-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BVma3MJ07Q/aDbgUduSmejL3vuf5oo/f5mxHpw1dz1Vz6BYBT5e4o+tnv4yF/Hnx Co6W6vzCe+ObG3R7EUZHOQ== 0000950005-96-000622.txt : 19960906 0000950005-96-000622.hdr.sgml : 19960906 ACCESSION NUMBER: 0000950005-96-000622 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CATHAY BANCORP INC CENTRAL INDEX KEY: 0000861842 STANDARD INDUSTRIAL CLASSIFICATION: 6022 IRS NUMBER: 954274680 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-18630 FILM NUMBER: 96613016 BUSINESS ADDRESS: STREET 1: 777 N BROADWAY CITY: LOS ANGELES STATE: CA ZIP: 90012 BUSINESS PHONE: 2136254700 MAIL ADDRESS: STREET 1: 777 NORTH BROADWAY CITY: LOS ANGELES STATE: CA ZIP: 90012 10-Q 1 FORM 10-Q 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 June 30, 1996 ---------------------------- OR [ ] 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 0-18630 --------------------------------------------- CATHAY BANCORP, INC. (Exact name of registrant as specified in its charter) Delaware 95-4274680 - - -------------------------------------------------------------------------------- (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 777 North Broadway, Los Angeles, California 90012 - - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (213) 625-4700 ---------------------------- - - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common stock, $.01 par value, 7,930,786 shares outstanding as of June 30, 1996. TABLE OF CONTENTS PART I - FINANCIAL INFORMATION ............................................. 3 Item 1. Financial Statements .......................................... 4-6 Note to Condensed Consolidated Financial Statements ........... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ..............8-18 PART II - OTHER INFORMATION ................................................ 19 Item 1. Legal Proceedings ............................................. 19 Item 2. Changes in Securities ......................................... 19 Item 3. Defaults upon Senior Securities ............................... 19 Item 4. Submission of Matters to a Vote of Security Holders ........... 19 Item 5. Other Information ........................................... 19 Item 6. Exhibits and Reports on Form 8-K .............................. 20 SIGNATURES ............................................................... 21 2 PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS 3 CATHAY BANCORP, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION As of June 30, 1996 and December 31, 1995 (in thousands)
June 30, 1996 Dec. 31, 1995 (unaudited) (unaudited) ------------- -------------- ASSETS Cash and due from banks $ 30,140 $ 70,126 Federal funds sold 44,300 1,200 ------------- -------------- Cash and cash equivalents 74,440 71,326 Securities available-for-sale 300,435 243,252 Securities held-to-maturity (with estimated fair values of $186,108 in 1996 and $164,145 in 1995) 187,566 159,376 Loans (net of allowance for loan losses of $11,635 in 1996 and $12,742 in 1995) 548,935 542,995 Other real estate owned, net 12,170 13,879 Investments in real estate, net 4,167 4,304 Premises and equipment, net 26,147 26,586 Customers' liability on acceptance 6,117 3,675 Accrued interest receivable 12,328 11,715 Other assets 11,430 10,292 ------------- -------------- Total assets $ 1,183,735 $ 1,087,400 ============= ============== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits Non-interest bearing demand deposits $ 119,929 $ 117,974 Interest bearing accounts NOW accounts 91,937 88,917 Money market deposits 100,129 102,167 Savings deposits 138,157 134,045 Time deposits under $100,000 190,437 156,927 Time deposits of $100,000 or more 438,154 384,196 ------------- -------------- Total deposits 1,078,743 984,226 ------------- -------------- Securities sold under agreements to repurchase -- 1,500 Acceptances outstanding 6,117 3,675 Other liabilities 3,184 3,470 ------------- -------------- Total liabilities 1,088,044 992,871 ------------- -------------- Commitments and contingencies Stockholders' equity Preferred stock, $.01 par value; 10,000,000 shares authorized, none issued -- -- Common stock, $.01 par value; 25,000,000 shares authorized, 7,930,786 and 7,867,164 shares issued outstanding in 1996 and 1995, respectively 80 79 Additional paid-in-capital 43,049 42,014 Unrealized holding gain (loss) on securities available-for-sale, net of tax (2,093) 1,403 Retained earnings 54,655 51,033 ------------- -------------- Total stockholders' equity 95,691 94,529 ------------- -------------- Total liabilities and stockholders' equity $ 1,183,735 $ 1,087,400 ============= ============== See accompanying note to unaudited condensed consolidated financial statements.
