Edgar Filing: CATHAY GENERAL BANCORP

caty20130930_10q.htm

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, 2013

[ ] transition report pursuant to section 13 or 15 (d) OF The SECURITIES EXCHANGE ACT OF 1934

For the transition period from

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 or organization)		(I.R.S. Employer 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 ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ 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 ☑		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 ☑

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, 79,060,396 shares outstanding as of October 31, 2013.

CATHAY GENERAL BANCORP AND SUBSIDIARies

3rd quarter 2013 REPORT ON FORM 10-Q

table of contents

PART I – FINANCIAL INFORMATION			5

	Item 1.	FINANCIAL STATEMENTS (Unaudited).	5
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited).	8
	Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	35
	Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	64
	Item 4.	CONTROLS AND PROCEDURES.	65

PART II - OTHER INFORMATION			65

	Item 1.	LEGAL PROCEEDINGS.	65
	Item 1A	RISK FACTORS.	65
	Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.	66
	Item 3.	DEFAULTS UPON SENIOR SECURITIES.	66
	Item 4.	MINE SAFETY DISCLOSURES.	66
	Item 5.	OTHER INFORMATION.	66
	Item 6.	EXHIBITS.	67



	SIGNATURES		68

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. We intend such forward-looking statements to be covered by the safe harbor provision for forward-looking statements in these provisions. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including statements about anticipated future operating and financial performance, financial position and liquidity, growth opportunities and growth rates, growth plans, acquisition and divestiture opportunities, business prospects, strategic alternatives, business strategies, financial expectations, regulatory and competitive outlook, investment and expenditure plans, financing needs and availability, and other similar forecasts and statements of expectation and statements of assumptions underlying any of the foregoing. Words such as “aims,” “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “hopes,” “intends,” “may,” “optimistic,” “plans,” “potential,” “possible,” “predicts,” “projects,” “seeks,” “shall,” “should,” “will,” and variations of these words and similar expressions are intended to identify these forward-looking statements. Forward-looking statements by us are based on estimates, beliefs, projections, and assumptions of management and are not guarantees of future performance. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. Such risks and uncertainties and other factors include, but are not limited to, adverse developments or conditions related to or arising from:

●

U.S. and international business and economic conditions;

●

credit risks of lending activities and deterioration in asset or credit quality;

●

potential supervisory action by bank supervisory authorities;

●

increased costs of compliance and other risks associated with changes in regulation and the current regulatory environment, including the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), and the potential for substantial changes in the legal, regulatory, and enforcement framework and oversight applicable to financial institutions in reaction to recent adverse financial market events, including changes pursuant to the Dodd-Frank Act;

●

potential goodwill impairment;

●

liquidity risk;

●

fluctuations in interest rates;

●

inflation and deflation;

●

risks associated with acquisitions and the expansion of our business into new markets;

●

real estate market conditions and the value of real estate collateral;

●

environmental liabilities;

●

our ability to compete with larger competitors;

●

the possibility of higher capital requirements, including implementation of the Basel III capital standards of the Basel Committee;

●

our ability to retain key personnel;

●

successful management of reputational risk;

●

natural disasters and geopolitical events;

●

general economic or business conditions in California, Asia, and other regions where the Bank has operations;

●

failures, interruptions, or security breaches of our information systems;

●

our ability to adapt our systems to technological changes, including successfully implementing our core system conversion;

●

adverse results in legal proceedings;

●

changes in accounting standards or tax laws and regulations;

●

market disruption and volatility;

●

restrictions on dividends and other distributions by laws and regulations and by our regulators and our capital structure;

●

successfully raising additional capital, if needed, and the resulting dilution of interests of holders of our common stock; and

●

the soundness of other financial institutions.

These and other factors are further described in Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2012 (Item 1A in particular), other reports and registration statements filed with the Securities and Exchange Commission (“SEC”), and other filings it makes 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, readers are cautioned not to place undue reliance on any forward-looking statements, which speak to the date of this report. We have no intention and undertake no obligation to update any forward-looking statement or to publicly announce any revision of any forward-looking statement to reflect future developments or events, except as required by law.

