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, 2006
		or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                 to                 .

 

Commission file number 000-24939

 

EAST WEST BANCORP, INC.

(Exact name of registrant as specified in its charter)

 

 

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 x   No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filed, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o   No x

Number of shares outstanding of the issuer’s common stock on the latest practicable date: 61,240,103 shares of common stock as of October 31, 2006.

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION
	Item 1.	Condensed Consolidated Financial Statements (Unaudited)
		Notes to Condensed Consolidated Financial Statements (Unaudited)
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk
	Item 4.	Controls and Procedures
PART II - OTHER INFORMATION
	Item 1.	Legal Proceedings
	Item 1A.	Risk Factors
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
	Item 3.	Defaults upon Senior Securities
	Item 4.	Submission of Matters to a Vote of Security Holders
	Item 5.	Other Information
	Item 6.	Exhibits
SIGNATURE

 

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Forward-Looking Statements

Certain matters discussed in this report may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “1933 Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as such, may involve risks and uncertainties.  These forward-looking statements relate to, among other things, expectations of the environment in which the Company operates and projections of future performance including future earnings and financial condition.  The Company’s actual results, performance, or achievements may differ significantly from the results, performance, or achievements expected or implied in such forward-looking statements.  For a discussion of some of the factors that might cause such differences, see the Company’s Form 10-K under the heading “Item 1A. Risk Factors.”  The Company does not undertake, and specifically disclaims any obligation to update any forward looking statements to reflect the occurrence of events or circumstances after the date of such statements except as required by law.

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PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)

		September 30,			December 31,
		2006			2005
ASSETS
Cash and cash equivalents		$	172,357		$	151,192
Interest-bearing deposits in other banks		99			—
Securities purchased under resale agreements		100,000			50,000
Investment securities available-for-sale, at fair value (with amortized cost of $1,502,710 in 2006 and $873,969 in 2005)		1,490,112			869,837
Loans receivable, net of allowance for loan losses of $79,096 in 2006 and $68,635 in 2005		8,363,680			6,724,320
Investment in Federal Home Loan Bank stock, at cost		75,647			45,707
Investment in Federal Reserve Bank stock, at cost		17,830			12,285
Other real estate owned, net		2,884			299
Investment in affordable housing partnerships		29,725			31,006
Premises and equipment, net		43,647			38,579
Due from customers on acceptances		10,886			6,074
Premiums on deposits acquired, net		22,193			18,853
Goodwill		244,176			143,254
Cash surrender value of life insurance policies		87,325			82,191
Accrued interest receivable and other assets		113,635			82,073
Deferred tax assets		38,106			22,586
TOTAL		$	10,812,302		$	8,278,256
LIABILITIES AND STOCKHOLDERS’ EQUITY
Customer deposit accounts:
Noninterest-bearing		$	1,353,195		$	1,331,992
Interest-bearing		5,746,481			4,926,595
Total deposits		7,099,676			6,258,587
Federal funds purchased		118,014			91,500
Federal Home Loan Bank advances		1,499,879			617,682
Securities sold under repurchase agreements		825,000			325,000
Notes payable		6,460			8,833
Bank acceptances outstanding		10,886			6,074
Accrued interest payable, accrued expenses and other liabilities		86,994			83,347
Long-term debt		184,023			153,095
Total liabilities		9,830,932			7,544,118
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS’ EQUITY
Common stock (par value of $0.001 per share) Authorized — 200,000,000 shares Issued — 66,144,383 shares in 2006 and 61,419,622 shares in 2005 Outstanding —61,206,684 shares in 2006 and 56,519,438 shares in 2005		66			61
Additional paid in capital		539,168			389,004
Retained earnings		489,197			393,846
Deferred compensation		—			(8,242		)
Treasury stock, at cost — 4,937,699 shares in 2006 and 4,900,184 shares in 2005		(39,181		)	(37,905		)
Accumulated other comprehensive loss, net of tax		(7,880		)	(2,626		)
Total stockholders’ equity		981,370			734,138
TOTAL		$	10,812,302		$	8,278,256

 

See accompanying notes to condensed consolidated financial statements.

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EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)

		Three Months Ended September 30,						Nine Months Ended September 30,
		2006			2005			2006			2005
INTEREST AND DIVIDEND INCOME
Loans receivable, including fees		$	156,333		$	98,110		$	425,630		$	264,340
Investment securities available-for-sale		17,860			7,181			40,024			18,020
Securities purchased under resale agreements		1,917			224			5,160			224
Investment in Federal Home Loan Bank stock		844			568			2,052			1,705
Investment in Federal Reserve Bank stock		262			126			664			346
Short-term investments		96			78			332			177
Total interest and dividend income		177,312			106,287			473,862			284,812
INTEREST EXPENSE
Customer deposit accounts		53,896			25,275			142,724			60,960
Federal Home Loan Bank advances		16,081			6,290			32,988			19,361
Securities sold under repurchase agreements		7,024			693			14,906			693
Long-term debt		3,432			1,810			9,346			4,295
Federal funds purchased		1,462			637			3,789			739
Total interest expense		81,895			34,705			203,753			86,048
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES		95,417			71,582			270,109			198,764
PROVISION FOR LOAN LOSSES		3,500			4,500			8,166			13,370
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		91,917			67,082			261,943			185,394
NONINTEREST INCOME
Branch fees		2,837			1,858			8,266			5,143
Letters of credit fees and commissions		2,065			2,029			6,396			6,533
Ancillary loan fees		925			645			2,835			1,774
Net gain on sales of investment securities available-for-sale		676			1,786			2,537			3,519
Income from life insurance policies		973			873			2,785			2,436
Income from secondary market activities		123			130			496			1,314
Net gain on sale of real estate owned		—			—			88			—
Other operating income		504			506			1,673			1,572
Total noninterest income		8,103			7,827			25,076			22,291
NONINTEREST EXPENSE
Compensation and employee benefits		18,589			12,979			50,589			38,318
Occupancy and equipment expense		5,610			3,736			15,726			10,426
Deposit-related expenses		2,365			2,326			7,020			6,088
Amortization of premiums on deposits acquired		1,691			782			5,308			1,988
Amortization of investments in affordable housing partnerships		1,555			1,581			4,281			4,971
Data processing		890			717			2,678			1,940
Deposit insurance premiums and regulatory assessments		339			258			1,021			709
Other operating expenses		10,907			7,927			30,646			21,985
Total noninterest expense		41,946			30,306			117,269			86,425
INCOME BEFORE PROVISION FOR INCOME TAXES		58,074			44,603			169,750			121,260
PROVISION FOR INCOME TAXES		22,512			16,020			65,492			43,695
NET INCOME		$	35,562		$	28,583		$	104,258		$	77,565
EARNINGS PER SHARE
BASIC		$	0.59		$	0.54		$	1.76		$	1.47
DILUTED		$	0.58		$	0.52		$	1.72		$	1.43
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
BASIC		60,536			53,261			59,204			52,615
DILUTED		61,797			54,822			60,569			54,222

 

See accompanying notes to condensed consolidated financial statements.

