-----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, RwtF6paZ3crn5e9M+cc0TyOi9L5YR3EObvy4OLnwUYeG6fYTUWv0TaoxdEF0g5xC oVwOyQLqpwn7IbCMOI8R4w== 0000950150-96-001384.txt : 19961118 0000950150-96-001384.hdr.sgml : 19961118 ACCESSION NUMBER: 0000950150-96-001384 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CATHAY BANCORP INC CENTRAL INDEX KEY: 0000861842 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [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: 96663804 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 1 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, 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, 7,951,600 shares outstanding as of September 30, 1996. 2 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 ...................................................... 8-17 PART II - OTHER INFORMATION ............................................................................................... 18 Item 1. Legal Proceedings .................................................................................... 18 Item 2. Changes in Securities ................................................................................ 18 Item 3. Defaults upon Senior Securities ...................................................................... 18 Item 4. Submission of Matters to a Vote of Security Holders .................................................. 18 Item 5. Other Information .................................................................................... 18 Item 6. Exhibits and Reports on Form 8-K ..................................................................... 18 SIGNATURES ................................................................................................................ 19
3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS 3 4 CATHAY BANCORP, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION As of September 30, 1996 and December 31, 1995 (in thousands)
Sept. 30, 1996 Dec. 31, 1995 (unaudited) (unaudited) ASSETS Cash and due from banks $ 34,024 $ 70,126 Federal funds sold and securities purchased under agreement to resell 26,700 1,200 --------------- --------------- Cash and cash equivalents 60,724 71,326 Securities available-for-sale 289,055 243,252 Securities held-to-maturity (with estimated fair values of $213,367 in 1996 and $164,145 in 1995) 207,048 159,376 Loans (net of allowance for loan losses of $12,195 in 1996 and $12,742 in 1995) 570,790 542,995 Other real estate owned, net 15,570 13,879 Investments in real estate, net 4,098 4,304 Premises and equipment, net 25,937 26,586 Customers' liability on acceptance 6,543 3,675 Accrued interest receivable 8,893 11,715 Other assets 11,489 10,292 --------------- --------------- Total assets $ 1,200,147 $ 1,087,400 =============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits Non-interest bearing demand deposits $ 122,599 $ 117,974 Interest bearing accounts NOW accounts 93,621 88,917 Money market deposits 93,513 102,167 Savings deposits 143,741 134,045 Time deposits under $100,000 196,233 156,927 Time deposits of $100,000 or more 438,046 384,196 --------------- --------------- Total deposits 1,087,753 984,226 --------------- --------------- Securities sold under agreements to repurchase 800 1,500 Acceptances outstanding 6,543 3,675 Other liabilities 5,753 3,470 --------------- --------------- Total liabilities 1,100,849 992,871 --------------- --------------- 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, 7,951,600 and 7,867,164 shares issued and outstanding in 1996 and 1995, respectively 80 79 Additional paid-in-capital 43,370 42,014 Unrealized holding gain (loss) on securities available-for-sale, net of tax (1,346) 1,403 Retained earnings 57,194 51,033 --------------- --------------- Total stockholders' equity 99,298 94,529 --------------- --------------- Total liabilities and stockholders' equity $ 1,200,147 $ 1,087,400 =============== ===============
See accompanying notes to unaudited condensed consolidated financial statements. 4 5 CATHAY BANCORP, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF INCOME For the three and nine months ended September 30, 1996 and 1995 (In thousands, except per share data) (unaudited)
