-----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, Hf0Brtuf78BYcwP9Rssvcx7HJzU36xWrUWdK9rPVY5Ap1yLP7CT3oITY9rpq/qmd ixFxg7cIBPfCzW7+T176Mg== 0000950150-98-000854.txt : 19980518 0000950150-98-000854.hdr.sgml : 19980518 ACCESSION NUMBER: 0000950150-98-000854 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 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: SEC FILE NUMBER: 000-18630 FILM NUMBER: 98623848 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 FOR THE PERIOD ENDED 03/31/1998 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 March 31, 1998 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, 8,953,307 shares outstanding as of March 31, 1998. 2 TABLE OF CONTENTS PART I - FINANCIAL INFORMATION ........................................... 3 Item 1. Financial Statements .......................................... 4-6 Notes 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 2 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS 3 4 CATHAY BANCORP, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AS OF MARCH 31, 1998 AND DECEMBER 31, 1997 (IN THOUSANDS)
MAR. 31, 1998 DEC. 31, 1997 (UNAUDITED) (UNAUDITED) ASSETS Cash and due from banks $ 84,631 $ 57,728 Federal funds sold and securities purchased under agreement to resell 24,400 67,000 ---------- ---------- Cash and cash equivalents 109,031 124,728 Securities available-for-sale (with amortized costs of $218,104 in 1998 and $215,466 in 1997) 218,602 216,158 Securities held-to-maturity (with estimated fair values of $362,622 in 1998 and $356,187 in 1997) 356,590 350,336 Loans (net of allowance for loan losses of $16,435 in 1998 and $15,379 in 1997) 878,516 846,151 Other real estate owned, net 13,481 13,269 Investments in real estate, net 1,610 1,654 Premises and equipment, net 25,376 25,202 Customers' liability on acceptance 9,200 10,296 Accrued interest receivable 10,498 12,246 Goodwill 9,356 9,530 Other assets 10,337 12,892 ---------- ---------- Total assets $1,642,597 $1,622,462 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits Non-interest bearing demand deposits $ 169,030 $ 175,875 Interest bearing accounts NOW accounts 114,458 111,653 Money market deposits 96,090 94,708 Savings deposits 206,825 210,291 Time deposits under $100,000 316,141 307,504 Time deposits of $100,000 or more 565,094 549,090 ---------- ---------- Total deposits 1,467,638 1,449,121 ---------- ---------- Securities sold under agreements to repurchase 15,261 23,419 Acceptances outstanding 9,200 10,296 Other liabilities 10,455 3,749 ---------- ---------- Total liabilities 1,502,554 1,486,585 ---------- ---------- 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, 8,953,307 and 8,941,743 shares issued and outstanding in 1998 and 1997, respectively 90 89 Additional paid-in-capital 61,665 61,271 Accumulated other comprehensive income 289 370 Retained earnings 77,999 74,147 ---------- ---------- Total stockholders' equity 140,043 135,877 ---------- ---------- Total liabilities and stockholders' equity $1,642,597 $1,622,462 ========== ==========
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 4 5 CATHAY BANCORP, INC AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
1998 1997 ----------- ----------- INTEREST INCOME Interest and fees on loans $ 19,554 $ 17,459 Interest on securities available-for-sale 3,198 5,442 Interest on securities held-to-maturity 5,720 3,239 Interest on Federal funds sold and securities sold under agreement to resell 702 576 Interest on deposits with banks 5 -- ----------- ----------- Total interest income 29,179 26,716 ----------- ----------- INTEREST EXPENSE Time deposits of $100,000 or more 7,373 5,979 Other deposits 5,856 6,003 Other borrowed funds 262 23 ----------- ----------- Total interest expense 13,491 12,005 ----------- ----------- Net interest income before provision for loan losses 15,688 14,711 Provision for loan losses 900 900 ----------- ----------- Net interest income after provision for loan losses 14,788 13,811 ----------- ----------- NON-INTEREST INCOME Securities gains 35 4 Letter of credit commissions 444 209 Service charges 1,018 816 Other operating income 505 361 ----------- ----------- Total non-interest income 2,002 1,390 ----------- ----------- NON-INTEREST EXPENSE Salaries and employee benefits 4,364 3,951 Occupancy expense 653 678 Computer and equipment expense 595 600 Professional services expense 755 737 FDIC and State assessments 99 55 Marketing expense 332 411 Net other real estate owned expense 145 226 Other operating expense 939 970 ----------- ----------- Total non-interest expense 7,882 7,628 ----------- ----------- Income before income tax expense 8,908 7,573 Income tax expense 3,490 3,054 ----------- ----------- Net Income $ 5,418 $ 4,519 Other comprehensive loss, net of tax : Unrealized holding losses arising during the period (96) (1,154) Less: reclassification of the portion of realized loss included in net income previously included in other comprehensive loss 15 8 ----------- ----------- Total other comprehensive loss, net of tax (81) (1,146) ----------- ----------- Comprehensive income $ 5,337 $ 3,373 =========== =========== NET INCOME PER COMMON SHARE, based on the weighted average number of common shares outstanding during the periods: $ 0.61 $ 0.51 Weighted average number of common shares outstanding 8,949,825 8,890,703
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 5 6 CATHAY BANCORP, INC. & SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
(In thousands) --------------------------- 1998 1997 - ------------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 5,418 $ 4,519 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 900 900 Provision for losses on other real estate owned 55 133 Depreciation 298 348 Net gain(loss) on sale of other real estate owned (9) 76 Net gain on sales and calls of securities (35) (4) Amortization and accretion of investment security premiums, net 32 195 Amortization of goodwill 174 (89) Decrease in deferred loan fees, net (99) (19) Decrease in accrued interest receivable, net 1,748 3,930 (Increase) decrease in other assets, net 2,555 (905) Increase in other liabilities, net 6,706 2,691 - ------------------------------------------------------------------------------------------------------ Total adjustments 12,325 7,256 - ------------------------------------------------------------------------------------------------------ Net cash provided by operating activities 17,743 11,775 - ------------------------------------------------------------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES Purchase of securities available-for-sale (50,513) (5,086) Proceeds from maturity and call of securities available-for-sale 50,723 58,935 Purchase of securities held-to-maturity (3,433) (10,240) Proceeds from maturity and call of securities held-to-maturity 738 8,965 Proceeds from sale of securities available-for-sale 6,424 -- Purchase of mortgage-backed securities available-for-sale (24,582) -- Proceeds from repayments of mortgage-backed securities available-for-sale 15,664 1,679 Purchase of mortgage-backed securities held-to-maturity (15,057) (39,546) Repayments from mortgage-backed securities held-to-maturity 11,259 2,166 Proceeds from sale of loans -- 1,834 Net increase in loans (33,952) (34,441) Purchase of premises and equipment (472) (121) Proceeds from sale of other real estate owned 528 2,146 Decrease in investments in real estate 44 68 - ------------------------------------------------------------------------------------------------------ Net cash used in investing activities (42,629) (13,641) - ------------------------------------------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES Net decrease in demand deposits, NOW accounts, money market and savings deposits (6,124) (715) Net increase in time deposits 24,641 10,794 Net decrease in securities sold under agreement to repurchase (8,158) (7,779) Cash dividends (1,565) (1,331) Proceeds from shares issued to Dividend Reinvestment Plan 395 333 - ------------------------------------------------------------------------------------------------------ Net cash provided by financing activities 9,189 1,302 - ------------------------------------------------------------------------------------------------------ Decrease in cash and cash equivalents (15,697) (564) Cash and cash equivalents, beginning of the period 124,728 75,194 - ------------------------------------------------------------------------------------------------------ Cash and cash equivalents, end of the period $ 109,031 $ 74,630 - ------------------------------------------------------------------------------------------------------ Supplemental disclosure of cash flow information Cash paid during the period for: Interest $ 13,450 $ 11,678 Income taxes $ 570 $ 680 Non-cash investing activities: Transfers to securities available-for-sale $ 230 $ 630 within 90 days of maturity Net change in unrealized holding gain(loss) on securities available-for-sale, net of tax $ (81) $ (1,146) Transfers to other real estate owned $ 786 $ 403 Loans to facilitate the sale of other real estate owned $ -- $ 2,700 - ------------------------------------------------------------------------------------------------------