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EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands, except share data)
(Unaudited)

 

		Common Stock			Additional Paid In Capital			Retained Earnings			Deferred Compensation			Treasury Stock			Accumulated Other Comprehensive Loss, Net of Tax			Comprehensive Income			Total Stockholders’ Equity
BALANCE, JANUARY 1, 2005		$	57		$	260,152		$	296,175		$	(5,422	)	$	(36,649	)	$	(4	)				$	514,309
Comprehensive income
Net income for the period								77,565												$	77,565		77,565
Net unrealized loss on investment securities available-for-sale																	(3,206		)	(3,206		)	(3,206		)
Total comprehensive income																				$	74,359
Stock compensation costs											2,092												2,092
Tax benefit from option exercises					1,497																		1,497
Issuance of 461,625 shares pursuant to various stock plans and agreements		1			9,835						(4,150		)										5,686
Issuance of 3,303 shares in lieu of Board of Director retainer fees					112																		112
Cancellation of 29,966 shares due to forfeitures of issued restricted stock											957			(957		)							—
Issuance of 3,138,701 shares pursuant to United National Bank acquisition		3			106,713																		106,716
Dividends paid on common stock								(7,896		)													(7,896		)
BALANCE, SEPTEMBER 30, 2005		$	61		$	378,309		$	365,844		$	(6,523	)	$	(37,606	)	$	(3,210	)				$	696,875
BALANCE, JANUARY 1, 2006		$	61		$	389,004		$	393,846		$	(8,242	)	$	(37,905	)	$	(2,626	)				$	734,138
Comprehensive income
Net income for the period								104,258												$	104,258		104,258
Net unrealized loss on investment securities available-for-sale																	(5,254		)	(5,254		)	(5,254		)
Total comprehensive income																				$	99,004
Elimination of deferred compensation pursuant to adoption of SFAS No. 123(R)					(8,242		)				8,242												—
Stock compensation costs					4,216																		4,216
Tax benefit from stock option exercises					9,896																		9,896
Tax benefit from vested restricted stock					576																		576
Issuance of 907,320 shares pursuant to various stock plans and agreements		1			8,441																		8,442
Issuance of 3,895 shares pursuant to Director retainer Fee					156																		156
Issuance of 3,647,440 shares pursuant to Standard Bank acquisition		4			133,845																		133,849
Cancellation of 37,515 shares due to forfeitures of issued restricted stock					1,276									(1,276		)							—
Dividends paid on common stock								(8,907		)													(8,907		)
BALANCE, SEPTEMBER 30, 2006		$	66		$	539,168		$	489,197		$	—		$	(39,181	)	$	(7,880	)				$	981,370

 

		Nine Months Ended September 30,
		2006			2005
		(In thousands)
Disclosure of reclassification amounts:
Unrealized holding loss on securities arising during the period, net of tax benefit of $2,739 in 2006 and $844 in 2005		$	(3,783	)	$	(1,165	)
Less: Reclassification adjustment for gain included in net income, net of tax expense of $1,066 in 2006 and $1,478 in 2005		(1,471		)	(2,041		)
Net unrealized loss on securities, net of tax benefit of $3,805 in 2006 and $2,322 in 2005		$	(5,254	)	$	(3,206	)

 

See accompanying notes to condensed consolidated financial statements.

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EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

		Nine Months Ended September 30,
		2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	104,258		$	77,565
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		7,938			7,128
Stock compensation costs		4,216			2,092
Deferred taxes		(15,354		)	(4,370		)
Provision for loan losses		8,166			13,370
Net gain on sales of investment securities, loans and other assets		(2,837		)	(4,588		)
Federal Home Loan Bank stock dividends		(1,910		)	(1,537		)
Originations of loans held for sale		(14,671		)	(84,414		)
Proceeds from sale of loans held for sale		14,697			85,385
Tax benefit from stock option exercises		(9,896		)	1,497
Tax benefit from vested restricted stock		(576		)	—
Net change in accrued interest receivable and other assets		(30,139		)	3,269
Net change in accrued interest payable, accrued expenses, and other liabilities		13,883			8,381
Total adjustments		(26,483		)	26,213
Net cash provided by operating activities		77,775			103,778
CASH FLOWS FROM INVESTING ACTIVITIES
Net loan originations		(1,498,479		)	(935,658		)
Purchases of:
Securities purchased under resale agreement		(50,000		)	(50,000		)
Investment securities available-for-sale		(1,321,846		)	(284,896		)
Loans receivable		—			(1,988		)
Federal Home Loan Bank stock		(40,707		)	(13,440		)
Federal Reserve Bank stock		(5,545		)	(2,379		)
Investments in affordable housing partnerships		—			(12		)
Premises and equipment		(6,485		)	(3,774		)
Proceeds from unsettled securities acquired		225,616			—
Proceeds from sale of:
Investment securities available-for-sale		232,371			225,875
Loans receivable		5,070			—
Premises and equipment		41			3
Other real estate owned		387			—
Maturity of interest-bearing deposits in other banks		960			100
Repayments, maturity and redemption of investment securities available-for-sale		798,702			104,784
Redemption of Federal Home Loan Bank stock		19,816			15,228
Cash obtained from acquisitions, net of cash paid		98,351			49,077
Net cash used in investing activities		(1,541,748		)	(897,080		)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits		112,095			742,542
Net increase in federal funds purchased		26,514			182,000
Net increase (decrease) in Federal Home Loan Bank Advances		812,000			(377,750		)
Repayment of notes payable on affordable housing investments		(5,373		)	(1,823		)
Payment of debt issue cost		—			(80		)
Proceeds from securities sold under repurchase agreements		500,000			200,000
Proceeds from issuance of long-term debt		30,000			95,000
Proceeds from common stock options exercised		5,539			1,903
Proceeds from stock warrants exercised		1,600			1,600
Proceeds from Employee Stock Purchase Plan		1,198			1,565
Tax benefit from stock option exercises		9,896			—
Tax benefit from vested restricted stock		576			—
Dividends paid on common stock		(8,907		)	(7,896		)
Net cash provided by financing activities		1,485,138			837,061
NET INCREASE IN CASH AND CASH EQUIVALENTS		21,165			43,759
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		151,192			93,075
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	172,357		$	136,834
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest		$	200,335		$	81,350
Income tax payments, net of refunds		71,188			40,157
Noncash investing and financing activities:
Guaranteed mortgage loan securitizations		334,495			117,305
Issuance of common stock pursuant to acquisition		133,849			106,716
Real estate investment financed through notes payable		3,000			—
Real estate acquired through foreclosure		2,884			—
Issuance of common stock to employees		105			618
Issuance of common stock in lieu of Board of Director retainer fees		156			112