3rd Qtr. 3rd Qtr. YTD YTD Sept. 1996 Sept. 1995 Sept. 1996 Sept. 1995 ----------- ---------- ----------- ----------- INTEREST INCOME Interest and fees on loans $ 13,613 $ 14,024 $ 40,295 $ 42,525 Interest on securities available-for-sale 4,253 1,043 12,269 3,061 Interest on securities held-to-maturity 2,954 3,596 8,003 9,045 Interest on Federal funds sold and securities sold under agreement to resell 393 529 1,233 1,056 Interest on deposits with banks 149 -- 189 -- ----------- ---------- ----------- ----------- Total interest income 21,362 19,192 61,989 55,687 ----------- ---------- ----------- ----------- INTEREST EXPENSE Time deposits of $100,000 or more 5,658 4,694 16,664 12,254 Other deposits 3,943 3,470 11,501 9,948 Other borrowed funds 21 60 78 95 ----------- ---------- ----------- ----------- Total interest expense 9,622 8,224 28,243 22,297 ----------- ---------- ----------- ----------- Net interest income before provision for loan losses 11,740 10,968 33,746 33,390 Provision for loan losses 900 1,650 2,700 4,650 ----------- ---------- ----------- ----------- Net interest income after provision for loan losses 10,840 9,318 31,046 28,740 ----------- ---------- ----------- ----------- NON-INTEREST INCOME Securities gains -- 24 22 164 Letter of credit commissions 371 324 974 940 Service charges 724 688 2,193 2,364 Other operating income 440 284 1,013 877 ----------- ---------- ----------- ----------- Total non-interest income 1,535 1,320 4,202 4,345 ----------- ---------- ----------- ----------- NON-INTEREST EXPENSE Salaries and employee benefits 3,105 2,999 9,302 8,941 Occupancy expense 564 592 1,692 1,675 Computer and equipment expense 452 544 1,475 1,624 Professional services expense 798 741 2,348 1,831 FDIC and State assessments 99 27 282 990 Marketing expense 199 287 785 818 Net other real estate owned expense 66 346 1,375 1,276 Other operating expense 674 847 2,283 3,013 ----------- ---------- ----------- ----------- Total non-interest expense 5,957 6,383 19,542 20,168 ----------- ---------- ----------- ----------- Income before income tax expense 6,418 4,255 15,706 12,917 Income tax expense 2,688 1,593 5,992 4,903 ----------- ---------- ----------- ----------- Net Income $ 3,730 $ 2,662 $ 9,714 $ 8,014 =========== ========== =========== =========== NET INCOME PER COMMON SHARE, based on the weighted average number of shares outstanding during the periods: $ 0.47 $ 0.34 $ 1.23 $ 1.03 Weighted average number of common shares outstanding 7,946,475 7,800,090 7,911,894 7,783,431
See accompanying notes to unaudited condensed consolidated financial statements. 5 6 CATHAY BANCORP, INC. & SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the nine months ended September 30, 1996 and 1995 (unaudited)
(In thousands) 1996 1995 ------------ ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 9,714 $ 8,014 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision for loan losses 2,700 4,650 Provision for losses on other real estate owned 1,270 613 Provision for investments in real estate -- 721 Depreciation 1,097 1,133 Net (gains) losses on sale of other real estate owned (97) 5 Premises and equipment disposal (gains) losses 2 -- Net gain on sales and calls of securities (22) (164) Amortization and accretion of investment security premiums, net 573 13 Increase (decrease) in deferred loan fees, net 227 (147) (Increase) decrease in accrued interest receivable 2,822 (1,620) Decrease in other assets, net 823 1,810 Increase in other liabilities 2,283 1,891 ------------ ------------- Total adjustments 11,678 8,905 ------------ ------------- Net cash provided by operating activities 21,392 16,919 ------------ ------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of securities available-for-sale (93,271) (40,094) Proceeds from maturity and call of securities available-for-sale 42,465 44,582 Purchase of securities held-to-maturity (61,112) (137,769) Proceeds from maturity and call of securities held-to-maturity 13,122 18,265 Proceeds from sale of loans 2,034 -- Net change in loans (38,422) 13,356 Purchase of premises and equipment (355) (936) Proceeds from sale of equipment 7 6 Proceeds from sale of other real estate owned 2,802 3,764 (Increase) decrease in investments in real estate 104 (677) ------------ ------------- Net cash used in investing activities (132,626) (99,503) ------------ ------------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in demand deposits, NOW accounts, money market and savings deposits 10,371 (26,652) Net increase in time deposits 93,156 128,036 Decrease in other borrowings (700) (4,449) Cash dividends (3,552) (3,516) Proceeds from issuance of common stock 1,357 633 ------------ ------------- Net cash provided by financing activities 100,632 94,052 ------------ ------------- Increase (decrease) in cash and cash equivalents (10,602) 11,468 Cash and cash equivalents, beginning of the period 71,326 55,828 ------------ ------------- Cash and cash equivalents, end of the period $ 60,724 $ 67,296 ============ ============= Supplemental disclosure of cash flow information Cash paid during the period for: Interest $ 28,310 $ 21,957 Income taxes $ 2,720 $ 4,908 Non-cash investing activities: Transfer to securities available-for-sale $ 305 $ 5,176 Net change in unrealized holding gain (loss) on securities available-for-sale, net of tax $ (2,750) $ 1,268 Transfers to other real estate owned $ 9,190 $ 17,481 Loans to facilitate the sale of other real estate owned $ 3,524 $ 445 See accompanying notes to unaudited condensed consolidated financial statements.
