Edgar Filing: CATHAY GENERAL BANCORP

caty20150331_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

March 31, 2015

[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) of
	THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission file number

001-31830

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 ☑ 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, 79,912,799 shares outstanding as of April 30, 2015.

CATHAY GENERAL BANCORP AND SUBSIDIARies

1^st quarter 2015 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	58
Item 4.	CONTROLS AND PROCEDURES.	59

PART II - OTHER INFORMATION		60

Item 1.	LEGAL PROCEEDINGS.	60
Item 1A	RISK FACTORS.	60
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.	60
Item 3.	DEFAULTS UPON SENIOR SECURITIES.	60
Item 4.	MINE SAFETY DISCLOSURES.	61
Item 5.	OTHER INFORMATION.	61
Item 6.	EXHIBITS.	61




SIGNATURES		62

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;

●

possible additional provisions for loan losses and charge-offs;

●

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

●

extensive laws and regulations and supervision that we are subject to, including potential supervisory action by bank supervisory authorities;

●

increased costs of compliance and other risks associated with changes in regulation, including the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”);

●

higher capital requirements from the implementation of the Basel III capital standards;

●

compliance with the Bank Secrecy Act and other money laundering statutes and regulations;

●

potential goodwill impairment;

●

liquidity risk;

●

fluctuations in interest rates;

●

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

●

inflation and deflation;

●

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

●

environmental liabilities;

●

our ability to compete with larger competitors;

●

our ability to retain key personnel;

●

successful management of reputational risk;

●

natural disasters and geopolitical events;

●

general economic or business conditions in 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;

●

risk management processes and strategies;

●

adverse results in legal proceedings;

●

certain provisions in our charter and bylaws that may affect acquisition of the Company;

●

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;

●

issuance of preferred stock;

●

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, 2014 (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)	March 31, 2015			December 31, 2014

Assets
Cash and due from banks	$	182,159		$	176,830
Short-term investments and interest bearing deposits		618,726			489,614
Securities available-for-sale (amortized cost of $1,197,922 in 2015 and $1,324,408 in 2014)		1,203,682			1,318,935
Loans held for sale		-			973
Loans		9,224,797			8,914,080
Less: Allowance for loan losses		(156,089	)		(161,420	)
Unamortized deferred loan fees, net		(11,116	)		(12,392	)
Loans, net		9,057,592			8,740,268
Federal Home Loan Bank stock		25,000			30,785
Other real estate owned, net		30,799			31,477
Affordable housing investments, net		129,829			104,579
Premises and equipment, net		98,512			99,682
Customers’ liability on acceptances		17,956			35,656
Accrued interest receivable		26,584			25,364
Goodwill		316,340			316,340
Other intangible assets, net		3,084			3,237
Other assets		199,826			143,106
Total assets	$	11,910,089		$	11,516,846

Liabilities and Stockholders’ Equity
Deposits
Non-interest-bearing demand deposits	$	1,691,173		$	1,664,914
Interest-bearing deposits:
NOW deposits		822,940			778,691
Money market deposits		1,551,453			1,538,187
Savings deposits		557,924			533,940
Time deposits under $100,000		1,241,529			1,162,547
Time deposits of $100,000 or more		3,248,231			3,105,181
Total deposits		9,113,250			8,783,460

Securities sold under agreements to repurchase		400,000			450,000
Advances from the Federal Home Loan Bank		485,000			425,000
Other borrowings for affordable housing investments		22,482			19,934
Long-term debt		119,136			119,136
Acceptances outstanding		17,956			35,656
Other liabilities		118,019			80,772
Total liabilities		10,275,843			9,913,958
Commitments and contingencies		-			-
Stockholders’ Equity
Common stock, $0.01 par value, 100,000,000 shares authorized, 84,108,607 issued and 79,901,042 outstanding at March 31, 2015, and 84,022,118 issued and 79,814,553 outstanding at December 31, 2014		841			840
Additional paid-in-capital		787,956			789,519
Accumulated other comprehensive loss, net		(646	)		(5,569	)
Retained earnings		971,831			943,834
Treasury stock, at cost (4,207,565 shares at March 31, 2015, and at December 31, 2014)		(125,736	)		(125,736	)
Total equity		1,634,246			1,602,888
Total liabilities and equity	$	11,910,089		$	11,516,846

