-----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, WUdHgYJTDSNBA2JJR2qMSKySJUw12MlonOI8wYQZg0+YBEKENTBs0WB9IJq3tABf wSypuwPNQg6hhGELm9fFzA== 0001047469-97-004334.txt : 19971113 0001047469-97-004334.hdr.sgml : 19971113 ACCESSION NUMBER: 0001047469-97-004334 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 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: 97716056 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 (3RD QUARTER) 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, 1997 ------------------------------------------------- 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, 8,929,508 shares outstanding as of September 30, 1997. TABLE OF CONTENTS PART I - FINANCIAL INFORMATION........................................... 3 Item 1. Financial Statements........................................ 4-6 Notes to Condensed Consolidated Financial Statements......... 7-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 9-19 PART II - OTHER INFORMATION............................................. 20 Item 1. Legal Proceedings.......................................... 20 Item 2. Changes in Securities...................................... 20 Item 3. Defaults upon Senior Securities............................ 20 Item 4. Submission of Matters to a Vote of Security Holders........ 20 Item 5. Other Information.......................................... 20 Item 6. Exhibits and Reports on Form 8-K........................... 20 SIGNATURES.............................................................. 21 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS 3 CATHAY BANCORP, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CONDITION AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 (IN THOUSANDS)
Sept. 30, 1997 Dec. 31, 1996 (unaudited) (unaudited) -------------- ------------- ASSETS Cash and due from banks $ 68,819 $ 47,194 Federal funds sold and securities purchased under agreement to resell 26,000 28,000 -------- --------- Cash and cash equivalents 94,819 75,194 Securities available-for-sale (with amortized costs of $260,173 in 1997 and $385,228 in 1996) 260,925 383,391 Securities held-to-maturity (with estimated fair values of $332,981 in 1997 and $212,002 in 1996) 328,478 210,129 Loans (net of allowance for loan losses of $14,969 in 1997 and $13,529 in 1996) 809,915 744,384 Other real estate owned, net 10,063 18,854 Investments in real estate, net 1,735 3,987 Premises and equipment, net 25,328 25,771 Customers' liability on acceptance 9,726 6,653 Accrued interest receivable 9,809 15,008 Goodwill 9,696 9,897 Other assets 10,302 11,061 ---------- ---------- Total assets $1,570,796 $1,504,329 ---------- ---------- ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Deposits Non-interest bearing demand deposits $ 160,854 $ 135,345 Interest bearing accounts NOW accounts 112,940 118,498 Money market deposits 98,207 95,158 Savings deposits 211,744 224,443 Time deposits under $100,000 308,209 302,981 Time deposits of $100,000 or more 527,781 488,315 ---------- --------- Total deposits 1,419,735 1,364,740 ---------- --------- Securities sold under agreements to repurchase 3,101 10,000 Acceptances outstanding 9,726 6,653 Other liabilities 6,429 4,490 ---------- --------- Total liabilities 1,438,991 1,385,883 ---------- --------- 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, 8,929,508 and 8,878,144 shares issued and outstanding in 1997 and 1996, respectively 89 89 Additional paid-in-capital 60,885 59,812 Unrealized holding gains (losses) on securities available-for-sale, net of tax 435 (1,059) Retained earnings 70,396 59,604 ---------- ---------- Total stockholders' equity 131,805 118,446 ---------- ---------- Total liabilities and stockholders' equity $1,570,796 $1,504,329 ---------- ---------- ---------- ---------- SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4 CATHAY BANCORP, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
3rd Qtr 3rd Qtr YTD YTD Sept. 1997 Sept. 1996 Sept. 1997 Sept. 1996 ---------- ---------- ---------- ---------- INTEREST INCOME Interest and fees on loans $ 18,795 $ 13,613 $ 54,689 $ 40,295 Interest on securities available-for-sale 4,407 4,253 14,515 12,269 Interest on securities held-to-maturity 4,352 3,103 11,857 8,192 Interest on Federal funds sold and securities purchased under agreement to resell 889 393 1,698 1,233 Interest on deposit with banks 2 - 2 - --------- --------- --------- --------- Total interest income 28,445 21,362 82,761 61,989 --------- --------- --------- --------- INTEREST EXPENSE Time deposits of $100,000 or more 6,945 5,658 19,441 16,664 Other deposits 5,983 3,943 17,774 11,501 Other borrowed funds 130 21 193 78 --------- --------- --------- --------- Total interest expense 13,058 9,622 37,408 28,243 --------- --------- --------- --------- Net interest income before provision for loan losses 15,387 11,740 45,353 33,746 Provision for loan losses 900 900 2,700 2,700 --------- --------- --------- --------- Net interest income after provision for loan losses 14,487 10,840 42,653 31,046 --------- --------- --------- --------- NON-INTEREST INCOME Securities gains 31 - 35 22 Letter of credit commissions 460 371 1,065 974 Service charges 907 724 2,571 2,193 Other operating income 497 440 1,244 1,013 --------- --------- --------- --------- Total non-interest income 1,895 1,535 4,915 4,202 --------- --------- --------- --------- NON-INTEREST EXPENSE Salaries and employee benefits 4,165 3,105 12,145 9,302 Occupancy expense 712 564 2,143 1,692 Computer and equipment expense 661 452 1,813 1,475 Professional services expense 746 798 2,324 2,348 FDIC and State assessments 97 99 248 282 Marketing