UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Current
Report
Pursuant
to Section 13 or 15(d) of
the
Securities Exchange Act of 1934
November 5, 2009
Date of Report (date of earliest event
reported)
EAST
WEST BANCORP, INC.
(Exact name of registrant as specified in its
charter)
Commission
file number 000-24939
Delaware
|
|
95-4703316
|
(State
or Other Jurisdiction of Incorporation or Organization)
|
|
(IRS Employer
Identification Number)
|
135 N
Los Robles Ave., 7th Floor, Pasadena, California 91101
(Address of principal
executive offices including zip code)
(626)
768-6000
(Registrants telephone number, including area
code)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
o
Written communications pursuant to Rule 425 under the
Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the
Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b)
under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c)
under the Exchange Act (17 CFR 240.13e-4(c))
EXPLANATORY NOTE
On November 12,
2009, East West Bancorp, Inc (the Company)
filed a Current Report on Form 8-K to report that its wholly owned
subsidiary, East West Bank (the Bank) , had entered into a definitive
agreement with the Federal Deposit Insurance Corporation ( the FDIC) on November 6,
2009, pursuant to which East West Bank acquired certain assets and assumed
certain liabilities of United Commercial Bank ( United Commercial Bank ), a
California state-chartered bank headquartered in San Francisco, California (
the UCB Acquisition). In that filing,
the Company indicated that it would amend the Form 8-K at a later date to
provide financial information required by Item 9.01 of Form 8-K. This
amendment is being filed to update the disclosures in Item 2.01 and Item 3.02 and
to provide financial information required by item 9.01. In accordance with the guidance provided in
Staff Accounting Bulletin Topic 1:K,
Financial Statements of
Acquired Troubled Financial Institutions
(SAB 1:K) and a request
for relief submitted to the Securities and Exchange Commission, the Company has
omitted certain financial information of United Commercial Bank required by Rule 3-05
of Regulation S-X. SAB 1:K provides relief from the requirements of Rule 3-05
of Regulation S-X under certain circumstances, including a transaction such as
the UCB Acquisition, in which the registrant engages in an acquisition of a
troubled financial institution for which audited financial statements are not
reasonably available and in which federal assistance is an essential and
significant part of the transaction.
Item 2.01
Completion of Acquisition or Disposition of Assets.
Effective
November 6, 2009, the Bank acquired certain assets and assumed certain
liabilities of United Commercial Bank from the FDIC as receiver for United
Commercial Bank, pursuant to the terms of a purchase and assumption agreement
entered into by the Bank and FDIC on November 6, 2009 (the Purchase and
Assumption Agreement). The UCB
Acquisition included all 63 U.S. branches of United Commercial Bank, which
opened as branches of the Bank as of Monday, November 9, 2009. It also included the Hong Kong branch of
United Commercial Bank and United Commercial Bank (China) Limited, the
subsidiary of United Commercial Bank headquartered in Shanghai, China. The
Banks acquisition of this Chinese subsidiary has passed preliminary review by
the China Banking Regulatory Commission.
In the event that the China Banking Regulatory Commission does not
approve the transfer of United Commercial Bank (China) Limited, the Bank is
entitled to require the FDIC to purchase United Commercial Bank (China)
Limited. The term of this option expires 180 days after November 6, 2009,
unless extended by the FDIC.
Under
the terms of the Purchase and Assumption Agreement, the Bank acquired certain
assets of United Commercial Bank with a fair value of approximately $9.86
billion, including $5.90 billion of loans, $1.56 billion of investment
securities, $93.5 million of Federal Home Loan Bank stock, $599.0 million of
cash and cash equivalents, $147.4 million of securities purchased under sale
agreements, $38.0 million of other real estate owned (OREO), and $207.6
million of other assets. Liabilities
with a fair value of approximately $9.57 billion were also assumed, including
$6.53 billion of insured and uninsured deposits, but excluding certain brokered
deposits, $1.84 billion of Federal Home Loan (FHLB) advances, $858.2 million
of securities sold under agreements to repurchase, $90.6 million in other
borrowings and $254.2 million of other liabilities. The fair values of the assets acquired and
liabilities assumed were determined based on the requirements of FASB Topic
820:
Fair Value Measurements and Disclosures
. The Statement of Assets Acquired and
Liabilities Assumed by the Bank, dated as of November 6, 2009, and the
accompanying notes thereto, are attached hereto as Exhibit 99.1 and
incorporated herein by reference (the Audited Statement). The foregoing fair
value amounts are subject to change for up to one year after the closing date
of the acquisition as additional information relative to closing date fair
values becomes available. The amounts
are also subject to adjustments based upon final settlement with the FDIC. In
addition, the tax treatment of FDIC assisted acquisitions is complex and
subject to interpretations that may result in future adjustments of deferred
taxes as of the acquisition date. The terms of the Agreement provide for the
FDIC to indemnify the bank against claims with respect to liabilities of United
Commercial Bank not assumed by the Bank and certain other types of claims listed
in the Agreement. The disclosure set forth in this Item 2.01 reflects the
status of these items to the best of managements knowledge as of January 21,
2010.
