“FHLB”). At September 30, 2008,
our liquidity ratio (defined as net cash plus short-term and marketable
securities to net deposits and short-term liabilities) was at 15.8% same as
year-end 2007.
To
supplement its liquidity needs, the Bank maintains a total credit line of $305.0
million for federal funds with six correspondent banks, and master agreements
with brokerage firms for the sale of securities subject to repurchase. The
Bank
is also a shareholder of the FHLB of San Francisco, enabling it to have access
to lower cost FHLB financing when necessary. As of September 30, 2008, the
Bank
had an approved credit line with the FHLB of San Francisco totaling $1.7
billion. The total credit outstanding with the FHLB of San Francisco at
September 30, 2008, was $1.3 billion. These borrowings are secured by loans
and
securities.
Liquidity
can also be provided through the sale of liquid assets, which consist of federal
funds sold, securities sold under agreements to repurchase, and unpledged
investment securities available-for-sale. At September 30, 2008, investment
securities available-for-sale at fair value totaled $2.6 billion, with $2.5
billion pledged as collateral for borrowings and other commitments. The
remaining $66.4 million was available as additional liquidity or to be pledged
as collateral for additional borrowings.
Approximately
98% of the Company’s time deposits are maturing within one year or less as of
September 30, 2008. Management anticipates that there may be some outflow of
these deposits upon maturity due to the keen competition in the Bank’s
marketplace. However, based on our historical runoff experience, we expect
that
the outflow will be minimal and can be replenished through our normal growth
in
deposits. Management believes the above-mentioned sources will provide adequate
liquidity to the Bank to meet its daily operating needs.
The
Bancorp obtains funding for its activities primarily through dividend income
contributed by the Bank and proceeds from the issuance of securities, including
proceeds from the issuance of its common stock pursuant to its Dividend
Reinvestment Plan and the exercise of stock options. Dividends paid to the
Bancorp by the Bank are subject to regulatory limitations. The business
activities of the Bancorp consist primarily of the operation of the Bank with
limited activities in other investments. Management believes the Bancorp’s
liquidity generated from its prevailing sources is sufficient to meet its
operational needs.
Item
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Market
Risk
We
use a
net interest income simulation model to measure the extent of the differences
in
the behavior of the lending and funding rates to changing interest rates, so
as
to project future earnings or market values under alternative interest rate
scenarios. Interest rate risk arises primarily through the Company’s traditional
business activities of extending loans and accepting deposits. Many factors,
including economic and financial conditions, movements in interest rates and
consumer preferences affect the spread between interest earned on assets and
interest paid on liabilities. The net interest income simulation model is
designed to measure the volatility of net interest income and net portfolio
value, defined as net present value of assets and liabilities, under immediate
rising or falling interest rate scenarios in 100 basis point increments.
Although
the modeling is very helpful in managing interest rate risk, it does require
significant assumptions for the projection of loan prepayment rates on mortgage
related assets, loan volumes and pricing, and deposit and borrowing volume
and
pricing, that might prove inaccurate. Because these assumptions are inherently
uncertain, the model cannot precisely estimate net interest income, or precisely
predict the effect of higher or lower interest rates on net interest income.
Actual results will differ from simulated results due to the timing, magnitude,
and frequency of interest rates changes, the differences between actual
experience and the assumed volume, changes in market conditions, and management
strategies, among other factors. The Company monitors its interest rate
sensitivity and attempts to reduce the risk of a significant decrease in net
interest income caused by a change in interest rates.
We
have
established a tolerance level in our policy to define and limit interest income
volatility to a change of plus or minus 15% when the hypothetical rate change
is
plus or minus 200 basis points. When the net interest rate simulation projects
that our tolerance level will be met or exceeded, we seek corrective action
after considering, among other things, market conditions, customer reaction,
and
the estimated impact on profitability. The Company’s simulation model also
projects the net economic value of our portfolio of assets and liabilities.
We
have established a tolerance level in our policy to value the net economic
value
of our portfolio of assets and liabilities to a change of plus or minus 15%
when
the hypothetical rate change is plus or minus 200 basis points. At
September 30, 2008, the market value of equity exceeded management’s 15% limit
for a hypothetical upward rate change of 200 basis points. Management intends
to
take steps to reduce this exposure.
The
table
below shows the estimated impact of changes in interest rate on net interest
income and market value of equity as of September 30, 2008:
|
|
Net Interest
|
|
Market Value
|
|
|
|
Income
|
|
of Equity
|
|
|
|
Volatility (1)
|
|
Volatility (2)
|
|
Change in Interest Rate (Basis Points)
|
|
September 30, 2008
|
|
September 30, 2008
|
|
+200
|
|
|
-3.2
|
|
|
-20.9
|
|
+100
|
|
|
-0.5
|
|
|
-8.5
|
|
-100
|
|
|
-1.8
|
|
|
10.8
|
|
-200
|
|
|
-4.4
|
|
|
11.3
|
|
|
(1)
|
The
percentage change in this column represents net interest income
of the
Company for 12 months in a stable interest rate environment versus
the net
interest income in the various rate scenarios.
|
|
(2)
|
The
percentage change in this column represents net portfolio value
of the
Company in a stable interest rate environment versus the net portfolio
value in the various rate
scenarios.
|
Item
4. CONTROLS AND PROCEDURES
.