expense 295 199 1,111 785 Other operating expense 577 740 2,998 3,658 --------- --------- --------- --------- Total non-interest expense 7,253 5,957 22,782 19,542 --------- --------- --------- --------- Income before income tax expense 9,129 6,418 24,786 15,706 Income tax expense 3,733 2,688 9,992 5,992 --------- --------- --------- --------- Net Income $ 5,396 $ 3,730 $ 14,794 $ 9,714 --------- --------- --------- --------- --------- --------- --------- --------- NET INCOME PER COMMON SHARE, based on the weighted average number of shares outstanding during the periods: $ 0.60 $ 0.47 $ 1.66 $ 1.23 Weighted average number of common shares outstanding 8,925,219 7,946,475 8,908,363 7,911,894 SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5 CATHAY BANCORP, INC. & SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED) (In thousands) ---------------------------- 1997 1996 - ------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 14,794 $ 9,714 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 2,700 2,700 Provision for losses on other real estate owned 410 1,270 Depreciation 994 1,097 Net gain on disposition of other real estate owned (190) (97) Net gain on disposition of investments in real estate (222) - Premises and equipment disposal gains - 2 Net gain on sales and calls of securities (34) (22) Amortization and accretion of investment security premiums, net 163 573 Increase in deferred loan fees, net 20 227 Decrease in accrued interest receivable 5,199 2,822 (Increase) decrease in other assets, net (133) 823 Increase in other liabilities 1,939 2,283 - -------------------------------------------------------------------------------- Total adjustments 10,846 11,678 - -------------------------------------------------------------------------------- Net cash provided by operating activities 25,640 21,392 - -------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of securities available-for-sale (163,814) (84,368) Proceeds from maturity and call of securities available-for-sale 204,433 42,465 Purchase of securities held-to-maturity (13,113) (13,515) Proceeds from maturity and call of securities held-to-maturity 41,187 11,155 Proceeds from sale of securities available-for-sale 92,700 - Purchase of mortgage-backed securities available-for- sale (12,444) (8,903) Proceeds from repayments of mortgage-backed securities available-for-sale 4,664 - Purchase of mortgage-backed securities held-to- maturity (157,401) (47,597) Repayments from mortgage-backed securities held- to-maturity 10,363 1,967 Proceeds from sale of loans 1,834 2,034 Net change in loans (65,627) (38,422) Purchase of premises and equipment (551) (355) Proceeds from sale of equipment - 7 Proceeds from disposition of other real estate owned 4,113 2,802 Proceeds from disposition of investment in real estate 2,292 - Decrease in investments in real estate 182 104 - -------------------------------------------------------------------------------- Net cash used in investing activities (51,182) (132,626) - -------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase in demand deposits, NOW accounts, money market and savings deposits 10,301 10,371 Net increase in time deposits 44,694 93,156 Net decrease in securities sold under agreement to repurchase (6,899) (700) Cash dividends (4,001) (3,552) Proceeds from shares issued to Dividend Reinvestment Plan 1,072 1,357 - -------------------------------------------------------------------------------- Net cash provided by financing activities 45,167 100,632 - -------------------------------------------------------------------------------- Increase in cash and cash equivalents 19,625 (10,602) Cash and cash equivalents, beginning of the period 75,194 71,326 - -------------------------------------------------------------------------------- Cash and cash equivalents, end of the period $ 94,819 $ 60,724 - -------------------------------------------------------------------------------- Supplemental disclosure of cash flow information Cash paid during the period for: Interest $ 36,805 $ 28,310 Income taxes $ 9,746 $ 2,720 Non-cash investing activities: Securities held-to-maturity transferred to available-to-sale within 90 days of maturity $ 630 $ 305 Net change in unrealized holding gain/ loss on securities available-for-sale, net of tax $ 1,494 $ (2,750) Transfers to other real estate owned $ 2,383 $ 9,190 Loans to facilitate the sale of other real estate owned $ 6,841 $ 3,524 - -------------------------------------------------------------------------------- SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 6 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 nine months ended September 30, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. 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, 1996. 2. NEW ACCOUNTING PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share". This Statement establishes standards for computing and presenting earnings per share (EPS) and applies to entities with publicly held common stock or potential common stock. This statement simplifies the standards for computing earnings per share previously found in APB Opinion No. 15, Earnings per Share, and makes them comparable to international EPS standards. It replaces the presentation of primary EPS with a presentation of basic EPS. It also requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Diluted EPS is computed similarly to fully diluted EPS pursuant to Opinion 15. This Statement supersedes Opinion 15 and AICPA Accounting Interpretations 1-102 of Opinion 15. It also supersedes or amends other accounting pronouncements. The provisions in this Statement are