4 CATHAY BANCORP, INC AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF INCOME For the three and six months ended June 30, 1996 and 1995 (In thousands, except per share data) (unaudited)
2nd Qtr. 2nd Qtr. YTD YTD June 1996 June 1995 June 1996 June 1995 ----------- ----------- ----------- ----------- INTEREST INCOME Interest and fees on loans $ 13,370 $ 14,375 $ 26,682 $ 28,501 Interest on securities available-for-sale 4,336 1,011 8,016 2,018 Interest on securities held-to-maturity 2,680 2,864 5,049 5,449 Interest on Federal funds sold 405 340 840 527 Interest on deposits with banks -- -- 40 -- ----------- ----------- ----------- ----------- Total interest income 20,791 18,590 40,627 36,495 ----------- ----------- ----------- ----------- INTEREST EXPENSE Time deposits of $100,000 or more 5,618 4,117 11,006 7,560 Other deposits 3,884 3,366 7,558 6,478 Other borrowed funds 11 13 57 35 ----------- ----------- ----------- ----------- Total interest expense 9,513 7,496 18,621 14,073 ----------- ----------- ----------- ----------- Net interest income before provision for loan losses 11,278 11,094 22,006 22,422 Provision for loan losses 900 1,350 1,800 3,000 ----------- ----------- ----------- ----------- Net interest income after provision for loan losses 10,378 9,744 20,206 19,422 ----------- ----------- ----------- ----------- NON-INTEREST INCOME Securities gains -- 92 22 140 Letter of credit commissions 322 386 603 751 Service charges 713 763 1,469 1,683 Other operating income 304 172 573 451 ----------- ----------- ----------- ----------- Total non-interest income 1,339 1,413 2,667 3,025 ----------- ----------- ----------- ----------- NON-INTEREST EXPENSE Salaries and employee benefits 3,092 3,010 6,197 5,942 Occupancy expense 575 558 1,128 1,083 Computer and equipment expense 516 515 1,023 1,080 Professional services expense 837 324 1,550 1,090 FDIC and State assessments 97 482 183 963 Marketing expense 257 305 586 531 Net other real estate owned expense 812 431 1,309 930 Other operating expense 837 1,386 1,609 2,166 ----------- ----------- ----------- ----------- Total non-interest expense 7,023 7,011 13,585 13,785 ----------- ----------- ----------- ----------- Income before income tax expense 4,694 4,146 9,288 8,662 Income tax expense 1,598 1,538 3,304 3,310 ----------- ----------- ----------- ----------- Net Income $ 3,096 $ 2,608 $ 5,984 $ 5,352 =========== =========== =========== =========== NET INCOME PER COMMON SHARE, based on the weighted average number of shares outstanding during the periods: $ 0.39 0.34 0.76 0.69 Weighted average number of common shares outstanding 7,912,070 7,783,019 7,894,413 7,774,963 See accompanying note to unaudited condensed consolidated financial statements.
5 CATHAY BANCORP, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the six months ended June 30, 1996 and 1995 (unaudited)
(In thousands) ------------------------- 1996 1995 - - ------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 5,984 $ 5,352 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision for loan losses 1,800 3,000 Provision for losses on other real estate owned 1,192 610 Provision for investments in real estate -- 600 Depreciation 736 766 Net gain on sale of other real estate owned (22) (8) Premises and equipment disposal (gains) losses 1 (1) Net gain on sales and calls of securities (22) (140) Amortization and accretion of investment security premiums, net 396 5 Decrease in deferred loan fees, net (16) (113) Increase in accrued interest receivable (613) (985) Decrease in other assets, net 1,429 899 Increase (decrease) in other liabilities (286) 1,399 ---------- --------- Total adjustments 4,595 6,032 ---------- --------- Net cash provided by operating activities 10,579 11,384 ---------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of securities available-for-sale (89,164) (10,169) Proceeds from maturity and call of securities available-for-sale 25,652 19,700 Purchase of securities held-to-maturity (40,193) (31,749) Proceeds from maturity and call of securities held-to-maturity 11,894 6,235 Net change in loans (9,243) (4,130) Purchase of premises and equipment (236) (787) Proceeds from sale of equipment 7 6 Proceeds from sale of other real estate owned 2,058 3,223 Decrease in investments in real estate 69 -- ---------- --------- Net cash used in investing activities (99,156) (17,671) ---------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in demand deposits, NOW accounts, money market and savings deposits 7,049 (28,208) Net increase in time deposits 87,468 51,782 Decrease in other borrowings (1,500) (3,949) Cash dividends (2,362) (2,341) Proceeds from issuance of common stock 1,036 415 ---------- --------- Net cash provided by financing activities 91,691 17,699 ---------- --------- Increase in cash and cash equivalents 3,114 11,412 Cash and cash equivalents, beginning of the period 71,326 55,828 ---------- --------- Cash and cash equivalents, end of the period $ 74,440 $67,240 ========== ========= Supplemental disclosure of cash flow information Cash paid during the period for: Interest $ 18,685 $ 14,009 Income taxes $ 2,010 $ 2,838 Non-cash investing activities: Transfer to securities available-for-sale $ 105 $ -- Net change in unrealized holding gain (loss) on securities available-for-sale, net of tax $ (3,496) $ 955 Transfers to other real estate owned $ 4,439 $ 14,590 Loans to facilitate the sale of other real estate owned $ 2,920 $ -- See accompanying note to unaudited condensed consolidated financial statements.