6 7 CATHAY BANCORP, INC. AND SUBSIDIARY NOTE 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 nine months ended September 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 8 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 third quarter of 1996, the Company reported net income of $3.7 million or $0.47 per common share, compared with $2.6 million or $0.34 per common share for the same quarter of 1995, representing an increase of $1.1 million or 40.1%. The increase in the quarterly net income was due to a combination of an increase of $772,000 in net interest income before provision for loan losses, an increase of $215,000 in non-interest income, a reduction of $750,000 in the provision for loan losses, and a decrease of $426,000 in non-interest expense. The annualized return on average assets and return on average stockholders' equity was 1.25% and 15.30%, respectively for the third quarter of 1996, compared with 1.06% and 11.73%, respectively for the same quarter of 1995. For the nine months ended September 30, 1996, the Company reported net income of $9.7 million or $1.23 per common share, compared with $8.0 million or $1.03 per common share a year ago, representing an increase of $1.7 million or 21.2%. The increase in year-to-date net income was primarily due to a reduction of $2.0 million in the provision for loan losses, and a reduction of $626,000 in non-interest expense as net interest income before provision for loan losses increased by $356,000. The annualized return on average assets and return on average stockholders' equity for the first nine months of 1996 were 1.13% and 13.36%, respectively, compared with 1.08% and 12.06%, respectively for the same period of 1995. NET INTEREST INCOME For the third quarter of 1996, net interest income before provision for loan losses totaled $11.7 million, compared with $11.0 million for the same quarter of 1995, representing an increase of $772,000 or 7.0%. On a taxable equivalent basis, net interest income was up $787,000 or 7.0% to $12.0 million for the third quarter of 1996, compared with $11.2 million for the same quarter of 1995. The increase in net interest income was substantially attributable to a $188.0 million growth in the average earning assets with average loans increasing $16.8 million. However, the increase due to volume was partially offset by a decrease of 70 basis points from 8.66% to 7.96% 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 52 basis points in the Bank's average reference rate on loans from 9.02% to 8.50%. Cost of funds dropped slightly between the third quarter of 1995 and 1996. Net interest margin, defined as taxable equivalent net interest income to average earning assets, shrank 58 basis points from 5.00% to 4.42%. The Company has seen the net interest margin began to widen slightly in the third quarter of 1996 reversing the decreasing trend since 1995. For the first nine months of 1996 and 1995, net interest income before provision for loan losses totaled $33.7 million and $33.4 million, respectively, representing an increase of $356,000 or 1.1% for 1996. On a taxable equivalent basis, net interest income totaled $34.6 million and $34.4 million for the first nine months of 1996 and 1995, respectively, representing a slight increase for 1996. Average earning assets grew by $193.1 million between the first nine months of 1995 and 1996 contributing to an increase of $6.3 million in total interest income, which however, was partially offset by a decline of 83 basis points in the average taxable equivalent yield on earning assets from 8.78% to 7.95%. This was primarily a result of lower average reference rate on the Bank's loans from 9.08% to 8.53% 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 64.36% of total average earning assets in the first nine months of 1995, but decreased to 52.71% in 1996. In addition, cost of funds increased slightly from 3.93% to 3.99% primarily due to a $187.7 million increase in average interest-bearing liabilities between the first nine months of 1995 and 1996, of which $188.2 million were in 8 9 higher costing time deposits. Consequently, the net interest margin decreased 96 basis points from 5.33% in the first nine months of 1995 to 4.37% in 1996. NON-INTEREST INCOME Non-interest income totaled $4.2 million and $4.3 million for the first nine months of 1996 and 1995, respectively. The slight decrease resulted from reduced service charge income due to a one-time item of approximately $205,000 recorded in the first quarter of 1995 and a reduction of $142,000 in securities gains offset by higher other operating income. On a quarterly basis, non-interest income was $1.5 million and $1.3 million, respectively for the third quarter of 1996 and 1995. The higher third quarter non-interest income was attributable to increases in all categories with the exception of securities gains which showed a small decrease. 