substantially the same as those in International Accounting Standard 33, Earnings per Share, recently issued by the International Accounting Standards Committee. This Statement is effective for financial statements issued for periods ending after December 15, 1997, including interim periods; earlier application is not permitted. This Statement requires restatement of all prior- period EPS data presented. Upon adoption of SFAS No. 128, the Company anticipates that its basic EPS disclosures will be increased as compared to the primary EPS disclosures presently required by APB Opinion 15. Diluted EPS disclosures are not expected to differ materially from the fully-diluted disclosures presently required by APB Opinion 15. In February 1997 the FASB issued SFAS No. 129, "Disclosure of Information About Capital Structure." SFAS No. 129 consolidates existing reporting standards for disclosing information about an entity's capital structure. SFAS No. 129 also supersedes previously issued accounting statements. SFAS No. 129 must be adopted for financial statements for periods ending after December 15, 1997. The impact on the Company of adopting SFAS No. 129 is not expected to be material as the Company's existing disclosures are generally in compliance with the disclosure requirements in SFAS No. 129. 7 In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. SFAS No. 130 is effective for fiscal years beginning after December 15, 1997. The impact on the Company of adopting SFAS No. 130 is not expected to be material to the Company's existing disclosure. In June 1997, the FASB issued 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 statements for periods beginning after December 15, 1997, with comparative information for earlier years to be restated. The Company is currently assessing the effect of adopting SFAS No. 131. 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 1996 Annual Report of Cathay Bancorp, Inc. ("Bancorp") and its subsidiary Cathay Bank ("the Bank"), together ("the Company"). RESULTS OF OPERATIONS For the third quarter of 1997, the Company reported net income of $5.4 million or $0.60 per share, as compared to $3.7 million or $0.47 per share for the third quarter of 1996, representing an increase of $1.7 million or 44.7%. Income before income tax expense amounted to $9.1 million for the third quarter of 1997, an increase of $2.7 million or 42.2% over $6.4 million for the same quarter a year ago. The consistent earnings growth in the third quarter of 1997 was due to increases in earning assets, primarily loans and securities. The annualized return on average assets and return on average stockholders' equity were 1.38% and 16.60%, respectively for the third quarter of 1997, as compared to 1.24% and 15.22%, respectively for the same quarter of 1996. For the nine months ended September 30, 1997, the Company reported net income of $14.8 million or $1.66 per share, as compared to $9.7 million or $1.23 per share for the same period a year ago. This represents an increase of $5.1 million or 52.3%. Income before income tax expense increased $9.1 million or 57.8% to $24.8 million for the nine months ended September 30, 1997 from $15.7 million a year ago. The annualized return on average assets and return on average stockholders' equity for the first nine months of 1997 were 1.29% and 15.81%, respectively, as compared to 1.13% and 13.39% for the same period in 1996. NET INTEREST INCOME For the first nine months of 1997 and 1996, net interest income before provision for loan losses totaled $45.4 million and $33.7 million, respectively, representing an increase of $11.7 million or 34.4% for 1997. On a taxable equivalent basis, net interest income totaled $46.2 million and $34.6 million for the first nine months of 1997 and 1996, respectively, representing an increase of $11.6 million or 33.6% for 1997. The increase in net interest income was substantially attributable to a $339.9 million growth in average earning assets. The increase in average earning assets was primarily funded by time deposits and, secondarily by other interest-bearing deposits and demand deposits. Although the increase of average loans of $225.4 million or 40.6% contributed to an increase of $14.4 million in interest income, the average yield on loans dropped 32 basis points from 9.69% to 9.37% despite a 14 basis point increase in the Bank's average reference rate. This was primarily due to substantial increases in average real estate mortgage loans from the acquisition of First Public Savings Bank last November, and to a lesser extent, the keen competition in the Company's market area. Average real estate mortgage loans comprised approximately 17.5% of total loans in the first nine months of 1997 as compared to 7.8% in the same period in 1996. The average taxable equivalent yield on securities and Federal funds sold improved 27 basis points and 37 basis points from 6.08% and 5.28% to 6.35% and 5.65%, respectively, while cost of funds remained at approximately the same at 4.01%. As a result, net interest margin, defined as taxable equivalent net interest income to average earning assets, increased 5 basis points from 4.38% in the first nine months of 1996 to 4.43% in 1997. For the third quarter of 1997, net interest income before provision for loan losses totaled $15.4 million, as compared to $11.7 million for the same quarter of 1996. This represents an increase of $3.7 million or 31.1%. On a taxable equivalent basis, net interest income increased $3.8 million or 31.3% to $15.7 million for the third quarter of 1997, as compared to $11.9 million for the same quarter of 1996. The increase in the