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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
--------------
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 0-24947
UCBH Holdings, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 94-3072450
- --------------------------------------------- -------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
711 Van Ness Avenue, San Francisco, California 94102
------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(415) 929-6026
----------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(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 ......
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
As of May 6, 1999, the Registrant had 9,333,333 shares of common stock
outstanding.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements...........................................................................1-3
Notes to Consolidated Financial Statements................................................4-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............................................6-19
Item 3. Quantitative and Qualitative Disclosures About Market Risk......................................19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...............................................................................20
Item 2. Changes in Securities and Use of Proceeds.......................................................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
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UCBH Holdings, Inc.
Consolidated Balance Sheets
(Unaudited: Dollars in thousands)
<TABLE>
<CAPTION>
At March 31, At December 31,
1999 1998
---- ----
<S> <C> <C>
Assets
Cash and due from banks $ 16,875 $ 15,109
Investment and mortgage-backed securities available for sale, at fair value 417,025 429,347
Investment and mortgage-backed securities, at cost (fair value $149,966
at March 31,1999 and $153,072 at December 31, 1998) 155,238 158,210
Federal Home Loan Bank stock & equity securities 21,474 20,415
Loans 1,522,949 1,492,148
Allowance for loan losses (15,230) (14,922)
---------- ----------
Net loans 1,507,719 1,477,226
---------- ----------
Accrued interest receivable 13,581 13,542
Premises and equipment, net 23,136 23,462
Other assets 10,581 10,021
---------- ----------
Total assets $2,165,629 $2,147,332
========== ==========
Liabilities
Deposits $1,630,867 $1,633,895
Borrowings 384,723 368,000
Accrued interest payable 3,730 2,440
Other liabilities 10,618 9,359
Guaranteed preferred beneficial interests in junior subordinated debentures 30,000 30,000
---------- ----------
Total liabilities 2,059,938 2,043,694
---------- ----------
Stockholders' Equity
Common stock, $.01 par value, authorized 25,000,000 shares, 9,333,333 shares
issued and outstanding at March 31, 1999 and December 31, 1998 93 93
Additional paid-in capital 59,485 59,443
Accumulated other comprehensive income (2,695) (778)
Retained earnings-substantially restricted 48,808 44,880
---------- ----------
Total stockholders' equity 105,691 103,638
---------- ----------
Total liabilities and stockholders' equity $2,165,629 $2,147,332
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
UCBH Holdings, Inc.
Consolidated Statements of Operations
(Unaudited: Dollars in thousands, except for per share data)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Interest income:
Loans $ 28,949 $23,833
Funds sold and securities purchased under agreements to resell 3 166
Investment and mortgage-backed securities 8,957 4,121
---------- ----------
Total interest income 37,909 28,120
---------- ----------
Interest expense:
Deposits 16,171 15,669
Short-term borrowings 1,989 --
Guaranteed preferred beneficial interests
in junior subordinated debentures 703 --
Long-term borrowings 3,159 --
Long-term debt to affiliates -- 502
---------- ----------
Total interest expense 22,022 16,171
---------- ----------
Net interest income 15,887 11,949
Provision for loan losses 725 633
---------- ----------
Net interest income after provision for loan losses 15,162 11,316
---------- ----------
Noninterest income:
Commercial banking fees 313 254
Service charges on deposit accounts 274 218
Gain on sale of loans, securities and servicing rights 1 35
Loan servicing fees 142 44
Miscellaneous 2 7
---------- ----------
Total noninterest income 732 558
---------- ----------
Noninterest expense:
Personnel 4,707 4,308
Occupancy 1,292 1,246
Data processing 487 749
Furniture and equipment 590 604
Professional fees and contracted services 528 454
Deposit insurance 235 231
Communication 102 97
Foreclosed assets (15) (32)
Miscellaneous 1,442 1,588
---------- ----------
Total noninterest expense 9,368 9,245
---------- ----------
Income before taxes 6,526 2,629
Income tax expense 2,598 1,078
---------- ----------
Net income $ 3,928 $ 1,551
========== ==========
Average common and common equivalent shares outstanding, basic 9,333,333 6,000,000
Average common and common equivalent shares outstanding, diluted 9,333,333 7,974,000
Basic earnings per share $ 0.42 $ 0.26
Diluted earnings per share 0.42 0.23
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
UCBH Holdings, Inc.