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) Nine Months Ended Increase Percent Non-interest income: 09/30/96 09/30/95 (Decrease) Change -------- -------- ---------- ------ Letter of credit commissions $ 974 $ 940 $ 34 3.6% Service charges 2,193 2,364 (171) (7.2) Other operating income 1,013 877 136 15.5 Securities Gains 22 164 (142) (86.6) -------- -------- ---------- Total non-interest income $ 4,202 $ 4,345 $ (143) (3.3)% ======== ======== ========== 3rd Qtr. 3rd Qtr. Increase Percent Non-interest income: 1996 1995 (Decrease) Change --------- -------- ---------- ------ Letter of credit commissions $ 371 $ 324 $ 47 14.5% Service charges 724 688 36 5.2 Other operating income 440 284 156 54.9 Securities Gains -0- 24 (24) (100.0) -------- -------- ---------- Total non-interest income $ 1,535 $ 1,320 $ 215 16.3% ======== ======== ==========
NON-INTEREST EXPENSE Non-interest expense amounted to $19.5 million and $20.2 million, respectively for the first nine months of 1996 and 1995. The decrease of $626,000 or 3.1% in 1996 was attributed to decreases of $721,000 in the provision for real estate investment ("REI") losses and $708,000 in FDIC assessments offset by an increase of $517,000 in professional services expense due in large part to legal fees and collection expense, plus added salaries expense of $361,000. Quarterly, non-interest expense totaled $6.0 million and $6.4 million for the third quarter of 1996 and 1995, respectively. The decrease of $426,000 came primarily from a reduced expense of $280,000 in other real estate owned ("OREO") and $121,000 in the provision for REI losses. The following tables present the components of the non-interest expense with the amount and percentage changes for the periods indicated: 9 10
(Dollars in thousands) Nine Months Ended Increase Percent Non-interest expense: 09/30/96 09/30/95 (Decrease) Change --------- -------- ---------- ------ Salaries and employee benefits $ 9,302 $ 8,941 $ 361 4.0% Occupancy expense 1,692 1,675 17 1.0 Computer and equipment expense 1,475 1,624 (149) (9.2) Professional services expense 2,348 1,831 517 28.2 FDIC and State assessments 282 990 (708) (71.5) Marketing expense 785 818 (33) (4.0) Net other real estate owned expense 1,375 1,276 99 7.8 Other operating expense 2,283 3,013 (730) (24.2) ------- ------- ------- Total non-interest expense $19,542 $20,168 $ (626) (3.1)% ======= ======= =======
3rd Qtr. 3rd Qtr. Increase Percent Non-interest expense: 1996 1995 (Decrease) Change -------- -------- -------- ------ Salaries and employee benefits $ 3,105 $ 2,999 $ 106 3.5% Occupancy expense 564 592 (28) (4.7) Computer and equipment expense 452 544 (92) (16.9) Professional services expense 798 741 57 7.7 FDIC and State assessments 99 27 72 266.7 Marketing expense 199 287 (88) (30.7) Net other real estate owned expense 66 346 (280) (80.9) Other operating expense 674 847 (173) (20.4) -------- -------- ------ Total non-interest expense $ 5,957 $ 6,383 $ (426) (6.7)% ======== ======== =======
FINANCIAL CONDITION From year-end 1995 to September 30, 1996, total assets grew by $112.7 million or 10.4% to $1,200.1 million; deposits were up $103.5 million or 10.5% to $1,087.7 million; securities available-for-sale increased $45.8 million or 18.8% to $289.1 million; securities held-to-maturity increased $47.7 million or 29.9% to $207.0 million; loans, net of unearned fees, grew by $27.2 million or 4.9% to $583.0 million; and stockholders' equity increased $4.8 million or 5.1% to $99.3 million. EARNING ASSET MIX Total earning assets reached $1,115.8 million as of September 30, 1996, compared with $974.6 million at year-end 1995, representing an increase of $141.2 million or 14.5%. A