Edgar Filing: CATHAY GENERAL BANCORP

caty20150930_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, 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

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, 81,003,089 shares outstanding as of October 30, 2015.

CATHAY GENERAL BANCORP AND SUBSIDIARies

3^RD quarter 2015 REPORT ON FORM 10-Q

table of contents

PART I – FINANCIAL INFORMATION		3

Item 1.	FINANCIAL STATEMENTS (Unaudited)	3
	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)	6
Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	37
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	61
Item 4.	CONTROLS AND PROCEDURES.	62

PART II – OTHER INFORMATION		63

Item 1.	LEGAL PROCEEDINGS.	63
Item 1A	RISK FACTORS.	64
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.	64
Item 3.	DEFAULTS UPON SENIOR SECURITIES.	65
Item 4.	MINE SAFETY DISCLOSURES.	65
Item 5.	OTHER INFORMATION.	65
Item 6.	EXHIBITS.	65


SIGNATURES		66

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)	September 30, 2015			December 31, 2014

Assets
Cash and due from banks	$	196,342		$	176,830
Short-term investments and interest bearing deposits		369,829			489,614
Securities available-for-sale (amortized cost of $1,378,088 in 2015 and $1,324,408 in 2014)		1,380,879			1,318,935
Loans held for sale					973
Loans		10,039,932			8,914,080
Less: Allowance for loan losses		(150,076	)		(161,420	)
Unamortized deferred loan fees, net		(9,592	)		(12,392	)
Loans, net		9,880,264			8,740,268
Federal Home Loan Bank stock		17,250			30,785
Other real estate owned, net		26,326			31,477
Affordable housing investmentsn and alternative energy partnerships, net		168,276			104,579
Premises and equipment, net		110,272			99,682
Customers’ liability on acceptances		35,087			35,656
Accrued interest receivable		29,418			25,364
Goodwill		373,208			316,340
Other intangible assets, net		4,108			3,237
Other assets		158,706			143,106

Total assets	$	12,749,965		$	11,516,846

Liabilities and Stockholders’ Equity
Deposits
Non-interest-bearing demand deposits	$	1,978,387		$	1,664,914
Interest-bearing deposits:
NOW deposits		901,084			778,691
Money market deposits		1,685,943			1,538,187
Savings deposits		596,651			533,940
Time deposits		5,076,410			4,267,728
Total deposits		10,238,475			8,783,460

Securities sold under agreements to repurchase		400,000			450,000
Advances from the Federal Home Loan Bank		75,000			425,000
Other borrowings for affordable housing investments		18,721			19,934
Long-term debt		119,136			119,136
Acceptances outstanding		35,087			35,656
Other liabilities		131,460			80,772
Total liabilities		11,017,879			9,913,958
Commitments and contingencies		-			-
Stockholders’ Equity
Common stock, $0.01 par value, 100,000,000 shares authorized, 86,916,637 issued and 81,001,822 outstanding at September 30, 2015, and 84,022,118 issued and 79,814,553 outstanding at December 31, 2014		869			840
Additional paid-in-capital		877,445			789,519
Accumulated other comprehensive loss, net		(2,597	)		(5,569	)
Retained earnings		1,032,806			943,834
Treasury stock, at cost (5,914,815 shares at September 30, 2015, and 4,207,565 shares at December 31, 2014)		(176,437	)		(125,736	)

Total equity		1,732,086			1,602,888
Total liabilities and equity	$	12,749,965		$	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 September 30,						Nine months ended September 30,
	2015			2014			2015			2014
	(In thousands, except share and per share data)
Interest and Dividend Income
Loans receivable, including loan fees	$	109,943		$	100,151		$	315,038		$	290,337
Investment securities		6,142			5,105			15,262			19,389
Federal Home Loan Bank stock		524			508			2,782			1,379
Deposits with banks		258			571			1,105			1,499
Total interest and dividend income		116,867			106,335			334,187			312,604

Interest Expense
Time deposits		10,407			9,117			28,321			26,155
Other deposits		3,217			2,995			9,010			7,826
Securities sold under agreements to repurchase		3,977			5,858			11,836			19,731
Advances from Federal Home Loan Bank		164			153			374			849
Long-term debt		1,456			1,456			4,320			3,012
Short-term borrowings					1			-			1
Total interest expense		19,221			19,580			53,861			57,574

Net interest income before reversal for credit losses		97,646			86,755			280,326			255,030
Reversal for loan losses		(1,250	)		(5,100	)		(8,400	)		(8,800	)
Net interest income after reversal for credit losses		98,896			91,855			288,726			263,830

