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This excerpt taken from the UCBH 10-K filed Nov 17, 2006. Liquidity
Management. Liquidity is managed
centrally for both UCBH and UCB. UCBH’s cash requirements
consist primarily of debt service, operating expenses, income
taxes, and dividends to stockholders. UCBH’s cash needs are
routinely met through dividends from UCB, investment income and
debt issuances. UCB’s primary source of funding is its core
deposits. Operational cash flows, while constituting a funding
source for the Company, are not large enough to provide funding
in the amounts that fulfill the
44
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needs of UCBH and UCB. For 2005, operations
used $127.6 million of cash. As a result,
the Company utilizes other sources at its disposal to manage its
liquidity needs.
During 2005, UCBH received $30.0 million in dividends from UCB. At December 31, 2005, $244.9 million of dividend capacity was available for UCB to pay UCBH without obtaining regulatory approval. The dividend capacity is dependent upon the continued profitability of UCB and no significant changes in the current regulatory environment. While we have no current expectation that these two conditions will change, should a change take place to either in the future, the source of funding to UCBH may become more limited or even unavailable. See Note 16 to the Consolidated Financial Statements for the details related to dividend capacities and limitations. As mentioned earlier, UCB’s primary source of funding is its core deposits consisting of demand, savings and money market deposits and time deposits under $100,000. At December 31, 2005, these deposits, in aggregate, constituted 62.8% of total deposits compared with 64.2% at year-end 2004. For the year 2005, deposit increases resulted in net cash inflows of $787.5 million. Our liquidity may be adversely affected by unexpected withdrawals of deposits, which would require us to seek alternative funding sources, such as Federal Funds and other borrowings. UCB maintains borrowing lines with numerous correspondent banks and brokers and with the Federal Home Loan Bank of San Francisco (the “FHLB”) to supplement its supply of lendable funds and to manage liquidity. Such borrowings are generally secured with mortgage loans and/or securities with a market value at least equal to outstanding balances. In addition to loans and securities, advances from the FHLB are typically secured by a pledge of UCB’s stock in the FHLB. UCB had $788.0 million and $407.3 million of FHLB advances outstanding at December 31, 2005 and 2004, respectively. At December 31, 2005, UCB had $1.85 billion of additional FHLB borrowings available for future borrowing capacity. Included in the $788.0 million of FHLB advances outstanding as of December 31, 2005, were $226.0 million of short-term, fixed-rate advances that mature within one year. The remaining $562.0 million in long-term advances mature between 2007 and 2015. As of December 31, 2005, $436.5 million of these advances may be terminated at the option of the FHLB. The FHLB may terminate the advances at quarterly intervals at specified periods ranging from three to five years beyond the original advance dates. In December, the FHLB terminated one advance totaling $5.0 million. In the event the FHLB decides to exercise this option, UCB would need to repay the advances using other funding sources. The FHLB is also a source of liquidity for UCB. The FHLB allows member banks to borrow against their eligible loans to meet liquidity requirements. For 2005, the activity in short-term FHLB borrowings resulted in a net cash outflow of $10.9 million, while activity in long-term borrowings resulted in net cash inflows of $248.6 million. At December 31, 2005, amounts of unused lines of credit available for additional FHLB advances totaled $1.85 billion. Borrowings from the FHLB may increase in the future depending on availability of funds from other sources. However, UCB must maintain its FHLB membership to continue to access this source of funding. For the year 2005, UCBH issued $41.2 million of subordinated debentures. This issuance was primarily to provide the cash required to consummate the two acquisitions, which closed in 2005. In addition, the Company has a $20.0 million unsecured borrowing line with Wells Fargo Bank. As of December 31, 2005, no advances had been drawn against this line. During 2004 and continuing through the first three quarters of 2005, UCB originated multi-family real estate loans that were earmarked for sale to the secondary markets. As such, these loans were classified as held for sale at the point of loan origination. During the third quarter of 2005, however, UCB management made a decision to discontinue the practice of originating these multi-family loans solely with the intent to sell. This decision was primarily the result of changes in market conditions for multi-family loans in the secondary markets. As a result of this decision, at September 30, 2005, approximately $235.9 million of multi-family commercial real estate loans were transferred from held for sale to the held in portfolio. The Company had previously recognized a charge of $773,000 to reflect a decline in market value of the loans. During 2005, this multi-family loan sale activity resulted in net cash inflows of approximately $538.1 million. 45
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In addition, during the fourth quarter of 2005, UCB sold commercial real estate loans from its portfolio that were not originated with the intent to sell. These loan sales provided an additional $141.7 million in net cash inflows during 2005. We expect that loan sales will continue to be a tool that we use for liquidity and credit risk management purposes. Finally, the previously discussed internal loan securitization transactions also help to improve the Company’s liquidity, since FNMA securities receive more favorable treatment as a collateral base for borrowings than do whole loans. During 2005, the Company did not securitize any loans since loan sales provided more efficient and effective execution. While not considered a primary source of funding, the Company’s investment activities can also provide or use cash, depending on the investment strategy being used for the portfolio. During 2005, investment securities activities resulted in a decrease in investment holdings and a net inflow of cash in the amount of $85.6 million. Maturing balances in the various loan portfolios also provide additional flexibility in managing cash flows. In most situations, however, loan growth has resulted in cash outflows from a funding standpoint. For 2005, loan growth resulted in a net cash outflow of $1.37 billion. With the loan growth that we have experienced over the past year, we expect that our lending operations will continue to be a use of funds rather than a source.