In
connection with the UCB Acquisition, the Bank entered into a loss sharing
agreement (the shared-loss agreement) with the FDIC that covered
approximately $5.66 billion and $38.0 million of United Commercial Banks loans
and OREO respectively. The Bank will
share in the losses, which begins with the first dollar of loss occurred, of
the loan pools (including single family residential mortgage loans, commercial
loans, foreclosed loan collateral and other real estate owned) covered
(covered loans) under the shared-loss agreement. Pursuant to the terms of the shared-loss
agreement, the
1
FDIC is obligated to
reimburse the Bank 80% of eligible losses of up to $2.05 billion with respect
to covered loans. The FDIC will
reimburse the Bank for 95% of eligible losses in excess of $2.05 billion with
respect to covered loans. The Bank has a corresponding obligation to reimburse
the FDIC for 80% or 95%, as applicable, of eligible recoveries with respect to
covered loans.
The shared-loss agreement
for commercial and single family residential mortgage loans is in effect for 5
years and 10 years, respectively, from the November 6, 2009 acquisition
date and the loss recovery provisions are in effect for 8 years and 10 years,
respectively, from the acquisition date.
On January 14, 2020,
the Bank is required to pay to the FDIC 50% of the excess, if any of (i) $410
million over (ii) the sum of (A) 25% of the asset discount plus (B) 25%
of the Cumulative Shared-Loss Payments plus (C) the Cumulative Servicing
Amount if net losses on covered loans subject to the stated threshold is not
reached. As of December 31, 2009, the estimate for this liability is zero.
The shared-loss
agreements are subject to certain servicing procedures as specified in an
agreement with the FDIC. The expected net reimbursements under the shared-loss
agreements were recorded at their estimated fair value of $1.14 billion on the
acquisition date.
The Bank did not
immediately acquire all the real estate, banking facilities, furniture or
equipment of United Commercial Bank as part of the purchase and assumption
agreement. However, the Bank has the option to purchase or lease the real
estate and furniture and equipment from the FDIC. The term of these options
expires 90 days after November 6, 2009, unless extended by the FDIC.
Acquisition costs of the real estate and furniture and equipment will be based
on current appraisals and determined at a later date. Currently all banking
facilities and equipment are being leased from the FDIC on a month-to-month
basis.
The foregoing summary of
the Agreement, including the shared-loss agreements, is not complete and is
qualified in its entirety by reference to the full text of the Agreements and
certain exhibits attached thereto, a copy of which was previously filed as Exhibit 2.1
to this Amendment and is incorporated by reference into this Item 2.01.
Item 3.02 Unregistered Sales
of Equity Securities
In
connection with the Private Placement, the Company paid a fee of $14,020,000 to
the Companys financial advisor, which acted as placement agent in the Private
Placement.
Item 9.01 Financial Statement and
Exhibits
(a) Financial Statements of Businesses Acquired and
Exhibits
Discussion
As set forth in
Item 2.01 above, on November 6, 2009, the Bank acquired certain
assets and assumed substantially all of the deposits and certain liabilities of
United Commercial Bank pursuant to the purchase and assumption agreement with
the FDIC. A narrative description of the
anticipated effects of the acquisition on the Companys financial condition,
liquidity, capital resources and operating results is presented
below. This discussion should be read in conjunction with the historical
financial statements and the related notes of the Company, which have been
filed with the Securities and Exchange Commission (the Commission) and the
Audited Statement, which is attached hereto as Exhibit 99.1.