Bancorp’s filings with the SEC are available at the website maintained by the SEC at http://www.sec.gov, or by request directed to Cathay General Bancorp, 9650 Flair Drive, El Monte, California 91731, Attention: Investor Relations (626) 279-3286.

PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS (Unaudited)

CATHAY GENERAL BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share data)	September 30, 2013			December 31, 2012

Assets
Cash and due from banks	$	201,815		$	144,909
Short-term investments and interest bearing deposits		389,024			411,983
Securities held-to-maturity (market value of $823,906 in 2012)		-			773,768
Securities available-for-sale (amortized cost of $1,779,859 in 2013 and $1,290,676 in 2012)		1,743,309			1,291,480
Trading securities		4,855			4,703
Loans		7,832,013			7,429,147
Less: Allowance for loan losses		(181,452	)		(183,322	)
Unamortized deferred loan fees, net		(12,933	)		(10,238	)
Loans, net		7,637,628			7,235,587
Federal Home Loan Bank stock		28,683			41,272
Other real estate owned, net		49,777			46,384
Affordable housing investments, net		86,381			85,037
Premises and equipment, net		102,379			102,613
Customers’ liability on acceptances		42,533			41,271
Accrued interest receivable		23,367			26,015
Goodwill		316,340			316,340
Other intangible assets, net		2,765			6,132
Other assets		192,590			166,595

Total assets	$	10,821,446		$	10,694,089

Liabilities and Stockholders’ Equity
Deposits
Non-interest-bearing demand deposits	$	1,385,430		$	1,269,455
Interest-bearing deposits:
NOW deposits		653,903			593,133
Money market deposits		1,303,121			1,186,771
Savings deposits		498,246			473,805
Time deposits under $100,000		889,828			644,191
Time deposits of $100,000 or more		3,188,015			3,215,870
Total deposits		7,918,543			7,383,225

Securities sold under agreements to repurchase		800,000			1,250,000
Advances from the Federal Home Loan Bank		376,200			146,200
Other borrowings for affordable housing investments		19,108			18,713
Long-term debt		171,136			171,136
Acceptances outstanding		42,533			41,271
Other liabilities		58,624			54,040
Total liabilities		9,386,144			9,064,585
Commitments and contingencies		-			-
Stockholders’ Equity
Preferred stock, 10,000,000 shares authorized, none issued and outstanding at September 30, 2013, and 258,000 issued and outstanding at December 31, 2012		-			254,580
Common stock, $0.01 par value, 100,000,000 shares authorized, 83,113,308 issued and 78,905,743 outstanding at September 30, 2013, and 82,985,853 issued and 78,778,288 outstanding at December 31, 2012		831			830
Additional paid-in-capital		771,759			768,925
Accumulated other comprehensive (loss)/income, net		(21,183	)		465
Retained earnings		801,184			721,993
Treasury stock, at cost (4,207,565 shares at September 30, 2013, and at December 31, 2012)		(125,736	)		(125,736	)

Total Cathay General Bancorp stockholders' equity		1,426,855			1,621,057
Noncontrolling interest		8,447			8,447
Total equity		1,435,302			1,629,504
Total liabilities and equity	$	10,821,446		$	10,694,089

See accompanying notes to unaudited condensed consolidated financial statements.

CATHAY GENERAL BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)

(Unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2013			2012			2013			2012
	(In thousands, except share and per share data)
Interest and Dividend Income
Loans receivable, including loan fees	$	90,838		$	90,024		$	267,557		$	269,486
Investment securities- taxable		10,868			15,157			34,986			50,046
Investment securities- nontaxable		-			1,036			995			3,127
Federal Home Loan Bank stock		449			57			1,041			190
Federal funds sold and securities purchased under agreements to resell		-			2			-			18
Deposits with banks		307			471			796			1,596

