BBCN: Operating Results For The Third Quarter Of 2013


The following excerpt is from the company's SEC filing.

The comparability of BBCN's operating results with past performance is impacted by acquisition accounting adjustments related to the acquisitions of Center Financial Corporation on November 30, 2011, Pacific International Bancorp on February 15, 2013 and Foster Bankshares on August 13, 2013. The Company believes the following supplemental information will be helpful in understanding past financial performance. Operating results for the three months ended September 30, 2013, June 30, 2013 and September 30, 2012 include the following pre-tax acquisition accounting adjustments related to mergers. 

The incr ease (decrease) of major adjustments to pre-tax income is summarized below. The impact which these adjustments have to certain yields and costs are described in subsequent sections of this release.

In addition to the items listed above, acquisition accounting adjustments had the effect of reducing the yield on acquired securities portfolios. 

Third quarter 2013 net interest income before provision for loan losses increased 4% over the preceding second quarter and rose 11% over the prior-year third quarter. The Company attributed the increases in net interest income to higher levels of interest income on loans as a result of organic and strategic loan growth. 

The net interest margin (net interest income divided by average interest-earning assets) and the impact of acquisition accounting adjustments are summarized in the following table:

The net interest margin for the 2013 third quarter equaled 4.42%, down 7 basis points from the preceding second quarter. On a core basis, excluding the effect of acquisition accounting adjustments, the net interest margin for the 2013 third quarter was stable compared with the preceding second quarter. Compared with the prior-year period, net interest margin for the 2013 third quarter declined 37 basis points. Excluding the effect of acquisition accounting adjustments, the core net interest margin for the third quarter of 2013 declined 28 basis points from the year-ago period. The declines largely reflect decreases in the weighted average yield on loans.

The weighted average yield on loans for the 2013 third quarter decreased 15 basis points from the preceding second quarter, but decreased only 6 basis points on a core basis, excluding acquisition accounting adjustments. The weighted average yield on new loans originated during the 2013 second quarter was 4.44%, compared with 4.71% for the preceding second quarter.

Compared with the prior-year period, the weighted average yield on loans for the 2013 third quarter decreased 48 basis points and 43 basis points on a core basis, excluding acquisition accounting adjustments. The reductions reflect reductions in the market rates versus the year-ago period.

The composition of fixed and variable rate loans and the associated weighted average yield, excluding the effect of loan discount accretion, is summarized in the following table:

The sequential decrease in the weighted average yield for fixed rate loans for the 2013 third quarter reflects the highly competitive rate environment for fixed rate commercial real estate loans in the current interest rate environment. 

The weighted average yield on securities available for sale for the 2013 third quarter increased 13 basis points from the preceding second quarter, but declined 10 basis points from the year-ago third quarter. 

The weighted average cost of deposits for the 2013 third quarter was stable with the preceding second quarter, both on a reported and on a core basis, excluding the amortization of premium on time deposits assumed in mergers.

Compared with the prior-year period, the weighted average cost of deposits for the 2013 third quarter improved 3 basis points, and improved 8 basis points on a core basis, excluding the effect of premium amortization on time deposits assumed in mergers. 

For the third quarter of 2013, the weighted average cost of FHLB advances increased 2 basis points over the preceding second quarter, both on a reported and on a core basis, excluding the effect of acquisition accounting adjustments. During the 2013 third quarter, the Company added $15.0 million in new FHLB borrowings at a weighted average rate of 1.76%, and the weighted average maturity of these new borrowings was 5.00 years. These new borrowings replaced $15.0 million of FHLB borrowings with a weighted average rate of 3.89%, which matured during the third quarter 2013.

Compared with the prior-year period, the weighted average cost of FHLB advances decreased 38 basis points, and declined 60 basis points on a core basis, excluding the effect of acquisition accounting adjustments. The decreases reflect the addition of $255.0 million in new FHLB borrowings of a weighted average rate of 0.70%, which rate is substantially lower than the weighted average rate of the remaining borrowings. The weighted average original maturity of the new borrowings was 2.27 years. In addition, a total of $294.0 million of FHLB borrowings, with a weighted average rate of 1.12%, matured over the past twelve months.

Noninterest Income.  Total noninterest income for the 2013 third quarter amounted to $10.8 million, reflecting a 2% increase over the preceding second quarter and a 41% increase over the prior-year third quarter.  

The 2% increase in noninterest income over the preceding second quarter largely reflects the completion of the Foster Bankshares transaction on August 13, 2013, offset by a decline in net gains on sale of SBA loans. The 41% increase in total noninterest income for the 2013 third quarter over the prior-year period is predominantly due to no gains on sale of SBA loans during the 2012 third quarter, as the Company did not sell any SBA loans to the secondary market. During the 2013 third quarter, $36.8 million in SBA loans was sold to the secondary market and the Company posted a net gain on sale of SBA loans of $2.8 million.

Noninterest Expense.  Total noninterest expense for the third quarter of 2013 amounted to $35.7 million, reflecting a 4% increase over the preceding second quarter and a 24% increase over the prior-year third quarter. 