6 CATHAY BANCORP, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. For further information, refer to the consolidated financial statements and footnotes included in the Company's annual report on Form 10-K for year ended December 31, 1995. 7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion is given based on the assumption that the reader has access to the 1995 Annual Report of Cathay Bancorp, Inc. and its subsidiary Cathay Bank ("the Bank"), together ("Cathay" or the "Company"). RESULTS OF OPERATIONS For the second quarter of 1996, the Company reported net income of $3.1 million or $0.39 per common share, compared with $2.6 million or $0.34 per common share for the same quarter of 1995, representing an increase of $488,000 or 18.7%. The increase in the quarterly net income was mainly caused by a decrease of $450,000 in the provision for loan losses coupled with an increase of $184,000 in the net interest income before provision for loan losses. The annualized return on average assets and return on average stockholders' equity for the second quarter of 1996 were 1.05% and 13.03%, respectively, compared with 1.08% and 11.75%, respectively for the same quarter in 1995. For the six months ended June 30, 1996, the Company reported net income of $6.0 million or $0.76 per common share, compared with $5.4 million or $0.69 per common share for the same period in 1995, representing an increase of $632,000 or 11.8%. The increase in the 1996 year-to-date net income was primarily due to a reduction of $1.2 million in the provision for loan losses while the net interest income declined by $416,000 and non-interest income by $358,000. The annualized return on average assets and return on average stockholders' equity for the first six months of 1996 were 1.05% and 12.58%, respectively, compared with 1.12% and 12.22%, respectively for the corresponding period in 1995. NET INTEREST INCOME For the second quarter of 1996, net interest income before provision for loan losses totaled $11.3 million, compared with $11.1 million for the same quarter of 1995, representing an increase of $184,000 or 1.7%. On a taxable equivalent basis, net interest income was $11,518,000 for the second quarter of 1996, an increase of $103,000 or 0.9% over $11,415,000 for the same quarter of 1995. The increase in net interest income was largely attributable to a $220.0 million growth in the average earning assets, which contributed to a $2.2 million increase in total interest income. However, the increase due to volume was substantially offset by a decrease of 103 basis points from 8.88% to 7.85% in the average taxable equivalent yield on earning assets. The lower taxable equivalent yield on average earning assets was mainly due to a decrease of 75 basis points in the Bank's average reference rate on loans from 9.25% to 8.5%, combined with the effect from continued change in the earning asset mix of loans and investment securities. Cost of funds dropped slightly between the second quarter of 1995 and 1996. Net interest margin, defined as taxable equivalent net interest income to average earning assets, shrank 106 basis points from 5.36% to 4.30%. For the first six months of 1996 and 1995, net interest income before provision for loan losses totaled $22.0 million and $22.4 million, respectively, representing a decrease of $416,000 or 1.9% for 1996. On a taxable equivalent basis, net interest income totaled $22.6 million and $23.1 million for the first six months of 1996 and 1995, respectively, representing a decrease of $552,000 or 2.4% for 1996. Average earning assets grew by $195.7 million between the first six months of 1995 and 1996 contributing to an increase of $4.1 million in total interest income, which however, was offset by a decline of 90 basis points in the average taxable equivalent yield on earning assets from 8.84% to 7.94%. This was primarily a result of lower average reference rate on the Bank's loans from 9.16% to 8.54% reflecting the prevailing interest rate environment, and a relative change in the earning assets from loans to investment securities. To illustrate, average loans consisted of 66.51% of total average earning assets in the first six months of 1995, but decreased to 53.35% in 1996. In addition, cost of funds increased by 18 basis points from 3.82% to 4.00% primarily due to a $194.6 million increase in average interest-bearing liabilities between the first six months of 1995 and 1996, of which $185.7 8 million were in higher costing time deposits. Consequently, net interest margin decreased 114 basis points from 5.49% in the first six months of 1995 to 4.35% in 1996. NON-INTEREST INCOME For the first six months of 1996, non-interest income totaled $2.7 million, compared with $3.0 million for the same period a year ago. This represents a decrease of $358,000 or 11.8% resulting primarily from a one-time income of approximately $205,000 recorded in the first quarter of 1995 and a reduction of $118,000 in securities gains. The decrease in letter of credit commissions of $148,000 was due to a reclassification of $141,000 in wire transfer fees to other operating income. On a quarterly basis, non-interest income was $1.3 million and $1.4 million, respectively for the second quarter of 1996 and 1995. The decrease in the 1996 second quarter non-interest income was mainly attributable to a decline in securities gains of $92,000. The reduction in letter of credit commissions of $64,000 was caused by a reclassification of wire transfer fees of $78,000 to other operating income. The following tables illustrate the components of non-interest income, as well as the amount and percentage changes for the periods indicated:
(Dollars in thousands) Six Months Ended Increase Percent Non-interest income: 06/30/96 06/30/95 (Decrease) Change -------- -------- ---------- ------ Letter of credit commissions $ 603 $ 751 $ (148) (19.7)% Service charges 1,469 1,683 (214) (12.7) Other operating income 573 451 122 27.1 Securities Gains 22 140 (118) (84.3) ------ ------ ------- Total non-interest income $2,667 $3,025 $ (358) (11.8)% ====== ====== ======= 2nd Qtr. 2nd Qtr. Increase Percent Non-interest income: 1996 1995 (Decrease) Change --------- --------- ---------- ------ Letter of credit commissions $ 322 $ 386 $ (64) (16.6)% Service charges 713 763 (50) (6.6) Other operating income 304 172 132 76.7 Securities Gains -0- 92 (92) (100.0) ------ ------ ------- Total non-interest income $1,339 $1,413 $ (74) (5.2)% ====== ====== =======