Non-Interest Income
Securities (losses)/gains, net		(16	)		361			(3,369	)		6,827
Letters of credit commissions		1,455			1,559			4,114			4,547
Depository service fees		1,409			1,330			4,003			3,999
Other operating income		6,308			5,724			18,576			17,181
Total non-interest income		9,156			8,974			23,324			32,554

Non-Interest Expense
Salaries and employee benefits		20,725			22,630			67,804			69,472
Occupancy expense		4,412			3,934			12,419			11,692
Computer and equipment expense		3,893			2,471			8,783			7,307
Professional services expense		5,687			5,991			17,230			16,410
FDIC and State assessments		2,403			2,261			6,907			6,692
Marketing expense		1,436			639			3,577			2,722
Other real estate owned expense/(income)		250			(1,011	)		(1,053	)		(629	)
Amortization of investments in low income housing and alternative energy partnerships		15,427			1,672			23,277			5,126
Amortization of core deposit intangibles		169			214			493			510
Costs associated with debt redemption		-			527			-			3,348
Other operating expense		3,069			3,279			9,750			10,538
Total non-interest expense		57,471			42,607			149,187			133,188
Income before income tax expense		50,581			58,222			162,863			163,196
Income tax expense		12,098			22,313			43,200			60,944
Net income	$	38,483			35,909			119,663			102,252

Other comprehensive income, net of tax
Unrealized holding gain on securities available-for-sale		2,733			170			2,837			25,014
Less: reclassification adjustments included in net income		(10	)		209			(1,953	)		3,957
Unrealized holding (loss)/gain on cash flow hedge derivatives		(2,558	)		100			(1,818	)		(163	)
Total other comprehensive gain, net of tax		185			61			2,972			20,894
Total comprehensive income	$	38,668		$	35,970		$	122,635		$	123,146

Net income per common share:
Basic	$	0.47		$	0.45		$	1.49		$	1.28
Diluted	$	0.47		$	0.45		$	1.48		$	1.28
Cash dividends paid per common share	$	0.14		$	0.07		$	0.38		$	0.19
Average common shares outstanding
Basic		81,475,288			79,677,952			80,422,711			79,639,202
Diluted		82,285,478			80,176,100			81,105,190			80,087,819

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
	2015			2014
	(In thousands)
Cash Flows from Operating Activities
Net income	$	119,663		$	102,252
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Credit for loan losses		(8,400	)		(8,800	)
Provision for losses on other real estate owned		547			1,693
Deferred tax liability		14,327			13,846
Depreciation and amortization		22,330			5,911
Net gains on sale and transfer of other real estate owned		(2,006	)		(3,467	)
Net gains on sale of loans		(845	)		(300	)
Proceeds from sales of loans		28,507			15,791
Originations of loans held-for-sale		(26,689	)		(15,491	)
Income associated with debt redemption		-			(550	)
Write-downs on venture capital investments		408			317
Write-downs on impaired securities		3,875			820
Net gains on sales and calls of securities		(506	)		(7,647	)
Amortization/accretion of security premiums/discounts, net		3,542			2,266
Loss on sales or disposal of fixed assets		138			-
Excess tax short-fall from share-based payment arrangements		5,602			1,177
Stock based compensation and stock issued to officers as compensation		3,923			2,948
Net change in accrued interest receivable and other assets		(30,929	)		1,691
Net change in other liabilities		(9,432	)		(8,377	)
Net cash provided by operating activities		124,055			104,080

Cash Flows from Investing Activities
Decrease/(increase) in short-term investments		119,785			(75,873	)
Purchase of investment securities available-for-sale		(1,323,149	)		(892,706	)
Proceeds from sale of investment securities available-for-sale		1,033,195			543,305
Proceeds from repayments, maturities and calls of investment securities available-for-sale		232,253			640,478
Purchase of Federal Home Loan Bank stock		-			(17,736	)
Redemptions of Federal Home Loan Bank stock		13,535			8,646
Net increase in loans		(702,595	)		(763,211	)
Purchase of premises and equipment		(2,628	)		(4,036	)
Proceeds from sales of other real estate owned		10,524			28,543
Investment in affordable housing & alternative energy partnerships		(46,349	)		(5,617	)
Acquisition, net of cash acquired		6,572			-
Net cash used in investing activities		(658,857	)		(538,207	)