See accompanying notes to unaudited condensed consolidated financial statements

CATHAY GENERAL BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME

(Unaudited)

	Three months ended March 31,
	2015			2014
	(In thousands, except share and per share data)
Interest and Dividend Income
Loans receivable, including loan fees	$	100,100		$	92,732
Investment securities		3,774			7,576
Federal Home Loan Bank stock		581			450
Deposits with banks		479			449
Total interest and dividend income		104,934			101,207

Interest Expense
Time deposits of $100,000 or more		6,773			6,664
Other deposits		4,793			4,028
Securities sold under agreements to repurchase		3,925			6,930
Advances from Federal Home Loan Bank		93			199
Long-term debt		1,424			728
Total interest expense		17,008			18,549

Net interest income before provision for credit losses		87,926			82,658
Reversal of provision for loan losses		(5,000	)		-

Net interest income after credit for loan losses		92,926			82,658

Non-Interest Income
Securities (losses)/gains, net		(21	)		5,960
Letters of credit commissions		1,268			1,468
Depository service fees		1,301			1,363
Other operating income		6,001			5,768
Total non-interest income		8,549			14,559

Non-Interest Expense
Salaries and employee benefits		22,616			23,451
Occupancy expense		4,021			3,862
Computer and equipment expense		2,502			2,302
Professional services expense		5,352			5,156
FDIC and State assessments		2,260			2,154
Marketing expense		820			564
Other real estate owned expense		483			759
Operations of affordable housing investments, net		2,383			2,436
Amortization of core deposit intangibles		177			172
Costs associated with debt redemption		-			3,376
Other operating expense		3,517			3,836
Total non-interest expense		44,131			48,068

Income before income tax expense		57,344			49,149
Income tax expense		21,364			17,890
Net income		35,980			31,259

Other comprehensive income, net of tax
Unrealized holding gain on securities available-for-sale		6,499			11,094
Less: reclassification adjustments included in net income		(12	)		3,455
Unrealized holding loss on cash flow hedge derivatives		(1,588	)		-
Total other comprehensive gain, net of tax		4,923			7,639
Total comprehensive income	$	40,903		$	38,898

Net income per common share:
Basic	$	0.45		$	0.39
Diluted	$	0.45		$	0.39
Cash dividends paid per common share	$	0.10		$	0.05
Average common shares outstanding
Basic		79,835,628			79,595,757
Diluted		80,309,383			80,039,382

See accompanying notes to unaudited condensed consolidated financial statements.

CATHAY GENERAL BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three months ended March 31
	2015			2014
	(In thousands)
Cash Flows from Operating Activities
Net income	$	35,980		$	31,259
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Credit for loan losses		(5,000	)		-
Provision for losses on other real estate owned		181			617
Deferred tax liability		6,840			6,012
Depreciation		1,732			1,742
Net losses/(gains) on sale and transfer of other real estate owned		154			(559	)
Net gains on sale of loans		(596	)		(128	)
Proceeds from sales of loans		10,360			4,525
Originations of loans held-for-sale		(8,791	)		(4,397	)
Net change in trading securities		-			4,936
Write-downs on venture capital investments		224			75
Net losses/(gains) on sales and calls of securities		21			(5,960	)
Amortization/accretion of security premiums/discounts, net		502			867
Amortization of other intangible assets		197			196
Excess tax short-fall from share-based payment arrangements		4,395			1,227
Stock based compensation and stock issued to officers as compensation		1,570			1,353
Net change in accrued interest receivable and other assets		6,631			3,285
Net change in other liabilities		1,379			1,374
Net cash provided by operating activities		55,779			46,424