Consolidated Statements of Cash Flows
(Unaudited: Dollars in thousands)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
------------------------------
1999 1998
---- ----
<S> <C> <C>
Operating activities
Net income $ 3,928 $ 1,551
Adjustments to reconcile net income to net cash provided by
(used for)
operating activities:
Provision for loan losses 725 633
Increase in accrued interest receivable (39) (67)
Depreciation and amortization of premises and equipment 667 640
Decrease in other assets 840 844
Increase in accrued interest payable 1,290 612
(Loss) on sale of loans, securities and other assets (29) (96)
Other, net 1,929 (1,561)
-------- --------
Net cash provided by operating activities $ 9,311 $ 2,556
-------- -------
Investing activities
Investments and mortgage-backed securities held to maturity:
Principal payments and maturities and securities called 2,874 6,835
Purchases (815) --
Investments and mortgage-backed securities, available for sale:
Principal payments and maturities 14,490 1,531
Purchases (6,012)
Loans purchased (123) (217)
Loans originated net of principal collections (31,392) (29,514)
Proceeds from sale of loans -- 3,544
Purchases of premises and equipment (346) (177)
Proceeds from sale of other assets $ 84 467
-------- -------
Net cash used in investing activities $(21,240) $(17,531)
-------- -------
Financing activities
Net increase in NOW accounts, demand deposits and
savings accounts 29,333 8,930
Net decrease in time deposits (32,361) (14,594)
Net increase in borrowings 16,723 --
-------- --------
Net cash provided by (used) in financing activities $ 13,695 $ (5,664)
-------- --------
Increase (decrease) in cash and cash equivalents 1,766 (20,639)
Cash and cash equivalents at beginning of period 15,109 34,853
======== ========
Cash and cash equivalents at end of period $ 16,875 $ 14,214
======== ========
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ 20,732 $ 15,560
Cash paid during the year for income taxes 2,264 1,956
Supplemental schedule of noncash investing and financing activities
Receivable resulting from sale of servicing rights -- 261
Real estate acquired through foreclosure 69 --
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
UCBH HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Summary of Significant Accounting and Reporting
Policies
Basis of Presentation
The Consolidated Balance Sheet as of March 31, 1999, the Consolidated
Statements of Operations for the three months ended March 31, 1999 and 1998, and
the Consolidated Statements of Cash Flows for the three months ended March 31,
1999 and 1998 have been prepared by UCBH Holdings, Inc. (the Company) and are
not audited.
The unaudited financial statement information presented was prepared on the
same basis as the audited financial statements for the year ended December 31,
1998. In the opinion of management such unaudited financial statements reflect
all adjustments necessary for a fair statement of the results of operations and
balances for the interim periods presented. Such adjustments are of a normal
recurring nature. The results of operations for the three months ended March 31,
1999 are not necessarily indicative of the results to be expected for the full
year.
On April 17, 1998, the Company completed a 6,000-for-1 stock split.
Accordingly, the financial statements for the period ended March 31, 1998 have
been restated to reflect the impact of the stock split. On April 17, 1998, the
Company's long-term debt to affiliates was converted to 1,974,000 shares of
common stock, as adjusted for the aforementioned stock split. Given the
occurrence of this conversion, management has considered this long-term debt to
affiliates as convertible debt for purposes of its calculation of diluted
earnings per share.
Principles of Consolidation and Presentation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
2. Recent Accounting Pronouncements
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" will become effective for fiscal years beginning after June 15,
1999. SFAS No. 133 defines derivative instruments and requires that they be
recognized as assets or liabilities in the statement of financial position,
measured at fair value. It further specifies the nature of changes in the fair
value of the derivatives which are included in the current period results of
operations and those which are included in other comprehensive income.