The acquisition increased
the Banks total assets and total deposits, which are expected to positively
affect the Banks operating results, to the extent the Bank earns more from interest
earned on its assets than it pays in interest on deposits and other
borrowings. The ability of the Bank to successfully collect interest and
principal on loans acquired will also impact the Banks cash flows and
operating results.
The Company has determined
that the acquisition of the net assets of United Commercial Bank constitutes a
business acquisition as defined by FASB Accounting Standard Codification Topic
805:
Business Combinations
. Accordingly, the
assets acquired and liabilities assumed as of November 6, 2009 are
presented at their fair values in the table below as required by that topic. In
many cases, the determination of these fair values required management to make
estimates about discount rates, future expected cash flows, market conditions
and other future events that are highly subjective in nature and subject to
change. These fair value estimates are subject to change for up to one year
after the closing date of the acquisition as additional information relative to
closing date fair values becomes available. The Bank and the FDIC are engaged
in ongoing discussions that may impact which assets and liabilities are
ultimately acquired or assumed by the Bank and/or the purchase price.
2
Financial
Condition
In the acquisition, the
Bank purchased $5.90 billion in loans at fair value, net of a $1.71 billion
discount. This amount represents approximately 42 % of the Companys
total loans (net of the allowance for loan losses) at November 30, 2009. Other
real estate acquired was $38.0 million at fair value. Approximately $291.5 million in net after-tax
gain, an FDIC indemnification asset of 1.1 billion and a $74.4 million core
deposit intangible were recorded in connection with this transaction.
The Bank acquired $599.0
million in cash and cash equivalents, $1.56 billion in investment securities at
fair value and $147.4 million in securities purchased under sale
agreements. A portion of the cash and securities acquired have been
retained to create additional liquidity and a portion has been utilized to
reduce the $858.2 million of acquired securities sold under repurchase
agreements..
Investment
Portfolio
The Bank acquired $1.56
billion of investment securities at estimated fair market value in the UCB
Acquisition. The acquired securities
were predominantly U.S. Treasury securities, U.S. Government agency and U.S.
Government sponsored enterprise debt securities and U.S. Government agency and
U.S. Government sponsored enterprise mortgage-backed securities.
The following table
present the composition of the investment securities portfolio acquired at November 6,
2009:
|
|
November 6,
2009
|
|
|
(In
thousands)
|
|
|
|
U.S.
Treasury securities
|
|
$
|
301,853
|
U.S.
Government agency and sponsored enterprise debt securities
|
|
455,388
|
U.S.
Government agency and sponsored enterprise mortgage-backed securities
|
|
779,503
|
Corporate
debt securities
|
|
6,101
|
Other
securities
|
|
18,601
|
Investment
securities
|
|
$
|
1,561,446
|
In addition, the Company
also acquired $93.5 million in Federal Home Loan Bank (FHLB) Stock and
investments in affordable housing partnerships with a fair value of $41.6
million.
The following table
presents a summary of yields and contractual maturities of the investment
securities portfolio acquired at November 6, 2009:
|
|
Within
One
Year
|
|
After
One But
Within Five
Years
|
|
After
Five But
Within 10 Years
|
|
After
Ten Years
|
|
Total
|
|
|
Amount
|
|
Yield
|
|
Amount
|
|
Yield
|
|
Amount
|
|
Yield
|
|
Amount
|
|
Yield
|
|
Amount
|
|
Yield
|
|
|
(Dollars
in thousands)
|
U.S.