 

See accompanying notes to condensed consolidated financial statements.

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EAST WEST BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2006 and 2005
(Unaudited)

1.              BASIS OF PRESENTATION

The consolidated financial statements include the accounts of East West Bancorp, Inc. (referred to herein on an unconsolidated basis as “East West” and on a consolidated basis as the “Company”) and its wholly owned subsidiaries, East West Bank and subsidiaries (the “Bank”) and East West Insurance Services, Inc.  Intercompany transactions and accounts have been eliminated in consolidation.  East West also has seven wholly-owned subsidiaries that are statutory business trusts (the “Trusts”).  In accordance with Financial Accounting Standards Board Interpretation No. 46R, Consolidation of Variable Interest Entities, the Trusts are not consolidated into the accounts of East West Bancorp, Inc.

The interim consolidated financial statements, presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), are unaudited and reflect all adjustments which, in the opinion of management, are necessary for a fair statement of financial condition and results of operations for the interim periods.  All adjustments are of a normal and recurring nature.  Results for the nine months ended September 30, 2006 are not necessarily indicative of results that may be expected for any other interim period or for the year as a whole.  Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted.  The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2005.

2.              SIGNIFICANT ACCOUNTING POLICIES

Recent Accounting Standards

In December 2003, the Accounting Standards Executive Committee of the AICPA issued Statement of Position No. 03-3 (“SOP 03-3”), Accounting for Certain Loans or Debt Securities Acquired in a Transfer.  SOP 03-3 addresses the accounting for differences between contractual cash flows and the cash flows expected to be collected from purchased loans or debt securities if those differences are attributable, in part, to credit quality.  SOP 03-3 requires purchased loans and debt securities to be recorded initially at fair value based on the present value of the cash flows expected to be collected with no carryover of any valuation allowance previously recognized by the seller.  Interest income should be recognized based on the effective yield from the cash flows expected to be collected.  To the extent that the purchased loans or debt securities experience subsequent deterioration in credit quality, a valuation allowance would be established for any additional cash flows that are not expected to be received.  However, if more cash flows subsequently are expected to be received than originally estimated, the effective yield would be adjusted on a prospective basis.  SOP 03-3 is effective for loans and debt securities acquired by the Company after December 15, 2004.  The adoption of this Statement on January 1, 2005 did not have a material impact on the Company’s financial position, results of operations, or cash flows.

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123(R), Share-Based Payment.  This Statement supersedes Accounting

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Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance and is a revision of SFAS No. 123, Accounting for Stock-Based Compensation.  This Statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services.  It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.  This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions.

This Statement requires a public entity to measure the cost of employee services received in exchange for award of equity instruments based on the grant-date fair value of the award.  That cost will be recognized over the period during which an employee is required to provide service in exchange for the award - the requisite service period (usually the vesting period).  No compensation cost is recognized for equity instruments for which employees do not render the requisite service.  The grant-date fair value of employee share options and similar instruments will be estimated using option-pricing models adjusted for unique characteristics of those instruments (unless observable market prices for the same or similar instruments are available).  If an equity award is modified after the grant date, incremental compensation cost will be recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification.

The Company adopted the revised accounting standards for stock based compensation effective January 1, 2006.  SFAS No. 123(R) allows for two alternative transition methods.  The Company follows the modified prospective method, which requires application of the new Statement to new awards and to awards modified, repurchased or cancelled after the required effective date.  Accordingly, prior period amounts have not been restated.  Additionally, compensation cost for the portion of awards for which the requisite service has not been rendered that are outstanding as of January 1, 2006 will be recognized as the requisite services are rendered on or after January 1, 2006.  The compensation cost of that portion of awards is based on the grant-date fair value of those awards as calculated for pro forma disclosures under the original SFAS No. 123.  Under the transition provisions of SFAS No. 123(R), the Company has reduced additional paid in capital by $8.2 million, representing the remaining deferred compensation balance in the consolidated statement of changes in stockholders’ equity as of January 1, 2006.

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, which addresses accounting for changes in accounting principle, changes in accounting estimates, changes required by an accounting pronouncement in the instance that the pronouncement does not include specific transition provisions and error correction.  SFAS No. 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle and error correction unless impracticable to do so.  SFAS No. 154 states an exception to retrospective application when a change in accounting principle, or the method of applying it, may be inseparable from the effect of a change in accounting estimate.  When a change in principle is inseparable from a change in estimate, such as depreciation, amortization or depletion, the change to the financial statements is to be presented in a prospective manner.  SFAS No. 154 and the required disclosures are effective for accounting changes and error corrections in fiscal years beginning after December 15, 2005.

In November 2005, the FASB issued Staff Position (“FSP”) Nos. FAS 115-1 and 124-1 to address the determination as to when an investment is considered impaired, whether that impairment is other than temporary and the measurement of an impairment loss.  This FSP nullified certain requirements of Emerging Issues Task Force 03-1 The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments (“EITF 03-1”), and references existing other than temporary guidance.  Furthermore, this FSP creates a three step process in determining when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss.  The FSP is effective for reporting periods beginning

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after December 15, 2005.  The adoption of this FSP did not have a material impact on the Company’s financial condition or results of operations.