NON-INTEREST EXPENSE Non-interest expense amounted to $13.6 million and $13.8 million, respectively for the first six months of 1996 and 1995. The decrease of $200,000 or 1.5% in 1996 was attributed to decreases of $782,000 in FDIC assesment and $600,000 in the provision for real estate investment ("REI") losses offset by an increase of $582,000 in the provision for other real estate owned ("OREO") losses, higher legal fees, and higher salaries expense. Quarterly, non-interest expense totaled $7.0 million for the second quarter of both 1996 and 1995. Nevertheless, this was achieved by a decrease of $600,000 in the provision for REI losses and a decrease of $385,000 in FDIC assessment offset by an increase of $513,000 in professional services expense mainly due to legal fees, and an increase of $381,000 in net OREO expense primarily from the provision for OREO losses mentioned above. The following table presents the components of the non-interest expense with the amount and percentage changes for the periods indicated: 9
(Dollars in thousands) Six Months Ended Increase Percent Non-interest expense: 06/30/96 06/30/95 (Decrease) Change -------- -------- ---------- ------ Salaries and employee benefits $ 6,197 $ 5,942 $ 255 4.3% Occupancy expense 1,128 1,083 45 4.2 Computer and equipment expense 1,023 1,080 (57) (5.3) Professional services expense 1,550 1,090 460 42.2 FDIC and State assessments 183 963 (780) (81.0) Marketing expense 586 531 55 10.4 Net other real estate owned expense 1,309 930 379 40.8 Other operating expense 1,609 2,166 (557) (25.7) ------- --------- ------- Total non-interest expense $13,585 $13,785 $ (200) (1.5)% ======= ======= ======= 2nd Qtr. 2nd Qtr. Increase Percent Non-interest expense: 1996 1995 (Decrease) Change --------- --------- ---------- ------ Salaries and employee benefits $ 3,092 $ 3,010 $ 82 2.7% Occupancy expense 575 558 17 3.1 Computer and equipment expense 516 515 1 0.2 Professional services expense 837 324 513 158.3 FDIC and State assessments 97 482 (385) (79.9) Marketing expense 257 305 (48) (15.7) Net other real estate owned expense 812 431 381 88.4 Other operating expense 837 1,386 (549) (39.6) -------- -------- ------- Total non-interest expense $ 7,023 $ 7,011 $ 12 0.2% ======== ======== =======
FINANCIAL CONDITION From year-end 1995 to June 30, 1996, total assets grew by $96.3 million or 8.9% to $1,183.7 million; deposits were up $94.5 million or 9.6% to $1,078.7 million; securities available-for-sale increased $57.2 million or 23.5% to $300.4 million; securities held-to-maturity increased $28.2 million or 17.7% to $187.6 million; loans, net of unearned fees, advanced moderately to $560.6 million; and stockholders' equity was up slightly to $95.7 million primarily due to the year-to-date earnings offset by a decrease of $3.5 million in unrealized holding gains on securities available-for-sale and dividends paid in the amount of $2.4 million. EARNING ASSET MIX Total earning assets amounted to $1,092.9 million as of June 30, 1996, compared with $974.6 million at year-end 1995, representing an increase of $118.3 million or 12.1%. A majority of the increase in earning assets was funded by growth in deposits. A change in the earning asset mix from loans to other types of investments, primarily securities and Federal funds sold, continued to exist reflecting the slow loan growth as well as the keen competition for loans in the Company's market area. However, the change in the earning asset mix continued to improve the Company's liquidity ratio from 43.6% at year-end 1995 to 48.3% as of June 30, 1996, but it had unfavorably impacted the net interest margin, which declined 114 basis points comparing the first six months of 1995 and 1996. The table below shows the changes in the earning asset mix as of the dates indicated: 10 (Dollars in thousands) As of 06/30/96 As of 12/31/95 ---------------------- -------------------- Types of earning assets: Amount Percent Amount Percent ------ ------- ------ ------- Federal funds sold $ 44,300 4.0% $ 1,200 0.1% Securities available-for-sale 300,435 27.5 243,252 25.0 Securities held-to-maturity 187,566 17.2 159,376 16.4 Time deposits with other banks -0- -0- 15,001 1.5 Loans (net of deferred fees) 560,570 51.3 555,737 57.0 ---------- ----- ---------- ----- Total earning assets $1,092,871 100.0% $ 974,566 100.0% ========== ===== ========== ===== SECURITIES As of June 30, 1996 securities available-for-sale and held-to-maturity increased $57.2 million or 23.5% to $300.4 million and $28.2 million or 17.7% to $187.6 million, respectively, compared with $243.3 million and $159.4 million, respectively at year-end 1995. As explained previously, the substantial increase in securities was largely due to slow loan growth while the Company continued to experience deposit growth. The following tables summarize the composition and maturity distribution of the investment portfolio as of the dates indicated:
(Dollars in thousands) Securities Available-for-Sale: As of 06/30/96 -------------------------------------------------------------------------- Amortized Gross Gross Cost Unrealized Gains Unrealized Losses Fair Value ---- ---------------- ----------------- ---------- U.S. Treasury securities $ 90,033 $ 126 $ 528 $ 89,631 U.S. government agencies 202,078 13 3,194 198,897 State and municipal securities 105 -0- -0- 105 Mortgage-backed securities* 8,346 -0- 47 8,299 Federal Home Loan Bank stock 3,503 -0- -0- 3,503 -------- ------ -------- -------- Total $304,065 $ 139 $ 3,769 $300,435 ======== ====== ======== ========
As of 12/31/95 -------------------------------------------------------------------------- Amortized Gross Gross Cost Unrealized Gains Unrealized Losses Fair Value ---- ---------------- ----------------- ---------- U.S. Treasury securities $110,049 $ 749 $ 412 $110,386 U.S. government agencies 127,750 2,097 -0- 129,847 State and municipal securities 95 -0- -0- 95 Federal Home Loan Bank stock 2,924 -0- -0- 2,924 -------- -------- -------- -------- Total $240,818 $ 2,846 $ 412 $243,252 ======== ======== ======== ======== * The mortgage-backed securities reflect stated maturities and not anticipated prepayments.