See accompanying notes to unaudited condensed consolidated financial statements. 6 7 CATHAY BANCORP, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. 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 three months ended March 31, 1998 are not necessarily indicative of the results that may be expected for the year ended December 31, 1998. For further information, refer to the consolidated financial statements and footnotes included in the Company's annual report on Form 10-K for the year ended December 31, 1997. 2. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related Information". SFAS No. 131 establishes standards to report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim reports to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. SFAS No. 131 is effective for financial statement for periods beginning after December 15, 1997, with comparative information for earlier years to be restated. The Company has concluded it is in one segment-banking. Accordingly, the adoption of SFAS No. 131 did not have material effect on the consolidated financial statements or disclosures. In February 1998, the FASB issued SFAS No. 132, "Employers Disclosure About Pensions and Other Postretirement Benefits". SFAS No. 132 standardizes the disclosure requirement for pension and other postretirement benefits, requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate analysis; and eliminates certain disclosure required by SFAS No. 87, "Employers' Accounting for Pensions", SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination of Benefits", and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pension" which are no longer useful. SFAS No. 132 is effective for fiscal years beginning after December 15, 1997, with comparative information for earlier years to be restated. The impact on the Company of adopting SFAS No. 132 is not expected to be material. 3. STATEMENT OF COMPREHENSIVE INCOME Effective with the quarter ended March 31, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income". SFAS No. 130 requires all items that are required to be recognized under accounting standards as components of comprehensive income to be reported in a financial statement that is displayed in equal prominence with the other financial statements and to disclose as a part of shareholders' equity accumulated comprehensive income. Comprehensive income is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Comprehensive income generally includes net income, foreign currency items, minimum pension liability adjustments, and unrealized gains and losses on investments in certain debt and equity securities (i.e., securities available-for-sale). 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 1997 Annual Report of Cathay Bancorp, Inc. ("Bancorp") and its subsidiary Cathay Bank ("the Bank"), together ("the Company"). RESULTS OF OPERATIONS For the first quarter of 1998, the Company reported net income of $5.4 million or $0.61 per common share, compared with $4.5 million or $0.51 per common share for the first quarter of 1997, representing an increase of $0.9 million or 19.9%. Pre-tax income amounted to $8.9 million for the first quarter of 1998, compared with $7.6 million for the same period a year ago, representing an increase of $1.3 million or 17.6%. The increase in 1998 first quarter pre-tax income was attributed to a $1.0 million increase in net interest income before provision for loan losses and a $0.6 million increase in non-interest income while non-interest expense advanced moderately. The annualized return on average assets ("ROA") and return on average stockholders' equity ("ROE") were 1.35% and 15.93%, respectively, compared with 1.22% and 15.32%, respectively, for the first quarter of 1997. NET INTEREST INCOME Net interest income before provision for loan losses totaled $15.7 million for the first quarter of 1998, which represents an increase of $1.0 million or 6.6% over the $14.7 million for the same quarter of 1997. On a taxable equivalent basis, net interest income rose $1.0 million or 6.6% as well to $16.0 million for the first quarter of 1998, compared with $15.0 million for the same quarter of 1997. The increase in net interest income before provision for loan losses was substantially attributable to a $99.8 million growth in the average earning assets, mainly loans. Average net loans amounted to $854.2 million and accounted for 57.9% of average earning assets in the first quarter of 1998, compared with $756.7 million or 55.0% of average earning assets for the same period a year ago. The increase in average loans was primarily funded by time deposits and secondarily demand deposits and securities sold under agreement to repurchase. The increase in volume contributed an additional $2.1 million to net interest income, which was slightly offset by a seven basis point decrease in the average yield on loans despite a 23 basis point increase in the Bank's reference rate in the first quarter of 1998. The keen competition in the Bank's marketplace played an important role in the decrease in the average loan yield. Nevertheless, the taxable equivalent average yield on earning assets advanced 14 basis points from 7.95% a year ago to 8.10% due to higher yields on securities (including available-for-sale and held-to-maturity) and securities purchased under agreement to resell. Meanwhile, cost of funds increased 27 basis points from 3.92% to 4.19% largely due to higher rates paid on time deposits. Consequently, net interest margin, defined as taxable equivalent net interest income to average earning assets, decreased 3 basis points from 4.42% to 4.39% between the first quarter of 1997 and 1998. NON-INTEREST INCOME Non-interest income totaled $2.0 million and $1.4 million for the first quarter of 1998 and 1997, respectively, representing an increase of $612,000 or 44.0% for 1998. The increase in 1998 resulted from: 1) higher letter of credit commissions due to increased transaction volume; 2) higher service charges due to fee increases; 3) income earned in outsourcing the issuing and processing of cashier's checks and money orders; 4) higher fees related to loan documentation and other charges; 5) more securities gains; and 6) higher wire transfer fees. The following tables illustrate the components of non-interest income, as well as the amount and percentage changes for the periods indicated: 8 9
(Dollars in thousands) Three Months Ended Percent Non-interest income: 03/31/98 03/31/97 Increase Change - -------------------- -------- -------- -------- ------ Letter of credit commissions $ 444 $ 209 $235 112.4% Service charges 1,018 816 202 24.8 Other operating income 505 361 144 39.9 Securities Gains 35 4 31 775.0 -------- --------- ----- Total non-interest income $2,002 $1,390 $612 44.0% ======== ========= =====
NON-INTEREST EXPENSE Non-interest expense amounted to $7.9 million and $7.6 million, respectively for the first quarter of 1998 and 1997, respectively. The moderate increase of $254,000 or 3.3% in 1998 non-interest expense was primarily attributed to higher salaries and employee benefits of $413,000 due in large part to added personnel to support the newly opened Berkeley/Richmond Branch as well as new officers for northern California branches. All other categories in non-interest expense showed reduction with the exception of FDIC and State assessments and professional services expense both of which advanced slightly. The following tables present the components of the non-interest expense with the amount and percentage changes for the periods indicated: (Dollars in thousands) Three Months Ended Increase Percent Non-interest income: 03/31/98 03/31/97 (Decrease) Change -------- -------- -------- ------ Salaries and employee benefits $4,364 $3,951 $ 413 10.5% Occupancy expense 653 678 (25) (3.7) Computer and equipment expense 595 600 (5) (0.8) Professional services expense 755 737 18 2.4 FDIC and State assessments 99 55 44 80.0 Marketing expense 332 411 (79) (19.2) Net other real estate owned expense 145 226 (81) (35.8) Other operating expense 939 970 (31) (3.2) -------- -------- -------- Total non-interest expense $7,882 $7,628 $ 254 3.3% ======== ======== ========