During December 2005, the FASB issued FSP Statement of Position (“SOP”) 94-6-1, Terms of Loan Products That May Give Rise to a Concentration of Credit Risk, which addresses the circumstances under which the terms of loan products give rise to such risk and the disclosures or other accounting considerations that apply for entities that originate, hold, guarantee, service, or invest in loan products with terms that may give rise to a concentration of credit risk.  The guidance under this FSP is effective for interim and annual periods ending after December 19, 2005 and for loan products that are determined to represent a concentration of credit risk, disclosure requirements of SFAS No. 107, Disclosures about Fair Value of Financial Instruments, should be provided for all periods presented.  The adoption of this FSP did not have a significant impact on the Company’s consolidated financial statements.

In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets, which provides the following: 1) revised guidance on when a servicing asset and servicing liability should be recognized; 2) requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable; 3) permits an entity to elect to measure servicing assets and servicing liabilities at fair value each reporting date and report changes in fair value in earnings in the period in which the changes occur; 4) upon initial adoption, permits a onetime reclassification of available-for-sale securities to trading securities for securities which are identified as offsetting the entity’s exposure to changes in the fair value of servicing assets or liabilities that a servicer elects to subsequently measure at fair value; and 5) requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional footnote disclosures. SFAS No. 156 is effective as of the beginning of an entity’s first fiscal year that begins after September 15, 2006 with the effects of initial adoption being reported as a cumulative-effect adjustment to retained earnings.  It is not anticipated that adoption will have a material impact on the Company’s consolidated financial statements.

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”) which supplements SFAS No. 109, Accounting for Income Taxes, by defining the confidence level that a tax position must meet in order to be recognized in the financial statements.  The Interpretation requires that the tax effects of a position be recognized only if it is “more-likely-than-not” to be sustained based solely on its technical merits as of the reporting date.  The more-likely-than-not threshold represents a positive assertion by management that a company is entitled to economic benefits of a tax position.  If a tax position is not considered more-likely-than-not to be sustained based solely on its technical merits, no benefits of the position are to be recognized.  Moreover, the more-likely-than-not threshold must continue to be met in each reporting period to support continued recognition of a benefit.  At adoption, companies must adjust their financial statements to reflect only those tax positions that are more-likely-than-not to be sustained as of the adoption date.  Any necessary adjustment would be recorded directly to retained earnings in the period of adoption and reported as a change in accounting principle.  FIN 48 is effective for fiscal years beginning after December 15, 2006.  It is not anticipated that adoption will have a material impact on the Company’s financial condition, results of operations, or cash flows.

In September 2006, the SEC issued Staff Accounting Bulletin (SAB) No. 108, Quantifying Financial Misstatements, which expresses the Staff’s views regarding the process of quantifying financial statement misstatements.  Registrants are required to quantify the impact of correcting all misstatements, including both the carryover and reversing effects of prior year misstatements, on the current year financial statements.  The techniques most commonly used in practice to accumulate and quantify misstatements are generally referred to as the “rollover” (current year income statement perspective) and “iron curtain” (year-end balance perspective) approaches.  The financial statements would require adjustment when either approach results in quantifying a

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misstatement that is material, after considering all relevant quantitative and qualitative factors.  Management does not expect this guidance to have a material effect on the Company’s financial condition and results of operations.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which provides a single definition of fair value, establishes a framework for measuring fair value in generally accepted accounting principles, expands required disclosures about fair value measurements.  SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 12, 2007, and interim periods within those years.  The provisions of SFAS No. 157 should be applied on a prospective basis.  Management is assessing the potential impact of this guidance on the Company’s financial condition and results of operations.

3.              STOCK-BASED COMPENSATION

The Company issues stock options and restricted stock to employees under share-based compensation plans.  As previously mentioned, the Company adopted SFAS No. 123(R) on January 1, 2006 using the modified prospective method.  Under this method, the provisions of SFAS No. 123(R) are applied to new awards and to awards modified, repurchased or canceled after December 31, 2005 and to awards outstanding on December 31, 2005 for which requisite service has not yet been rendered.  SFAS No. 123(R) requires companies to account for stock options using the fair value method, which generally results in compensation expense recognition.  Prior to December 31, 2005, the Company accounted for its fixed stock options using the intrinsic-value method, as prescribed in APB Opinion No. 25.  Accordingly, no stock option expense was recorded in periods prior to December 31, 2005.

The adoption of SFAS No. 123(R) resulted in incremental stock-based compensation expense during 2006.  Since we have previously recognized compensation expense on restricted stock awards, the incremental stock-based compensation expense recognized pursuant to SFAS No. 123(R) relates only to issued and unvested stock option grants.  The incremental stock-based compensation expense caused income before income taxes to decrease by $399 thousand and net income to decrease by $232 thousand for the quarter ended September 30, 2006.  For the nine months ended September 30, 2006, incremental stock-based compensation expense reduced income before income taxes by $1.5 million and reduced net income by $853 thousand.  This additional expense had no impact on basic and diluted earnings per share for the third quarter of 2006, but reduced both basic and diluted earnings per share by $0.01 for the nine months ended September 30, 2006.  Cash provided by operating activities decreased by $10.5 million and cash provided by financing activities increased by an identical amount for the first nine months of 2006 related to excess tax benefits from stock-based payment arrangements.

Prior to the adoption of SFAS No. 123(R), the Company applied APB No. 25 to account for its stock based awards. The reported net income and earnings per share for the three and nine months ended September 30, 2005 have been presented below to reflect the impact had the Company been required to recognize compensation cost based on the fair value at the grant date for stock options as required under SFAS No. 123(R).  The pro forma amounts are as follows (amounts are reflected in thousands, except per share data):

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During the three and nine months ended September 30, 2006, total compensation cost recognized in the consolidated statements of income related to stock options and restricted stock awards amounted to $1.5 million and $4.2 million, respectively, with their related tax benefits of $632 thousand and $1.8 million, respectively.