majority of the increase in earning assets was funded by growth in deposits. A change in the earning asset mix from loans to securities and Federal funds sold continued to exist reflecting the weak loan demand as well as the keen competition for loans in the Company's market area. However, the Company experienced a good loan growth in the third quarter of 1996. Due to the change in the earning asset mix, the Company's liquidity ratio has continued to improve from 43.6% at year-end 1995 to 48.5% as of September 30, 1996, but, net interest margin has been negatively affected. As mentioned previously, net interest margin declined 96 basis points comparing the first nine months of 1995 and 1996. The table below shows the changes in the earning asset mix as of the dates indicated:
(Dollars in thousands) As of 09/30/96 As of 12/31/95 ------------------------- ---------------------- Types of earning assets: Amount Percent Amount Percent ---------- ------- --------- ------- Federal funds sold $ 26,700 2.4% $ 1,200 0.1% Securities available-for-sale 289,055 25.9 243,252 25.0 Securities held-to-maturity 207,048 18.6 159,376 16.4 Time deposits with other banks 10,002 0.9 15,001 1.5 Loans (net of deferred fees) 582,985 52.2 555,737 57.0 ---------- ----- -------- ----- Total earning assets $1,115,790 100.0% $974,566 100.0% ========== ===== ======== =====
10 11 SECURITIES As of September 30, 1996 securities available-for-sale and held-to-maturity increased $45.8 million or 18.8% to $289.1 million and $47.6 million or 29.9% to $207.0 million, respectively, compared with $243.3 million and $159.4 million, respectively at year-end 1995. 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 09/30/96 - ----------------------------- ---------------------------------------------------------------------- Amortized Gross Gross Estimated Cost Unrealized Gains Unrealized Losses Fair Value --------- ---------------- ----------------- ---------- U.S. Treasury securities $ 75,023 $ 190 $ 328 $ 74,885 U.S. government agencies 201,918 -0- 2,202 199,716 State and municipal securities 200 -0- -0- 200 Mortgage-backed securities 6,639 4 -0- 6,643 Assets-backed securities 4,055 -0- -0- 4,055 Federal Home Loan Bank stock 3,556 -0- -0- 3,556 ----------- --------- --------- ----------- Total $291,391 $ 194 $2,530 $289,055 ======== ======= ====== ========
As of 12/31/95 ---------------------------------------------------------------------- Amortized Gross Gross Estimated 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 ======== ====== ======= ========
(Dollars in thousands) SECURITIES HELD-TO-MATURITY: As of 09/30/96 - ---------------------------- ---------------------------------------------------------------------- Carrying Gross Gross Estimated Value Unrealized Gains Unrealized Losses Fair Value ---------------------------- ----------------- ---------- U.S. Treasury securities $ 50,050 $ 31 $ 493 $ 49,588 U.S. government agencies 71,905 11 491 71,425 State and municipal securities 39,188 1,301 86 40,403 Mortgage-backed securities 45,905 8 605 45,308 ---------- ---------- -------- ---------- Total $207,048 $1,351 $1,675 $206,724 ======== ====== ====== ========
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 ======== ====== ======= ========
11 12
SECURITIES PORTFOLIO MATURITY DISTRIBUTION: (Dollars in thousands) As of September 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 $ 50,044 $ 24,841 $ -0- $ -0- $ 74,885 U.S. government agencies 29,970 149,814 19,932 -0- 199,716 State and municipal securities 200 -0- -0- -0- 200 Mortgage-backed securities* -0- -0- 6,643 -0- 6,643 Assets-backed securities -0- -0- -0- 4,055 4,055 Federal Home Loan Bank stock 3,556 -0- -0- -0- 3,556 ---------- ------------- ------------ ------------ ----------- Total $ 83,770 $174,655 $ 26,575 $ 4,055 $289,055 ======== ======== ======== ========= ========
SECURITIES HELD-TO-MATURITY: U.S. Treasury securities $ -0- $ 50,050 $ -0- $ -0- $ 50,050 U.S. government agencies 4,998 46,907 20,000 -0- 71,905 State and municipal securities 680 9,326 14,683 14,499 39,188 Mortgage-backed securities* -0- 18,622 238 27,045 45,905 ------------ ---------- ----------- --------- ---------- Total $ 5,678 $124,905 $ 34,921 $ 41,544 $207,048 ========= ======== ======== ======== ========