Cash Flows from Investing Activities
Increase in short-term investments		(129,112	)		(103,368	)
Purchase of investment securities available-for-sale		(703,305	)		(246,498	)
Proceeds from sale of investment securities available-for-sale		741,992			139,671
Proceeds from repayments, maturities and calls of investment securities available-for-sale		12,102			133,369
Purchase of Federal Home Loan Bank stock		-			(4,901	)
Redemptions of Federal Home Loan Bank stock		5,785			-
Net increase in loans		(305,651	)		(220,402	)
Purchase of premises and equipment		(562	)		(2,081	)
Proceeds from sales of other real estate owned		1,043			6,379
Net increase in investment in affordable housing		(1,351	)		(1,894	)
Net cash used in investing activities		(379,059	)		(299,725	)

Cash Flows from Financing Activities

Net increase in deposits		329,724			251,032
Net decrease in federal funds purchased and securities sold under agreements to repurchase		(50,000	)		(100,000	)
Advances from Federal Home Loan Bank		2,242,000			5,127,400
Repayment of Federal Home Loan Bank borrowings		(2,182,000	)		(5,012,400	)
Cash dividends paid		(7,983	)		(3,980	)
Proceeds from shares issued under Dividend Reinvestment Plan		1,289			386
Proceeds from exercise of stock options		88			-
Taxes paid related to net share settlement of RSUs		(114	)		-
Excess tax short-fall from share-based payment arrangements		(4,395	)		(1,227	)
Net cash provided by financing activities		328,609			261,211

Increase in cash and cash equivalents		5,329			7,910
Cash and cash equivalents, beginning of the period		176,830			153,747
Cash and cash equivalents, end of the period	$	182,159		$	161,657

Supplemental disclosure of cash flow information
Cash paid during the period:
Interest	$	17,370		$	19,533
Income taxes paid	$	11,884		$	12,444
Non-cash investing and financing activities:
Net change in unrealized holding gain on securities available-for-sale, net of tax	$	6,511		$	7,639
Net change in unrealized holding loss on interest rate swaps	$	(1,588	)	$	-
Transfers to other real estate owned from loans held for investment	$	701		$	-

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”), seven limited partnerships investing in affordable housing investments in which the Bank is the sole limited partner, and GBC Venture Capital, Inc. 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 March 31, 2015, the Bank operated 21 branches in Southern California, 12 branches in Northern California, nine 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, 2015. 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, 2014.

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 June 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.” ASU No. 2014-12 requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. An entity should recognize compensation cost in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. ASU 2014-12 becomes effective for interim and annual periods beginning on or after December 15, 2015. Adoption of ASU 2014-12 is not expected to have a significant impact on the Company’s consolidated financial statements.

ASU 2014-15, “Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”, issued by the FASB in August 2014, requires an entity’s management to evaluate and disclose conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. In addition, an entity’s management is to disclose management’s plans that alleviated or that are intended to mitigate the conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern. ASU 2014-15 becomes effective for interim and annual periods beginning on or after December 15, 2016. Adoption of ASU 2014-15 is not expected to have a significant impact on the Company’s consolidated financial statements.

In February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810).” This update requires that limited partnerships or similar legal entities must provide partners with either substantive kick-out rights or substantive participating rights over the general partner to be qualified as voting interest entities (“VIE”). Limited partnerships that qualify as voting interest entities and with a controlling financial interest should consolidate a limited partnership. ASU 2015-02 eliminates the specialized consolidate model and guidance for limited partnerships. There is no longer a presumption that a general partner should consolidate a limited partnership. This update specifies that fees paid to a decision maker are excluded from the evaluation of the economics criterion if the fees are both customary and commensurate with the level of effort required for the services provided. In instances in which no single party has a controlling financial interest in a VIE, related party relationships must be considered indirectly on a proportionate basis, rather than in their entirety. ASU 2015-02 becomes effective for interim and annual periods beginning on or after December 15, 2015. Adoption of ASU 2015-02 is not expected to have a significant impact on the Company’s consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, “Interest- Imputation of Interest (Subtopic 835-30).” This update simplifies the presentation of debt issuance costs and requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. ASU 2015-03 becomes effective for interim and annual periods beginning on or after December 15, 2015. Adoption of ASU 2015-03 is not expected to have a significant impact on the Company’s consolidated financial statements.