During the three and nine months ended September 30, 2005, total compensation cost recognized in the consolidated statements of income related to restricted stock awards amounted to $721 thousand and $2.1 million, respectively, with their related tax benefits of $303 thousand and $879 thousand, respectively.

Stock Options

The Company issues fixed stock options to certain employees, officers, and directors.  Stock options are issued at the current market price on the date of grant with a three-year or four-year vesting period and contractual terms of 7 or 10 years.

A summary of activity for the Company’s stock options as of and for the nine months ended September 30, 2006 is presented below:

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The weighted average grant-date fair value of options granted during the nine months ended September 30, 2006 and 2005 was $10.12 and $9.32, respectively.  The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

(1)          The expected life (estimated period of time outstanding) of stock options granted was estimated using the historical exercise behavior of employees.

(2)          The expected volatility was based on historical volatility for a period equal to the stock option’s expected life.

(3)          The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant.

The following table summarizes information about stock options outstanding as of September 30, 2006:

 

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During the three and nine months ended September 30, 2006 and 2005, activities related to stock options are presented as follows:

 

As of September 30, 2006, total unrecognized compensation cost related to stock options amounted to $3.6 million.  This cost is expected to be recognized over a weighted average period of 3.5 years.

Restricted Stock

In addition to stock options, the Company also grants restricted stock awards to directors, certain officers and employees.  The restricted shares awarded become fully vested after three to five years of continued employment from the date of grant.  The Company becomes entitled to an income tax deduction in an amount equal to the taxable income reported by the holders of the restricted shares when the restrictions are released and the shares are issued.  Restricted shares are forfeited if officers and employees terminate prior to the lapsing of restrictions.  The Company records forfeitures of restricted stock as treasury share repurchases.

A summary of the activity for restricted stock as of September 30, 2006, including changes during the nine months then ended, is presented below:

 

In March 2006, the Company also granted performance restricted stock with two-year cliff vesting to an executive officer.  The number of shares that the executive will receive under this stock award will ultimately depend on the Company’s achievement of specified performance targets.  The performance period is January 1, 2006 through December 31, 2007.  At the end of the performance period, the number of stock awards issued will be determined by adjusting upward or downward from the target amount of shares in a range between 24% and 124%.  The final performance percentage on which the payout will be based, considering performance metrics established for the performance period, will be determined by the Board of Directors or a committee of the Board.  If the Company performs below its performance targets, the Board or the committee may, at its discretion, choose not to award any shares.  Shares of stock, if any, will be issued following the end of the performance period two years from the date of grant.  Compensation costs are accrued over the service period

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and are based on the probable outcome of the performance condition.  The maximum number of shares subject to this grant cannot exceed 41,000 shares.

As of September 30, 2006, total unrecognized compensation cost related to restricted stock awards amounted to $10.3 million.  This cost is expected to be recognized over a weighted average period of 3.2 years.

Employee Stock Purchase Plan

The Company adopted the 1998 Employee Stock Purchase Plan (the “Purchase Plan”) providing eligible employees of the Company and its subsidiaries participation in the ownership of the Company through the right to purchase shares of its common stock at a discount.  Under the terms of the Purchase Plan, prior to April 2005, employees could purchase shares of the Company’s common stock at the lesser of 85% of the per-share market price at the date of grant or exercise, subject to an annual limitation of common stock valued at $25,000.  In April 2005, the terms of the Purchase Plan were amended to allow the employees to purchase shares at 90% of the per-share market price at the date of exercise, maintaining the annual common stock value limitation of $25,000.  As of September 30, 2006, the Purchase Plan qualifies as a non-compensatory plan under Section 423 of the Internal Revenue Code and, accordingly, no compensation expense is recognized under the plan.

The Purchase Plan covers a total of 2,000,000 shares of the Company’s common stock.  During the nine months ended September 30, 2006, 34,319 shares totaling $1.2 million were sold to employees under the Purchase Plan.

4.              BUSINESS COMBINATIONS

The Company has completed several business acquisitions that have all been accounted for using the purchase method of accounting.  Accordingly all assets and liabilities were adjusted to and recorded at their estimated fair values as of the acquisition date.  The excess of purchase price over fair value of net assets acquired, if identifiable, was recorded as a premium on purchased deposits, and if not identifiable, was recorded as goodwill.  The estimated tax effect of differences between tax bases and market values has been reflected in deferred income taxes.  The results of operations of the acquired entities have been included in the Company’s consolidated financial statements from the date of acquisition.

At the close of business on March 17, 2006, the Company completed the acquisition of Standard Bank, a federal savings bank headquartered in Monterey Park, California.  The purchase price was $200.3 million which was comprised of $66.4 million in cash and 3,647,440 shares of East West Bancorp, Inc. common stock.  The Company recorded total goodwill of $100.8 million and core deposit premium of $8.6 million for this transaction.

The Company completed the acquisition of United National Bank, a commercial bank headquatered in San Marino, California, at the close of business on September 6, 2005.  The purchase price was $177.9 million which was comprised of $71.1 million in cash and 3,138,701 shares of East West Bancorp, Inc. common stock.  The Company recorded total goodwill of $99.6 million and core deposit premium of $15.0 million for this transaction.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for these two transactions:

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The unaudited pro forma combined amounts presented below give effect to the acquisition of Standard Bank as if this transaction had been completed as of the beginning of each period.  For the three and nine months ended September 30, 2005, the unaudited pro forma combined amounts also include the results of operations for United National Bank as if this transaction had been completed as of the beginning of each period. The unaudited pro forma information is not necessarily indicative of the results of operations that would have resulted had the acquisitions been completed at the beginning of the applicable period presented, nor is it necessarily indicative of the results of operations in future periods.

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		Three Months Ended September 30,						Nine Months Ended September 30,
		2006 (1)			2005 (3)			2006 (2)			2005 (3)
		(In thousands, except per share data)
Net interest income		$	95,417		$	84,314		$	274,213		$	241,796
Provision for loan losses		(3,500		)	(8,450		)	(9,366		)	(17,780		)
Noninterest income		8,103			8,430			14,868			24,760
Noninterest expense		(41,946		)	(37,385		)	(119,497		)	(107,572		)
Income before provision for income taxes		58,074			46,909			160,218			141,204
Provision for income taxes		(22,512		)	(17,331		)	(61,484		)	(52,189		)
Net income		$	35,562		$	29,578		$	98,734		$	89,015
EARNINGS PER SHARE
BASIC		$	0.59		$	0.50		$	1.64		$	1.51
DILUTED		$	0.58		$	0.49		$	1.60		$	1.47
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
BASIC		60,536			59,228			60,219			59,125
DILUTED		61,797			60,789			61,584			60,732

(1) Since the acquisition of Standard Bank was completed on March 17, 2006, there is no difference between the pro forma and actual results of operations for the three months ended September 30, 2006.