quarterly net interest income was primarily attributable to an increase of $338.7 million in average earning assets with average loans increasing $241.1 million or 43.1%. The increase in average loans added $5.2 million to the interest income. However, the average yield on loans declined 36 basis points from 9.68% to 9.32% between the third quarter of 1996 and 1997 due to the same reasons as explained previously. The taxable equivalent average yield on earning assets increased 9 11 basis points in the third quarter of 1997 to 8.00% as compared to 7.89% for the same quarter of 1996, primarily resulting from higher yields on securities and Federal funds sold. Nevertheless, cost of funds went up 15 basis points mainly due to higher rates paid on time deposits resulting from the Fed's tightening of 25 basis points in late March of 1997. Consequently, the net interest margin for the third quarter of 1997 remained approximately the same at 4.36% compared to the third quarter of 1996. NON-INTEREST INCOME For the first nine months of 1997, non-interest income totaled $4.9 million, as compared to $4.2 million for the same period a year ago. This represents an increase of $713,000 or 17.0% resulting from higher income in service charges, wire transfer fees, letter of credit commissions and fees related to loans. On a quarterly basis, non-interest income totaled $1.9 million and $1.5 million for the third quarter of 1997 and 1996, respectively. The $360,000 or 23.5% increase was attributable to the same reasons as stated in the previous paragraph. 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 Percent 09/30/97 09/30/96 Increase Change -------- -------- -------- -------- Non-interest income: Securities Gains $ 35 $ 22 $ 13 59.1% Letter of credit commissions 1,065 974 91 9.3 Service charges 2,571 2,193 378 17.2 Other operating income 1,244 1,013 231 22.8 ------ ------ ------ ------ Total non-interest income $4,915 $4,202 $ 713 17.0% ------ ------ ------ 3rd Qtr. 3rd Qtr. Percent Non-interest income: 1997 1996 Increase Change ------- ------- -------- -------- Securities Gains $ 31 $ 0 $ 31 NMV* Letter of credit commissions 460 371 89 24.0% Service charges 907 724 183 25.3 Other operating income 497 440 57 13.0 ------ ------ ------ Total non-interest income $1,895 $1,535 $ 360 23.5% ------ ------ ------ ------ ------ ------ ------ ------ *No meaningful value NON-INTEREST EXPENSE Non-interest expense amounted to $22.8 million and $19.5 million, respectively for the first nine months of 1997 and 1996. The increase of $3.3 million or 16.6% in 1997 was primarily due to the higher operating cost associated with added personnel and facilities from the acquisition while net other real estate owned ("OREO") expense declined $1.0 million. The efficiency ratio, defined as non-interest expense divided by net interest income before provision for loan losses plus non-interest income, improved from 51.50% for the nine months ended September 30, 1996 to 45.32% for the same period in 1997. Quarterly, non-interest expense totaled $7.3 million and $6.0 million for the third quarter of 1997 and 1996, respectively. The higher quarterly non-interest expense was attributable to substantially the same factors discussed in the previous paragraph. The efficiency ratios for the third quarter of 1997 and 1996 were 41.97% and 44.87%, respectively. The following tables present the components of the non-interest expense with the amount and percentage changes for the periods indicated: 10 (Dollars in thousands) Nine Months Ended Increase Percent 09/30/97 09/30/96 (Decrease) Change -------- -------- --------- -------- Non-interest expense: Salaries and employee benefits $12,145 $ 9,302 $ 2,843 30.6% Occupancy expense 2,143 1,692 451 26.7 Computer and equipment expense 1,813 1,475 338 22.9 Professional services expense 2,324 2,348 (24) (1.0) FDIC and State assessments 248 282 (34) (12.1) Marketing expense 1,111 785 326 41.5 Net other real estate owned expense 367 1,375 (1,008) (73.3) Other operating expense 2,631 2,283 348 15.2 -------- -------- --------- -------- Total non-interest expense $22,782 $19,542 $3,240 16.6% -------- -------- --------- -------- -------- --------- 3rd Qtr. 3rd Qtr. Increase Percent 1997 1996 (Decrease) Change -------- -------- --------- -------- Non-interest expense: Salaries and employee benefits $ 4,165 $ 3,105 $1,060 34.1% Occupancy expense 712 564 148 26.2 Computer and equipment expense 661 452 209 46.2 Professional services expense 746 798 (52) (6.5) FDIC and State assessments 97 99 (2) (2.0) Marketing expense 295 199 96 48.2 Net other real estate owned expense (79) 66 (145) (219.7) Other operating expense 656 674 (18) (2.7) -------- -------- --------- -------- Total non-interest expense $ 7,253 $ 5,957 $1,296 21.8% -------- -------- --------- -------- -------- --------- FINANCIAL CONDITION During the nine month period from year-end 1996 to September 30, 1997, total assets increased $66.5 million or 4.4% to $1,570.8 million; loans, net of deferred fees, grew by $67.0 million or 8.8% to $824.9 million; investment securities (including available-for-sale and held-to-maturity) decreased $4.1 million or 0.7% to $589.4 million; deposits were up $55.0 million or 4.0% to $1,419.7 million; and stockholders' equity advanced $13.4 million or 11.3% to $131.8 million. EARNING ASSET MIX Total earning assets amounted to $1,440.3 million as of September 30, 1997, as compared to $1,379.4 million at year-end 1996, representing an increase of $60.9 million or 4.4% which was entirely from loans. The gradual shift in the earning asset mix from securities and other investments to loans favorably