Treasury securities
|
|
$181,676
|
|
0.12%
|
|
$120,177
|
|
1.14%
|
|
$
|
-
|
|
|
|
$
|
-
|
|
|
|
$
|
301,853
|
|
0.53%
|
U.S. Government agency
and sponsored enterprise debt securities
|
|
-
|
|
|
|
120,853
|
|
2.23%
|
|
334,535
|
|
4.61%
|
|
|
|
|
|
455,388
|
|
3.98%
|
U.S. Government agency
and sponsored enterprise mortgage-backed securities
|
|
-
|
|
|
|
|
2,498
|
|
4.41%
|
|
83,106
|
|
4.34%
|
|
693,899
|
|
4.39%
|
|
779,503
|
|
4.38%
|
Corporate debt
securities
|
|
-
|
|
|
|
6,101
|
|
2.16%
|
|
-
|
|
|
|
-
|
|
|
|
6,101
|
|
2.16%
|
Other securities
|
|
-
|
|
|
|
-
|
|
|
|
2,747
|
|
5.11%
|
|
15,854
|
|
5.11%
|
|
18,601
|
|
5.11%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
investments
|
|
$
181,676
|
|
0.12%
|
|
$249,629
|
|
1.73%
|
|
$420,388
|
|
4.56%
|
|
$,
|
709,753
|
|
4.40%
|
|
$
|
1,561,446
|
|
3.52%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsequent to November 6, 2009, $1.25 billion of
investment securities were sold with a gain of approximately $2.4 million.
3
Covered
loans
The following table
presents the balance of each major category of loans acquired in the UCB
Acquisition as of November 6, 2009:
|
|
November 6,
2009
|
|
|
|
|
%
of
|
|
|
Amount
|
|
Loans
|
Real
estate loans:
|
|
|
|
|
Residential
single family
|
|
$
|
656,862
|
|
|
9%
|
Residential
multifamily
|
|
1,185,739
|
|
|
16%
|
Commercial
and industrial real estate
|
|
2,480,439
|
|
|
34%
|
Construction
|
|
1,469,772
|
|
|
20%
|
Total
real estate loans
|
|
5,792,812
|
|
|
79%
|
Other
loans:
|
|
|
|
|
|
Commercial
business
|
|
1,401,167
|
|
|
19%
|
Other
consumer
|
|
105,324
|
|
|
2%
|
Total
other loans
|
|
1,506,491
|
|
|
21%
|
Total
covered loans
|
|
7,299,303
|
|
|
100%
|
Total
discount resulting from acquisition date fair value
|
|
(1,638,871
|
)
|
|
|
Net
Loans
|
|
$
|
5,660,432
|
|
|
|
The Bank also acquired
other real estate owned with a fair value of $38.0 million. The Bank refers to
the loans and other real estate owned acquired in the UCB Acquisition, as
covered loans as the Bank will be reimbursed by the FDIC for a substantial
portion of any future losses on them under the terms of the shared-loss
agreement. Covered loans do not include the acquired loans of United Commercial
Bank (China) Limited with a fair value of $236.5 million.
At the November 6,
2009 acquisition date, the Bank estimated the fair value of the UCB Acquisition
loan portfolio at $5.90 billion, which represents the expected discounted cash
flows from the portfolio. In estimating
such fair value, the Bank (a) calculated the contractual amount and timing
of undiscounted principal and interest payments (the undiscounted contractual
cash flows) and (b) estimated the amount and timing of undiscounted expected
principal and interest payments (the undiscounted expected cash flows). The
amount by which the undiscounted expected cash flows exceed the estimated fair
value (the accretable yield) is accreted into interest income over the life
of the loans. The difference between the undiscounted contractual cash flows
and the undiscounted expected cash flows represents the nonaccretable
difference.
The nonaccretable difference
represents an estimate of the credit risk in the UCB Acquisition loan portfolio
at the acquisition date. The credit risk is not reflected in the allowance for
loan losses.
As part of the loan
portfolio fair value estimation, the Bank established the FDIC indemnification
asset, which represents the present value of the estimated losses on covered
loans to be reimbursed by the FDIC. The FDIC indemnification asset will
be reduced as losses are recognized on covered loans and loss sharing payments
are received from the FDIC. Realized losses in excess of acquisition date
estimates will increase the FDIC indemnification asset. Conversely, if
realized losses are less than acquisition date estimates, the FDIC
indemnification asset will be reduced by a charge to earnings.
Covered loans under the
shared-loss agreements with the FDIC are reported in loans exclusive of the
estimated FDIC indemnification asset. The covered loans acquired in the
UCB Acquisition transaction are and will continue to be subject to the Banks
internal and external credit review. As a result, if and when credit
deterioration is noted subsequent to the November 6, 2009 acquisition
date, such deterioration will be measured through the Banks loss reserving
methodology and a provision for credit losses will be charged to earnings with
a partially offsetting noninterest income item reflecting the increase to the
FDIC indemnification asset.