11
(Dollars in thousands) Securities Held-to-Maturity: As of 06/30/96 --------------------------------------------------------------------------- Carrying Gross Gross Estimated Value Unrealized Gains Unrealized Losses Fair Value ----- ---------------- ----------------- ---------- U.S. Treasury securities $ 50,055 $ -0- $ 787 $ 49,268 U.S. government agencies 64,413 -0- 882 63,531 State and municipal securities 38,376 1,209 115 39,470 Mortgage-backed securities* 34,722 -0- 883 33,839 -------- ------- -------- -------- Total $187,566 $ 1,209 $ 2,667 $186,108 ======== ======= ======== ========
As of 12/31/95 --------------------------------------------------------------------------- Carrying Gross Gross Estimated Value Unrealized Gains Unrealized Losses Fair Value ----- ---------------- ----------------- ---------- U.S. Treasury securities $ 50,062 $ 922 $ 96 $ 50,888 U.S. government agencies 69,428 1,693 -0- 71,121 State and municipal securities 39,620 2,274 24 41,870 Mortgage-backed securities* 266 -0- -0- 266 -------- -------- -------- -------- Total $159,376 $ 4,889 $ 120 $164,145 ======== ======== ======== ========
Securities Portfolio Maturity Distribution: (Dollars in thousands) As of June 30, 1996 Maturity Schedule -------------------------------------------------------------------------- After 1 But After 5 But Securities Available-for-Sale: Within 1 Yr Within 5 Yrs Within 10 Yrs Over 10 Yrs Total - - ----------------------------- ----------- ------------ ------------- ----------- ----- U.S. Treasury securities $ 59,920 $ 29,711 $ -0- $ -0- $ 89,631 U.S. government agencies 29,895 149,212 19,790 -0- 198,897 State and municipal securities 105 -0- -0- -0- 105 Mortgage-backed securities* -0- -0- 8,299 -0- 8,299 Federal Home Loan Bank stock 3,503 -0- -0- -0- 3,503 -------- -------- -------- -------- --------- Total $ 93,423 $178,923 $ 28,089 $ -0- $300,435 ======== ======== ======== ======== ======== Securities Held-to-Maturity: U.S. Treasury securities $ -0- $ 50,055 $ -0- $ -0- $ 50,055 U.S. government agencies 4,999 39,414 20,000 -0- 64,413 State and municipal securities 1,295 8,649 13,452 14,980 38,376 Mortgage-backed securities* -0- 14,793 4,987 14,942 34,722 -------- -------- ---------- -------- -------- Total $ 6,294 $112,911 $ 38,439 $ 29,922 $187,566 ======== ======== ======== ======== ======== * The mortgage-backed securities reflect stated maturities and not anticipated prepayments.
LOANS Total gross loans amounted to $562.7 million as of June 30, 1996, compared with $557.9 million at year-end 1995. The moderate increase of $4.8 million resulted from a $15.6 million increase in real estate mortgage loans and a $6.7 million increase in other loans due to investments in banker's acceptances, offset by decreases of $12.1 million, $4.1 million and $1.3 million in commercial loans, construction loans and installment loans, respectively. The following table sets forth the classification of loans by type and mix as of the dates indicated: 12
(Dollars in thousands) As of 06/30/96 As of 12/31/95 ----------------------------- -------------------------------- Types of loans: Amount Percent Amount Percent ------ ------- ------ ------- Commercial loans $ 280,551 51.1% $ 292,612 53.9% Real estate mortgage loans 246,989 45.0 231,360 42.6 Real estate construction loans 9,452 1.7 13,606 2.5 Installment loans 18,494 3.4 19,748 3.6 Other loans 7,189 1.3 533 0.1 --------- ----- --------- -------- Total loans - Gross 562,675 557,859 Allowance for loan losses (11,635) (2.1) (12,742) (2.3) Unamortized deferred loan fees (2,105) (0.4) (2,122) (0.4) --------- ----- --------- -------- Total loans - Net $ 548,935 100.0% $ 542,995 100.0% ========= ===== ========= ========
RISK ELEMENTS OF THE LOAN PORTFOLIO Non-performing Assets As of June 30, 1996 the Company's non-performing assets decreased $2.5 million to $35.2 million, compared with $37.7 million at year-end 1995. Non-performing assets include loans past due 90 days or more (including both loans that are still accruing interest, and those on a non-accrual status), troubled debt restructurings, as well as real estate acquired through foreclosures. The decrease in non-performing assets was accomplished by a reduction of $4.5 million in troubled debt restructurings and a decline of $1.7 million in OREO offset by an increase of $3.9 million in non-accrual loans. The coverage ratio, which is the allowance for loan losses to non-performing loans, decreased from 53.57% at year-end 1995 to 50.61% as of June 30, 1996, primarily due to a $1.1 million decrease in the allowance for loan losses. However, management believes the allowance for loan losses was adequate as of June 30, 1996 since a majority of the non-accrual loans, especially the commercial real estate loans, are secured by the first trust deeds of the respective properties. The following table presents the breakdown of non-performing assets by categories as of the dates indicated:
(Dollars in thousands) As of As of As of As of Non-Performing Assets: 06/30/96 03/31/96 12/31/95 09/30/95 -------- -------- -------- ------- Loans past due 90 days or more and still accruing interest $ 1,171 $ 1,571 $ 1,344 $ 8,860 Non-accrual loans 17,875 17,621 14,012 22,528 ------- ------- ------- ------- Total past due loans 19,046 19,192 15,356 31,388 Troubled debt restructurings 3,945 8,419 8,429 8,617 Real estate acquired in foreclosure 12,170 15,436 13,879 19,452 ------- ------- ------- ------- Total non-performing assets $35,161 $43,047 $37,664 $59,457 ======= ======= ======= ======= Non-performing assets as a percentage of period-end total loans plus OREO 6.12% 7.34% 6.59% 10.46%