This excerpt taken from the UCBH 10-K filed Mar 16, 2006. Liquidity
Management. Liquidity is managed
centrally for both UCBH and UCB. UCBH’s cash requirements
consist primarily of debt service, operating expenses, income
taxes, and dividends to stockholders. UCBH’s cash needs are
routinely met through dividends from UCB, investment income and
debt issuances. UCB’s primary source of funding is its core
deposits. Operational cash flows, while constituting a funding
source for the Company, are not large enough to provide funding
in the amounts that fulfill the
62
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needs of UCBH and UCB. For 2005, operations
contributed $303.4 million toward these needs. As a result,
the Company utilizes other sources at its disposal to manage its
liquidity needs.
During 2005, UCBH received $30.0 million in dividends from UCB. At December 31, 2005, $244.9 million of dividend capacity was available for UCB to pay UCBH without obtaining regulatory approval. The dividend capacity is dependent upon the continued profitability of UCB and no significant changes in the current regulatory environment. While we have no current expectation that these two conditions will change, should a change take place to either in the future, the source of funding to UCBH may become more limited or even unavailable. See Note 16 to the Consolidated Financial Statements for the details related to dividend capacities and limitations. As mentioned earlier, UCB’s primary source of funding is its core deposits consisting of demand, savings and money market deposits and time deposits under $100,000. At December 31, 2005, these deposits, in aggregate, constituted 62.8% of total deposits compared with 64.2% at year-end 2004. For the year 2005, deposit increases resulted in net cash inflows of $787.5 million. Our liquidity may be adversely affected by unexpected withdrawals of deposits, which would require us to seek alternative funding sources, such as Federal Funds and other borrowings. UCB maintains borrowing lines with numerous correspondent banks and brokers and with the Federal Home Loan Bank of San Francisco (the “FHLB”) to supplement its supply of lendable funds and to manage liquidity. Such borrowings are generally secured with mortgage loans and/or securities with a market value at least equal to outstanding balances. In addition to loans and securities, advances from the FHLB are typically secured by a pledge of UCB’s stock in the FHLB. UCB had $788.0 million and $407.3 million of FHLB advances outstanding at December 31, 2005 and 2004, respectively. At December 31, 2005, UCB had $1.85 billion of additional FHLB borrowings available for future borrowing capacity. Included in the $788.0 million of FHLB advances outstanding as of December 31, 2005, were $226.0 million of short-term, fixed-rate advances that mature within one year. The remaining $562.0 million in long-term advances mature between 2007 and 2015. As of December 31, 2005, $436.5 million of these advances may be terminated at the option of the FHLB. The FHLB may terminate the advances at quarterly intervals at specified periods ranging from three to five years beyond the original advance dates. In December, the FHLB terminated one advance totaling $5.0 million. In the event the FHLB decides to exercise this option, UCB would need to repay the advances using other funding sources. The FHLB is also a source of liquidity for UCB. The FHLB allows member banks to borrow against their eligible loans to meet liquidity requirements. For 2005, the activity in short-term FHLB borrowings resulted in a net cash outflow of $10.9 million, while activity in long-term borrowings resulted in net cash inflows of $248.6 million. At December 31, 2005, amounts of unused lines of credit available for additional FHLB advances totaled $1.85 billion. Borrowings from the FHLB may increase in the future depending on availability of funds from other sources. However, UCB must maintain its FHLB membership to continue to access this source of funding. For the year 2005, UCBH issued $41.2 million of subordinated debentures. This issuance was primarily to provide the cash required to consummate the two acquisitions, which closed in 2005. In addition, the Company has a $20.0 million unsecured borrowing line with Wells Fargo Bank. As of December 31, 2005, no advances had been drawn against this line. During 2004 and continuing through the first three quarters of 2005, UCB originated multi-family real estate loans that were earmarked for sale to the secondary markets. As such, these loans were classified as held for sale at the point of loan origination. During the third quarter of 2005, however, UCB management made a decision to discontinue the practice of originating these multi-family loans solely with the intent to sell. This decision was primarily the result of changes in market conditions for multi-family loans in the secondary markets. As a result of this decision, at September 30, 2005, approximately $235.9 million of multi-family commercial real estate loans were transferred from held for sale to the held in portfolio. The Company had previously recognized a charge of $773,000 to reflect a decline in market value of the loans. During 2005, this multi-family loan sale activity resulted in net cash inflows of approximately $538.1 million. 63
Table of Contents
In addition, during the fourth quarter of 2005, UCB sold commercial real estate loans from its portfolio that were not originated with the intent to sell. These loan sales provided an additional $141.7 million in net cash inflows during 2005. We expect that loan sales will continue to be a tool that we use for liquidity and credit risk management purposes. Finally, the previously discussed internal loan securitization transactions also help to improve the Company’s liquidity, since FNMA securities receive more favorable treatment as a collateral base for borrowings than do whole loans. During 2005, the Company did not securitize any loans since loan sales provided more efficient and effective execution. While not considered a primary source of funding, the Company’s investment activities can also provide or use cash, depending on the investment strategy being used for the portfolio. During 2005, investment securities activities resulted in a decrease in investment holdings and a net inflow of cash in the amount of $85.6 million. Maturing balances in the various loan portfolios also provide additional flexibility in managing cash flows. In most situations, however, loan growth has resulted in cash outflows from a funding standpoint. For 2005, loan growth resulted in a net cash outflow of $1.37 billion. With the loan growth that we have experienced over the past year, we expect that our lending operations will continue to be a use of funds rather than a source.
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