 

(2) The pro forma results of operations for the nine months ended September 30, 2006 includes $10.3 million in net realized losses on investment securities that were sold by Standard Bank during the first quarter of 2006.  Further, the pro forma results of operations for the nine months ended September 30, 2006 reflect interest expense related to junior subordinated debt amounting to $30.0 million that was issued in connection with the acquisition of Standard Bank as if this debt instrument was issued at the beginning of the period.

 

(3) The pro forma results of operations for both periods in 2005 reflect additional interest expense related to $50.0 million in junior subordinated debt that was issued in connection with the acquisitions of United National Bank and Standard Bank as if these debt instruments were issued at the beginning of each period.

5.              SECURITIES SOLD UNDER REPURCHASE AGREEMENTS

During 2006, the Company has entered into three separate long-term transactions totaling $500.0 million involving the sale of securities under repurchase agreements.  Repurchase agreements are accounted for as collateralized financing transactions and recorded at the amounts at which the securities were sold.  The collateral for these agreements consist of U.S. Government agency and U.S. Government sponsored enterprise debt and mortgage-backed securities.

The first transaction, amounting to $200.0 million, has an effective date of April 25, 2006 and a maturity date of April 25, 2016.  The interest rate is initially floating for the first two years from April 25, 2006 through April 25, 2008 based on the three-month Libor minus 125 basis points.  Thereafter, the rate is fixed at 5.128% for the remainder of the term.  As of September 30, 2006, the interest rate on this agreement is 4.235%.  The counterparty has the right to call the transaction on April 25, 2008 and quarterly thereafter until maturity.

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The second transaction, also amounting to $200.0 million, has an effective date of June 6, 2006 and a maturity date of June 6, 2013.  The interest rate is initially floating for the first six months from June 6, 2006 through December 6, 2006 based on the three-month Libor minus 255 basis points.  Thereafter, the rate is fixed at 5.00% for the remainder of the term.  At September 30, 2006, the interest rate on this agreement is 2.84%.  The counterparty has the right to call the transaction on December 6, 2006 and quarterly thereafter until maturity.

The third transaction, amounting to $100.0 million, has an effective date of September 7, 2006 and a maturity date of September 7, 2016.  The interest rate is initially floating for the first nine months from September 7, 2006 through June 7, 2007 based on the three-month Libor minus 340 basis points. Thereafter, the rate is fixed at 4.7775% for the remainder of the term.  At September 30, 2006, the interest rate on this agreement is 1.99%.  The counterparty has the right to call the transaction on June 7, 2007 and quarterly thereafter until maturity.

In June 2006, the Company modified the terms of $50.0 million of its repurchase agreements in response to the increasing interest rate environment.  This transaction was initially entered into by the Company in September 2005.  Under the original terms of this seven-year agreement, the interest rate for the first year was based on the three-month Libor minus 100 basis points.  Thereafter, the rate was fixed at 4.075% through the original maturity date of September 6, 2012.  Under the modified terms, the interest rate on this agreement for the period from June 6, 2006 through December 6, 2006 is based on the three-month Libor minus 290 basis points.  Thereafter, the rate is fixed at 5.00% through the extended maturity date of June 6, 2013.  At September 30, 2006, the interest rate on this repurchase agreement is 2.49%.  Under the terms of the modification, the counterparty has the right to call the transaction on December 6, 2006 and quarterly thereafter until maturity.  The difference in the present value of the cash flows under the new terms of the debt instrument is less than 10% of the present value of the remaining cash flows under the original terms.  As such, this modification of debt terms is not considered substantial, and therefore, does not constitute extinguishment of debt in accordance with the provisions of EITF 96-19, Debtor’s Accounting for a Modification or Exchange of Debt Instruments.  No gain or loss was recorded in the consolidated statements of income as a result of this debt modification.

6.              JUNIOR SUBORDINATED DEBT

On March 15, 2006, the Company issued $30.9 million in junior subordinated debt securities through a pooled trust preferred offering.  Similar to previous offerings, these securities were issued through a newly formed statutory business trust, East West Capital Trust VII (“Trust VII”), a wholly-owned subsidiary of the Company.  The proceeds from the debt securities are loaned by Trust VII to the Company and are included in long-term debt in the accompanying Condensed Consolidated Balance Sheet.  The securities issued by Trust VII have a scheduled maturity of June 15, 2036 and bear interest at a per annum rate based on the three-month Libor plus 135 basis points, payable on a quarterly basis.  At September 30, 2006, the interest rate on the junior subordinated debt was 6.74%.  The junior subordinated debt issued qualifies as Tier I capital for regulatory reporting purposes.

7.              COMMITMENTS AND CONTINGENCIES

Credit Extensions - In the normal course of business, the Company has various outstanding commitments to extend credit that are not reflected in the accompanying interim consolidated financial statements.  As of September 30, 2006, undisbursed loan commitments and commercial and standby letters of credit amounted to $2.25 billion and $449.0 million, respectively.

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Guarantees – From time to time, the Company sells loans with recourse in the ordinary course of business.  For loans that have been sold with recourse, the recourse component is considered a guarantee.  When the Company sells a loan with recourse, it commits to stand ready to perform if the loan defaults, and to make payments to remedy the default.  As of September 30, 2006 and December 31, 2005, loans sold with recourse, comprised entirely of residential single family mortgage loans, totaled $27.9 million and $31.6 million, respectively.  The Company’s recourse reserve related to these loans totaled $61 thousand and $76 thousand as of September 30, 2006 and December 31, 2005, respectively, and is included in accrued expenses and other liabilities in the accompanying consolidated balance sheets.