FINANCIAL CONDITION The Company experienced moderate growth during the first quarter of 1998. Total assets increased $20.1 million to $1,642.6 million; loans, net of deferred loan fees, gained $33.4 million to $895.0 million; investment securities (including available-for-sale and held-to-maturity) advanced $8.7 million to $575.2 million; deposits grew $18.5 million to $1,467.6 million; and stockholders' equity increased $4.2 million to $140.0 million, compared to December 31, 1997. EARNING ASSET MIX Total earning assets amounted to $1,494.9 million at March 31, 1998, compared with $1,495.9 million at year-end 1997. The $940,000 decrease was primarily due to a $42.6 million decrease in securities purchased under agreement to resell offset by a $33.4 million increase in loans, net of deferred fees, and a $8.7 million increase in investment securities (including available-for-sale and held-to-maturity). However, average earning assets increased $99.8 million to $1,476.2 million for the first quarter of 1998, compared with $1,376.4 million for the same quarter a year ago. The Bank continued to experience good loan growth in the first quarter of 1998. Average net loans continued to increase as a percentage of total earning assets from 55.0% for the first quarter of 1997 to 57.9% for the first quarter of 1998, while investment securities (including available-for-sale and held-to-maturity) 9 10 decreased from 41.9% for the first quarter of 1997 to 38.8% for the same quarter of 1998. This change in the earning asset mix from securities to loans is favorable to net interest income. The table below shows the changes in the earning asset mix as of the dates indicated:
(Dollars in thousands) As of 03/31/98 As of 12/31/97 Types of earning assets: Amount Percent Amount Percent ---------- ----- ---------- ----- Federal funds sold and securities purchased under agreement to resell $ 24,400 1.6% $ 67,000 4.5% Securities available-for-sale 218,602 14.6 216,158 14.4 Securities held-to-maturity 356,590 23.8 350,336 23.4 Loans (net of deferred fees) 894,951 59.9 861,530 57.6 Deposits with banks 396 0.1 855 0.1 ---------- ----- ---------- ----- Total earning assets $1,494,939 100.0% $1,495,879 100.0% ========== ===== ========== =====
SECURITIES As of March 31, 1998 securities available-for-sale and held-to-maturity increased $2.4 million and $6.3 million, respectively, from $216.2 million and $350.3 million at year-end 1997 to $218.6 million and $356.6 million, respectively. The moderate increase of $8.7 million in the overall investment securities was primarily attributable to healthy loan demand that the Company experienced during the first quarter of 1998. 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 03/31/98 Amortized Gross Gross Estimated Cost Unrealized Gains Unrealized Losses Fair Value --------- ---------------- ----------------- ---------- U.S. Treasury securities $ 21,014 $ 4 $ 25 $ 20,993 U.S. government agencies 108,101 233 -0- 108,334 State and municipal securities 230 1 -0- 231 Mortgage-backed securities 31,215 272 22 31,465 Assets-backed securities 16,167 25 -0- 16,192 Federal Home Loan Bank stock 5,736 -0- -0- 5,736 Commercial paper 30,997 3 -0- 31,000 Other securities 4,644 10 3 4,651 -------- -------- -------- -------- Total $218,104 $ 548 $ 50 $218,602 ======== ======== ======== ========
As of 12/31/97 Amortized Gross Gross Estimated Cost Unrealized Gains Unrealized Losses Fair Value --------- ---------------- ----------------- ---------- U.S. Treasury securities $ 38,020 $ 11 $ 60 $ 37,971 U.S. government agencies 113,255 97 46 113,306 Mortgage-backed securities 28,689 685 6 29,368 Assets-backed securities 19,878 11 -0- 19,889 Federal Home Loan Bank stock 5,653 -0- -0- 5,653 Commercial paper 9,971 -0- -0- 9,971 -------- -------- -------- -------- Total $215,466 $ 804 $ 112 $216,158 ======== ======== ======== ========
10 11
(Dollars in thousands) SECURITIES HELD-TO-MATURITY: As of 03/31/98 Carrying Gross Gross Estimated Value Unrealized Gains Unrealized Losses Fair Value ---------- ---------------- ----------------- ---------- U.S. Treasury securities $ 26,047 $ 368 $ -0- $ 26,415 U.S. government agencies 39,368 384 -0- 39,752 State and municipal securities 47,696 2,011 32 49,675 Mortgage-backed securities 234,371 3,140 72 237,439 Assets-backed securities 187 -0- 6 181 Other securities 8,921 239 -0- 9,160 ---------- ---------------- ----------------- ---------- Total $356,590 $6,142 $ 110 $362,622 ======== ====== ======= ========
As of 12/31/97 Carrying Gross Gross Estimated Value Unrealized Gains Unrealized Losses Fair Value ---------- ---------------- ----------------- ---------- U.S. Treasury securities $ 26,054 $ 354 $ -0- $ 26,408 U.S. government agencies 39,374 291 -0- 39,665 State and municipal securities 44,497 2,264 -0- 46,761 Mortgage-backed securities 230,573 2,762 35 233,300 Assets-backed securities 922 -0- 6 916 Other securities 8,916 221 -0- 9,137 ---------- -------- --------- ---------- Total $350,336 $5,892 $ 41 $356,187 ======== ====== ======== ========
SECURITIES PORTFOLIO MATURITY DISTRIBUTION: (Dollars in thousands) As of March 31, 1998 Maturity Schedule ------------------------------------------------------------------------------- After 1 But After 5 But SECURITIES AVAILABLE-FOR-SALE: Within 1 Yr Within 5 Yrs Within 10Yrs Over 10Yrs Total - ----------------------------- ----------- ------------ ------------ ---------- ---------- U.S. Treasury securities $ 18,977 $ 2,016 $ -0- $ -0- $ 20,993 U.S. government agencies 30,005 78,329 -0- -0- 108,334 State and municipal securities 231 -0- -0- -0- 231 Mortgage-backed securities* -0- 6,533 6,827 18,105 31,465 Assets-backed securities* -0- 16,192 -0- -0- 16,192 Federal Home Loan Bank stock 5,736 -0- -0- -0- 5,736 Other securities 31,000 -0- 4,651 -0- 35,651 ---------- ------------ ---------- ------------ ---------- Total $ 85,949 $103,070 $ 11,478 $ 18,105 $ 218,602 ========= ======== ========= ========= ======== SECURITIES HELD-TO-MATURITY: U.S. Treasury securities $ -0- $ 26,047 $ -0- $ -0- $ 26,047 U.S. government agencies -0- 39,368 -0- -0- 39,368 State and municipal securities 1,111 9,741 20,216 16,628 47,696 Mortgage-backed securities* -0- 17,492 60,527 156,352 234,371 Assets-backed securities* -0- -0- -0- 187 187 Corporate bonds -0- 8,921 -0- -0- 8,921 ------------ ---------- ------------ ------------ ----------- Total $ 1,111 $ 101,569 $ 80,743 $ 173,167 $356,590 ========== ========= =========== =========== ========
* The mortgage-backed securities and assets-backed securities reflect stated maturities and not anticipated prepayments. 11 12 LOANS The Bank continued to experience satisfactory loan demand in the first quarter of 1998. Total gross loans increased $33.3 million or 3.9% to $898.6 million as of March 31, 1998, from $865.3 million at year-end 1997. Excluding the $18.1 million investments in banker's acceptances which were included in commercial loans at year-end 1997, total commercial loans increased $19.1 million or 6.0% to $339.2 million at March 31, 1998. Real estate mortgage loans comprised primarily of real estate commercial loans and real estate residential loans, which increased $11.4 million or 3.8% and $8.3 million or 6.1%, respectively, to $315.1 million and $145.3 million, respectively, during the first quarter of 1998. The increase in real estate residential loans was attributable to low interest rates which brought up new purchases and refinancing activities. As of March 31, 1998, construction loans totaled $49.9 million, an increase of $8.2 million or 19.7% over $41.7 million at year-end 1997. Construction loans are made on a selective basis to those projects with good location and experienced, financially strong borrowers. The projects are primarily in southern California and secondarily in northern California and 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 03/31/98 As of 12/31/97 Types of loans: Amount Percent Amount Percent -------- ------- -------- ------- Commercial loans $339,210 38.6% $338,285 40.0% Real estate mortgage loans 478,684 54.5 458,417 54.2 Real estate construction loans 49,958 5.7 41,736 4.9 Installment loans 25,866 2.9 26,611 3.1 Other loans 4,920 0.6 267 0.1 -------- ----- -------- ----- Total loans - Gross 898,638 865,316 Allowance for loan losses (16,435) (1.9) (15,379) (1.8) Unamortized deferred loan fees (3,687) (0.4) (3,786) (0.5) -------- ----- -------- ----- Total loans - Net $878,516 100.0% $846,151 100.0% ======== ====== ======== ======
RISK ELEMENTS OF THE LOAN PORTFOLIO NON-PERFORMING ASSETS Non-performing assets were reduced slightly to $31.9 million or 3.5% of total loans plus OREO as of March 31, 1998, compared with $32.5 million or 3.7% of total loans plus OREO at year-end 1997. Non-performing assets include loans past due 90 days or more and still accruing interest, non-accrual loans, and OREO. The slight decrease of $613,000 at March 31, 1998 resulted primarily from a reduction of $910,000 in loans past due 90 days or more and still accruing interest offset by a $212,000 increase in OREO. The non-performing loan coverage ratio, defined as the allowance for loan losses to non-performing loans, advanced from 79.85% at year-end 1997 to 89.16% as of March 31, 1998, due to the combination of a $1.1 million increase in the allowance for loans losses and a $825,000 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: 03/31/98 12/31/97 09/30/97 06/30/97 -------- -------- -------- -------- Loans past due 90 days or more and still accruing interest $ 1,463 $ 2,373 $ 3,516 $ 4,943 Non-accrual loans 16,971 16,886 16,841 13,618 -------- -------- -------- -------- Total non-performing loans 18,434 19,259 20,357 18,561 Real estate acquired in foreclosure 13,481 13,269 10,063 10,390 -------- -------- -------- -------- Total non-performing assets $31,915 $32,528 $30,420 $28,951 ======= ======= ======= ======= Accruing troubled debt restructurings 4,379 4,874 2,911 3,673 Non-performing assets as a percentage of period-end total loans plus OREO 3.50% 3.70% 3.63% 3.60%