The Company noted that salaries and benefits expense for the 2013 third quarter includes the increase in full-time equivalent employees (FTEs) as a result of the Foster Bankshares transaction completed mid-quarter on August 13, 2013. Compared with the prior-year third quarter, the 21% increase in salaries and benefits expense for the 2013 third quarter reflects the increase of FTEs related to Foster, as well as the acquisition of Pacific International Bancorp completed February 15, 2013. The number of FTEs was 831 as of September 30, 2013, 749 as of June 30, 2013, and 684 as of September 30, 2012.  

In addition, operating results were impacted by merger and integration related expenses, which totaled $931,000, $385,000, and $183,000 for the 2013 third quarter, 2013 second quarter and 2012 third quarter, respectively. Merger and integration related expenses for the 2013 third quarter included expenses associated with the completion and integration of Foster Bankshares.

Income Tax Provision. The effective tax rate for the 2013 third quarter was 39.1%, compared with 39.5% for preceding second quarter and 39.1% for the 2012 third quarter. 

Gross loans receivable totaled $4.90 billion at September 30, 2013, reflecting an 8% increase over $4.52 billion at June 30, 2013 and an increase of 20% over $4.07 billion a year earlier at September 30, 2012. 

Total new loan originations during the third quarter of 2013 amounted to $387.6 million, including SBA loan originations of $72.7 million. Sales of SBA loans to the secondary market and gains derived from those sales are based substantially on the production of SBA 7(a) loans. Production of SBA 7(a) loans amounted to $45.6 million for the third quarter of 2013, compared with $32.3 million for the preceding second quarter. During the 2013 third quarter, the Company sold $36.8 million of its SBA loans held for sale.

Aggregate pay-offs and pay-downs during the 2013 third quarter amounted to $266.1 million, compared with $222.8 million for the preceding second quarter and $145.1 million for the year-ago third quarter. 

Total deposits amounted to $5.02 billion at September 30, 2013, compared with $4.58 billion at June 30, 2013 and $4.05 billion a year earlier at September 30, 2012. The increase over the preceding second quarter is predominantly attributed to higher balances in noninterest-bearing demand deposits and jumbo time deposits, largely as a result of the Foster transaction. Noninterest-bearing deposits at September 30, 2013 totaled $1.36 billion and accounted for 27% of total deposits.  

The provision for loan losses for the 2013 third quarter was $744,000, compared with $800,000 for the preceding second quarter and $6.9 million for prior-year third quarter.

For a more detailed understanding of the changes in the Allowance for Loan and Lease Losses ("ALLL"), the composition of the ALLL has been segmented for disclosure purposes between loans accounted for under the amortized cost method (referred to as "Legacy Loans") and loans acquired through the Center Financial, Pacific International and Foster transactions (referred to as "Acquired Loans"). The Acquired Loans are further segregated between performing and credit impaired loans. 

The composition of ALLL for the three months ended September 30, 2013, June 30, 2013 and September 30, 2012 is as follows:

(1)  Legacy Loans include loans originated by the Bank's predecessor bank, loans originated by BBCN, and loans that were acquired and that have been refinanced as new loans.

(2) Acquired Loans were marked to fair value at acquisition date, and their allowance for loan losses reflect provisions for credit deterioration since the acquisition date.

Following are the special mention, classified and total criticized loan balances as of September 30, 2013, June 30, 2013 and September 30, 2012:

Excluding the impact of the Foster acquisition, the Company's special mention, classified and total criticized loan balances as of September 30, 2013 would have declined on a sequential quarter basis to $99.0 million, $204.5 million and $303.5 million, respectively. 

The Company defines nonperforming loans to include delinquent loans past due 90 days or more on nonaccrual status, delinquent loans past due 90 days or more on accrual status (the preponderance of which reflects acquired nonperforming loan balances), and accruing restructured loans. Nonperforming loans at September 30, 2013 totaled $111.7 million, or 2.28% of total loans, including the addition of $25.9 million of delinquent loans on accrual status related to the Foster transaction. This compares with $100.0 million, or 2.21% of total loans, at June 30, 2013. 

Nonperforming assets at September 30, 2013 amounted to $139.3 million, or 2.20% of total assets, including the addition of $17.7 million in other real estate owned related to the Foster transaction. This compares with $109.6 million, or 1.87% of total assets, at June 30, 2013. 

Net loan charge offs for the third quarter of 2013 totaled $6.7 million, or 0.56% of average loans on an annualized basis. Charge offs for the current third quarter included a $5.0 million commercial real estate-related charge off, which was fully reserved for during the first quarter of 2013. In addition, a $500,000 charge off was recorded in the quarter related to one pool of acquired credit impaired loans. The loss on this pool of loans had been fully reserved since early 2012. For the preceding 2013 second quarter, net loan charge offs totaled $2.4 million, or 0.21% of average loans on an annualized basis.  