Cash Flows from Financing Activities
Net increase in deposits		1,034,442			713,362
Net decrease in federal funds purchased and securities sold under agreements to repurchase		(50,000	)		(250,000	)
Advances from Federal Home Loan Bank		4,842,000			8,252,400
Repayment of Federal Home Loan Bank borrowings		(5,192,000	)		(8,218,600	)
Cash dividends paid		(30,690	)		(15,133	)
Pruchase of treasury stock		(50,701	)		-
Repurchase of trust preferred securities		-			(1,450	)
Proceeds from shares issued under Dividend Reinvestment Plan		3,636			1,554
Proceeds from exercise of stock options		3,433			-
Taxes paid related to net share settlement of RSUs		(204	)		(274	)
Excess tax short-fall from share-based payment arrangements		(5,602	)		(1,177	)
Net cash provided by financing activities		554,314			480,682
Increase in cash and cash equivalents		19,512			46,555
Cash and cash equivalents, beginning of the period		176,830			153,747
Cash and cash equivalents, end of the period	$	196,342		$	200,302

Supplemental disclosure of cash flow information
Cash paid during the period:
Interest	$	52,614		$	59,478
Income taxes paid	$	67,776		$	52,864
Non-cash investing and financing activities:
Net change in unrealized holding gain on securities available-for-sale, net of tax	$	4,790		$	21,057
Net change in unrealized holding loss on cash flow hedge derivatives	$	(1,818	)	$	(163	)
Transfers of investment securities to available-for-sale from other assets	$	520			-
Transfers of trading securities to short-term investments	$	-		$	4,936
Transfers to other real estate owned from loans held for investment	$	3,914		$	2,810
Issuance of stock related to acquisition	$	82,857		$	-

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 September 30, 2015, the Bank operated 21 branches in Southern California, 12 branches in Northern California, 12 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 Maryland, 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. Acquisition

On July 31, 2015 the Company completed the acquisition of New York-based Asia Bancshares, Inc., parent of Asia Bank. Asia Bank operated three branch locations in New York City and one branch location in the state of Maryland. The acquisition allowed the Company to expand its number of branches in New York City and to enter the state of Maryland. The purchase consideration consisted of fifty-five percent in Bancorp stock and forty-five percent in cash. The fair value of the consideration was $139.9 million, which consisted of 2,580,359 shares of Bancorp common stock valued at $82.9 million at the date of acquisition and $57.0 million in cash.

Goodwill from the acquisition represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired and is not deductible for tax purposes. As a result of the business combination, the Company recorded goodwill of $56.9 million.

The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the July 31, 2015 acquisition date. The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. We have included the financial results of the business combinations in the condensed consolidated statement of income beginning on the acquisition date.

The fair value of the assets and the liabilities acquired as of July 31, 2015 are shown below:

	Asia Bancshares, Inc
Assets acquired:
Cash and cash equivalents	$	63,579
Securities available-for-sale		2,370
Loans		417,570
Premises and equipment		13,291
Other real estate owned		3,048
Goodwill		56,867
Core deposit intangible		1,302
Accrued interest receivable and other assets		3,515
Total assets acquired		561,542
Liabilities assumed:
Deposits		420,623
Accrued interest payable and other liabilities		1,056
Total liabilities assumed		421,679
Net assets acquired	$	139,863

Cash paid	$	57,006
Fair value of common stock issued		82,857
Total consideration paid	$	139,863

3. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 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.

4. 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): Amendments to the Consolidation Analysis,” to improve targeted areas of the consolidation guidance and reduce the number of consolidation models. The Company may either apply the amendments retrospectively or use a modified retrospective approach. ASU 2015-02 is effective for interim and annual periods beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. The Company does not expect the adoption of this guidance to have a material effect on its 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. ASU2015-03 did not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. In August 2015, the FASB issued ASU 2015-15, which would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratable over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. 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.

In September 2015, the FASB issued ASU 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments.” This update simplifies the accounting for adjustments made to provisional amounts recognized in a business combination by eliminating the requirement to retrospectively account for those adjustments. Those adjustments will be recognized to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. An entity is required to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 becomes effective for interim and annual periods beginning on or after December 15, 2015. Adoption of ASU 2015-16 is not expected to have a significant impact on the Company’s consolidated financial statements.

5. Earnings per Share

Basic earnings per share excludes dilution and is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock and resulted in the issuance of common stock that then shared in earnings.