The balance of non-accrual loans consisted mainly of $6.9 million in commercial real estate loans and $11.0 million in commercial loans. The following tables present the type of properties securing the loans and the type of businesses the borrowers engaged in under different non-accrual loan categories as of the dates indicated: 13
(Dollars in thousands) 06/30/96 12/31/95 ---------------------------- ---------------------------- Loan Balance --------------------------------------------------------------- Commercial Commercial Type of property: Real Estate Commercial Real Estate Commercial ----------- ---------- ----------- ---------- Single/multi-family residence $ 485 $ 2,255 $ -0- $ 2,940 Commercial 355 6,038 -0- 2,765 Motel 6,010 532 4,519 557 Others -0- 256 -0- 521 Marina -0- 1,875 -0- 1,900 Unsecured -0- 52 -0- 158 -------- ------- -------- -------- $ 6,850 $11,008 $ 4,519 $ 8,841 ======== ======= ======== ======== Type of business: Real estate development $ 355 $ 1,374 $ -0- $ -0- Retail 485 77 -0- 599 Restaurant -0- 26 -0- 26 Import -0- 502 -0- 1,050 Motel 6,010 532 4,519 879 Wholesale -0- 4,755 -0- 3,115 Marina -0- 1,875 -0- 1,900 Others -0- 1,867 -0- 1,272 -------- ------- -------- -------- $ 6,850 $11,008 $ 4,519 $ 8,841 ======== ======= ======== ========
The $6.0 million non-accrual motel loans as of June 30, 1996 comprised three credits secured by the first trust deeds of the respective motels located in Southern California with a single family residence as an added collateral on one credit. In the non-accrual commercial loan category, $6.0 million secured by commercial properties consisted of 10 credits. The collateral on these credits include primarily first trust deeds and secondarily second and third trust deeds on commercial buildings and warehouses. The $1.9 million secured by marinas represented one credit secured by two marinas which are currently in foreclosure. The Bank anticipates to complete the foreclosure sales on the marinas in the third quarter and expects no loss from the sales transaction. Troubled debt restructurings were reduced to $3.9 million as of June 30, 1996, compared with $8.4 million at year-end 1995. All of these restructured loans, except one in the amount of $666,000 which was 60 days past due, were current under their revised terms as of June 30, 1996. There were no loan concentrations to multiple borrowers in similar activities, which exceeded 10% of total loans as of June 30, 1996. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses amounted to $11.6 million or 2.1% of total loans as of June 30, 1996, compared with $12.7 million or 2.3% of total loans at year-end 1995. The following table presents information relating to the allowance for loan losses for the periods indicated: 14
(Dollars in thousands) YTD YTD YTD YTD Allowance for loan losses: 06/30/96 03/31/96 12/31/95 09/30/95 -------- -------- -------- -------- Balance at beginning of period $ 12,742 $ 12,742 $ 12,271 $ 12,271 Provision for loan losses 1,800 900 7,300 4,650 Loans charged-off (3,489) (710) (7,018) (4,747) Recoveries of charged-off loans 582 474 189 101 -------- -------- -------- -------- Balance at end of period $ 11,635 $ 13,406 $ 12,742 $ 12,275 ======= ======= ======= ======= Average loans outstanding during the period $553,370 $547,915 $549,660 $553,929 Ratio of net charge-offs to average loans outstanding during the period (annualized) 1.05% 0.17% 1.24% 1.12% Provision for loan losses to average loans outstanding during the period (annualized) 0.65% 0.66% 1.33% 1.12% Allowance to non-performing loans at period end 50.61% 48.55% 53.57% 30.68% Allowance to total loans at period-end 2.07% 2.35% 2.28% 2.24%
In determing the allowance for loan losses, management continues to assess the risks inherent in the loan portfolio, the possible impact of known and potential problem loans, and other factors such as collateral value, portfolio composition, loan concentration, financial strength of borrower, and trends in local economic conditions. The Company's allowance for loan losses consists of a specific allowance for impaired and classified loans and a general allowance for non-classified loans. The impairment allowance is defined as the difference between the recorded investment and the fair value of the impaired loan. For the remaining internally classified loans which do not require impairment allowance, management allocates a specific allowance to each loan based on the current financial condition of the borrowers and guarantors, the prevailing value of the underlying collateral and the general economic conditions. The general allowance is determined by an assessment of the overall quality of the unclassified portion of the loan portfolio as a whole, and by loan type. Management maintained the percentage assigned to the general allowance based on charge-off history and management's knowledge of the quality of the portfolio. The following table presents a breakdown of impaired loans and the impairment allowance related to impaired loans: (Dollars in thousands) As of June 30, 1996 -------------------------- Impaired loans: Recorded Impairment Loans with impairment allowance: Investment Allowance ---------- --------- Commercial $ 9,153 $ 1,558 Commercial real estate 15,320 2,039 -------- -------- Total loans with impairment allowance $ 24 473 $ 3,597 ======== ======== Loans without impairment allowance: Commercial $ 4,369 Commercial real estate 1,472 Other 2 -------- Total loans without impairment allowance $ 5,843 ======== Based on the Company's evaluation process to determine the level of the allowance for loan losses mentioned previously and the fact that a majority of the Company's non-performing loans are secured, management believes the allowance level to be adequate as of June 30, 1996 to absorb the estimated known and inherent risks identified through its analysis. 