Total interest and dividend income		102,462			106,747			305,375			324,463

Interest Expense
Time deposits of $100,000 or more		6,887			7,970			20,466			26,152
Other deposits		3,485			3,261			9,244			11,045
Securities sold under agreements to repurchase		8,402			13,734			29,778			42,987
Advances from Federal Home Loan Bank		150			74			375			196
Long-term debt		930			1,291			2,778			3,895

Total interest expense		19,854			26,330			62,641			84,275

Net interest income before provision for credit losses		82,608			80,417			242,734			240,188
Provision/(credit) for loan losses		(3,000	)		-			(3,000	)		(9,000	)

Net interest income after provision/(credit) for loan losses		85,608			80,417			245,734			249,188

Non-Interest Income
Securities gains, net		8,688			8,652			27,157			13,241
Letters of credit commissions		1,698			1,728			4,608			4,873
Depository service fees		1,371			1,342			4,330			4,114
Other operating income		4,963			3,900			15,867			12,077

Total non-interest income		16,720			15,622			51,962			34,305

Non-interest Expense
Salaries and employee benefits		22,751			18,451			67,192			58,426
Occupancy expense		3,812			3,853			10,966			10,926
Computer and equipment expense		2,446			2,340			7,488			7,194
Professional services expense		5,813			5,273			18,484			15,224
FDIC and State assessments		1,712			2,094			5,431			6,554
Marketing expense		1,097			519			2,703			3,408
Other real estate owned expense		527			1,794			886			13,548
Operations of affordable housing investments, net		1,234			476			4,952			4,387
Amortization of core deposit intangibles		1,363			1,404			4,097			4,265
Costs associated with debt redemption		6,861			3,450			22,557			6,200
Other operating expense		3,054			8,190			8,758			12,925

Total non-interest expense		50,670			47,844			153,514			143,057

Income before income tax expense		51,658			48,195			144,182			140,436
Income tax expense		19,029			17,686			52,489			50,852
Net income		32,629			30,509			91,693			89,584
Less: net income attributable to noncontrolling interest		151			151			452			452
Net income attributable to Cathay General Bancorp		32,478			30,358			91,241			89,132
Dividends on preferred stock and noncash charge from repayment		(2,434	)		(4,123	)		(9,685	)		(12,361	)
Net income attributable to common stockholders		30,044			26,235			81,556			76,771

Other comprehensive (loss)/income, net of tax
Unrealized holding (loss)/gain arising during the period		(1,074	)		10,650			(5,908	)		18,353
Less: reclassification adjustments included in net income		5,036			5,015			15,740			7,674
Total other comprehensive (loss)/gain, net of tax		(6,110	)		5,635			(21,648	)		10,679
Total comprehensive income	$	26,368		$	35,993		$	69,593		$	99,811

Net income per common share:
Basic	$	0.38		$	0.33		$	1.03		$	0.98
Diluted	$	0.38		$	0.33		$	1.03		$	0.98
Cash dividends paid per common share	$	0.01		$	0.01		$	0.03		$	0.03
Average common shares outstanding
Basic		78,894,262			78,729,272			78,853,333			78,706,150
Diluted		79,114,122			78,731,180			78,944,152			78,711,235

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
	2013			2012
	(In thousands)
Cash Flows from Operating Activities
Net income	$	91,693		$	89,584
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Credit for loan losses		(3,000	)		(9,000	)
Provision/(credit) for losses on other real estate owned		(675	)		10,362
Deferred tax (asset)/liability		(12,325	)		5,901
Depreciation		4,899			4,435
Net losses on sale and transfer of other real estate owned		(843	)		(700	)
Net gains on sale of loans		(864	)		(618	)
Proceeds from sales of loans		41,219			58,505
Originations of loans held-for-sale		(40,356	)		(57,861	)
Net change in trading securities		(152	)		(79	)
Write-downs on venture capital investments		295			226
Gain on sales and calls of securities		(27,157	)		(13,241	)
Amortization/accretion of security premiums/discounts, net		3,439			3,800
Amortization of other intangible assets		4,192			4,368
Excess tax short-fall from share-based payment arrangements		143			679
Stock based compensation and stock issued to officers as compensation		2,775			2,251
Net change in accrued interest receivable and other assets		24,875			31,746
Net change in other liabilities		4,195			(3,999	)
Net cash provided by operating activities		92,353			126,359