The
Company’s principal executive officer and principal financial officer have
evaluated the effectiveness of the Company’s “disclosure controls and
procedures,” as such term is defined in Rule 13(a)-15(e) of the Securities
Exchange Act of 1934, as amended, (the “Exchange Act”) as of the end of the
period covered by this quarterly report. Based upon their evaluation, the
principal executive officer and principal financial officer have concluded
that
the Company's disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in the reports filed or
submitted by it under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms, and
include controls and procedures designed to ensure that information required
to
be disclosed by the Company in such reports is accumulated and communicated
to
the Company’s management, including its principal executive officer and
principal financial officer, as appropriate to allow timely decisions regarding
required disclosure.
There
has
not been any change in our internal control over financial reporting that
occurred during the fiscal quarter covered by this report that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
PART
II - OTHER INFORMATION
Item
1.
LEGAL
PROCEEDINGS
.
The
Bancorp’s wholly-owned subsidiary, Cathay Bank, is a party to ordinary routine
litigation from time to time incidental to various aspects of its operations.
Management is not aware of any litigation that is expected to have a material
adverse impact on the Company’s consolidated financial condition, or the results
of operations.
Item
1a.
RISK
FACTORS.
Item
1A,
"Risk Factors," of our Annual Report on Form 10-K for 2007 includes a discussion
of our risk factors. The information presented below updates, and should be
read
in conjunction with, the risk factors and information disclosed in our Annual
Report on Form 10-K for 2007.
U.S.
and international financial markets and economic conditions could adversely
affect our liquidity, results of operations, and financial condition.
As
described in “Management’s Discussion and Analysis of Financial Condition and
Results of Operations – Recent Developments,” global capital markets and
economic conditions continue to be adversely affected and the resulting
disruption has been particularly acute in the financial sector. Although the
Company remains well capitalized and has not suffered any significant liquidity
issues as a result of these recent events, the cost and availability of funds
may be adversely affected by illiquid credit markets and the demand for our
products and services may decline as our borrowers and customers realize the
impact of an economic slowdown and recession. In addition, the severity and
duration of these adverse conditions are unknown and may exacerbate the
Company’s exposure to credit risk and adversely affect the ability of borrowers
to perform under the terms of their lending arrangements with us. Accordingly,
continued turbulence in the U.S. and international markets and economy may
adversely affect our liquidity, financial condition, results of operations
and
profitability.
Item
2.
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
ISSUER PURCHASES OF EQUITY SECURITIES
|
|
Period
|
|
(a) Total
Number of
Shares (or
Units)
Purchased
|
|
(b)
Average
Price
Paid per
Share
(or Unit)
|
|
(c) Total
Number of
Shares (or
Units)
Purchased as
Part of
Publicly
Announced
Plans or
Programs
|
|
(d) Maximum
Number (or
Approximate
Dollar Value) of
Shares (or
Units) that May
Yet Be
Purchased
Under the Plans
or Programs
|
|
Month #1 (July 1, 2008 - July 31, 2008)
|
|
|
0
|
|
$
|
0
|
|
|
0
|
|
|
622,500
|
|
Month
#2 (August 1, 2008 - August 31, 2008)
|
|
|
0
|
|
$
|
0
|
|
|
0
|
|
|
622,500
|
|
Month
#3 (September 1, 2008 - September 30, 2008)
|
|
|
0
|
|
$
|
0
|
|
|
0
|
|
|
622,500
|
|
Total
|
|
|
0
|
|
$
|
0
|
|
|
0
|
|
|
622,500
|
|
On
November 2007, the Company announced that its Board of Directors had approved
a
new stock repurchase program to buy back up to an aggregate of one million
shares of the Company’s common stock following the completion of the stock
repurchase program of May 2007. During 2007, the Company repurchased 2,829,203
shares of common stock for $92.4 million, or an average price of $32.67 per
share. No shares were purchased during the first nine months of 2008. At
September 30, 2008, 622,500 shares remain under the Company’s November 2007
repurchase program.
Item
3.
DEFAULTS
UPON SENIOR SECURITIES
.
Not
applicable.
Item
4.
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
.
Not
applicable.
Item
5.
OTHER
INFORMATION
.
Not
applicable.
Item
6.
EXHIBITS
.
|
(i)
|
Exhibit
31.1
Certification
of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
(ii)
|
Exhibit
31.2
Certification
of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
(iii)
|
Exhibit
32.1
Certification
of the Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
(iv)
|
Exhibit
32.2
Certification
of the Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
Cathay
General Bancorp
(Registrant)
|
|
|
Date:
November 10, 2008
|
By:
|
/s/
Dunson K. Cheng
|
|
|
|
|
Dunson
K. Cheng
Chairman,
President, and
Chief
Executive Officer
|
|
|
|
Date:
November 10, 2008
|
By:
|
/s/
Heng W. Chen
|
|
|
|
|
Heng
W. Chen
Executive
Vice President and
Chief
Financial Officer
|
Cathay General Bancorp (NASDAQ:CATY)
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