4
A summary of the covered
loans (excluding OREOs) acquired in the UCB Acquisition as of November 6,
2009 and the related discount is as follows:
|
|
Credit-impaired
Loans
|
|
Other Loans
|
|
Total
|
|
|
(In thousands)
|
Real
estate loans:
|
|
|
|
|
|
|
Residential
single family
|
|
$
|
23,042
|
|
$
|
633,820
|
|
$
|
656,862
|
Residential
multifamily
|
|
164,754
|
|
1,020,985
|
|
1,185,739
|
Commercial
and industrial real estate
|
|
918,348
|
|
1,562,091
|
|
2,480,439
|
Construction
|
|
1,304,112
|
|
165,660
|
|
1,469,772
|
Total
real estate loans
|
|
2,410,256
|
|
3,382,556
|
|
5,792,812
|
Other
loans:
|
|
|
|
|
|
|
Commercial
business
|
|
702,486
|
|
698,681
|
|
1,401,167
|
Other
consumer
|
|
636
|
|
104,688
|
|
105,324
|
Total
other loans
|
|
703,122
|
|
803,369
|
|
1,506,491
|
Total
loans
|
|
3,113,378
|
|
4,185,925
|
|
7,299,303
|
Total
discount resulting from acquisition date fair value
|
|
(1,108,059)
|
|
( 530,812)
|
|
(1,638,871)
|
Net
loans
|
|
$
|
2,005,319
|
|
$
|
3,655,113
|
|
$
|
5,660,432
|
Credit-impaired covered
loans are those loans showing evidence of credit deterioration since
origination and it is probable, at the date of acquisition, that the Bank will
not collect all contractually required principal and interest payments.
Generally, the acquired loans that meet the Banks definition for nonaccrual
status fall within the definition of credit-impaired covered loans.
The undiscounted
contractual cash flows for the covered credit-impaired loans and covered other
loans are $3.41 billion and $5.55 billion, respectively. The undiscounted
estimated cash flows not expected to be collected for the covered
credit-impaired loans and covered other loans are $1.20 billion and $1.06 billion,
respectively.
The accretable yield on
credit-impaired loans represents the amount by which the undiscounted expected
cash flows exceed the estimated fair value. At November 6, 2009, such
accretable yield was approximately $208.1 million. Credit-impaired loans
are reviewed each reporting period to determine whether any changes occurred in
expected cash flows that would result in a reclassification from nonaccretable
difference to accretable yield.
Contractual
Maturity of Loan Portfolio
The following table
presents the maturity schedule with respect to certain individual categories of
loans acquired and provides separate analyses with respect to fixed rate loans
and floating rate loans as of November 6, 2009. The amounts shown in
the table are unpaid balances.
|
|
Within One
Year
|
|
After One But
Within Five
Years
|
|
More Than Five
Years
|
|
Total
|
|
|
(In thousands)
|
Real
estate loans:
|
|
|
|
|
|
|
|
|
Residential
single family
|
|
$
|
|
$
|
|
|
$
|
656,862
|
|
$
|
656,862
|
Residential
multifamily
|
|
|
|
|
|
1,185,739
|
|
1,185,739
|
Commercial
and industrial real estate
|
|
570
|
|
1,698,352
|
|
781,517
|
|
2,480,439
|
Construction
|
|
1,433,380
|
|
36,392
|
|
|
|
1,469,772
|
Total
real estate loans
|
|
1,433,950
|
|
1,734,744
|
|
2,624,118
|
|
5,792,812
|
Other
loans:
|
|
|
|
|
|
|
|
|
Commercial
business
|
|
278,310
|
|
1,122,857
|
|
|
|
1,401,167
|
Other
consumer
|
|
4,008
|
|
2,751
|
|
98,565
|
|
105,324
|
Total
other loans
|
|
282,318
|
|
1,125,608
|
|
98,565
|
|
1,506,491
|
Total
loans
|
|
$
|
1,716,268
|
|
$
|
2,860,352
|
|
$
|
2,722,683
|
|
$
|