* The mortgage-backed securities reflect stated maturities and not anticipated prepayments. LOANS Total gross loans increased $27.5 million or 4.9% to $585.3 million as of September 30, 1996, from $557.9 million at year-end 1995. The increase primarily took place in the commercial real estate, residential real estate and construction loan categories which grew by $12.6 million, $10.2 million and $9.5 million, respectively. Installment loans increased slightly while commercial loans decreased $6.7 million. The Company has seen good loan demand in the third quarter of 1996. A portion of the new construction loan projects located in the Las Vegas area. The following table sets forth the classification of loans by type and mix as of the dates indicated:
(Dollars in thousands) As of 09/30/96 As of 12/31/95 ------------------------ ------------------------ Types of loans: Amount Percent Amount Percent -------- ------- -------- ------- Commercial loans $285,867 50.1% $292,612 53.9% Real estate mortgage loans 254,397 44.6 231,360 42.6 Real estate construction loans 23,129 4.0 13,606 2.5 Installment loans 21,426 3.7 19,748 3.6 Other loans 515 0.1 533 0.1 -------- ----- -------- ----- Total loans - Gross 585,334 557,859 Allowance for loan losses (12,195) (2.1) (12,742) (2.3) Unamortized deferred loan fees (2,349) (0.4) (2,122) (0.4) -------- ----- -------- ----- Total loans - Net $570,790 100.0% $542,995 100.0% ======== ===== ======== =====
RISK ELEMENTS OF THE LOAN PORTFOLIO NON-PERFORMING ASSETS Non-performing assets were reduced by $4.2 million to $33.5 million as of September 30, 1996, 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 foreclosure. The decrease in non- 12 13 performing assets was accomplished by a reduction of $5.7 million in troubled debt restructurings and a decline of $1.1 million in non-accrual loans offset by increases of $1.7 million and $929,000 in OREO and loans past due 90 days or more, respectively. The coverage ratio, which is the allowance for loan losses to non-performing loans, increased from 53.57% at year-end 1995 to 67.98% as of September 30, 1996, primarily due to a $5.8 million decrease in non-performing loans. 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: 09/30/96 06/30/96 03/31/96 12/31/95 -------- -------- -------- -------- Loans past due 90 days or more and still accruing interest $ 2,272 $ 1,171 $ 1,571 $ 1,344 Non-accrual loans 12,928 17,875 17,621 14,012 -------- -------- -------- -------- Total past due loans 15,200 19,046 19,192 15,356 Troubled debt restructurings 2,737 3,945 8,419 8,429 Real estate acquired in foreclosure 15,570 12,170 15,436 13,879 -------- -------- -------- -------- Total non-performing assets $33,507 $35,161 $43,047 $37,664 ======= ======= ======= ======= Non-performing assets as a percentage of period-end total loans plus OREO 5.58% 6.12% 7.34% 6.59%
The balance of $12.9 million in non-accrual loans consisted mainly of $8.0 million in commercial real estate loans and $4.9 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 commercial real estate and commercial non-accrual loan categories as of the dates indicated:
(Dollars in thousands) 09/30/96 12/31/95 ------------------------------ ----------------------------- Non-accrual Loan Balance -------------------------------------------------------------- Commercial Commercial Type of property: Real Estate Commercial Real Estate Commercial ------------ ---------- ------------ ---------- Single/multi-family residence $ 662 $ 969 $ -0- $ 2,940 Commercial 1,441 3,090 -0- 2,765 Motel 5,877 519 4,519 557 Others -0- 282 -0- 521 Marina -0- -0- -0- 1,900 Unsecured -0- 50 -0- 158 ----------- ----------- ----------- --------- $ 7,980 $ 4,910 $ 4,519 $ 8,841 ======== ======== ======== ======== Type of business: Real estate development $ -0- $ 741 $ -0- $ -0- Retail -0- 71 -0- 599 Restaurant 2,103 26 -0- 26 Import -0- 195 -0- 1,050 Motel 5,877 518 4,519 879 Wholesale -0- 765 -0- 3,115 Marina -0- -0- -0- 1,900 Others -0- 2,594 -0- 1,272 ----------- --------- ----------- --------- $ 7,980 $ 4,910 $ 4,519 $ 8,841 ======== ======== ======== ========