12 13 The non-accrual loans of $17.0 million consisted mainly of $10.5 million in commercial real estate loans and $5.3 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) 03/31/98 12/31/97 -------------------------- ----------------------------- Non-accrual Loan Balance -------------------------------------------------------------- Commercial Commercial Type of property: Real Estate Commercial Real Estate Commercial ----------- ---------- ----------- ---------- Single/multi-family residence $ 373 $ 266 $ 593 $ 311 Commercial 7,993 4,262 8,471 5,095 Motel 1,602 -0- 1,350 -0- Marina -0- -0- -0- -0- Others 534 193 214 73 Unsecured -0- 550 -0- 37 --------- --------- ----------- --------- Total $ 10,502 $ 5,271 $10,628 $ 5,516 ======= ======== ======= ======== Type of business: Real estate development $ -0- $ 615 $ -0- $ 134 Real estate management 6,315 36 6,303 36 Wholesale 678 2,144 430 2,994 Food/Restaurant -0- 1,151 -0- 1,190 Import -0- 29 752 4 Motel 1,602 -0- 1,350 -0- Investments 406 -0- 1,194 -0- Industrial 199 224 214 263 Clothing 373 376 385 441 Others 929 696 -0- 454 --------- --------- --------- --------- Total $10,502 $ 5,271 $ 10,628 $ 5,516 ========= ======== ========= ========
As shown in the above tables under the commercial real estate loan category as of March 31, 1998, the $8.0 million balance in commercial loans represents eight credits, 97% of which were secured by first trust deeds on commercial buildings and warehouses. The $1.6 million balance in motel loans represents two credits secured by first trust deeds on the respective motels located in Southern California. Under the commercial loan category as of March 31, 1998, the $4.3 million balance consisted of 13 credits. The collateral on these credits include primarily first trust deeds and secondarily second and third trust deeds on commercial buildings and warehouses. Troubled debt restructurings were $4.4 million as of March 31, 1998, compared with $4.9 million at year-end 1997, representing a decrease of $495,000 or 10.2%. All of these restructured loans were current under their revised terms as of March 31, 1998. There were no loan concentrations to multiple borrowers in similar activities, which exceeded 10% of total loans as of March 31, 1998. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses amounted to $16.4 million or 1.83% of total loans as of March 31, 1998, compared with $15.4 million or 1.78% of total loans at year-end 1997. The following table presents information relating to the allowance for loan losses for the periods indicated: 13 14
(Dollars in thousands) YTD YTD YTD YTD Allowance for loan losses: 03/31/98 12/31/97 09/30/97 06/30/97 Balance at beginning of period $ 15,379 $13,529 $13,529 $13,529 Provision for loan losses 900 3,600 2,700 1,800 Loans charged-off (147) (2,139) (1,568) (1,346) Recoveries of charged-off loans 303 389 308 43 -------- -------- -------- -------- Balance at end of period $ 16,435 $ 15,379 $ 14,969 $ 14,026 ======== ======== ======== ======= Average loans outstanding during the period $854,161 $792,176 $780,756 $770,763 Ratio of net charge-offs to average loans outstanding during the period (annualized) (0.07)% 0.22% 0.22% 0.34% Provision for loan losses to average loans outstanding during the period (annualized) 0.43% 0.45% 0.46% 0.47% Allowance to non-performing loans at period-end 89.16% 79.85% 73.53% 75.57% Allowance to total loans at period-end 1.83% 1.78% 1.81% 1.77%
In determining 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 Bank's allowance for loan losses consists of a specific allowance and a general allowance. The specific allowance is further broken down to provide for impaired loans and the remaining internally classified loans. Management allocates a specific allowance to those remaining internally classified loans which do not require impairment allowance, based on the current financial condition of the borrowers and guarantors, the prevailing value of the underlying collateral and 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 March 31, 1998 As of December 31, 1997 -------------------------------- ------------------------ Impaired loans: SFAS No. 114 SFAS No. 114 Recorded Impairment Recorded Impairment Loans with impairment allowance: Investment Allowance Investment Allowance ---------- ---------- ---------- ---------- Commercial $ 6,954 $1,307 $ 7,784 $1,499 Commercial real estate 15,129 2,875 14,027 2,396 Other 59 59 95 95 -------- -------- -------- ------ Total loans with impairment allowance $ 22,142 $4,241 $ 21,906 $3,990 ======= ====== ======= ======
Based on the Company's evaluation process and the methodology 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 as of March 31, 1998 to be adequate to absorb the estimated known and inherent risks identified through its analysis. OTHER REAL ESTATE OWNED The Company's OREO properties, net of valuation allowance, were carried at $13.5 million as of March 31, 1998, compared with those carried at $13.3 million at year-end 1997. During the first quarter of 1998, the Company acquired one property at $786,000 and disposed three properties totaling $775,000 with a net gain of $9,000. As of March 31, 1998, the Bank's OREO properties 14 15 include commercial buildings, warehouses, land, single family residences and apartments, all of which are located in Southern California. The Bank continues to maintain a valuation allowance for the OREO properties in order to record estimated fair value of the 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 quarter of 1998, management provided approximately $56,000 to the provision for OREO losses based on new listing prices or new appraisals received bringing the valuation allowance to $881,000 as of March 31, 1998. DEPOSITS Total deposits increased moderately to $1,467.6 million at March 31, 1998, compared with $1,449.1 million at year-end 1997. Of the $18.5 million increase in deposits, $16.0 million came from time deposits over $100,000 ("Jumbo CD's"). This continued growth in Jumbo CD's was primarily a result of the widening of the interest rate spread between time deposits and other interest-bearing deposits. Consequently, the ratio of core deposits (defined as all deposits excluding Jumbo CD's and brokered deposits) to total deposits continued to decline from 62.11% at year-end 1997 to 61.50% at March 31, 1998. There were no brokered deposits as of March 31, 1998. Management continues to monitor the Jumbo CD portfolio to identify any changes in the deposit behavior in the market and of the patrons the Bank is servicing. Although the Bank's Jumbo CD portfolio kept growing, management considers the Bank's Jumbo CD's generally less volatile since 1) a majority of the Bank's Jumbo CD's have been fairly consistent based on statistics which support that a considerable portion of the Jumbo CD's stayed with the Bank for more than two years; 2) the Jumbo CD portfolio continued to be diversified with 3,434 individual accounts owned by 2,409 individual depositors as of February 23, 1998. The balance of the accounts averaged approximately $164,000; 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 constantly made efforts to discourage the continued growth in Jumbo CD's, such as to diversify the customer base by branch expansion and acquisition, to offer non-competitive interest rates paid on Jumbo CD's and to develop new transaction-based products to attract depositors. The following table illustrates the deposit mix as of the dates indicated:
(Dollars in thousands) As of 03/31/98 As of 12/31/97 -------------- -------------- Types of deposits: Amount Percent Amount Percent ------ ------- ------ ------- Demand $ 169,030 11.5% $ 175,875 12.1% NOW accounts 114,458 7.8 111,653 7.7 Money market accounts 96,090 6.6 94,708 6.6 Savings deposits 206,825 14.1 210,291 14.5 Time deposits under $100,000 316,141 21.5 307,504 21.2 Time deposits of $100,000 or more 565,094 38.5 549,090 37.9 ---------- ----- ---------- ----- Total deposits $1,467,638 100.0% $1,449,121 100.0% ========== ===== ========== =====