affected the net interest margin. The table below shows the changes in the earning asset mix as of the dates indicated: (Dollars in thousands) As of 09/30/97 As of 12/31/96 ------------------- -------------------- Amount Percent Amount Percent -------- -------- ---------- -------- Types of earning assets: Federal funds sold $ 26,000 1.8% $ 28,000 2.0% Securities available-for-sale 260,925 18.1 383,391 27.8 Securities held-to-maturity 328,478 22.8 210,129 15.2 Loans (net of deferred fees) 824,884 57.3 757,913 55.0 Total earning assets $1,440,287 100.0% $1,379,433 100.0% ---------- ----- ---------- ---------- ----- ---------- 11 SECURITIES As of September 30, 1997 securities available-for-sale decreased $122.5 million or 31.9% from $383.4 million at year-end 1996 to $260.9 million, while securities held-to-maturity increased $118.3 million or 56.3% from $210.1 million at year-end 1996 to $328.5 million. The average yields on taxable securities available-for-sale and held-to-maturity increased 42 basis points and 13 basis points from 5.69% and 6.18% to 6.11% and 6.31%, respectively comparing the first nine months of 1996 and 1997 as a result of a portfolio restructure in the third quarter of 1997. 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 09/30/97 - ------------------------------ ------------------------------------------ Gross Gross Amortized Unrealized Unrealized Cost Gains Losses Fair Value --------- ---------- ---------- ---------- U.S. Treasury securities $ 39,031 $ 33 $ 84 $ 38,980 U.S. government agencies 117,438 131 43 117,526 Mortgage-backed securities 30,820 680 13 31,487 Assets-backed securities 13,415 31 0 13,446 Federal Home Loan Bank stock 5,653 0 0 5,653 Commercial paper 53,816 23 6 53,833 -------- ------ ------ -------- Total $260,173 $ 898 $ 146 $260,925 -------- ------ ------ -------- -------- ------ ------ -------- As of 12/31/96 ------------------------------------------- Gross Gross Amortized Unrealized Unrealized Cost Gains Losses Fair Value --------- ---------- ---------- ---------- U.S. Treasury securities $122,116 $ 197 $ 544 $121,769 U.S. government agencies 229,695 128 1,446 228,377 State and municipal securities 50 0 0 50 Mortgage-backed securities 23,053 7 178 22,882 Assets-backed securities 4,999 0 1 4,998 Federal Home Loan Bank stock 5,315 0 0 5,315 --------- ---------- ---------- ---------- Total $385,228 $ 332 $2,169 $383,391 --------- ---------- ---------- ---------- --------- ---------- ---------- ---------- (Dollars in thousands) SECURITIES HELD-TO-MATURITY: As of 09/30/97 ------------------------------------------ Gross Gross Carrying Unrealized Unrealized Estimated Value Gains Losses Fair Value --------- ---------- ---------- ---------- U.S. Treasury securities $ 26,061 $ 334 $ 0 $ 26,395 U.S. government agencies 39,381 342 0 39,723 State and municipal securities 42,347 1,786 2 44,131 Mortgage-backed securities 210,192 1,879 66 212,005 Assets-backed securities 1,584 0 2 1,582 Other securities 8,913 232 0 9,145 --------- ---------- ---------- ---------- Total $ 328,478 $4,573 $ 70 $332,981 --------- ---------- ---------- ---------- --------- ---------- ---------- ---------- As of 12/31/96 ------------------------------------------ Gross Gross Carrying Unrealized Unrealized Estimated Value Gains Losses Fair Value --------- ---------- ---------- ---------- U.S. Treasury securities $ 26,081 $ 91 $ 9 $ 26,163 U.S. government agencies 66,900 0 106 66,794 State and municipal securities 40,393 1,513 31 41,875 Mortgage-backed securities 63,109 504 103 63,510 Assets-backed securities 3,545 0 1 3,544 Other securities 10,101 15 0 10,116 --------- ---------- ---------- ---------- Total $210,129 $2,123 $ 250 $212,002 --------- ---------- ---------- ---------- --------- ---------- ---------- ---------- 12 SECURITIES PORTFOLIO MATURITY DISTRIBUTION: (Dollars in thousands) As of September 30, 1997 Maturity Schedule --------------------------------------------- After 1 After 5 But But SECURITIES AVAILABLE-FOR-SALE: Within Within Within Over 1 Yr 5 Yrs 10 Yrs 10 Yrs Total ------ ------ ------ ------- --------- U.S. Treasury securities $ 35,969 $ 3,011 $ 0 $ 0 $ 38,980 U.S. government agencies 20,081 97,445 0 0 117,526 Mortgage-backed securities* 0 8,410 3,549 19,528 31,487 Assets-backed securities* 0 3,600 9,846 0 13,446 Federal Home Loan Bank stock 5,653 0 0 0 5,653 Commercial paper 53,833 0 0 0 53,833 --------- -------- ------- --------- --------- Total $115,536 $112,466 $ 13,395 $ 19,528 $260,925 --------- -------- ------- --------- --------- --------- -------- ------- --------- --------- SECURITIES HELD-TO-MATURITY: U.S. Treasury securities $ 0 $ 26,061 $ 0 $ 0 $ 26,061 U.S. government agencies 0 39,381 0 0 39,381 State and municipal securities 364 9,637 16,908 15,438 42,347 Mortgage-backed securities* 0 20,646 24,890 164,656 210,192 Assets-backed securities* 0 0 0 1,584 1,584 Corporate bonds 0 8,913 0 0 8,913 --------- -------- ------- --------- --------- Total $ 364 $104,638 $ 41,798 $181,678 $328,478 --------- -------- ------- --------- --------- --------- -------- ------- --------- --------- * The mortgage-backed securities and asset-backed securities reflect stated maturities and not anticipated prepayments. LOANS The Bank experienced a good loan growth in the first nine months of 1997, particularly in the first and third quarters. Total gross loans increased $67.0 million or 8.8% to $828.6 million as of September 30, 1997, from $761.6 million at year-end 1996. All loan categories showed increases with the majority in commercial loans and real estate mortgage loans. Commercial loans grew by $36.0 million or 12.7%, followed