15 Other Real Estate Owned The Company's OREO properties, net of a valuation allowance of $1.7 million, were carried at $12.2 million on June 30, 1996. This compares with OREO, net of a valuation allowance of $869,000, carried at $13.9 million at year-end 1995. During the first six months of 1996, six properties with a fair value of $4.6 million were added to OREO, and seven properties totaling $5.0 million were disposed of with a net gain of $56,000. The existing OREO properties include different types of residential properties, commercial buildings, warehouses, land, and a motel. With an exception of one single family residence which is out of state, all other properties are located in Southern California. The Company maintains a valuation allowance for the OREO properties in order to record fair estimated value of these properties. Periodic evaluation is performed on each property and corresponding adjustment is made to the valuation allowance. Any decline in value is recognized as non-interest expense in the current period and any balance in the valuation allowance is reversed when the respective property is sold. During the first six months of 1996, management provided approximately $1.2 million to the provision for OREO losses based on new listing prices or new appraisals received. It is still unpredictable when the Southern California real estate market will regain its momentum, therefore additional provision for OREO losses may be made in the future, and the Company may incur losses on sales of these properties. DEPOSITS Total deposits reached $1,078.7 million as of June 30, 1996, compared with $984.2 million at year-end 1995, representing an increase of $94.5 million or 9.6%. Accounting for most of the increase were time deposits of $100,000 or more ("Jumbo CD's") and time deposits under $100,000, which rose $53.9 million and $33.5 million, respectively, due in large part to an inflow of capital from Pacific Rim during the first quarter of 1996. Although Jumbo CD's increased remarkably causing the percentage of core deposits to decline from 61.0% at year-end 1995 to 59.4% at June 30, 1996, management maintains they are considered generally less volatile since 1) a majority of the Company's Jumbo CD's have been fairly consistent based on historical experience which support that approximately half of the Jumbo CD's stayed with the Bank for more than two years; 2) the jumbo CD portfolio continued to be diversified with 2,801 individual accounts as of June 30, 1996; and 3) this phenomenon of having relatively higher percentage of Jumbo CD's exists in most of the Chinese American banks in the Company's market which is dictated by the fact that the customers in this market tend to have a higher savings rate. However, management has taken steps to monitor the continued growth in Jumbo CD's, such as to diversify the customer base by branch expansion, and to develop new transaction-based products to attract depositors. There were no brokered deposits as of June 30, 1996. The following table illustrates the deposit mix on the dates indicated:
(Dollars in thousands) As of 06/30/96 As of 12/31/95 -------------------------- ------------------------ Types of deposits: Amount Percent Amount Percent ------ ------- ------ ------- Demand $ 119,929 11.1% $117,974 12.0% NOW accounts 91,937 8.5 88,917 9.0 Money market accounts 100,129 9.3 102,167 10.4 Savings deposits 138,157 12.8 134,045 13.6 Time deposits under $100,000 190,437 17.7 156,927 15.9 Time deposits of $100,000 or more 438,154 40.6 384,196 39.1 --------- ----- -------- ----- Total deposits $1,078,743 100.0% $984,226 100.0% ========== ===== ======== =====
16 CAPITAL RESOURCES Stockholders' equity amounted to $95.7 million or 8.08% of total assets as of June 30, 1996, compared with $94.5 million or 8.69% of total assets at year-end 1995. The slight increase in stockholders' equity was primarily due to year-to-date net income of $6.0 million and $1.0 million from issuance of additional common shares through Dividend Reinvestment Plan and ESOP purchases, which were largely offset by a decrease of $3.5 million in the unrealized holding gains on securities available-for-sale, net of tax, and dividends paid in the amount of $2.4 million. The Company declared a cash dividend of $0.15 per share in January, April and July of 1996, on 7,867,164, 7,880,102 and 7,930,786 shares outstanding, respectively. Total cash dividends paid in 1996, including the $1.2 million paid in July 1996, amounted to $3.6 million. Management is committed to retain the Company's capital at a level sufficient to support future growth, to protect depositors, to absorb any unanticipated losses and to comply with various regulatory requirements. The Company and the Bank's capital and leverage ratios as of June 30, 1996 well exceeded the regulatory minimum requirements. They are presented in the tables below:
(Dollars in thousands) Company Bank As of 06/30/1996 As of 06/30/1996 --------------------------- ---------------------------- Balance Percent Balance Percent ------- ------- ------- ------- Tier 1 Capital $ 97,784** 14.04% $ 96,160** 13.81% Tier 1 Capital minimum requirement 27,859 4.00 27,858 4.00 ---------- ------ ---------- ------ Excess $ 69,925 10.04% $ 68,302 9.81% ========== ====== ========== ====== Total Capital $ 106,526** 15.30% $ 104,902** 15.06% Total Capital minimum requirement 55,718 8.00 55,716 8.00 ---------- ------ ---------- ------ Excess $ 50,808 7.30% $ 49,186 7.06% ========== ====== ========== ====== Risk-weighted assets $ 696,475 $ 696,444 Leverage ratio 8.26% 8.12% Minimum leverage requirement 4.00 4.00 ------ ------ Excess 4.26% 4.12% ====== ======= Total average assets $1,183,781 $1,183,759 ** Excluding the unrealized holding losses on securities available-for-sale of $2,093,000.