The Company also sells loans without recourse that may have to be subsequently repurchased if a defect that occurred during the loan origination process results in a violation of a representation or warranty made in connection with the sale of the loan.  When a loan sold to an investor without recourse fails to perform according to its contractual terms, the investor will typically review the loan file to determine whether defects in the origination process occurred and if such defects give rise to a violation of a representation or warranty made to the investor in connection with the sale.  If such a defect is identified, the Company may be required to either repurchase the loan or indemnify the investor for losses sustained.  If there are no such defects, the Company has no commitment to repurchase the loan.  As of September 30, 2006 and December 31, 2005, the amount of loans sold without recourse totaled $1.05 billion and $777.6 million, which substantially represents the unpaid principal balance of the Company’s loans serviced for others portfolio.

Litigation - Neither the Company nor the Bank is involved in any material legal proceedings at September 30, 2006.  The Bank, from time to time, is a party to litigation which arises in the ordinary course of business, such as claims to enforce liens, claims involving the origination and servicing of loans, and other issues related to the business of the Bank.  After taking into consideration information furnished by counsel to the Company and the Bank, management believes that the resolution of such issues will not have a material adverse impact on the financial position, results of operations, or liquidity of the Company or the Bank.

Regulated Investment Company – On December 31, 2003, the California Franchise Tax Board (“FTB”) announced that it is taking the position that certain tax deductions relating to regulated investment companies will be disallowed pursuant to California Senate Bill 614 and California Assembly Bill 1601, which were signed into law in the fourth quarter of 2003.  East West Securities Company, Inc. (the “Fund”), a regulated investment company (“RIC”) formed and funded in July 2000 to raise capital in an efficient and economical manner was dissolved on December 30, 2002 as a result of, among other reasons, proposed legislation to change the tax treatments of RICs.  The Fund provided state tax benefits beginning in 2000 until the end of 2002, when the RIC was officially dissolved.  While the Company’s management continues to believe that the tax benefits realized in previous years were appropriate and fully defensible under the existing tax codes at that time, the Company has deemed it prudent to participate in the voluntary compliance initiative, or “VCI” offered by the State of California to avoid certain potential penalties should the FTB choose to litigate its announced position about the tax treatment of RICs for periods prior to enactment of the legislation described above and should the FTB be successful in that litigation.

Pursuant to the VCI program, the Company filed amended California income tax returns on April 15, 2004 for all affected years and paid the resulting taxes and interest due to the FTB.  This amounted to an aggregate payment of $14.2 million for tax years 2000, 2001, and 2002.  The Company’s management continues to believe that the tax deductions are appropriate and, as such, refund claims have also been filed for the amounts paid with the amended returns.  These refund claims are reflected as assets in the Company’s consolidated financial statements.  As a result of these actions—amending the Company’s California income tax returns and subsequent related filing of refund claims—the Company retains its potential exposure for assertion of an accuracy-related penalty should the FTB prevail in its position, in addition to our risk of not being

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successful in our refund claim for taxes and interest.  The Company’s potential exposure to all other penalties, however, has been eliminated through this course of action.

The FTB is currently in the process of reviewing and assessing our refund claims for taxes and interest for tax years 2000 through 2002.  Management is continuing to pursue these claims, to monitor developments in the law in this area, and to monitor the status of tax claims with respect to other registered investment companies.

8.              STOCKHOLDERS’ EQUITY

Earnings Per Share - The actual number of shares outstanding at September 30, 2006 was 61,206,684.  Basic earnings per share are calculated on the basis of the weighted average number of shares outstanding during the period.  Diluted earnings per share are calculated on the basis of the weighted average number of shares outstanding during the period plus restricted stock and shares issuable upon the assumed exercise of outstanding common stock options and warrants.

The following table sets forth earnings per share calculations for the three and nine months ended September 30, 2006 and 2005:

		Three Months Ended September 30,
		2006								2005
		Net			Number		Per Share			Net			Number		Per Share
		Income			of Shares		Amounts			Income			of Shares		Amounts
		(In thousands, except per share data)
Basic earnings per share		$	35,562		60,536		$	0.59		$	28,583		53,261		$	0.54
Effect of dilutive securities:
Stock options		—			995		(0.01		)	—			1,312		(0.02		)
Restricted stock		—			190					—			135		—
Stock warrants		—			76		—			—			114		—
Dilutive earnings per share		$	35,562		61,797		$	0.58		$	28,583		54,822		$	0.52

 

		Nine Months Ended September 30,
		2006								2005
		Net			Number		Per Share			Net			Number		Per Share
		Income			of Shares		Amounts			Income			of Shares		Amounts
		(In thousands, except per share data)
Basic earnings per share		$	104,258		59,204		$	1.76		$	77,565		52,615		$	1.47
Effect of dilutive securities:
Stock options		—			1,098		(0.04		)	—			1,346		(0.04		)
Restricted stock		—			182		—			—			136		—
Stock warrants		—			85		—			—			125		—
Dilutive earnings per share		$	104,258		60,569		$	1.72		$	77,565		54,222		$	1.43

 

Quarterly Dividends – The Company’s Board of Directors declared and paid quarterly common stock cash dividends of $0.05 per share which was paid on August 23, 2006 to shareholders of record on August 9, 2006.  Cash dividends totaling $3.0 million were paid to the Company’s shareholders during the third quarter of 2006.

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9.            BUSINESS SEGMENTS

The Company utilizes an internal reporting system to measure the performance of various operating segments within the Bank and the Company overall.  The Company has identified four principal operating segments for purposes of management reporting: retail banking, commercial lending, treasury, and residential lending.  Information related to the Company’s remaining centralized functions and eliminations of inter-segment amounts have been aggregated and included in “Other.”  Although all four operating segments offer financial products and services, they are managed separately based on each segment’s strategic focus.  While the retail banking segment focuses primarily on retail operations through the Bank’s branch network, certain designated branches have responsibility for generating commercial deposits and loans.  The commercial lending segment, which includes commercial real estate, primarily generates commercial loans and deposits through the efforts of commercial lending officers located in the Bank’s northern and southern California production offices.  The treasury department’s primary focus is managing the Bank’s investments, liquidity, and interest rate risk; the residential lending segment is mainly responsible for the Bank’s portfolio of single family and multifamily residential loans.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies described in Note 1 of our annual report on Form 10-K for the year ended December 31, 2005.  Operating segment results are based on the Company’s internal management reporting process, which reflects assignments and allocations of capital, certain operating and administrative costs and the provision for loan losses.  Net interest income is based on the Company’s internal funds transfer pricing system which assigns a cost of funds or a credit for funds to assets or liabilities based on their type, maturity or re-pricing characteristics.  Noninterest income and noninterest expense, including depreciation and amortization, directly attributable to a segment are assigned to that business.  Indirect costs, including overhead expense, are allocated to the segments based on several factors, including, but not limited to, full-time equivalent employees, loan volume and deposit volume.  The provision for credit losses is allocated based on actual losses incurred and an allocation of the remaining provision based on new loan originations for the period.  The Company evaluates overall performance based on profit or loss from operations before income taxes not including nonrecurring gains and losses.