by commercial real estate loans, residential real estate loans and equity lines which added $14.6 million, $7.9 million and $3.6 million, respectively, bringing to a total increase of $26.1 million in the real estate mortgage loans. Installment loans advanced $2.8 million. The following table sets forth the classification of loans by type and mix as of the dates indicated: (Dollars in thousands) As of 09/30/97 As of 12/31/96 ---------------- ---------------- Types of loans: Amount Percent Amount Percent -------- ------- -------- ------- Commercial loans $319,869 39.5% $283,894 38.1% Real estate mortgage loans 446,463 55.1 420,315 56.5 Real estate construction loans 35,157 4.3 33,510 4.5 Installment loans 26,386 3.3 23,551 3.1 Other loans 772 0.1 385 0.1 -------- ------- -------- ------- Total loans - Gross 828,647 761,655 Allowance for loan losses (14,969) (1.8) (13,529) (1.8) Unamortized deferred loan fees (3,763) (0.5) (3,742) (0.5) -------- ------- -------- ------- Total loans - Net $809,915 100.0% $744,384 100.0% -------- ------- -------- ------- -------- ------- -------- ------- 13 RISK ELEMENTS OF THE LOAN PORTFOLIO NON-PERFORMING ASSETS Non-performing assets include loans past due 90 days or more and still accruing interest, non-accrual loans, and OREO. Non-performing assets totaled $30.4 million as of September 30, 1997 as compared to $30.2 million at year-end 1996. The slight increase in non-performing assets was primarily due to increases of $7.5 million in non-accrual loans and $1.5 million in loans past due 90 days or more and still accruing interest, offset by a reduction of $8.8 million in OREO. The non-accrual coverage ratio, which is the allowance for loan losses to non-performing loans, was 73.53% at September 30, 1997 as compared to 119.15% at year-end 1996. The decrease in the non-accrual coverage ratio was primarily attributable to an increase of $9.0 million in non- performing loans which include non-accrual loans and loans past due 90 days or more and still accruing interest combined with a $1.4 million increase in the allowance for loan losses. Although the coverage ratio declined considerably, management does not expect substantial losses from the non-performing loans since most of these loans are well collateralized. The increase in non-accrual loans was significantly due to two commercial loans totaling $4.9 million, both of which were secured by the first trust deeds on the respective commercial properties. However, non-performing assets decreased as a percentage of total loans plus OREO from 3.87% at year-end 1996 to 3.63% at September 30, 1997. 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: 09/30/97 06/30/97 03/31/97 12/31/96 -------- -------- -------- -------- Loans past due 90 days or more and still accruing interest $ 3,516 $ 4,943 $ 56 $ 2,050 Non-accrual loans 16,841 13,618 10,120 9,305 -------- -------- -------- -------- Total past due loans 20,357 18,561 10,176 11,355 Real estate acquired in foreclosure 10,063 10,390 14,202 18,854 -------- -------- -------- -------- Total non-performing assets $30,420 $28,951 $24,378 $30,209 -------- -------- -------- -------- -------- -------- -------- -------- Accruing troubled debt restructurings 2,911 3,673 3,195 3,201 Non-performing assets as a percentage of period-end total loans plus OREO 3.63% 3.60% 3.01% 3.87% The balance of $16.8 million in non-accrual loans as of September 30, 1997 consisted mainly of $10.6 million in commercial loans and $5.6 million in commercial real estate 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) 09/30/97 12/31/96 --------------------- ----------------------- Non-accrual Loan Balance --------------------------------------------- Commercial Commercial Type of property: Real Estate Commercial Real Estate Commercial ----------- ---------- ----------- ---------- Single/multi-family residence $ 821 $ 618 $ 583 $ 1,707 Commercial 3,092 9,184 226 3,302 Motel 1,350 489 1,350 511 Marina 0 0 769 0 Others 364 132 0 399 Unsecured 0 151 0 84 -------- ------- -------- -------- $ 5,627 $10,574 $ 2,928 $ 6,003 -------- ------- -------- -------- -------- ------- -------- -------- 14 (Dollars in thousands) 09/30/97 12/31/96 ----------------------- ------------------- Non-accrual Loan Balance ------------------------------------------- Commercial Commercial Type of business: Real Estate Commercial Real Estate Commercial ----------- ---------- ----------- ---------- Real estate development $ 0 $ 140 $ 995 $ 562 Wholesale 429 2,647 0 780 Retail 0 246 0 0 Food/Restaurant 0 1,255 0 1,327 Import 752 383 0 305 Motel 1,857 489 1,933 511 Investments 723 3,713 0 0 Industrial 916 378 0 6 Clothing 0 482 0 1,139 Others 950 841 0 1,373 ----------- ---------- ----------- ---------- $5,627 $10,574 $2,928 $6,003 ----------- ---------- ----------- ---------- ----------- ---------- ----------- ---------- The previous tables show a $1.4 million balance in non-accrual motel loan as of September 30, 1997, which represents one credit secured by the first trust deed on the respective motel located in Southern California. The $3.1 million non-accrual loans under commercial real estate included six credits, all of which were secured by the first trust deeds of the respective commercial properties. Under the non-accrual commercial loan category as of September 30, 1997, the $9.2 million balance consisted of 15 credits including the two credits totaling $4.9 million mentioned previously plus 13 others with a majority of the loan amounts less than $300,000. The collateral on these credits include primarily first trust deeds and secondarily second and third trust deeds on commercial buildings and warehouses. Although the non-accrual coverage ratio declined considerably, management does not expect substantial losses from the non-accrual loans since a majority of these loans are adequately secured. Troubled debt restructurings totaled $2.9 million as of September 30, 1997, as compared to $3.2 million at year-end 1996. All of the restructured loans were current under their revised terms with the exception of one credit in the amount of $473,000 which was 11 days past due as of September 30, 1997. There were no loan concentrations to multiple borrowers in similar activities, which exceeded 10% of total loans as of September 30, 1997. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses amounted to $15.0 million or 1.81% of total loans as of September 30, 1997, as compared to $13.5 million or 1.78% of total loans at year-end 1996. The following table presents information relating to the allowance for loan losses for the periods indicated: (Dollars in thousands) YTD YTD YTD YTD 09/30/97 06/30/97 03/31/97 12/31/96 -------- -------- -------- -------- Allowance for loan losses: Balance at beginning of period $13,529 $13,529 $13,529 $12,742 Allowance from acquisition 0 0 0 1,644 Provision for loan losses 2,700 1,800 900 3,600 Loans charged-off (1,568) (1,346) (39) (5,388) Recoveries of charged-off loans 308 43 24 931 -------- -------- -------- -------- Balance at end of period $14,969 $14,026 $14,414 $13,529 -------- -------- -------- -------- -------- -------- -------- -------- 15 (Dollars in thousands) YTD YTD YTD YTD 09/30/97 06/30/97 03/31/97 12/31/96 -------- -------- -------- -------- Average loans outstanding during the period $780,756 $770,763 $754,240 $579,634 Ratio of net charge-offs to average loans outstanding during the period (annualized) 0.22% 0.34% 0.01% 0.77% Provision for loan losses to average loans outstanding during the period (annualized) 0.46% 0.47% 0.48% 0.62% Allowance to non-performing loans at period-end 73.53% 75.57% 141.65% 119.15% Allowance to total loans at period-end 1.81% 1.77% 1.81% 1.78% 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 Bank's impaired loans include all non-accrual loans with outstanding balances equal to or greater than $500,000, all other loans classified substandard or worse with outstanding balances equal to or greater than $750,000 and all troubled debt restructurings. The following table presents a breakdown of impaired loans and the impairment allowance related to impaired loans: (Dollars in thousands) As of September 30, 1997 ------------------------ Impaired loans: Recorded Impairment Loans with impairment allowance: Investment Allowance ---------- ---------- Commercial $12,245 $ 2,439 Commercial real estate 15,063 2,532 Other 72 36 ---------- ---------- Total loans with impairment allowance $27,380 $ 5,007 ---------- ---------- ---------- ---------- Management believes the allowance level as of September 30, 1997 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 a valuation allowance of $1.0 million, were carried at $10.1 million as of September 30, 1997. This compares with OREO, net of a valuation allowance of $1.6 million, carried at $18.8 million at year-end 1996. During the first three quarters of 1997, 12 properties totaling $11.7 million were disposed of with a net gain of $190,000. As of September 30, 1997, the Bank's OREO properties include different types of residential properties, commercial buildings, warehouses and land. All properties 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. During the first nine months of 1997, management provided 16 approximately $410,000 to the provision for OREO losses based on new listing prices or new appraisals received. DEPOSITS Total deposits rose $55.0 million or 4.0% to $1,419.7 million as of September 30, 1997, as compared to $1,364.7 million at year-end 1996. Time deposits over $100,000 ("Jumbo CD's"), which were up $39.5 million, continued to account for the majority of the growth while core deposits (defined as total deposits excluding brokered deposits and Jumbo CD's) increased $15.5 million. The ratio of core deposits to total deposits declined slightly from 64.22% at year-end 1996 to 62.83% at September 30, 1997. 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. The Bank's Jumbo CD's are considered 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 3,188 individual accounts owned by 2,296 individual depositors as of May 30, 1997. The balance of the accounts averaged approximately $155,000; 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. There were no brokered deposits as of September 30, 1997. The following table illustrates the deposit mix on the dates indicated: (Dollars in thousands) As of 09/30/97 As of 12/31/96 -------------------- -------------------- Amount Percent Amount Percent ---------- ------- ---------- ------- Types of deposits: Demand $ 160,854 11.3% $ 135,345 9.9% NOW accounts 112,940 8.0 118,498 8.7 Money market accounts 98,207 6.9 95,158 7.0 Savings deposits 211,744 14.9 224,443 16.4 Time deposits under $100,000 308,209 21.7 302,981 22.2 Time deposits of $100,000 or more 527,781 37.2 488,315 35.8 ---------- ------- ---------- ------- Total deposits $1,419,735 100.0% $1,364,740 100.0% ---------- ------- ---------- ------- ---------- ------- ---------- ------- CAPITAL RESOURCES Stockholders' equity amounted to $131.8 million or 8.39% of total assets as of September 30, 1997, as compared to $118.4 million or 7.87% of total assets at year-end 1996. The $13.4 million or 11.3% increase in stockholders' equity was primarily attributable to year-to-date net income of $14.8 million, plus $1.1 million