LIQUIDITY AND INTEREST RATE SENSITIVITY Liquidity is the Company's ability to maintain sufficient cash flow to meet maturing financial obligations and customer credit needs. The Company's liquidity came primarily from various types of deposits. In addition, liquidity can be obtained from assets as well, which include cash and cash equivalents, Federal funds sold, unpledged securities available-for-sale, and unpledged securities held-to-maturity. The Company's liquidity ratio (defined as net liquid assets to total deposits) continued to improve from 43.64% at year-end 1995 to 48.27% as of June 30, 1996 due to the gradual change in the earning asset mix of loans and other types of investments. 17 To further enhance its liquidity, the Company maintains a total credit line of $45 million for Federal funds with three correspondent banks, and a total retail certificate of deposit (CD) line of approximately $139 million with three brokerage firms. Moreover, the Company has become a shareholder of Federal Home Loan Bank (FHLB) since January 1993, which enables the Company to have access to lower cost FHLB financing when and if necessary. Management believes all the above-mentioned sources will provide adequate liquidity to the Company to meet its daily operating needs. Interest sensitivity risk management minimizes the risk to net interest income resulting from the changes in market interest rates. The Company's Investment Committee monitors interest sensitivity risk on an on-going basis by using, among other things, gap analysis and certain key ratios. Gap analysis is a measure to identify the differences between rate sensitive assets and rate sensitive liabilities over certain periods of time. A positive gap exists when rate sensitive assets exceed rate sensitive liabilities and a negative gap exists when rate sensitive liabilities exceed rate sensitive assets. Generally, a positive gap would enhance net interest margin during periods of increasing interest rates and vice versa, and a negative gap would impair net interest margin during periods of increasing interest rates and vice versa. Beginning in 1995, the Company's rate sensitive liabilities also included distribution of non-maturity deposit balances over certain periods of time based on the Bank's own assumptions and experiences. These non-maturity deposits, which contain money market accounts, NOW accounts and savings deposits, were included in the immediate repricing period prior to the third quarter of 1995. As of June 30, 1996, the Company's rate sensitive liabilities exceeded rate sensitive assets by roughly $64.7 million with a cumulative gap ratio of a negative 5.46% within a 1-year period. 18 PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS The Company, including its wholly-owned subsidiary, Cathay Bank, has been a party to ordinary routine litigation incidental to various aspects of its operations. Management is not currently aware of any other litigation that will have material adverse impact on the Company's consolidated financial condition, or the results of operations. Item 2. CHANGES IN SECURITIES There have been no changes in securities. Item 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of stockholders was held on April 15, 1996. At the 1996 Annual Meeting, the following directors (Class III) were elected to serve until 1999: George T.M. Ching Gerald T. Deal Wing K. Fat Wilbur K. Woo The number of votes cast for or withheld, with respect to the election of each Class III Director was as follows: For Withheld --------- -------- George T.M. Ching 5,253,589 70,454 Gerald T. Deal 5,253,589 70,454 Wing K. Fat 5,253,589 70,781 Wilbur K. Woo 5,253,589 70,454 Other directors whose terms of office continued after the meeting: Term Ending in 1997 (Class I) Term Ending in 1998 (Class II) ----------------------------- ------------------------------ Michael M.Y. Chang Ralph Roy Buon-Cristiani Patrick S.D. Lee Kelly L. Chan Anthony M. Tang Dunson K. Cheng Thomas G. Tartaglia Chi-Hung Joseph Poon Item 5. OTHER INFORMATION There were no reportable events. 19 Item 6. EXHIBITS AND REPORTS ON FORM 8-K The Bancorp filed a Form 8-K on June 7, 1996 to report the Agreement and Plan of Merger among Cathay Bancorp, Inc. and First Public Savings Bank, F.S.B. dated as of May 30, 1996. Exhibit: 27 Financial Data Schedule 20 SIGNATURES 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 thereunto duly authorized. Cathay Bancorp, Inc. (Registrant) Date: August 13, 1996 DUNSON K. CHENG --------------- ---------------------------- Dunson K. Cheng Chairman and President Date: August 13, 1996 ANTHONY M. TANG --------------- ---------------------------- Anthony M. Tang Chief Financial Officer 21 EX-27 2 FDS
9 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 30,140 0 44,300 0 300,435 187,566 186,108 560,570 11,635 1,183,735 1,078,743 0 9,301 0 80 0 0 95,611 1,183,735 26,682 13,065 880 40,627 18,564 18,621 22,006 1,800 22 13,585 9,288 9,288 0 0 5,984 0.76 0.76 4.35 17,875 1,171 3,945 11,000 12,742 3,489 582 11,635 11,635 0 0
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