The allowance for loan losses at September 30, 2013 was $65.7 million, or 1.34% of gross loans receivable (excluding loans held for sale), compared with $71.7 million, or 1.59%, at June 30, 2013.   The coverage ratio of the allowance for loan losses to nonperforming loans (excluding acquired loans past due 90 days or more on accrual status) was 91.1% at September 30, 2013, compared with 88.3% at June 30, 2013.

Impaired loans (defined as loans for which it is probable that not all principal and interest payments due will be collectible in accordance with the contractual terms) rose slightly to $99.2 million at September 30, 2013 from $98.2 million at June 30, 2013. 

Specific reserves for impaired loans at September 30, 2013 totaled $11.0 million, or 11.1% of the aggregate impaired loan amount, compared with $15.1 million, or 15.4% of the aggregate impaired loan amount, at June 30, 2013. Excluding specific reserves for impaired loans, the allowance coverage on the remaining loan portfolio was 1.14% at September 30, 2013, compared with 1.28% at June 30, 2013.

At September 30, 2013, the Company continued to exceed all regulatory capital requirements to be classified as a "well-capitalized" institution, as summarized in the following table.  

(1) Tangible common equity to tangible assets is a non-GAAP financial measure that represents common equity less goodwill and net other intangible assets divided by total assets less goodwill and net other intangible assets. Management reviews tangible common equity to tangible assets in evaluating the Company's capital levels and has included this ratio in response to market participant interest in tangible common equity as a measure of capital. The accompanying financial information includes a reconciliation of the ratio of tangible common equity to tangible assets with stockholders' equity and total assets.

The Company will host an investor conference call on Tuesday, October 22, 2013 at 9:30 a.m. Pacific Time / 12:30 p.m. Eastern Time to review financial results for the third quarter of 2013. Investors and analysts may access the conference call by dialing 877-415-3184 (domestic) or 857-244-73 (international), passcode 98283896. Other interested parties are invited to listen to a live webcast of the call available at the Investor Relations section of BBCN Bancorp's website at BBCNbank.com. 

After the live webcast, a replay will be archived in the Investor Relations section of BBCN Bancorp's website for one year. A telephonic replay of the call will be available at 888-286-8010 (domestic) or 617-801-6888 (international) through October 29, 2013, passcode 86493271.

BBCN Bancorp, Inc. is the holding company of BBCN Bank, the largest Korean-American bank in the nation with $6.3 billion in assets as of September 30, 2013. Headquartered in Los Angeles and serving a diverse mix of customers mirroring its communities, BBCN operates 50 branches in California, New York, New Jersey, Illinois, Washington and Virginia, along with six loan production offices in Seattle, Denver, Dallas, Atlanta, Northern California and Annandale, Virginia. BBCN specializes in core business banking products for small and medium-sized businesses, with an emphasis in commercial real estate and business lending, SBA lending and international trade financing. BBCN Bank is a California-chartered bank and its deposits are insured by the FDIC to the extent provided by law. BBCN is an Equal Opportunity Lender.

This press release contains forward-looking statements, including statements about future operations and projected full-year financial results that are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such forward looking statements. These risks and uncertainties include but are not limited to economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services, and pricing. Readers should carefully review the risk factors and the information that could materially affect the Company's financial results and business, described in documents the Company files from time to time with the Securities and Exchange Commission, including its quarterly reports on Form 10-Q and Annual Reports on Form 10-K, and particularly the discussions of business considerations and certain factors that may affect results of operations and stock price set forth therein. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements.

Common stock, $0.001 par value; authorized, 150,000,000 shares at September 30, 2013, June 30, 2013, December 31, 2012 and September 30, 2012; issued and outstanding, 79,247,719, 79,205,840, 78,041,511, and 78,016,260 at September 30, 2013, June 30, 2013, December 31, 2012, and September 30, 2012, respectively  79  79 0%  78 1%  78 1%    

1 While pre-tax, pre-provision income is a non-GAAP performance measure, we believe it is a useful measure in analyzing underlying performance trends, particularly in times of economic stress. It is the level of earnings adjusted to exclude the impact of income tax and provision expense.    

3 Average tangible equity is calculated by subtracting average goodwill and average other intangibles from average stockholders' equity. This is non-GAAP measure that we believe provides investors with information that is useful in understanding our financial performance and position.        

4 Tangible common equity to tangible assets is a non-GAAP financial measure that represents common equity less goodwill and other intangible assets, net divided by total assets less goodwill and other intangible assets, net. Management reviews tangible common equity to tangible assets in evaluating the Company's capital levels and has included this ratio in response to market participant interest in tangible common equity as a measure of capital.         

5 All such loans represent acquired loans that were originally recorded at fair value upon acquisition. These loans are considered to be accruing as we can reasonably estimate future cash flows on acquired loans and we expect to fully collect the carrying value of these loans. Therefore, we are accreting the difference between the carrying value of these loans and their expected cash flows.        

The above information was disclosed in a filing to the SEC. To see this filing in its entirety, click here.

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