from issuance of additional common shares through Dividend Reinvestment Plan and a positive net change in the securities valuation allowance, net of tax, of $1.5 million, offset by dividends paid in the amount of $4.0 million. The Company declared a cash dividend of $0.15 per share in January, April and July, 1997, on 8,878,144, 8,895,878 and 8,914,260 shares outstanding, respectively. In October 1997, the Company declared another cash dividend of $0.175 per share on 8,929,508 shares outstanding. Total cash dividends paid in 1997, including the $1.6 million paid in October 1997, amounted to $5.6 million. Management is committed to retain the Company's capital at a level sufficient to support future growth, to protect depositors, to absorb any unanticipated losses and to comply with various regulatory requirements. As presented in the following tables, the Company and the Bank's capital and leverage ratios well exceeded the regulatory minimum requirements as of September 30, 1997. The capital ratios of the Bank place it in the "well capitalized" category which is defined as institutions with 17 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 09/30/1997 As of 09/30/1997 Balance Percent Balance Percent Tier 1 capital (to risk-weighted assets) $121,674* 11.32% $118,488* 11.02% Tier 1 capital minimum requirement 42,997 4.00 42,997 4.00 -------- ------ ------- ------ Excess $ 78,677 7.32% $75,491 7.02% -------- ------ ------- ------ -------- ------ ------- ------ Total capital (to risk-weighted assets) $135,130* 12.57% $131,944* 12.27% Total capital minimum requirement 85,995 8.00 85,995 8.00 -------- ------ -------- ------ Excess $ 49,135 4.57% $ 45,949 4.27% -------- ------ -------- ------ -------- ------ -------- ------ Risk-weighted assets $1,074,936 $1,074,934 Tier 1 capital (to average assets) - Leverage ratio $121,674* 7.89% $ 118,488* 7.69% Minimum leverage requirement 61,668 4.00 61,668 4.00 -------- ------ -------- ------ Excess $ 60,006 3.89% $ 56,820 3.69% -------- ------ -------- ------ -------- ------ -------- ------ Total average assets $1,541,705 $1,541,701 * Excluding the unrealized holding gains on securities available-for-sale of $435,000, and goodwill of $9,696,000. 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 and repurchases, unpledged securities available-for-sale, and unpledged securities held-to- maturity. The Company's liquidity ratio (defined as net cash, short-term and marketable securities to net deposits and short-term liabilities) stood at 47.46% as of September 30, 1997, which was slightly higher than 47.09% at year- end 1996. To further enhance its liquidity, the Bank maintains a total credit line of $45 million for Federal funds with three correspondent banks, a repo line of $30 million with BancAmerica Robertson Stephens and a total retail certificate of deposit (CD) line of approximately $211 million with three brokerage firms. Moreover, the Bank is a shareholder of Federal Home Loan Bank (FHLB) since January 1993, 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. Interest sensitivity risk management minimizes the risk to net interest income resulting from the changes in market interest rates. Although no single measure can completely identify the impact of changes in interest rates on net interest income, gap analysis is one gauge 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 which reprice over a given time period exceed rate sensitive liabilities and may enhance net interest margin during periods of increasing interest rates, while a negative gap exists when rate sensitive liabilities which reprice over a given time period exceed rate sensitive assets and may impair net interest margin during periods of increasing interest rates. As of September 30, 1997, the Company was asset sensitive with a cumulative gap ratio of a positive 18.43% within three months, and liability sensitive with a cumulative gap ratio of a negative 10.05% within a 1-year period. 18 A gap report can show mismatches in the maturities and repricing opportunities of assets and liabilities, but has limited usefulness in measuring or managing interest rate risks related to timing differences in the repricing of assets and liabilities or the basis risk which is the differences in the behavior of the lending and funding rates. To quantify the extent of these risks, the Company uses simulation model to take basis risk into account and project future earnings or market values under alternative interest rate scenarios. The simulation is used to measure the volatility of net interest income under a rising or falling interest rate scenario for comparison against the Company's policy limit, which is to manage the net interest income volatility to a change of plus or minus 30% when the hypothetical rate change is plus or minus 200 basis points. 19 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 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Cathay Bancorp, Inc. -------------------- (Registrant) Date: November 13, 1997 DUNSON K. CHENG ----------------- -------------------- Dunson K. Cheng Chairman and President Date: November 13, 1997 ANTHONY M. TANG ----------------- ---------------------- Anthony M. Tang Chief Financial Officer EX-27 2 EXHIBIT 27
9 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 68,719 100 26,000 0 260,925 328,478 332,981 824,884 14,969 1,570,796 1,419,735 3,101 16,155 0 0 0 89 131,716 1,570,796 54,689 26,372 1,700 82,761 37,215 37,408 45,353 2,700 35 22,782 24,786 24,786 0 0 14,794 1.66 1.66 4.43 16,841 3,516 2,911 12,502 13,529 1,568 308 14,969 14,969 0 0
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