BBCN Bancorp, Inc. — Form 10-Q Summary
Reporting period: Three months ended March 31, 2013. The filing identifies the registrant as BBCN Bancorp, Inc.; this differs from the company name in the request metadata. Financial statements are unaudited.
Financial performance and position
- Revenue and earnings: Net interest income was $59.7 million, down 1.9% year over year. Total non-interest income was $9.9 million, down 14.6%. Net income was $17.5 million versus $23.9 million; diluted EPS was $0.22 versus $0.28.
- Credit costs and expenses: Provision for loan losses rose to $7.5 million from $2.6 million. Non-interest expense increased 9.3% to $33.3 million. Reported efficiency ratio was 47.77%, compared with 41.98%.
- Margins: Net interest margin declined to 4.49% from 5.11%; excluding acquisition-accounting adjustments, it was 3.97% versus 4.04%. Management cited loan-pricing pressure and lower yields.
- Cash flow: Operating activities provided $19.5 million, compared with $35.6 million a year earlier. Investing activities used $62.8 million, including net loan growth and securities purchases, partly offset by $26.0 million cash received in the Pacific International Bank acquisition. Financing activities provided $11.2 million. Cash and cash equivalents ended at $280.8 million, down $32.1 million from year-end.
- Assets, loans and deposits: Total assets were $5.83 billion, up $192.9 million from December 31, 2012. Gross loans, net of deferred fees, rose to $4.50 billion from $4.30 billion; deposits rose to $4.56 billion from $4.38 billion. The quarter-end allowance for loan losses was $73.3 million, or 1.63% of gross loans.
- Credit quality: Nonperforming assets increased to $104.6 million from $79.9 million; the ratio to gross loans plus OREO rose to 2.32% from 1.86%. Nonaccrual loans were $42.3 million. Total modified loans were $64.5 million, versus $51.5 million at year-end; troubled debt restructurings included $32.3 million on nonaccrual.
- Debt and liquidity: FHLB advances were $421.6 million and subordinated debentures were $46.0 million. The company reported $1.08 billion of unused FHLB capacity and $406.8 million of unused FRB borrowing capacity; liquid assets were $647.1 million. The Bank remained categorized as well capitalized, with total risk-based capital of 15.64%, Tier 1 risk-based capital of 14.38%, and Tier 1 leverage of 12.42%.
- Equity and dividends: Stockholders’ equity was $772.3 million. A $0.05-per-share common dividend was declared; book value per common share was $9.79 and tangible book value was $8.57.
Material changes and significant events
- BBCN completed its acquisition of Pacific International Bancorp on February 15, 2013, adding four Seattle-area branches. Acquisition accounting added $3.5 million of goodwill; $1.3 million of related costs were expensed. Acquired operations were not material to reported quarterly results, according to the filing.
- Loan growth and the acquisition contributed to higher balance-sheet totals. Deposit growth included $143.7 million of deposits assumed from Pacific International Bank.
- Net income available to common shareholders fell 20.9% year over year. Management attributed pressure to lower net interest margin, lower non-interest income, higher provision expense and higher operating costs. The provision included a new $5.1 million specific reserve related to a restructured industrial warehouse loan.
- On April 15, 2013, BBCN agreed to acquire Chicago-based Foster Bankshares for an indicated transaction value of approximately $4.6 million, subject to possible reductions and shareholder election terms. Foster reported approximately $412.6 million of assets and $357.4 million of deposits.
Outlook, risks and contingencies
- The filing provides no specific earnings or financial guidance. Management said liquidity sources were stable and adequate for day-to-day needs.
- Key stated risks include deterioration in local economic conditions, interest-rate and asset-liability risk, liquidity risk, credit losses and regulatory changes. The company identified interest-rate risk as its most significant market risk. Its modeled net interest income sensitivity was +6.13% under an immediate 200-basis-point rate increase and -1.94% under a 200-basis-point decrease; management cautioned that model results are uncertain.
- Management stated that the allowance was adequate, while warning that actual losses could exceed estimates. Nonperforming assets and modified loans increased during the quarter. Acquired loans more than 90 days past due may remain accruing under acquisition-accounting rules when cash flows are considered reasonably estimable.
- The company reported ongoing IRS examination for tax year 2010 and a California Franchise Tax Board examination for 2009 and 2010; it expected no material California examination adjustments. Routine litigation was not expected to have a material adverse effect. No material changes to previously disclosed risk factors were reported.
Most important facts for investors to verify
- Whether credit deterioration, particularly acquired-loan delinquencies, nonperforming assets and the industrial warehouse TDR, leads to further reserves or charge-offs.
- Whether loan growth can sustain earnings as loan yields and reported net interest margin face continued pressure.
- How much of the increase in deposits and assets reflects acquisition effects, and the stability and cost of brokered, time and other wholesale deposits.
- The final accounting and integration outcomes for Pacific International Bank, and the terms, approvals and completion prospects of the proposed Foster transaction.
- Developments in the tax examinations, unrecognized tax benefits, and the planned redemption of the acquired PIB trust-preferred security on its earliest redemption date in June 2013.