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

	Three months ended September 30,				Nine months ended September 30,
(Dollars in thousands, except share and per share data)	2015		2014		2015		2014
Net income	$	38,483	$	35,909	$	119,663	$	102,252

Weighted-average shares:
Basic weighted-average number of common shares outstanding		81,475,288		79,677,952		80,422,711		79,639,202
Dilutive effect of weighted-average outstanding common share equivalents
Warrants		606,803		346,101		507,002		306,306
Options		123,910		109,803		124,135		103,022
Restricted stock units		79,477		42,244		51,343		39,289
Diluted weighted-average number of common shares outstanding		82,285,478		80,176,100		81,105,191		80,087,819

Average stock options and warrants with anti-dilutive effect		760,291		1,990,358		1,082,400		1,993,384
Earnings per common share:
Basic	$	0.47	$	0.45	$	1.49	$	1.28
Diluted	$	0.47	$	0.45	$	1.48	$	1.28

6. 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, 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. There were no options granted during the first nine months of 2015 or during 2014.

Option compensation expense was zero for the three months and for the nine months ended September 30, 2015, and September 30, 2014. Stock-based compensation was fully recognized over the requisite service period for all awards. Stock options covering 147,350 shares were exercised in the nine months ended September 30, 2015, compared to zero in the nine months ended September 30, 2014. Cash received totaled $3.4 million and the aggregate intrinsic value totaled $1.3 million from the exercise of stock options during the first nine months ended September 30, 2015. 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, 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
Exercised		(69,600	)		23.37
Forfeited		(267,884	)		33.99
Balance, June 30, 2015		1,183,000		$	30.37		1.5	$	5,010
Exercised		(74,000	)		23.37
Forfeited		(10,600	)		36.56
Balance, September 30, 2015		1,098,400		$	30.79		1.2	$	3,148

Exercisable, September 30, 2015		1,098,400		$	30.79		1.2	$	3,148

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 for 72,900 shares at an average closing price of $28.11 per share in the first nine months 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 September 30, 2015:

	Units
Balance at December 31, 2014		386,465
Granted		72,900
Vested		(24,892	)
Forfeited		(7,846	)
Balance at September 30, 2015		426,627

The compensation expense recorded for restricted stock units was $1.2 million for the three months ended September 30, 2015, compared to $1.0 million in the same period a year ago. For the nine months ended September 30, compensation expense recorded related to the restricted stock units was $3.4 million in 2015 and $2.9 million in 2014. Unrecognized stock-based compensation expense related to restricted stock units was $5.2 million at September 30, 2015, and is expected to be recognized over the next 2.0 years.

At September 30, 2015, 3,358,201 shares were available under the Company’s 2005 Incentive Plan (as Amended and Restated) for future grants.

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

	Three months ended September 30,				Nine months ended September 30,
(Dollars in thousands)	2015		2014		2015			2014
Tax benefit/(short-fall) of tax deductions in excess of grant-date fair value	$	17	$	-	$	(5,602	)	$	(1,177	)
Benefit of tax deductions on grant-date fair value		275		-		6,421			1,177
Total benefit of tax deductions	$	292	$	-	$	819		$	-

7. Investment Securities

Investment securities were $1.38 billion at September 30, 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 September 30, 2015, and December 31, 2014:

	September 30, 2015
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
	(In thousands)

Securities Available-for-Sale
U.S. treasury securities	$	284,603	$	388	$	-	$	284,991
Mortgage-backed securities		1,005,527		1,066		2,195		1,004,398
Collateralized mortgage obligations		67		-		29		38
Corporate debt securities		74,952		370		1,492		73,830
Mutual funds		6,000		-		101		5,899
Preferred stock of government sponsored entities		2,811		1,706		-		4,517
Other equity securities		4,128		3,403		325		7,206
Total	$	1,378,088	$	6,933	$	4,142	$	1,380,879

	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 September 30, 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	$	184,935	$	185,127
Due after one year through five years		136,610		137,407
Due after five years through ten years		45,546		44,172
Due after ten years (1)		1,010,997		1,014,173
Total	$	1,378,088	$	1,380,879

(1) Equity securities are reported in this category

Proceeds from sales of mortgage-backed securities were $648.0 million during the first nine months of 2015 compared to $458.4 million during the same period a year ago. Proceeds from repayments, maturities and calls of mortgage-backed securities were $67.3 million during the first nine months of 2015 compared to $54.7 million during the same period a year ago. Proceeds from sales of other investment securities were $385.2 million during the first nine months of 2015 compared to $84.9 million during the same period a year ago. Proceeds from maturities and calls of other investment securities were $165.0 million during the first nine months of 2015 compared to $585.8 million during the same period a year ago. Gains of $2.4 million and losses of $1.9 million were realized on sales of investment securities during the first nine months of 2015 compared to gains of $17.1 million and losses of $9.5 million 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 September 30, 2015, and December 31, 2014:

	September 30, 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	$	703,710	$	2,194	$	7	$	1	$	703,717	$	2,195
Collateralized mortgage obligations		-		-		38		29		38		29
Corporate debt securities		9,950		50		43,558		1,442		53,508		1,492
Mutual funds		-		-		5,899		101		5,899		101
Other equity securities		175		325		-		-		175		325
Total	$	713,835	$	2,569	$	49,502	$	1,573	$	763,337	$	4,142

	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

Total unrealized losses of $4.1 million at September 30, 2015, were primarily caused by increases in interest rates subsequent to the date that these securities were purchased or caused by the widening of credit and liquidity 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.

At September 30, 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 $457.0 million at September 30, 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.

8. 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; Rockville, Maryland; 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 types of loans in the condensed consolidated balance sheets as of September 30, 2015, and December 31, 2014, were as follows:

	September 30, 2015			December 31, 2014
	(In thousands)
Type of Loans:
Commercial loans	$	2,362,059		$	2,382,493
Residential mortgage loans		1,816,464			1,570,059
Commercial mortgage loans		5,275,570			4,486,443
Equity lines		174,790			172,879
Real estate construction loans		405,278			298,654
Installment and other loans		5,771			3,552
Gross loans	$	10,039,932		$	8,914,080
Less:
Allowance for loan losses		(150,076	)		(161,420	)
Unamortized deferred loan fees		(9,592	)		(12,392	)
Total loans, net	$	9,880,264		$	8,740,268
Loans held for sale	$	-		$	973

At September 30, 2015, recorded investment in impaired loans totaled $161.1 million and was comprised of non-accrual loans of $71.2 million and accruing troubled debt restructured loans (“TDRs) of $89.9 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 18.9% at September 30, 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				Nine months ended				Three months ended				Nine months ended
	September 30,				September 30,				September 30,				September 30,
	2015		2014		2015		2014		2015		2014		2015		2014
	(In thousands)
Commercial loans	$	23,894	$	21,706	$	24,974	$	26,741	$	170	$	205	$	519	$	636
Real estate construction loans		22,392		33,276		22,056		33,459		66		66		196		198
Commercial mortgage loans		97,557		119,611		104,508		114,663		777		1,153		2,126		3,310
Residential mortgage loans and equity lines		16,506		16,151		16,934		17,889		139		128		380		363
Total impaired loans	$	160,349	$	190,744	$	168,472	$	192,752	$	1,152	$	1,552	$	3,221	$	4,507

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

	Impaired Loans
	September 30, 2015						December 31, 2014
	Unpaid Principal Balance		Recorded Investment		Allowance		Unpaid Principal Balance		Recorded Investment		Allowance
	(In thousands)

With no allocated allowance
Commercial loans	$	15,425	$	14,397	$	-	$	19,479	$	18,452	$	-
Real estate construction loans		48,495		22,292		-		32,924		17,025		-
Commercial mortgage loans		73,980		68,680		-		77,474		75,172		-
Residential mortgage loans and equity lines		2,450		2,450		-		2,518		2,518		-
Subtotal	$	140,350	$	107,819	$	-	$	132,395	$	113,167	$	-
With allocated allowance
Commercial loans	$	16,629	$	13,233	$	7,561	$	7,003	$	5,037	$	1,263
Real estate construction loans		-		-		-		19,006		8,703		1,077
Commercial mortgage loans		27,526		26,339		6,389		38,197		34,022		8,993
Residential mortgage loans and equity lines		14,210		13,731		373		14,019		13,590		465
Subtotal	$	58,365	$	53,303	$	14,323	$	78,225	$	61,352	$	11,798
Total impaired loans	$	198,715	$	161,122	$	14,323	$	210,620	$	174,519	$	11,798

The following tables present the aging of the loan portfolio by type as of September 30, 2015, and as of December 31, 2014:

	September 30, 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
	(In thousands)
Type of Loans:
Commercial loans	$	5,865	$	3,896	$	-	$	14,758	$	24,519	$	2,337,540	$	2,362,059
Real estate construction loans		-		-		-		16,579		16,579		388,699		405,278
Commercial mortgage loans		1,114		241		2,573		33,214		37,142		5,238,428		5,275,570
Residential mortgage loans and equity lines		95		511		-		6,690		7,296		1,983,958		1,991,254
Installment and other loans		-		-		-		-		-		5,771		5,771
Total loans	$	7,074