4. 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 earnings per common share calculations:

	Three months ended March 31,
(Dollars in thousands, except share and per share data)	2015		2014
Net income	$	35,980	$	31,259

Weighted-average shares:
Basic weighted-average number of common shares outstanding		79,835,628		79,595,757
Dilutive effect of weighted-average outstanding common share equivalents
Warrants		344,919		298,535
Options		108,457		101,698
Restricted stock units		20,379		43,392
Diluted weighted-average number of common shares outstanding		80,309,383		80,039,382

Average stock options and warrants with anti-dilutive effect		1,670,231		1,985,848
Earnings per common share:
Basic	$	0.45	$	0.39
Diluted	$	0.45	$	0.39

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 March 31, 2015, 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 quarter of 2015 or during 2014.

Option compensation expense was zero for the three months ended March 31, 2015, and for the three months ended March 31, 2014. Stock-based compensation was fully recognized over the requisite service period for all awards. For the first quarter ended March 31, stock options covering 3,750 shares were exercised in 2015 compared to zero in the first quarter of 2014. Cash received totaled $88,000 and the aggregate intrinsic value totaled $10,000 from the exercise of stock options during the first quarter ended March 31, 2015. The table below summarizes stock option activity for the periods indicated:

						Weighted-average
				Weighted-average		Remaining Contractual		Aggregate Intrinsic
	Shares			Exercise Price		Life (in years)		Value (in thousands)
Balance, December 31, 2014		2,332,904		$	32.34		1.2	$	1,388
Exercised		(3,750	)		23.37
Forfeited		(808,670	)		35.63
Balance, March 31, 2015		1,520,484		$	30.62		1.6	$	3,156

Exercisable, March 31, 2015		1,520,484		$	30.62		1.6	$	3,156

In addition to stock options, the Company also grants restricted stock units to eligible employees which vest subject to continued employment at the vesting dates.

The Company granted restricted stock units of 37,675 shares at an average closing price of $27.53 per share in the first quarter of 2015 compared to 17,601 shares at an average closing price of $24.66 per share in 2014. The restricted stock units granted are scheduled to vest two years from grant date for 2014 grants and to vest three years from grant date for 2015 grants.

The Company granted performance share unit awards in which the number of units earned is calculated based on the relative total shareholder return (“TSR”) of the Company’s common stock as compared to the TSR of the KBW Regional Banking Index. In addition, the Company granted performance share unit awards in which the number of units earned is determined by comparison to the targeted EPS as defined in the award for the next three years. In December 2014, the Company granted performance TSR restricted stock units for 60,456 shares and performance EPS restricted stock units for 57,642 shares to six executive officers. Both the performance TSR and performance EPS units awarded in 2014 are scheduled to vest at December 31, 2017.

The following table presents restricted stock unit activity from December 31, 2014, to March 31, 2015:

	Units
Balance at December 31, 2014		386,465
Granted		37,675
Vested		(16,709	)
Forfeited		(7,265	)
Balance at March 31, 2015		400,166

The compensation expense recorded for restricted stock units was $1.1 million for the first quarter ended March 31, 2015, compared to $1.0 million in the same period a year ago. Unrecognized stock-based compensation expense related to restricted stock units was $6.5 million at March 31, 2015, and is expected to be recognized over the next 2.3 years.

At March 31, 2015, 3,562,168 shares were available under the Company’s 2005 Incentive Plan for future grants calculated based on maximum number of earned shares from TSR and EPS restricted stock units.

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

	Three months ended March 31,
(Dollars in thousands)	2015			2014
Short-fall of tax deductions in excess of grant-date fair value	$	(4,395	)	$	(1,227	)
Benefit of tax deductions on grant-date fair value		4,442			1,227
Total benefit of tax deductions	$	47		$	-

6. Investment Securities

Investment securities were $1.20 billion at March 31, 2015, compared to $1.32 billion at December 31, 2014. The following tables reflect the amortized cost, gross unrealized gains, gross unrealized losses, and fair value of investment securities as of March 31, 2015, and December 31, 2014:

	March 31, 2015
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
	(In thousands)