Cash Flows from Investing Activities
Decrease/(increase) in short-term investments		22,959			(131,500	)
Purchase of investment securities available-for-sale		(1,026,659	)		(971,983	)
Proceeds from sale of investment securities available-for-sale		903,915			429,923
Proceeds from repayments, maturities and calls of investment securities available-for-sale		367,026			572,957
Proceeds from repayments, maturities and calls of investment securities held-to-maturity		50,973			301,981
Redemptions of Federal Home Loan Bank stock		12,589			7,496
Net increase in loans		(413,405	)		(224,244	)
Purchase of premises and equipment		(4,734	)		(2,312	)
Proceeds from sale of other real estate owned		9,926			33,167
Net increase in investment in affordable housing		(6,167	)		(2,639	)
Net cash (used in)/provided by investing activities		(83,577	)		12,846

Cash Flows from Financing Activities
Net increase in deposits		534,306			124,090
Net decrease in federal funds purchased and securities sold under agreements to repurchase		(450,000	)		(50,000	)
Advances from Federal Home Loan Bank		1,742,396			406,200
Repayment of Federal Home Loan Bank borrowings		(1,512,000	)		(610,000	)
Cash dividends paid		(8,631	)		(12,036	)
Redemption of series B preferred stock		(258,000	)		-
Repayment of other borrowings		-			(880	)
Proceeds from shares issued under Dividend Reinvestment Plan		202			211
Proceeds from exercise of stock options		-			647
Excess tax short-fall from share-based payment arrangements		(143	)		(679	)
Net cash provided by/(used in) in financing activities		48,130			(142,447	)
(Decrease)/increase in cash and cash equivalents		56,906			(3,242	)
Cash and cash equivalents, beginning of the period		144,909			117,888
Cash and cash equivalents, end of the period	$	201,815		$	114,646

Supplemental disclosure of cash flow information
Cash paid during the period:
Interest	$	65,372		$	87,383
Income taxes paid	$	55,537		$	24,908
Non-cash investing and financing activities:
Net change in unrealized holding (loss)/gain on securities available-for-sale, net of tax	$	(21,648	)	$	10,679
Transfers investment securities to available-for-sale from held-to-maturity	$	722,466		$	-
Transfers to other real estate owned from loans held for investment	$	11,877		$	13,216
Loans transferred from held for investment to held for sale, net	$	-		$	234
Loans to facilitate the sale of other real estate owned	$	75		$	1,785
Transfer of securities sold but not yet settled to other assets	$	12,469		$	-

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 (“Bancorp”) is the holding company for Cathay Bank (the “Bank” and, together, the “Company”), 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, 2013, the Bank operated twenty branches in Southern California, eleven branches in Northern California, eight branches in New York State, three branches in Illinois, three branches in Washington State, two branches in Texas, one branch in Massachusetts, one branch in New Jersey, one branch in Nevada, 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. 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, 2013. For further information, refer to the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

The preparation of the condensed 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 estimates subject to change are the allowance for loan losses, goodwill impairment, and other-than-temporary impairment.

3. Recent Accounting Pronouncements

In January 2013, the Financial Accounting Standard Board (“FASB”) issued ASU 2013-01, “Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities.” ASU No. 2013-01 clarifies that the scope of Update 2011-11 applies to derivatives, repurchase agreements, and securities lending transactions to the extent that they are either offset in the financial statements or subject to an enforceable master netting arrangement or similar agreement. ASU 2013-01 became effective for interim and annual periods beginning on or after January 1, 2013. Adoption of ASU 2013-01 did not have a significant impact on the Company’s consolidated financial statements. See Note 15 to the Company’s consolidated financial statements for the disclosure of adoption of ASU 2013-01.