Future changes in the Company’s management structure or reporting methodologies may result in changes in the measurement of operating segment results.  Results for prior periods have been restated for comparability for changes in management structure or reporting methodologies.  Specifically, an adjustment was made to reallocate the credit provided for the Company’s capital to the treasury segment from the “Other” category.  The adjustment resulted in an increase in the treasury segment’s pretax profit of $6.6 million and $1.9 million for the three months ended September 30, 2006 and 2005, respectively.  For the nine months ended September 30, 2006 and 2005, this adjustment resulted in an increase in the treasury segment’s pretax profit of $18.7 million and $11.7 million, respectively.

The following tables present the operating results and other key financial measures for the individual operating segments for the three and nine months ended September 30, 2006 and 2005:

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		Three Months Ended September 30, 2006
		Retail			Commercial						Residential
		Banking			Lending			Treasury			Lending			Other			Total
		(In thousands)
Interest income		$	61,692		$	73,564		$	20,980		$	19,462		$	1,614		$	177,312
Charge for funds used		(44,467		)	(51,125		)	(21,974		)	(15,868		)	—			(133,434		)
Interest spread on funds used		17,225			22,439			(994		)	3,594			1,614			43,878
Interest expense		(37,779		)	(5,837		)	(35,412		)	—			(2,867		)	(81,895		)
Credit on funds provided		72,083			10,699			50,652			—			—			133,434
Interest spread on funds provided		34,304			4,862			15,240			—			(2,867		)	51,539
Net interest income		$	51,529		$	27,301		$	14,246		$	3,594		$	(1,253	)	$	95,417
Depreciation and amortization		$	2,596		$	174		$	(1,228	)	$	(76	)	$	752		$	2,218
Goodwill		182,488			12,166			—			48,663			859			244,176
Segment pretax profit (loss)		28,997			22,232			11,484			1,806			(6,445		)	58,074
Segment assets		2,468,924			3,421,399			1,611,488			2,609,012			701,479			10,812,302

 

		Three Months Ended September 30, 2005
		Retail			Commercial						Residential
		Banking			Lending			Treasury			Lending			Other			Total
		(In thousands)
Interest income		$	35,116		$	47,619		$	8,176		$	14,153		$	1,223		$	106,287
Charge for funds used		(20,913		)	(27,429		)	(8,648		)	(9,012		)	—			(66,002		)
Interest spread on funds used		14,203			20,190			(472		)	5,141			1,223			40,285
Interest expense		(16,498		)	(2,366		)	(15,841		)	—			—			(34,705		)
Credit on funds provided		38,556			5,482			21,964			—			—			66,002
Interest spread on funds provided		22,058			3,116			6,123			—			—			31,297
Net interest income		$	36,261		$	23,306		$	5,651		$	5,141		$	1,223		$	71,582
Depreciation and amortization		$	1,457		$	119		$	(458	)	$	239		$	967		$	2,324
Goodwill		107,649			7,177			—			28,706			958			144,490
Segment pretax profit (loss)		16,729			19,699			6,956			3,076			(1,857		)	44,603
Segment assets		1,711,258			2,401,139			833,954			2,555,291			436,736			7,938,378

 

		Nine Months Ended September 30, 2006
		Retail			Commercial						Residential
		Banking			Lending			Treasury			Lending			Other			Total
		(In thousands)
Interest income		$	163,789		$	199,322		$	48,232		$	53,408		$	9,111		$	473,862
Charge for funds used		(113,496		)	(133,732		)	(57,208		)	(42,454		)	—			(346,890		)
Interest spread on funds used		50,293			65,590			(8,976		)	10,954			9,111			126,972
Interest expense		(97,155		)	(14,425		)	(89,305		)	—			(2,868		)	(203,753		)
Credit on funds provided		193,600			28,585			124,705			—			—			346,890
Interest spread on funds provided		96,445			14,160			35,400			—			(2,868		)	143,137
Net interest income		$	146,738		$	79,750		$	26,424		$	10,954		$	6,243		$	270,109
Depreciation and amortization		$	7,940		$	524		$	(2,309	)	$	544		$	1,239		$	7,938
Goodwill		182,488			12,166			—			48,663			859			244,176
Segment pretax profit (loss)		86,436			67,969			27,333			6,701			(18,689		)	169,750
Segment assets		2,468,924			3,421,399			1,611,488			2,609,012			701,479			10,812,302

 

		Nine Months Ended September 30, 2005
		Retail			Commercial						Residential
		Banking			Lending			Treasury			Lending			Other			Total
		(In thousands)
Interest income		$	92,461		$	129,715		$	20,416		$	39,041		$	3,179		$	284,812
Charge for funds used		(51,869		)	(70,539		)	(16,716		)	(23,574		)	—			(162,698		)
Interest spread on funds used		40,592			59,176			3,700			15,467			3,179			122,114
Interest expense		(39,896		)	(5,507		)	(40,645		)	—			—			(86,048		)
Credit on funds provided		92,934			12,807			56,957			—			—			162,698
Interest spread on funds provided		53,038			7,300			16,312			—			—			76,650
Net interest income		$	93,630		$	66,476		$	20,012		$	15,467		$	3,179		$	198,764
Depreciation and amortization		$	3,858		$	344		$	(783	)	$	720		$	2,989		$	7,128
Goodwill		107,649			7,177			—			28,706			958			144,490
Segment pretax profit (loss)		42,688			55,851			22,092			12,155			(11,526		)	121,260
Segment assets		1,711,258			2,401,139			833,954			2,555,291			436,736			7,938,378

 

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