CAPITAL RESOURCES Stockholders' equity amounted to $140.0 million or 8.53% of total assets as of March 31, 1998, compared with $135.9 million or 8.37% of total assets at year-end 1997. The $4.2 million or 3.1% increase in stockholders' equity was primarily due to year-to-date net income of $5.4 million and $395,000 from issuance of additional common shares through Dividend Reinvestment Plan, which were partially offset by a decrease of $81,000 in the unrealized holding gain on securities available-for-sale, net of tax, and dividends paid in the amount of $1.6 million. 15 16 The Company declared a cash dividend of $0.175 per share in January and April of 1998, on 8,941,743 and 8,953,307 shares outstanding, respectively. Total cash dividends paid in 1998, including the $1.6 million paid in April 1998, amounted to $3.2 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. As presented in the following tables, the Company and the Bank's capital and leverage ratios as of March 31, 1998 continued to be well above the regulatory minimum requirements. The capital ratios of the Bank place it in the "well capitalized" category which is defined as institutions with total risk-based ratio equal to or greater than 10.0%, Tier 1 risk-based capital ratio equal to or greater than 6.0% and Tier 1 leverage capital ratio equal to or greater than 5.0%.
(Dollars in thousands) Company Bank As of 03/31/1998 As of 03/31/1998 ---------------- ---------------- Balance Percent Balance Percent ------- ------- ------- ------- Tier 1 capital (to risk-weighted assets) $ 130,398* 11.49% $ 126,491* 11.14% Tier 1 capital minimum requirement 45,399 4.00 45,398 4.00 ---------- ----- ---------- ----- Excess $ 84,999 7.49% $ 81,093 7.14% ========== ===== ========== ===== Total capital (to risk-weighted assets) $ 144,613* 12.74% $ 140,706* 12.40% Total capital minimum requirement 90,798 8.00 90,797 8.00 ---------- ----- ---------- ----- Excess $ 53,815 4.74% $ 49,909 4.40% ========== ===== ========== ===== Risk-weighted assets $1,134,971 $1,134,960 Tier 1 capital (to average assets) - Leverage ratio $ 130,398* 8.03% $ 126,491* 7.79% Minimum leverage requirement 64,927 4.00 64,927 4.00 ---------- ----- ---------- ----- Excess $ 65,471 4.03% $ 61,564 3.79% ========== ===== ========== ===== Total average assets $1,623,173 $1,623,167
* Excluding the unrealized holding gains on securities available-for-sale of $289,000, and goodwill of $9,356,000. ASSET/LIABILITY MANAGEMENT AND MARKET RISK The Company manages its assets and liabilities to maximize its net interest income through growth opportunities and competitive pricing, while striving to minimize its market risk and to maintain adequate liquidity to meet the maturing financial obligations and customer credit needs. The Company can but is not utilizing hedging instruments currently to maintain and/or augment its spread, as management believes that it is not cost-effective at this time. The market risks to the Company are the risks that are by nature of its activities and the economic environment. The principal market risk to the Company is the interest rate risk inherent in its lending, investing and deposit taking activities, due to the fact that interest-earning assets and interest-bearing liabilities of the Company do not change at the same speed, to the same extent, or on the same basis. The Company actively monitors and manages its interest rate risk through analyzing the repricing characteristics of its loans, securities, and deposits on an on-going basis. The primary objective is to minimize the adverse effects of changes in interest rates on its earnings and ultimately the underlying 16 17 market value of equity while structuring the Company's asset-liability composition to obtain the maximum spread. Management uses certain basic measurement tools in conjunction with established risk limits to regulate its interest rate exposure. Because of the limitation inherent in any individual risk management tool, the Company uses both an interest rate sensitivity analysis and a simulation model to measure and quantify the impact to the Company's profitability or the market value of its assets and liabilities. The interest rate sensitivity analysis measures the Company's exposure to differential changes in interest rates between assets and liabilities. This analysis details the expected maturity and repricing opportunities mismatch or sensitivity gap between interest-earning assets and interest-bearing liabilities over a specified timeframe. A positive gap exists when rate sensitive assets which reprice over a given time period exceed rate sensitive liabilities. During periods of increasing interest rates environment, net interest margin may be enhanced with a positive gap. Contrarily, a negative gap exists when rate sensitive liabilities which reprice over a given time period exceed rate sensitive assets. During periods of increasing interest rate environment, net interest margin may be impaired. As of March 31, 1998, the Company was asset sensitive with a cumulative gap ratio of a positive 9.36% within three months, and liability sensitive with a cumulative gap ratio of a negative 18.67% within a 1-year period, compared to a positive 17.28% within three months, and a negative 10.49% within a 1-year period as of December 31, 1997. Since interest rate sensitivity analysis does not measure the timing differences in the repricing of asset and liabilities, the Company uses a simulation model to quantity the extent of the differences in the behavior of the lending and funding rates, so as to project future earnings or market values under alternative interest scenarios. The simulation measures the volatility of net interest income and market value of equity under immediate rising or falling interest rate scenarios in 100 basis point increments. The Company establishes a tolerance level in its policy to define and limit interest income volatility to a change of plus or minus 30% when the hypothetical rate change is plus or minus 200 basis points. When the tolerance level is met or exceeded, the Company then seeks corrective action after considering among other things market conditions, customer reaction and the estimated impact on profitability. As of March 31, 1998, the Company's interest income volatility was within the Company's established tolerance level. The Company derives liquidity primarily from various types of deposits. The Company's principal sources of liquidity have been growth in deposits, proceeds from the maturity or sale of securities and other financial instruments, and repayments from securities and loans. The Company's liquidity ratio (defined as net cash, short-term and marketable securities to net deposits and short-term liabilities) stood at 45.24% as of March 31, 1998, compared to 45.59% at year-end 1997. The Bank maintains a total credit line of $45 million for Federal funds with three correspondent banks, a repo line of $30 million with a brokerage firm and a total retail certificate of deposit line of approximately $213 million with three brokerage firms. Moreover, the Bank is a shareholder of Federal Home Loan Bank (FHLB) which enables the Bank 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. 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 Exhibit: 10.4 Cathay Bancorp, Inc. Equity Incentive Plan 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: May 13, 1998 DUNSON K. CHENG ------------ ----------------------- Dunson K. Cheng Chairman and President Date: May 13, 1998 ANTHONY M. TANG ------------ ----------------------- Anthony M. Tang Chief Financial Officer 19 EX-10.4 2 CATHAY BANCORP, INC. EQUITY INCENTIVE PLAN 1 EXHIBIT 10.4 --------- CATHAY BANCORP, INC. EQUITY INCENTIVE PLAN --------------------- SECTION 1. PURPOSE; DEFINITIONS. (a) Purpose. The purpose of the Plan is to provide selected eligible employees and directors of Cathay Bancorp, Inc., a Delaware corporation, its subsidiaries and affiliates an opportunity to participate in the Company's future by offering them an opportunity to acquire stock in the Company so as to retain, attract and motivate them. (b) Definitions. For purposes of the Plan, the following terms have the following meanings: (i) "Award" means any award under the Plan, including any Option or Restricted Stock Award. (ii) "Award Agreement" means, with respect to each Award, the signed written agreement between the Company and the Plan participant setting forth the terms and conditions of the Award. (iii) "Board" means the Board of Directors of the Company. (iv) "Change in Control" has the meaning set forth in Section 7(a). (v) "Change in Control Price" has the meaning set forth in Section 7(c). (vi) "Code" means the Internal Revenue Code of 1986, as amended from time to time, and any successor statute. (vii) "Commission" means the Securities and Exchange Commission and any successor agency. (viii) "Committee" means the Committee referred to in Section 2, or the Board in its capacity as administrator of the Plan in accordance with Section 2. (ix) "Company" means Cathay Bancorp, Inc., a Delaware corporation. (x) "Disability" means disabled within the meaning of Section 22(e)(3) of the Code. (xi) "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute. (xii) "Fair Market Value" means as of any given date (a) if the