In February 2013, the FASB issued ASU 2013-02 “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” ASU 2013-02 amends Topic 220, “Comprehensive Income,” to improve the reporting of reclassification out of accumulated other comprehensive income. The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the amendments require an entity to provide information about the amounts reclassified and to present significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income. ASU 2013-02 became effective prospectively for reporting periods beginning after December 15, 2012. Adoption of ASU 2013-02 did not have a significant impact on the Company’s consolidated financial statements. See Note 16 to the Company’s condensed consolidated financial statements for the disclosure of adoption of ASU 2013-02.

4. Earnings per Share

Basic earnings per share exclude 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. Potential dilution is excluded from computation of diluted per-share amounts when a net loss from operations exists.

Outstanding stock options with anti-dilutive effect were not included in the computation of diluted earnings per share. The following table sets forth earnings per common share calculations:

	Three months ended September 30,						Nine months ended September 30,
(Dollars in thousands, except share and per share data)	2013			2012			2013			2012
Net income attributable to Cathay General Bancorp	$	32,478		$	30,358		$	91,241		$	89,132
Dividends on preferred stock and noncash charge from repayment		(2,434	)		(4,123	)		(9,685	)		(12,361	)
Net income available to common stockholders	$	30,044		$	26,235		$	81,556		$	76,771

Weighted-average shares:
Basic weighted-average number of common shares outstanding		78,894,262			78,729,272			78,853,333			78,706,150
Dilutive effect of weighted-average outstanding common share equivalents
Warrants		171,426			-			57,771			-
Restricted stock units		48,434			1,908			33,048			5,085
Diluted weighted-average number of common shares outstanding		79,114,122			78,731,180			78,944,152			78,711,235

Average stock options and warrants with anti-dilutive effect		3,668,285			6,080,292			4,958,218			6,133,089
Earnings per common share:
Basic	$	0.38		$	0.33		$	1.03		$	0.98
Diluted	$	0.38		$	0.33		$	1.03		$	0.98

5. Stock-Based Compensation

Under the Company’s equity incentive plans, directors and eligible employees may be granted incentive or non-statutory stock options and/or restricted stock units, or awarded non-vested stock. As of September 30, 2013, the only options granted by the Company 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 certain options granted to the Chief Executive Officer of the Company in 2005 and 2008. If such options expire or terminate without having been exercised, any shares not purchased will again be available for future grants or awards. There were no options granted during the first nine months of 2013 or during 2012.

Option compensation expense was zero for the three months ended September 30, 2013, and $194,000 for the three months ended September 30, 2012. For the nine months ended September 30, option compensation expense totaled $129,000 for 2013 and $581,000 for 2012. Stock-based compensation is recognized ratably over the requisite service period for all awards. All unrecognized stock-based compensation expense was fully recognized as of September 30, 2013.

No stock options were exercised in the first nine months of 2013 compared to 39,784 shares issued on the exercise of stock options in the first nine months 2012. Cash received totaled $647,000 and the aggregate intrinsic value totaled $34,000 from the exercise of stock options during the nine months ended September 30, 2012. The table below summarizes stock option activity for the periods indicated:

	Shares			Weighted-average exercise price		Weighted-average remaining contractual life (in years)		Aggregate intrinsic value (in thousands)

Balance, December 31, 2012		3,996,630		$	29.45		2.2	$	-
Exercised		-			-
Forfeited		(339,340	)		20.45
Balance, March 31, 2013		3,657,290		$	30.28		2.2	$	-
Exercised		-			-
Forfeited		(2,980	)		30.79
Balance, June 30, 2013		3,654,310		$	30.28		1.9	$	-
Forfeited		(21,970	)		32.81
Balance, September 30, 2013		3,632,340		$	30.27		1.7	$	-
Exercisable, September 30, 2013		3,632,340		$	30.27		1.7	$	-

At September 30, 2013, 2,655,759 shares were available under the Company’s 2005 Incentive Plan for future grants.

The Company granted restricted stock units for 125,133 shares at an average closing price of $18.24 per share in 2012. The Company granted restricted stock units for 14,416 shares on March 14, 2013, at the closing price of $20.57, 6,729 shares on April 15, 2013, at the closing price of $18.91, and 1,454 shares on May 17, 2013, at the closing price of $20.63. The restricted stock units granted in 2012 and 2013 are scheduled to vest two years from grant date.