Securities Available-for-Sale
U.S. treasury securities	$	349,830	$	353	$	-	$	350,183
Mortgage-backed securities		756,758		3,904		333		760,329
Collateralized mortgage obligations		74		-		32		42
Corporate debt securities		74,946		730		1,165		74,511
Mutual funds		6,000		-		79		5,921
Preferred stock of government sponsored entities		6,686		844		3,584		3,946
Other equity securities		3,628		5,125		3		8,750
Total	$	1,197,922	$	10,956	$	5,196	$	1,203,682

	December 31, 2014
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
	(In thousands)
Securities Available-for-Sale
U.S. treasury securities	$	664,206	$	63	$	265	$	664,004
Mortgage-backed securities		549,296		1,393		6,386		544,303
Collateralized mortgage obligations		79		-		34		45
Corporate debt securities		94,943		776		1,247		94,472
Mutual funds		6,000		-		134		5,866
Preferred stock of government sponsored entities		6,276		681		3,733		3,224
Other equity securities		3,608		3,413		-		7,021
Total	$	1,324,408	$	6,326	$	11,799	$	1,318,935

The amortized cost and fair value of investment securities at March 31, 2015, 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	$	174,987	$	175,062
Due after one year through five years		194,247		195,198
Due after five years through ten years		65,595		65,057
Due after ten years (1)		763,093		768,365
Total	$	1,197,922	$	1,203,682


(1) Equity securities are reported in this category

Proceeds from sales of mortgage-backed securities were $406.9 million and from repayments, maturities and calls of mortgage-backed securities were $12.1 million during the first quarter of 2015 compared to proceeds from sales of $123.7 million and proceeds of $20.5 million from repayments, maturities, and calls during the same period a year ago. Proceeds from sales of other investment securities were $335.1 million during the first quarter of 2015 compared to $16.0 million during the same period a year ago. Proceeds from maturities and calls of other investment securities were zero during the first quarter of 2015 compared to $112.9 million during the same period a year ago. Gains of $1.7 million and losses of $1.7 million were realized on sales of investment securities during the first quarter of 2015 compared to gains of $6.0 million and losses of $67,000 realized during the same period a year ago.

The tables below show the fair value and unrealized losses of the temporarily impaired securities in our investment securities portfolio as of March 31, 2015, and December 31, 2014:

	March 31, 2015
	Temporarily impaired securities
	Less than 12 months				12 months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
	(Dollars in thousands)

Securities Available-for-Sale
Mortgage-backed securities	$	145,297	$	332	$	7	$	1	$	145,304	$	333
Collateralized mortgage obligations		-		-		41		32		41		32
Corporate debt securities		-		-		43,835		1,165		43,835		1,165
Mutual funds		-		-		5,921		79		5,921		79
Preferred stock of government sponsored entities		2,597		3,584		-		-		2,597		3,584
Other equity securities		17		3		-		-		17		3
Total	$	147,911	$	3,919	$	49,804	$	1,277	$	197,715	$	5,196

	December 31, 2014
	Temporarily impaired securities
	Less than 12 months				12 months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
	(Dollars in thousands)

Securities Available-for-Sale
U.S. treasury securities	$	374,153	$	265	$	-	$	-	$	374,153	$	265
Mortgage-backed securities		-		-		425,090		6,386		425,090		6,386
Collateralized mortgage obligations		-		-		45		34		45		34
Corporate debt securities		-		-		63,753		1,247		63,753		1,247
Mutual funds		-		-		5,866		134		5,866		134
Preferred stock of government sponsored entities		2,448		3,733		-		-		2,448		3,733
Total	$	376,601	$	3,998	$	494,754	$	7,801	$	871,355	$	11,799

At March 31, 2015, management believed the impairment was temporary and, accordingly, no impairment loss on debt securities 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.

Investment securities having a carrying value of $575.5 million at March 31, 2015, and $591.3 million at December 31, 2014, were pledged to secure public deposits, other borrowings, treasury tax and loan, and securities sold under agreements to repurchase.