Stock is listed on any established stock exchange or a national market system, either the closing sale price for the Stock or the closing bid if no sales were reported, or the average of the bid and ask prices, as selected by the Committee in its discretion, as quoted on such system or exchange, as reported in The Wall Street Journal; or (b) in the absence of an established market for the Stock, the fair market value of the Stock as determined by the Committee in good faith. (xiii) "Incentive Stock Option" means any Option intended to be and designated as an "incentive stock option" within the meaning of Section 422 of the Code. 1 2 (xiv) "Nonqualified Stock Option" means any Option that is not an Incentive Stock Option. (xiv) "Option" means an option granted under Section 5. (xvi) "Plan" means this Cathay Bancorp, Inc. Equity Incentive Plan, as amended from time to time. (xvii) "Restricted Stock" means an Award of Stock subject to restrictions, as more fully described in Section 6. (xviii) "Restriction Period" means the period determined by the Committee under Section 6(b). (xix) "Rule 16b-3" means Rule 16b-3 under Section 16(b) of the Exchange Act, as amended from time to time, and any successor rule. (xx) "Stock" means the Common Stock, par value $.01 per share, of the Company, and any successor security. (xxi) "Subsidiary" has the meaning set forth in Section 424 of the Code. (xxii) "Tax Date" means the date defined in Section 8(f). (xxiii) "Termination" means, for purposes of the Plan, with respect to a participant, that (a) if the participant is a director of the Company, he or she has ceased to be, for any reason, a director and (b) if the participant is an employee, he or she has ceased to be, for any reason, employed by the Company, a subsidiary or an affiliate. SECTION 2. ADMINISTRATION. (a) Committee. The Plan shall be administered by the Board or, upon delegation by the Board, by a committee of the Board that will satisfy Rule 16b-3 and Section 162(m) of the Code, as in effect with respect to the Company from time to time. In connection with the administration of the Plan, the Committee shall have the powers possessed by the Board. The Committee may act only by a majority of its members, except that the Committee may from time to time select another committee or one or more other persons to be responsible for any matters so long as the selection comports with the requirements of Section 162(m) of the Code and Rule 16b-3. The Board at any time may abolish the Committee and revest in the Board the administration of the Plan. (b) Authority. The Committee shall grant Awards to directors and eligible employees. In particular and without limitation, the Committee, subject to the terms of the Plan, shall: (i) select the directors, officers and other employees to whom Awards may be granted; (ii) determine whether and to what extent Awards are to be granted under the Plan; (iii) determine the number of shares to be covered by each Award granted under the Plan; and (iv) determine the terms and conditions of any Award granted under the Plan and any related loans to be made by the Company, based upon factors determined by the Committee. (c) Committee Determinations Binding. The Committee may adopt, alter and repeal administrative rules, guidelines and practices governing the Plan as it from time to time shall deem advisable, may interpret the terms and provisions of the Plan, any Award and any Award Agreement and may otherwise supervise the 2 3 administration of the Plan. Any determination made by the Committee pursuant to the provisions of the Plan with respect to any Award shall be made in its sole discretion at the time of the grant of the Award or, unless in contravention of any express term of the Plan or Award, at any later time. All decisions made by the Committee under the Plan shall be binding on all persons, including the Company and Plan participants. SECTION 3. STOCK SUBJECT TO PLAN. (a) Number of Shares. The total number of shares of Stock reserved and available for issuance pursuant to Awards under this Plan shall be 1,075,000 shares. Such shares may consist, in whole or in part, of authorized and unissued shares or treasury shares or shares reacquired in private transactions or open market purchases, but all shares issued under the Plan, regardless of source, shall be counted against the 1,075,000 share limitation. If any Option terminates or expires without being exercised in full or if any shares of Stock subject to an Award are forfeited, or if an Award otherwise terminates without a payment being made to the participant in the form of Stock, the shares issuable under such Option or Award shall again be available for issuance in connection with Awards. Any Award under this Plan shall be governed by the terms of the Plan and any applicable Award Agreement. (b) Adjustments. In the event of any merger, reorganization, consolidation, recapitalization, stock dividend, stock split or other change in corporate structure affecting the Stock, such substitution or adjustments shall be made in the aggregate number of shares of Stock reserved for issuance under the Plan, in the number and exercise price of shares subject to outstanding Options, and in the number of shares subject to other outstanding Awards, as may be determined to be appropriate by the Committee, in its sole discretion; provided, however, that the number of shares subject to any Award shall always be a whole number. SECTION 4. ELIGIBILITY. Awards may be granted to all employees, including officers and directors, and non-employee directors of the Company, its subsidiaries and affiliates. SECTION 5. STOCK OPTIONS. (a) Types. Any Option granted under the Plan shall be in such form as the Committee may from time to time approve. The Committee shall have the authority to grant to any participant Incentive Stock Options, Nonqualified Stock Options or both types of Options. (b) Incentive Stock Options. Incentive Stock Options may be granted only to employees of the Company, its parent (within the meaning of Section 424 of the Code) or a Subsidiary. Any portion of an Option that is not designated as, or does not qualify as, an Incentive Stock Option shall constitute a Nonqualified Stock Option. (c) Terms and Conditions. Options granted under the Plan shall be subject to the following terms and conditions: (i) Option Term. The term of each Option shall be fixed by the Committee, but no Option shall be exercisable more than 10 years after the date the Option is granted. If, at the time the Company grants an Incentive Stock Option, the optionee owns directly or by attribution stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Company, or any parent or Subsidiary of the Company, the Incentive Stock Option shall not be exercisable more than five years after the date of grant. (ii) Grant Date. The Company may grant Options under the Plan at any time and from time to time before the Plan terminates. The Committee shall specify the date of grant or, if it fails to, the date of grant shall be the date of action taken by the Committee to grant the Option. 3 4 (iii) Exercise Price. The exercise price per share of Stock purchasable under an Option shall be equal to at least the Fair Market Value on the date of grant; provided, however, that if, at the time the Company grants an Incentive Stock Option, the optionee owns directly or by attribution stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Company, or any parent or Subsidiary of the Company, then the exercise price shall be not less than 110 percent of the Fair Market Value on the date the Incentive Stock Option is granted. (iv) Exercisability. Subject to the other provisions of the Plan, an Option shall be exercisable in its entirety at grant or at such times and in such amounts as are specified in the Award Agreement evidencing the Option. The Committee, in its absolute discretion, at any time may waive any limitations respecting the time at which an Option first becomes exercisable, in whole or in part, including acceleration in connection with a reorganization of the Company if there are no adverse consequences to the Company therefrom. (v) Method of Exercise; Payment. To the extent the right to purchase shares has accrued, Options may be exercised, in whole or in part, from time to time, by written notice from the optionee to the Company stating the number of shares being purchased, accompanied by payment of the exercise price for the shares. SECTION 6. RESTRICTED STOCK. (a) Price. The Committee may grant Restricted Stock to a participant. The grantee shall pay such consideration therefor as determined by the Committee, but no less than the par value of the Stock. (b) Restrictions. Subject to the provisions of the Plan and the Award Agreement, during the Restriction Period set by the Committee, commencing with, and not exceeding 10 years from, the date of such Award, the participant shall not be permitted to