Management has assessed the impact of SFAS No. 133 and determined that adoption
will not have a material impact on the financial statements of the Company based
on the hedges currently in place.
SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after
Securitization" is effective for fiscal years beginning after December 15, 1998.
SFAS No. 134 specifies the requirements for classification of securities which
are retained following the securitization of mortgages previously held for
resale. The Company does not have securitized mortgage loans. Accordingly,
management does not expect SFAS No. 134 to affect financial statements of the
Company.
4
<PAGE>
3. Earnings Per Share
The following is a reconciliation of the numerators and denominator of the
basic and diluted earnings per share (Dollars in thousands, except for per share
data):
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
---------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic and diluted: $3,928 9,333,333 $0.42
====== ========= =====
Three Months Ended March 31, 1998
---------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic:
Net income $1,551 6,000,000 $0.26
Effect of long-term debt to affiliates 296 1,974,000
------ ---------
Diluted:
Net income and assumed conversion $1,847 7,974,000 $0.23
====== =========
</TABLE>
4. Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income," establishes presentation
and disclosure requirements for comprehensive income; however, it does not
affect existing recognition or measurement standards. For the Company,
comprehensive income consists of net income and the change in unrealized gains
and losses on available-for-sale securities. For the three months ended March
31, 1999 and 1998, total comprehensive income was $2.0 million in both periods.
Net income was $3.9 million and unrealized losses on available-for-sale
securities increased by $1.9 million for the three months ended March 31, 1999.
For the corresponding period of 1998, net income was $1.6 million and unrealized
losses on available-for-sale securities decreased by $496,000.
5. Segment Information
The Company adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information", on January 1, 1998. SFAS No. 131 supersedes
SFAS No. 14 "Financial Reporting for Segments of a Business Enterprise"
replacing the "industry segment" approach with the "management" approach. The
management approach designates the internal organization that is used by
management for making operating decisions and assessing performance as the
source of the Company's reportable segments. SFAS No. 131 also requires
disclosure about products and services, geographic areas and major customers.
The adoption of SFAS No. 131 did not affect the consolidated financial position
as previously reported.
The Company has determined that its reportable segments are those that are
based on the Company's method of internal reporting, which disaggregates its
business into two reportable segments: Consumer Banking and Commercial Banking.
Both segments serve all of California's citizens. Historically, our customer
base has been primarily the ethnic Chinese communities located mainly in the San
Francisco Bay area, Sacramento/Stockton and metropolitan Los Angeles.
The financial results of the Company's operating segments are presented on
an accrual basis. There are no significant differences between the accounting
policies of the segments as compared to the Company's consolidated financial
statements. The Company evaluates the performance of its segments and allocates
resources to them based on interest income, interest expense and net interest
income. There are no material intersegment revenues.
The table below presents information about the Company's operating segments
for three months ended March 31,
5
<PAGE>
1999 and 1998.
<TABLE>
<CAPTION>
Reconciling
Consumer Commercial Items Total
-------- ---------- ----- -----
<S> <C> <C> <C> <C>
(Dollars in thousands)
March 31, 1999
Net interest income $ 10,701 $ 5,186 -- $ 15,887
Segment profit 3,290 638 -- 3,928
Segment assets 1,428,951 736,678 -- 2,165,629
March 31, 1998
Net interest income 9,277 2,672 -- 11,949
Segment profit 1,633 (82) 1,551
Segment assets 1,061,782 495,369 -- 1,557,151
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Form 10-Q may include certain forward looking statements based on
current management expectations. The Company's actual results could differ
materially from those management expectations. Factors that could cause future
results to vary from current management expectations include, but not limited
to, general economic conditions, legislative and regulatory changes, monetary
and fiscal policies of the federal government, changes in tax policies, rates
and regulations of federal, state and local tax authorities, changes in interest
rates, deposit flows, the cost of funds, demand for loan products, demand for
financial services, competition, changes in the quality or composition of the
Company's wholly-owned subsidiary, United Commercial Bank's (the "Bank") loan
and investment portfolios, changes in accounting principles, policies or
guidelines, and other economic, competitive, governmental and technological
factors affecting the Company's operations, markets, products, services and
prices. Further description of the risks and uncertainties to the business are
included in detail the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 as filed with the Securities and Exchange Commission.