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 March 31, 2015, and December 31, 2014, were as follows:

	March 31, 2015			December 31, 2014
	(In thousands)
Type of Loans:
Commercial loans	$	2,434,550		$	2,382,493
Residential mortgage loans		1,600,269			1,570,059
Commercial mortgage loans		4,663,051			4,486,443
Equity lines		175,997			172,879
Real estate construction loans		345,560			298,654
Installment and other loans		5,370			3,552
Gross loans		9,224,797			8,914,080
Less:
Allowance for loan losses		(156,089	)		(161,420	)
Unamortized deferred loan fees		(11,116	)		(12,392	)
Total loans, net	$	9,057,592		$	8,740,268
Loans held for sale	$	-		$	973

At March 31, 2015, recorded investment in impaired loans totaled $180.7 million and was comprised of non-accrual loans of $80.3 million and accruing troubled debt restructured loans (“TDRs) of $100.4 million. At December 31, 2014, recorded investment in impaired loans totaled $174.5 million and was comprised of non-accrual loans of $70.2 million and accruing TDRs of $104.3 million. For impaired loans, the amounts previously charged off represent 17.0% at March 31, 2015, and 17.1% at December 31, 2014, 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				Three months ended
	March 31,				March 31,
	2015		2014		2015		2014
	(In thousands)
Commercial loans	$	25,426	$	30,844	$	229	$	226
Real estate construction loans		22,990		34,060		65		65
Commercial mortgage loans		110,293		111,305		917		1,134
Residential mortgage loans and equity lines		17,280		19,156		124		95
Total impaired loans	$	175,989	$	195,365	$	1,335	$	1,520

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

	Impaired Loans
	March 31, 2015						December 31, 2014
	Unpaid Principal Balance		Recorded Investment		Allowance		Unpaid Principal Balance		Recorded Investment		Allowance
	(In thousands)

With no allocated allowance
Commercial loans	$	14,176	$	13,148	$	-	$	19,479	$	18,452	$	-
Real estate construction loans		49,076		22,874		-		32,924		17,025		-
Commercial mortgage loans		93,468		85,142		-		77,474		75,172		-
Residential mortgage loans and equity lines		2,496		2,496		-		2,518		2,518		-
Subtotal	$	159,216	$	123,660	$	-	$	132,395	$	113,167	$	-
With allocated allowance
Commercial loans	$	15,677	$	15,660	$	3,911	$	7,003	$	5,037	$	1,263
Real estate construction loans		-		-		-		19,006		8,703		1,077
Commercial mortgage loans		27,529		26,581		6,635		38,197		34,022		8,993
Residential mortgage loans and equity lines		15,393		14,816		498		14,019		13,590		465
Subtotal	$	58,599	$	57,057	$	11,044	$	78,225	$	61,352	$	11,798
Total impaired loans	$	217,815	$	180,717	$	11,044	$	210,620	$	174,519	$	11,798

The following tables present the aging of the loan portfolio by type as of March 31, 2015, and as of December 31, 2014:

	March 31, 2015
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Non-accrual Loans		Total Past Due		Loans Not Past Due		Total
Type of Loans:	(In thousands)
Commercial loans	$	3,530	$	50	$	787	$	12,086	$	16,453	$	2,418,097	$	2,434,550
Real estate construction loans		-		-		-		17,126		17,126		328,434		345,560
Commercial mortgage loans		22,041		1,738		-		43,079		66,858		4,596,193		4,663,051
Residential mortgage loans and equity lines		2,175		-		-		8,033		10,208		1,766,058		1,776,266
Installment and other loans		-		-		-		-		-		5,370		5,370
Total loans	$	27,746	$	1,788	$	787	$	80,324	$	110,645	$	9,114,152	$	9,224,797

	December 31, 2014
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Non-accrual Loans		Total Past Due		Loans Not Past Due		Total
Type of Loans:	(In thousands)
Commercial loans	$	11,595	$	1,238	$	-	$	6,983	$	19,816	$	2,362,677	$	2,382,493
Real estate construction loans		1,416		-		-		19,963		21,379		277,275		298,654
Commercial mortgage loans		17,654		3,909		-		35,606		57,169		4,429,274		4,486,443
Residential mortgage loans and equity lines		5,634		732		-		7,611		13,977		1,728,961		1,742,938
Installment and other loans		60		-		-		-		60		3,492		3,552
Total loans	$	36,359	$	5,879	$	-	$	70,163	$	112,401	$	8,801,679	$	8,914,080

The determination of the amount of the allowance for credit losses for impaired loans 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 collectability 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. This allowance evaluation process is also applied to troubled debt restructurings since they are considered to be impaired loans.