sell, assign, transfer, pledge or otherwise encumber shares of Restricted Stock. Within these limits, the Committee may provide for the lapse of such restrictions in installments and may accelerate or waive such restrictions, in whole or in part, based on service, performance or such other factors or criteria as the Committee may determine. (c) Dividends. Unless otherwise determined by the Committee, with respect to dividends on shares of Restricted Stock, dividends payable in cash shall be automatically reinvested in additional Restricted Stock, and dividends payable in Stock shall be paid in the form of Restricted Stock. (d) Termination. Except to the extent otherwise provided in the Award Agreement and pursuant to Section 6(b), in the event of a Termination during the Restriction Period, all shares still subject to restriction shall be forfeited by the participant. SECTION 7. CHANGE IN CONTROL (a) Definition of "Change in Control". For purposes of Section 7(b), a "Change in Control" means the occurrence of any one of the following: (i) Any "person," as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company, a subsidiary, an affiliate, or a Company employee benefit plan, including any trustee of such plan acting as trustee) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 35 percent or more of the combined voting power of the Company's then outstanding securities; (ii) The solicitation of proxies (within the meaning of Rule 14a-1(k) under the Exchange Act and any successor rule) with respect to the election of any director of the Company where such solicitation is for any candidate who is not a candidate proposed by a majority of the Board in office prior to the time of such election; or 4 5 (iii) The dissolution or liquidation (partial or total) of the Company or a sale of assets involving 30 percent or more of the assets of the Company, any merger or reorganization of the Company whether or not another entity is the survivor, a transaction pursuant to which the holders, as a group, of all of the shares of the Company outstanding prior to the transaction hold, as a group, less than 70 percent of the shares of the Company outstanding after the transaction, or any other event which the Board determines, in its discretion, would materially alter the structure of the Company or its ownership. (b) Impact of Event. In the event of a "Change in Control" as defined in Section 7(a), but only if and to the extent so specifically determined by the Board in its discretion, which determination may be amended or reversed only by the affirmative vote of a majority of the persons who were directors at the time such determination was made, acceleration and valuation provisions no more favorable to participants than the following may apply: (i) Any Option outstanding as of the date such Change in Control is determined to have occurred and not then exercisable and vested shall become fully exercisable and vested. (ii) The restrictions and limitations applicable to any Restricted Stock shall lapse, and such Restricted Stock shall become fully vested. (iii) The value (net of any exercise price) of all outstanding Options and Restricted Stock, unless otherwise determined by the Committee at or after grant and subject to Rule 16b-3, shall be cashed out on the basis of the "Change in Control Price," as defined in Section 7(c), as of the date such Change in Control is determined to have occurred or such other date as the Board may determine prior to the Change in Control. (c) Change in Control Price. For purposes of this Section 7, "Change in Control Price" means the highest price per share paid in any transaction reported on the National Market System of the National Association of Securities Dealers, Inc. Automated Quotation System or paid or offered in any bona fide transaction related to a potential or actual Change in Control of the Company at any time during the preceding 60-day period as determined by the Board, except that, in the case of Incentive Stock Options, such price shall be based only on transactions reported for the date on which the Board decides to cash out such Options. SECTION 8. GENERAL PROVISIONS. (a) Award Grants. Any Award may be granted either alone or in addition to other Awards granted under the Plan. Subject to the terms and restrictions set forth elsewhere in the Plan, the Committee shall determine the consideration, if any, payable by the participant for any Award and, in addition to those set forth in the Plan, any other terms and conditions of the Awards. The Committee may condition the grant or payment of any Award upon the attainment of specified performance goals or such other factors or criteria, including vesting based on continued service on the Board or employment, as the Committee shall determine. Performance objectives may vary from participant to participant and among groups of participants and shall be based upon such Company, subsidiary, group or division factors or criteria as the Committee may deem appropriate, including, but not limited to, earnings per share or return on equity. The other provisions of Awards also need not be the same with respect to each recipient. Unless specified otherwise in the Plan or by the Committee, the date of grant of an Award shall be the date of action by the Committee to grant the Award. The Committee may also substitute new Options for previously granted Options, including previously granted Options having higher exercise prices. (b) Award Agreement. As soon as practicable after the date of an Award grant, the Company and the participant shall enter into a written Award Agreement identifying the date of grant, and specifying the terms and conditions of the Award. Options are not exercisable until after execution of the Award Agreement by the Company and the Plan participant, but a delay in execution of the Award Agreement shall not affect the validity of the Option grant. (c) Certificates; Transfer Restrictions. All certificates for shares of Stock or other securities delivered under the Plan shall be subject to such stock transfer orders, legends and other restrictions as the 5 6 Committee may deem advisable under the rules, regulations and other requirements of the Commission, any market in which the Stock is then traded and any applicable federal, state or foreign securities law. (d) Termination. Unless otherwise provided in the applicable Award Agreement or by the Committee, in the event of Termination for any reason other than death or Disability, Awards held at the date of Termination (and only to the extent then exercisable or payable, as the case may be) may be exercised in whole or in part at any time within three months after the date of Termination or such lesser period specified in the Award Agreement (but in no event after the expiration date of the Award). If Termination is due to death or Disability, Awards held at the date of Termination (and only to the extent then exercisable or payable, as the case may be) may be exercised in whole or in part by the participant in the case of Disability, by the participant's guardian or legal representative or by the person to whom the Award is transferred by will or the laws of descent and distribution, at any time within one year from the date of Termination or any lesser period specified in the Award Agreement (but in no event after the expiration of the Award). (e) Delivery of Purchase Price. If and only to the extent authorized by the Committee, participants may make all or any portion of any payment due to the Company: (i) with respect to the consideration payable for an Award; (ii) upon exercise of an Award; or (iii) with respect to federal, state, local or foreign tax payable in connection with an Award, by delivery of (x) cash, (y) check, or (z) any property other than cash (including a promissory note of the participant or shares of Stock or securities) so long as, if applicable, such property constitutes valid consideration for the Stock under, and otherwise complies with, applicable law. No promissory note under the Plan shall have a term (including extensions) of more than five years or shall be of a principal amount exceeding 90 percent of the purchase price paid by the borrower. (f) Tax Withholding. Unless the Committee permits otherwise, the participant shall pay to the Company in cash, promptly when the amount of such obligations becomes determinable (the "Tax Date"), all applicable federal, state, local and foreign withholding taxes that the Committee in its discretion determines to result, (i) from the lapse of restrictions imposed upon an Award, (ii) upon exercise of an Award, or (iii) from a transfer or other disposition of shares acquired upon exercise or payment of an Award, or otherwise related to the Award or the shares acquired in connection with an Award. A participant who has received an Award or payment under an Award may, to the extent, if any, authorized by the Committee in its