The following table presents information relating to the restricted stock units as of September 30, 2013:

	Units
Balance at December 31, 2012		256,616
Granted		22,599
Forfeited		-
Vested		(66,539	)
Balance at September 30, 2013		212,676

The compensation expense related to the restricted stock units was $476,000 for the three months ended September 30, 2013, compared to $459,000 for the three months ended September 30, 2012. For the nine months ended September 30, compensation expense recorded related to the restricted stock units was $1.6 million in 2013 and $1.2 million in 2012. Unrecognized stock-based compensation expense related to restricted stock units was $1.6 million at September 30, 2013, and is expected to be recognized over the next 1.1 years.

The following table summarizes the tax short-fall from share-based payment arrangements:

	Three months ended September 30,						Nine months ended September 30,
(Dollars in thousands)	2013			2012			2013			2012
Short-fall of tax deductions in excess of grant-date fair value	$	(63	)	$	(114	)	$	(143	)	$	(679	)
Benefit of tax deductions on grant-date fair value		95			114			702			777
Total benefit of tax deductions	$	32		$	-		$	559		$	98

6. Investment Securities

Investment securities were $1.7 billion at September 30, 2013, compared to $2.1 billion at December 31, 2012. During the first quarter of 2013, due to the ongoing discussions regarding corporate income tax rates which could have a negative impact on the after-tax yields and fair values of the Company’s portfolio of municipal securities, the Company determined it may sell such securities in response to market conditions. As a result, the Company reclassified its municipal securities from securities held-to-maturity to securities available-for-sale. Concurrent with this reclassification, the Company also reclassified all other securities held-to-maturity, which together with the municipal securities had an amortized cost on the date of transfer of $722.5 million, to securities available-for-sale. At the reclassification date, a net unrealized gain was recorded in other comprehensive income for these securities totaling $40.5 million.

The following table reflects the amortized cost, gross unrealized gains, gross unrealized losses, and fair values of investment securities as of September 30, 2013, and December 31, 2012:

	September 30, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In thousands)
Securities Available-for-Sale
U.S. treasury securities	$	460,119	$	214	$	-	$	460,333
Mortgage-backed securities		1,131,602		9,364		45,947		1,095,019
Collateralized mortgage obligations		6,489		268		60		6,697
Asset-backed securities		127		1		-		128
Corporate debt securities		174,953		186		7,299		167,840
Mutual funds		6,000		-		188		5,812
Preferred stock of government sponsored entities		569		6,911		-		7,480
Total securities available-for-sale	$	1,779,859	$	16,944	$	53,494	$	1,743,309
Total investment securities	$	1,779,859	$	16,944	$	53,494	$	1,743,309

	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In thousands)
Securities Held-to-Maturity
State and municipal securities	$	129,037	$	9,268	$	-	$	138,305
Mortgage-backed securities		634,757		40,801		-		675,558
Corporate debt securities		9,974		69		-		10,043
Total securities held-to-maturity	$	773,768	$	50,138	$	-	$	823,906

Securities Available-for-Sale
U.S. treasury securities	$	509,748	$	228	$	5	$	509,971
Mortgage-backed securities		404,505		12,194		5		416,694
Collateralized mortgage obligations		9,772		430		34		10,168
Asset-backed securities		145		-		4		141
Corporate debt securities		349,973		106		14,102		335,977
Mutual funds		6,000		79		-		6,079
Preferred stock of government sponsored entities		569		1,766		-		2,335
Trust preferred securities		9,964		151		-		10,115
Total securities available-for-sale	$	1,290,676	$	14,954	$	14,150	$	1,291,480
Total investment securities	$	2,064,444	$	65,092	$	14,150	$	2,115,386

The amortized cost and fair value of investment securities at September 30, 2013, by contractual maturities, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or repay obligations with or without call or repayment penalties.