A troubled debt restructuring is a formal modification of the terms 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 a change in the stated interest rate, a reduction in the loan balance or accrued interest, or an extension of the maturity date that causes significant delay in payment.

TDRs on accrual status are comprised of the loans that have, pursuant to the Bank’s policy, performed under the restructured terms and have demonstrated sustained performance under the modified terms for six months before being returned to accrual status. The sustained performance considered by management pursuant to its policy includes the periods prior to the modification if the prior performance met or exceeded the modified terms. This would include cash paid by the borrower prior to the restructure to set up interest reserves.

At March 31, 2015, accruing TDRs were $100.4 million and non-accrual TDRs were $44.5 million compared to accruing TDRs of $104.3 million and non-accrual TDRs of $41.6 million at December 31, 2014. The Company allocated specific reserves of $2.1 million to accruing TDRs and $6.9 million to non-accrual TDRs at March 31, 2015, and $6.5 million to accruing TDRs and $4.9 million to non-accrual TDRs at December 31, 2014. The following tables present TDRs that were modified during the first quarter of 2015 and of 2014, their specific reserves at March 31, 2015, and 2014, and charge-offs during the first quarter of 2015 and of 2014:

	Three months ended March 31, 2015								March 31, 2015
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(Dollars in thousands)

Commercial loans		1	$	850	$	850	$	-	$	-
Commercial mortgage loans		3		8,613		8,613		-		-
Residential mortgage loans and equity lines		4		1,522		1,374		148		46
Total		8	$	10,985	$	10,837	$	148	$	46

	Three months ended March 31, 2014								March 31, 2014
	No. of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserve
	(Dollars in thousands)

Commercial loans		2		8,243		8,243	$	-	$	1,035
Residential mortgage loans and equity lines		2		671		671		-		36
Total		4	$	8,914	$	8,914	$	-	$	1,071

Modifications of the loan terms during the first quarter of 2015 were in the form of changes in the stated interest rate, and/or extension of maturity dates, and/or reduction in monthly payment amount. The length of time for which modifications involving a reduction of the stated interest rate or changes in payment terms that were documented ranged from seven months to two years from the modification date.

We expect that the TDRs on accruing status as of March 31, 2015, which were all performing in accordance with their restructured terms, will continue to comply with the restructured terms because of the reduced principal or interest payments on these loans. A summary of TDRs by type of concession and by type of loan, as of March 31, 2015, and December 31, 2014, is shown below:

	March 31, 2015
Accruing TDRs	Payment Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total
	(In thousands)
Commercial loans	$	13,108	$	1,520	$	2,094	$	16,722
Commercial mortgage loans		17,430		6,101		50,861		74,392
Residential mortgage loans		5,233		1,008		3,038		9,279
Total accruing TDRs	$	35,771	$	8,629	$	55,993	$	100,393

	March 31, 2015
Non-accrual TDRs	Payment Deferral		Forgiveness of Principal		Rate Reduction and Payment Deferral		Total
	(In thousands)
Commercial loans	$	2,323	$	1,144	$	-	$	3,467
Commercial mortgage loans		12,344		-		26,834		39,178
Residential mortgage loans		622		-		1,274		1,896
Total non-accrual TDRs	$	15,289	$	1,144	$	28,108	$	44,541

	December 31, 2014
Accruing TDRs	Payment Deferral		Rate Reduction		Rate Reduction and Forgiveness of Principal		Rate Reduction and Payment Deferral		Total

Commercial loans	$	11,572	$	-	$	-	$	4,934	$	16,506
Real estate construction loans		5,765		-		-		-		5,765
Commercial mortgage loans