discretion, make an election to (x) deliver to the Company a promissory note of the participant on the terms set forth in Section 8(e), or (y) tender any such securities to the Company to pay the amount of tax that the Committee in its discretion determines to be required to be withheld by the Company; provided, however, that such election shall be subject to the disapproval of the Committee. Any shares or other securities so withheld or tendered shall be valued by the Committee as of the date they are withheld or tendered; provided, however, that Stock shall be valued at Fair Market Value on such date. The value of the shares withheld or tendered may not exceed the required federal, state, local and foreign withholding tax obligations as computed by the Company. (g) No Transferability. No Award shall be assignable or otherwise transferable by the participant other than by will or by the laws of descent and distribution. During the life of a participant, an Award shall be exercisable, and any elections with respect to an Award may be made, only by the participant or participant's guardian or legal representative. (h) Adjustment of Awards; Waivers. The Committee may adjust the performance goals and measurements applicable to Awards (i) to take into account changes in law and accounting and tax rules, (ii) to make such adjustments as the Committee deems necessary or appropriate to reflect the inclusion or exclusion of the 6 7 impact of extraordinary or unusual items, events or circumstances in order to avoid windfalls or hardships, and (iii) to make such adjustments as the Committee deems necessary or appropriate to reflect any material changes in business conditions. In the event of hardship or other special circumstances of a participant and otherwise in its discretion, the Committee may waive in whole or in part any or all restrictions, conditions, vesting, or forfeiture with respect to any Award granted to such participant. (i) Non-Competition. The Committee may condition its discretionary waiver of a forfeiture, the acceleration of vesting at the time of Termination of a participant holding any unexercised or unearned Award, the waiver of restrictions on any Award, or the extension of the expiration period to a period not longer than that provided by the Plan upon such participant's agreement (and compliance with such agreement) (i) not to engage in any business or activity competitive with any business or activity conducted by the Company and (ii) to be available for consultations at the request of the Company's management, all on such terms and conditions (including conditions in addition to (i) and (ii)) as the Committee may determine. (j) Dividends. The reinvestment of dividends in additional Restricted Stock at the time of any dividend payment pursuant to Section 6(c) shall only be permissible if sufficient shares of Stock are available under Section 3 for such reinvestment (taking into account then outstanding Awards). (k) Regulatory Compliance. Each Award under the Plan shall be subject to the condition that, if at any time the Committee shall determine that (i) the listing, registration or qualification of the shares of Stock upon any securities exchange or for trading in any securities market or under any state or federal law, (ii) the consent or approval of any government or regulatory body or (iii) an agreement by the participant with respect thereto, is necessary or desirable, then such Award shall not be consummated in whole or in part unless such listing, registration, qualification, consent, approval or agreement shall have been effected or obtained free of any conditions not acceptable to the Committee. (l) Rights as Shareholder. Unless the Plan or the Committee expressly specifies otherwise, an optionee shall have no rights as a shareholder with respect to any shares covered by an Award until the stock certificates representing the shares are actually delivered to the optionee. Subject to Sections 3(b) and 6(c), no adjustment shall be made for dividends or other rights for which the record date is prior to the date the certificates are delivered. (m) Beneficiary Designation. The Committee, in its discretion, may establish procedures for a participant to designate a beneficiary to whom any amounts payable in the event of the participant's death are to be paid. (n) Additional Plans. Nothing contained in the Plan shall prevent the Company, a subsidiary or an affiliate from adopting other or additional compensation arrangements for its directors and employees. (o) No Employment Rights; No Right to Directorship. Neither the adoption of this Plan nor the grant of any Award hereunder shall (i) confer upon any employee any right to continued employment nor shall it interfere in any way with the right of the Company, a subsidiary or an affiliate to terminate the employment of any employee at any time; or (ii) confer upon any participant any right with respect to continuation of the participant's membership on the Board or shall interfere in any way with provisions in the Company's Certificate of Incorporation and Bylaws relating to the election, appointment, terms of office, and removal of members of the Board. (p) Rule 16b-3. With respect to persons subject to Section 16 of the Exchange Act, transactions under this Plan are intended to comply with the applicable conditions of Rule 16b-3 under the Exchange Act. To the extent any provision of this Plan or action by the Committee fails to so comply, it shall be adjusted to comply with Rule 16b-3, to the extent permitted by law and deemed advisable by the Committee. It shall be the responsibility of persons subject to Section 16 of the Exchange Act, not of the Company or the Committee, to comply with the requirements of Section 16 of the Exchange Act; and neither the Company nor the Committee 7 8 shall be liable if this Plan or any transaction under this Plan fails to comply with the applicable conditions of Rule 16b-3, or if any such person incurs any liability under Section 16 of the Exchange Act. (q) Governing Law. The Plan and all Awards shall be governed by and construed in accordance with the laws of the State of California. (r) Use of Proceeds. All cash proceeds to the Company under the Plan shall constitute general funds of the Company. (s) Unfunded Status of Plan. The Plan shall constitute an "unfunded" plan for incentive and deferred compensation. The Committee may authorize the creation of trusts or arrangements to meet the obligations created under the Plan to deliver Stock or make payments; provided, however, that unless the Committee otherwise determines, the existence of such trusts or other arrangements shall be consistent with the "unfunded" status of the Plan. (t) Assumption by Successor. The obligations of the Company under the Plan and under any outstanding Award may be assumed by any successor corporation, which for purposes of the Plan shall be included within the meaning of "Company". (u) Limitation on Award Grants. The Company may not grant Awards under the Plan for more than 100,000 shares to any one participant in any calendar year. SECTION 9. AMENDMENTS AND TERMINATION. The Board may amend, alter or discontinue the Plan or any Award, but no amendment, alteration or discontinuance shall be made which would impair the rights of a participant under an outstanding Award without the participant's consent. No amendment, alteration or discontinuance shall require shareholder approval except: (a) an increase in the total number of shares reserved for issuance pursuant to Awards under the Plan; or (b) with respect to provisions solely as they relate to Incentive Stock Options, to the extent required for the Plan to comply with Section 422 of the Code; or (c) to the extent required by other applicable laws, rules or regulations; or (d) to the extent the Board otherwise concludes that shareholder approval is advisable. SECTION 10. EFFECTIVE DATE OF PLAN. The Plan shall be effective as of February 19, 1998, but all Awards shall be conditioned upon approval of the Plan (a) at a duly held stockholders' meeting by the affirmative vote of the holders of a majority of the shares of Stock of the Company represented in person or by proxy at the meeting and entitled to vote thereon, or (b) by an action by written consent of the holders of a majority of the voting power of the shares of the Company entitled to vote. SECTION 11. TERM OF PLAN. No Award shall be granted on or after February 18, 2008, but Awards granted prior to February 18, 2008 may extend beyond that date. 8 EX-27 3 FINANCIAL DATA SCHEDULE
9 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 84,235 396 24,400 0 218,602 356,590 362,622 894,951 16,435 1,642,597 1,467,638 15,261 19,655 0 0 0 90 139,953 1,642,597 19,554 8,923 702 29,179 13,229 13,491 15,688 900 35 7,882 8,908 8,908 0 0 5,418 0.61 0.61 4.39 16,971 1,463 4,379 4,938 15,379 147 303 16,435 16,435 0 0
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