	Securities available-for-sale
	Amortized cost		Fair value
	(In thousands)
Due in one year or less	$	460,141	$	460,355
Due after one year through five years		98,079		98,283
Due after five years through ten years		119,240		114,235
Due after ten years (1)		1,102,399		1,070,436
Total	$	1,779,859	$	1,743,309

(1) Equity securities are reported in this category

Proceeds from sales of mortgage-backed securities were $348.7 million and repayments, maturities and calls of mortgage-backed securities were $237.9 million during the first nine months of 2013 compared to proceeds from sales of $369.0 million and repayments, maturities, and calls of $280.7 million during the same period a year ago. Proceeds from sales of other investment securities were $555.2 million during the first nine months of 2013 compared to $61.0 million during the same period year ago. Proceeds from maturity and calls of other investment securities were $180.1 million during the first nine months of 2013 compared to $494.2 million during the same period a year ago. Gains of $27.2 million and no losses were realized on sales and calls of investment securities during the first nine months of 2013 compared to gains of $13.8 million and losses of $607,000 realized for the same period a year ago.

The unrealized loss on investments in corporate bonds relates to the Company’s investment in 14 issues of bonds of financial institutions, all of which were investment grade at the date of acquisition and as of September 30, 2013. The unrealized losses for these now floating rate securities were primarily caused by the widening of credit spreads since the dates of acquisition. The contractual terms of those investments do not permit the issuers to settle the security at a price less than the amortized cost of the investment. The Company currently does not believe it is probable that it will be unable to collect all amounts due according to the contractual terms of the investments. Therefore, it is expected that these bonds would not be settled at a price less than the amortized cost of the investment. Because the Company does not intend to sell and would not be required to sell these investments until a recovery of fair value, which may be at maturity, it does not consider its investments in these corporate bonds to be other-than-temporarily impaired at September 30, 2013.

The temporarily impaired securities represent 58.6% of the fair value of investment securities as of September 30, 2013. Unrealized losses for securities with unrealized losses for less than twelve months represent 4.9%, and securities with unrealized losses for twelve months or more represent 5.6%, of the historical cost of these securities. Unrealized losses on these securities generally resulted from increases in interest rates or spreads subsequent to the date that these securities were purchased.

At September 30, 2013, management believed the impairment was temporary and, accordingly, no impairment loss has been recognized in our condensed consolidated statements of operations. The Company expects to recover the amortized cost basis of its debt securities, and has no intent to sell and will not be required to sell available-for-sale debt securities that have declined below their cost before their anticipated recovery.

The table below shows the fair value and unrealized losses of the temporarily impaired securities in our investment securities portfolio as of September 30, 2013, and December 31, 2012:

	September 30, 2013
	Temporarily impaired securities

	Less than 12 months				12 months or longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(Dollars in thousands)

Securities Available-for-Sale
Mortgage-backed securities	$	882,851	$	45,944	$	154	$	2	$	883,005	$	45,946
Mortgage-backed securities-Non-agency		94		1		-		-		94		1
Collateralized mortgage obligations		68		1		332		59		400		60
Corporate debt securities		9,984		16		122,717		7,283		132,701		7,299
Mutual funds		5,812		188		-		-		5,812		188
Total securities available-for-sale	$	898,809	$	46,150	$	123,203	$	7,344	$	1,022,012	$	53,494
Total investment securities	$	898,809	$	46,150	$	123,203	$	7,344	$	1,022,012	$	53,494

	December 31, 2012
	Temporarily impaired securities

	Less than 12 months				12 months or longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(Dollars in thousands)

Securities Available-for-Sale
U.S. treasury securities	$	49,969	$	5	$	-	$	-	$	49,969	$	5
Mortgage-backed securities		231		1		170		1		401		2
Mortgage-backed securities-Non-agency		-		-		96		2		96		2
Collateralized mortgage obligations		-		-		439		35		439		35
Asset-backed securities		-		-		141		4		141		4
Corporate debt securities		52,468		2,532		253,430		11,570		305,898		14,102
Total securities available-for-sale	$	102,668	$	2,538	$	254,276	$	11,612	$	356,944	$	14,150
Total investment securities	$	102,668	$	2,538	$	254,276	$	11,612	$	356,944	$	14,150

Investment securities having a carrying value of $941.8 million at September 30, 2013, and $1.45 billion at December 31, 2012, were pledged to secure public deposits, other borrowings, treasury tax and loan, Federal Home Loan Bank advances, securities sold under agreements to repurchase, interest rate swaps, and foreign exchange transactions.