7,299,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
Within One
Year
|
|
After One But
Within Five
Years
|
|
More Than Five
Years
|
|
Total
|
|
|
(In thousands)
|
Total
fixed rate
|
|
$
|
55,061
|
|
$
|
908,892
|
|
$
|
471,441
|
|
$
|
1,435,394
|
Total
variable rate
|
|
1,661,208
|
|
1,951,460
|
|
2,251,241
|
|
5,863,909
|
Total
|
|
$
|
1,716,269
|
|
$
|
2,860,352
|
|
$
|
2,722,682
|
|
$
|
7,299,303
|
Deposits
The UCB Acquisition increased the Banks deposits by $6.53 billion at November 6,
2009. The following table presents a summary of the deposits acquired and the
average interest rates in effect at the acquisition date:
|
|
November 6
, 2009
|
|
|
|
Amount
|
|
Rate
|
|
|
|
(Dollars
in thousands)
|
|
Non-interest
bearing
|
|
$
|
898,383
|
|
|
|
Interest
checking
|
|
289,591
|
|
0.21%
|
|
Money
market
|
|
436,819
|
|
0.56%
|
|
Savings
|
|
654,060
|
|
0.45%
|
|
Time
deposits:
|
|
|
|
|
|
Less
than $100,000
|
|
1,971,798
|
|
2.28%
|
|
$100,000
or greater
|
|
2,267,891
|
|
1.71%
|
|
Time
deposits fair value adjustment:
|
|
|
|
|
|
Less
than $100,000
|
|
5,859
|
|
|
|
$100,000
or greater
|
|
5,462
|
|
|
|
Total
deposits
|
|
$
|
6,529,864
|
|
|
|
At November 6,
2009, scheduled maturities of time deposits were as follows:
Year of
Maturity
|
|
November 6,
2009
|
|
|
|
|
|
|
|
(In
thousands)
|
|
2009
|
|
$
|
1,291,488
|
|
2010
|
|
2,863,384
|
|
2011
|
|
80,684
|
|
2012
|
|
2,387
|
|
2013 & thereafter
|
|
1,746
|
|
Total
|
|
$
|
4,239,689
|
|
Borrowings
As of November 6, 2009, there was $1.74 billion principal balance
of borrowings outstanding from the FHLB with a fair value of $1.84
billion. The borrowings are both term
and callable advances and were secured by a blanket lien on eligible loans plus
securities. The amount of callable advances at November 6, 2009 was $800
million. The maturities shown are the contractual maturities for all advances.
6
The following table summarizes the principal balance of FHLB advances
outstanding and weighted average interest rates at November 6, 2009:
Year of
Maturity
|
|
Principal
Balance
|
|
Rate
|
|
(Dollars in thousands)
|
|
2009
|
|
$
|
200,000
|
|
3.96%
|
|
2010
|
|
690,026
|
|
2.20%
|
|
2011
|
|
45,367
|
|
4.78%
|
|
2013
|
|
175,000
|
|
4.55%
|
|
2014
|
|
50,000
|
|
4.43%
|
|
2015
|
|
200,000
|
|
4.46%
|
|
2016
|
|
125,000
|
|
4.33%
|
|
2017
|
|
250,000
|
|
4.07%
|
|
2020
|
|
6,159
|
|
5.07%
|
|
Total
|
|
$
|
1,741,552
|
|
|
|
At November 6, 2009, United Commercial Bank had securities sold
under repurchase agreements with a fair value balance of $858.2 million with a
maturity date ranging from December, 2009 to November, 2017. The Bank extinguished all of these
liabilities by the end of December 31, 2009.
The following table summarizes the fair value of the repurchase
agreements outstanding, maturity and the weighted average interest rate as of November 6,
2009:
Year of
Maturity
|
|
Fair
Value
|
|
Rate
|
|
(Dollars in thousands)
|
|
2009
|
|
$
|
19,450
|
|
0.20%
|
|
2010
|
|
54,021
|
|
0.34%
|
|
2011
|
|
53,909
|
|
5.00%
|
|
2016
|
|
174,048
|
|
4.73%
|
|
2017
|
|
556,816
|
|
3.08%
|
|
Total
|
|
$
|
858,244
|
|
|
|
In the UCB Acquisition, the Bank assumed $6.53 billion in deposits at
fair value. This amount represents approximately 45% of the Banks total
deposits of $14.65 billion at November 30, 2009. The Bank also assumed $1.84 billion in FHLB
advances, at fair value.