As shown in the tables above, the $5.9 million non-accrual motel loans as of September 30, 1996 comprised three credits secured by the first trust deeds on the respective motels located in Southern California. In the non-accrual commercial loan category, $3.1 million secured by commercial properties consisted of seven credits. The collateral on these credits include primarily first trust deeds and secondarily second and third trust deeds on commercial buildings and warehouses. 13 14 Troubled debt restructurings were reduced significantly to $2.7 million as of September 30, 1996, compared with $8.4 million at year-end 1995. All of these restructured loans were current under their revised terms as of September 30, 1996. There were no loan concentrations to multiple borrowers in similar activities, which exceeded 10% of total loans as of September 30, 1996. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses was $12.2 million or 2.1% of total loans as of September 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:
(Dollars in thousands) YTD YTD YTD YTD Allowance for loan losses: 09/30/96 06/30/96 03/31/96 12/31/95 -------- -------- -------- -------- Balance at beginning of period $12,742 $12,742 $12,742 $12,271 Provision for loan losses 2,700 1,800 900 7,300 Loans charged-off (3,867) (3,489) (710) (7,018) Recoveries of charged-off loans 620 582 474 189 ------- ------- ------- ------- Balance at end of period $12,195 $11,635 $13,406 $12,742 ======= ======= ======= ======= Average loans outstanding during the period $555,382 $553,370 $547,915 $549,660 Ratio of net charge-offs to average loans outstanding during the period (annualized) 0.78% 1.05% 0.17% 1.24% Provision for loan losses to average loans outstanding during the period (annualized) 0.65% 0.65% 0.66% 1.33% Allowance to non-performing loans at period end 67.98% 50.61% 48.55% 53.57% Allowance to total loans at period-end 2.08% 2.07% 2.35% 2.28%
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 certain classified loans and a general allowance for non-classified loans. 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 general economic conditions. There were no such loans as of September 30, 1996. 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 September 30, 1996 ------------------------------- Recorded Impairment Investment Allowance ---------- --------- Impaired loans: Loans with impairment allowance: Commercial $ 7,837 $ 1,642 Commercial real estate 16,698 2,639 Other 2 -0- ------- ------- Total loans with impairment allowance $24,537 $ 4,281 ======= =======
14 15 As mentioned previously, with the reduction of non-performing loans and the increase in the coverage ratio from 53.57% at year-end 1995 to 67.98% at September 30, 1996, management believes the allowance level to be adequate as of September 30, 1996 to absorb the estimated known and inherent risks identified through its analysis. OTHER REAL ESTATE OWNED The Company's OREO properties, net of a valuation allowance of $1.3 million, were carried at $15.6 million as of September 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 nine months of 1996, 12 properties totaling $6.7 million were disposed of with a net gain of $97,000. 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 these properties at their estimated fair values. 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 nine months of 1996, management provided approximately $1.3 million to the provision for OREO losses based on new listing prices or new appraisals received. DEPOSITS Total deposits amounted to $1,087.7 million as of September 30, 1996, representing an increase of $103.5 million or 10.5% over the $984.2 million at year-end 1995. 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 $53.8 million and $39.3 million, respectively. Although Jumbo CD's increased appreciably causing the percentage of core deposits to decline slightly from 61.0% at year-end 1995 to 59.7% at September 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 2,813 individual accounts as of July 10, 1996; and 3) this phenomenon of having relatively higher percentage of Jumbo CD's exists in most of the Asian 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 September 30, 1996. The following table illustrates the deposit mix on the dates indicated:
(Dollars in thousands) As of 09/30/96 As of 12/31/95 -------------------------- ------------------------ Types of deposits: Amount Percent Amount Percent ----------- ------- -------- ------- Demand $ 122,599 11.3% $117,974 12.0% NOW accounts 93,621 8.6 88,917 9.0 Money market accounts 93,513 8.6 102,167 10.4 Savings deposits 143,741 13.2 134,045 13.6 Time deposits under $100,000 196,233 18.0 156,927 15.9 Time deposits of $100,000 or more 438,046 40.3 384,196 39.1 ---------- ------ -------- ------ Total deposits $1,087,753 100.0% $984,226 100.0% ========== ====== ======== ======
15 16 CAPITAL RESOURCES Stockholders' equity amounted to $99.3 million or 8.27% of total assets as of September 30, 1996, compared with $94.5 million or 8.69% of total assets at year-end 1995. The increase in stockholders' equity was primarily due to year-to-date net income of $9.7 million and $1.4 million from issuance of additional common shares through Dividend Reinvestment Plan and ESOP purchases, which were partially offset by a decrease of $2.7 million in the unrealized holding gains on securities available-for-sale, net of tax, and dividends paid in the amount of $3.6 million. The Company declared a cash dividend of $0.15 per share in January, April, July and October of 1996, on 7,867,164, 7,880,102, 7,930,786 and 7,951,600 shares outstanding, respectively. Total cash dividends paid in 1996, including the $1.2 million paid in October 1996, amounted to $4.7 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 September 30, 1996 well exceeded the regulatory minimum requirements. They are presented in the tables below:
(Dollars in thousands) Company Bank As of 09/30/1996 As of 09/30/1996 --------------------------- ---------------------------- Balance Percent Balance Percent --------- --------- --------- ----------- Tier 1 Capital $ 100,644** 13.73% $ 98,734** 13.47% Tier 1 Capital minimum requirement 29,324 4.00 29,324 4.00 ---------- -------- --------- ------- Excess $ 71,320 9.73% $ 69,410 9.47% ========== ======== ========= ======= Total Capital $ 109,845** 14.98% $ 107,935** 14.72% Total Capital minimum requirement 58,649 8.00 58,649 8.00 ---------- -------- --------- ------- Excess $ 51,196 6.98% $ 49,286 6.72% ========== ======== ========= ======= Risk-weighted assets $ 733,109 $733,107 Leverage ratio 8.44% 8.28% Minimum leverage requirement 4.00 4.00 -------- ------- Excess 4.44% 4.28% ======== ======= Total average assets $1,191,941 $1,191,925
** Excluding the unrealized holding losses on securities available-for-sale of $1,346,000. 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 derives liquidity primarily from various types of deposits. In addition, liquidity can be obtained from assets as well, which include cash and cash equivalents, time deposits with other depository institutions, 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 48.48% as of September 30, 1996 due to the continued change in the earning asset mix of loans and other types of investments. 16 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 $194 million with three brokerage firms. Moreover, the Company is 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, simulation model, 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 September 30, 1996, the Company's rate sensitive liabilities exceeded rate sensitive assets by roughly $85.6 million with a cumulative gap ratio of a negative 7.14% within a 1-year period. 17 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 - ---------------------------------------------------------------- There were no reportable events. ITEM 5. OTHER INFORMATION - ------------------------------ There were no reportable events. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - --------------------------------------------- There were no reportable events. Exhibit: 27 Financial Data Schedule 18 19 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: November 12, 1996 DUNSON K. CHENG --------------------------------- Dunson K. Cheng Chairman and President Date: November 12, 1996 ANTHONY M. TANG --------------------------------- Anthony M. Tang Chief Financial Officer 19 EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 24,022 10,002 26,700 0 289,055 207,048 213,367 582,985 12,195 1,200,147 1,087,753 800 12,296 0 0 0 80 99,218 1,200,147 40,295 20,272 1,422 61,989 28,165 28,243 33,746 2,700 22 19,542 15,706 15,706 0 0 9,714 1.23 1.23 4.37 12,928 2,272 2,737 10,733 12,742 3,867 620 12,195 12,195 0 0
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