7. Loans

Most of the Company’s business activity is with Asian customers located in Southern and Northern California; New York City, New York; Houston and Dallas, Texas; Seattle, Washington; Boston, Massachusetts; Chicago, Illinois; Edison, New Jersey; Las Vegas, Nevada, and Hong Kong. The Company has no specific industry concentration, and generally its loans are secured by real property or other collateral of the borrowers. Loans are generally expected to be paid off from the operating profits of the borrowers, from refinancing by other lenders, or through sale by the borrowers of the secured collateral.

The components of loans in the condensed consolidated balance sheets as of September 30, 2013, and December 31, 2012, were as follows:

	September 30, 2013			December 31, 2012
	(In thousands)
Type of Loans:
Commercial loans	$	2,237,902		$	2,127,107
Residential mortgage loans		1,293,849			1,146,230
Commercial mortgage loans		3,921,348			3,768,452
Equity lines		173,798			193,852
Real estate construction loans		189,867			180,950
Installment and other loans		15,249			12,556
Gross loans		7,832,013			7,429,147

Less:
Allowance for loan losses		(181,452	)		(183,322	)
Unamortized deferred loan fees		(12,933	)		(10,238	)
Total loans, net	$	7,637,628		$	7,235,587

At September 30, 2013, recorded investment in impaired loans totaled $215.8 million and was comprised of non-accrual loans of $99.9 million, and accruing troubled debt restructured (“TDR”) loans of $115.9 million. At December 31, 2012, recorded investment in impaired loans totaled $248.6 million and was comprised of non-accrual loans of $103.9 million and accruing TDRs of $144.7 million. For impaired loans, the amounts previously charged off represent 22.2% at September 30, 2013, and 23.2% at December 31, 2012, of the contractual balances for impaired loans. The following table presents the average balance and interest income recognized related to impaired loans for the periods indicated:

	Impaired Loans
	Average Recorded Investment								Interest Income Recognized
	Three months ended September 30,				Nine months ended September 30,				Three months ended September 30,				Nine months ended September 30,
	2013		2012		2013		2012		2013		2012		2013		2012
	(In thousands)
Commercial loans	$	32,187	$	25,987	$	24,873	$	33,672	$	166	$	49	$	395	$	146
Real estate construction loans		34,946		41,404		39,014		51,176		67		177		199		531
Commercial mortgage loans		132,921		178,206		145,380		180,959		730		1,971		3,289		5,477
Residential mortgage and equity lines		16,884		18,370		17,574		18,420		106		49		227		148
Total	$	216,938	$	263,967	$	226,841	$	284,227	$	1,069	$	2,246	$	4,110	$	6,302

The following table presents impaired loans and the related allowance for credit losses as of the dates indicated:

	Impaired Loans
	September 30, 2013						December 31, 2012
	Unpaid Principal Balance		Recorded Investment		Allowance		Unpaid Principal Balance		Recorded Investment		Allowance
	(In thousands)

With no allocated allowance
Commercial loans	$	20,896	$	17,699	$	-	$	29,359	$	18,963	$	-
Real estate construction loans		25,438		15,135		-		9,304		7,277		-
Commercial mortgage loans		125,489		94,167		-		189,871		152,957		-
Residential mortgage loans and equity lines		2,978		2,969		-		4,303		4,229		-
Subtotal	$	174,801	$	129,970	$	-	$	232,837	$	183,426	$	-
With allocated allowance
Commercial loans	$	22,099	$	17,352	$	10,849	$	7,804	$	4,959	$	1,467
Real estate construction loans		28,847		19,694		5,691		54,718		34,856		8,158
Commercial mortgage loans		35,582		34,688