In its assumption of the deposit liabilities, the Bank determined that
the customer relationships associated with these deposits have intangible
value. The Bank applied FASB Accounting Standard Codification Topic 805,
Business Combination
, which prescribes the accounting for
goodwill and other intangible assets, such as core deposit intangibles in a
business combination. The Bank determined the fair value of a core deposit
intangible asset totaling approximately $74.4 million, which will be
amortized based on the estimated economic benefits received. In determining
the valuation amount, deposits were analyzed based on factors such as type of
deposit, deposit retention, interest rates, age of deposit relationships, and
the maturities of time deposits.
7
Operating Results and Cash Flows
The Companys management has from time to time become aware of
acquisition opportunities and has performed various levels of review related to
potential acquisitions in the past. This particular transaction was
attractive to the Company for a variety of reasons, including the:
·
|
ability to increase the
Companys market share in California; develop market share in New York, New
England, Georgia, Texas and the Pacific Northwest domestically, as well as
increase market share in Hong Kong and develop market share in Shanghai and
Shantou internationally ;
|
|
|
·
|
attractiveness of
immediate core deposit growth with low cost of funds given that over the past
several years, organic core deposit growth has been exceptionally difficult
as financial institutions compete for deposits; and
|
|
|
·
|
opportunities to
enhance income and efficiency due to duplications of effort as the Company
expects to enhance income by centralizing some duties and removing
duplications of effort.
|
Based on these and other factors, including the level of FDIC support
related to the acquired loans, the Company believes that this acquisition will
have an immediate positive impact on its earnings such as increase in the
Banks net interest margin and efficiencies achieved through the elimination of
duplicative operational processes.
The Company expects that the acquisition will positively affect its
operating results in the near term. The Company believes that the
transaction will improve the Companys net interest income, as the Company
earns more from interest earned on its loans and investments than it pays in
interest on deposits and borrowings.
The extent to which the Companys operating results may be adversely
affected by the acquired loans is offset to a significant extent by the
shared-loss agreements and the related discounts reflected in the fair value of
these assets at the acquisition date. In accordance with the provisions of FASB
Accounting Standard Codification Topic 310-30,
Receivables
,
the fair values of the acquired loans reflect an estimate of expected losses
related to the acquired loans. As a result, the Banks operating results would
only be adversely affected by loan losses of the acquired loans to the extent
that such losses exceed the expected losses reflected in the fair value of the
acquired loans at the acquisition date. In addition, to the extent that the
stated interest rate on acquired loans was not considered a market rate of
interest at the acquisition date, appropriate adjustments to the
acquisition-date fair value were recorded. These adjustments mitigate the risk
associated with the acquisition of loans earning a below market rate of return.
Topic 310-30 applies to a loan with evidence of deterioration of credit
quality since origination, acquired by completion of a transfer for which it is
probable, at acquisition, that the investor will be unable to collect all
contractually required payments receivable. Topic 310-30 prohibits carrying
over or creating an allowance for loan losses upon initial recognition for
loans that fall under its scope. On the acquisition date, the estimate of the
contractual principal and interest payments for all impaired loans acquired in
the acquisition was $3.41 billion and the estimated fair value of the loans was
$2.00 billion, net of an accretable yield of $208.1 million. These amounts were
determined based upon the estimated remaining life of the underlying loans,
which include the effects of estimated prepayments, expected credit losses and
market liquidity and interest rates.
On the acquisition date, the unpaid principal balance for all
non-impaired loans acquired in the acquisition was $4.19 billion and the
estimated fair value of the loans totaled $3.66 billion. The fair value of
non-impaired loans was determined based upon the estimated remaining life of
the underlying loans, which include the effects of estimated prepayments,
expected credit losses and adjustments related to market liquidity and
prevailing interest rates at the acquisition date.
The shared-loss agreements will likely have a material impact on the
cash flows and operating results of the Bank in both the short-term and the
long-term. In the short-term, it is likely that there will be a
significant amount of the covered loans that will experience deterioration in
payment performance or will be determined to have inadequate collateral values
to repay the loans. In such instances, the Bank will likely no longer
receive payments from the borrowers, which will impact cash flows. The
shared-loss agreements may not fully offset the financial effects of such a
situation. However, if a
8
loan
is subsequently charged off or charged down after the Bank exhausts its best
efforts at collection, the shared-loss agreements will cover a substantial
portion of the loss associated with the covered assets.
The effects of the shared-loss agreements on cash flows and operating
results in the long-term will be similar to the short-term effects described
above. The long-term effects that the Bank may experience will depend
primarily on the ability of the borrowers under the various loans covered by
the shared-loss agreements to make payments over time. As the shared-loss
agreements cover up to a 10-year period, changing economic conditions will
likely impact the timing of future charge-offs and the resulting reimbursements
from the FDIC. The Bank believes that any recapture of interest income and
recognition of cash flows from the borrowers or received from the FDIC may be
recognized unevenly over this period, as the Company exhausts its collection
efforts under its normal practices. In addition, the Bank recorded
substantial discounts related to the purchase of these covered loans. A
portion of these discounts will be accretable to income over the economic life
of the underlying loans and will be dependent upon the timing and success of
the Banks collection efforts on the covered loans.
Liquidity and Capital Resources
The Bank believes that its liquidity position will be improved as a
result of this transaction. The Bank acquired $599.0 million in cash and
cash equivalents, as well as $1.56 billion of investment securities.
Subsequent to November 6, 2009, $1.25 billion of investment securities
were sold with a gain of approximately $2.4 million.. The remaining securities
provide monthly cash flows in the form of principal and interest
payments. These additions to the Banks balance sheet represent additional
support for its liquidity needs.
Deposits in the amount of $6.53 billion were also assumed. Of this
amount, $1.19 billion were in the form of highly liquid transaction
accounts. Certificates of deposit comprised $4.24 billion of total
deposits, or 65%. Through December 31,
2009, the Bank has retained substantially all of the deposits assumed.
Below are the November 30, 2009 relevant regulatory ratios
reflecting the UCB Acquisition. The Bank remains well-capitalized after
taking into consideration the results of the transaction and a private
placement of common stock public offering completed immediately prior to the
acquisition:
Tier
1 leverage ratio
|
|
12.44
|
%
|
Tier
1 risk based capital ratio
|
|
15.86
|
%
|
Total
risk based capital ratio
|
|
17.74
|
%
|
Financial Statements
Attached hereto as Exhibit 99.1 and incorporated by reference into
this Item 9.01(a) is an Audited Statement of Assets Acquired and
Liabilities Assumed by the Bank (a wholly owned subsidiary of East West
Bancorp) at November 6, 2009 and the accompanying notes thereto.
The Company has omitted certain financial information of United
Commercial Bank required by Rule 3-05 of Regulation S-X and the
related pro forma financial information under Article 11 of Regulation S-X
pursuant to the guidance provided in SEC Staff Accounting Bulletin 1:K,
Financial Statements of Acquired Troubled Financial
Institutions
(SAB 1:K). SAB 1:K provides relief from the
requirements of Rule 3-05 in certain instances, such as the transaction,
where a registrant engages in an acquisition of a significant amount of assets of
a troubled financial institution that involves pervasive federal assistance and
audited financial statements of the troubled financial institution are not
reasonably available.
(d)
Exhibits.
Exhibit No.
|
|
Description
|
23.1
|
|
Consent of KPMG LLP
|
99.1
|
|
Report of Independent
Registered Public Accounting Firm
Statement of Assets Acquired and Liabilities Assumed at November 6, 2009
Notes to Statement of Assets Acquired and Liabilities Assumed
|
9
SIGNATURE
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned hereunto duly authorized.
Date: January
22, 2010
|
EAST WEST BANCORP, INC.
(Registrant)
|
|
|
|
By:
|
/s/ Douglas P. Krause
|
|
|
|
Douglas P. Krause, Esq.
Executive Vice President
and
General Counsel
|
10
EXHIBIT INDEX
Exhibit
Number
|
|
Description
|
23.1
|
|
Consent of KPMG LLP
|
99.1
|
|
Report of Independent Registered
Public Accounting Firm
Statement of Assets Acquired and Liabilities Assumed at November 6, 2009
Notes to Statement of Assets Acquired and Liabilities Assumed
|
11
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