The following discussion and analysis is intended to provide details of the
results of operations of the Company for the three months ended March 31, 1999
and 1998 and financial condition at March 31, 1999 and at December 31, 1998. The
following discussion should be read in conjunction with the information set
forth in the Company's Consolidated Financial Statements and notes thereto and
other financial data included.
RESULTS OF OPERATIONS
General. The Company's primary source of income is net interest income,
which is the difference between interest income from interest-earning assets and
interest paid on interest-bearing liabilities such as deposits and other
borrowings used to fund those assets. The Company's net interest income is
affected by changes in the volume of interest-earning assets and
interest-bearing liabilities as well as by changes in yields earned on
interest-earning assets and rates paid on interest-bearing deposits and other
borrowed funds. The Company also generates noninterest income, including
commercial banking fees and other transactional fees and seeks to generate
additional fees in connection with the shift in its business focus to commercial
banking. The Company's noninterest expenses consist primarily of personnel,
occupancy, and furniture and equipment expenses and other operating expenses.
The Company's results of operations are affected by its provision for loan
losses and may also be significantly affected by other factors including general
economic and competitive conditions, changes in market interest rates,
governmental policies and actions of regulatory agencies.
Net Income. The consolidated net income of the Company during the three
months ended March 31, 1999 increased by $2.4 million, or 153.3%, to $3.9
million, compared to $1.6 million for the corresponding period of the prior
year. The increase resulted primarily from an increase in net interest income.
The annualized return on average equity ("ROE") and average assets ("ROA")
ratios for the three months ended March 31, 1999 were 15.07% and 0.73%,
respectively. This compares with annualized ROE and ROA ratios of 9.78% and
0.40%, respectively, for the three months ended March 31, 1998. The resulting
efficiency ratios were 56.37% for the three months ended March 31, 1999 and
73.92% for the corresponding period of the prior year. Diluted earnings per
share were $0.42 for the three months ended March
6
<PAGE>
31, 1999 compared with $0.23 for the comparable period of the preceding year.
The increase in net income for the three months ended March 31, 1999 from
the three months ended March 31, 1998 was due primarily to the increase in net
interest income which resulted from: 1) an increase in the average loans
outstanding, 2) an increase in the average yield on loans resulting from the
growth in the commercial loan portfolio, and 3) an increase in average
securities portfolio, and 4) a reduction in the cost of deposits. Partially
offsetting the increases to net income was a $123,000 increase in noninterest
expense.
The provision for loan losses increased from $633,000 in the three months
ended March 31, 1998 to $725,000 in the corresponding period of 1999. As of
March 31, 1999, the $15.2 million allowance for loan losses represented 1.00% of
gross loans, consistent with December 31, 1998. Noninterest expenses was $9.4
million for the three months ended March 31, 1999, an increase of $123,000, or
1.33%, from the corresponding period of the prior year. Personnel expenses
increased to $4.7 million during the three months ended March 31, 1999 compared
with $4.3 million, an increase of $399,000, or 9.3%, for the corresponding
period of the previous year due to the addition of commercial banking personnel.
Net Interest Income. Net interest income of $15.2 million for the three
months ended March 31, 1999 represented a $3.9 million, or 34.0%, increase from
the corresponding period of the prior year. This growth resulted primarily from
an increase in average outstanding loans and securities and a reduction in the
cost of deposits. Average outstanding loans increased to $1.48 billion for the
three months ended March 31, 1999 from $1.23 billion for the three months ended
March 31, 1998, an increase of $256.1 million, or 20.9%. Average securities
increased to $602.7 million for the three months ended March 31, 1999 from
$280.9 million for the three months ended March 31, 1998, an increase of $321.9
million, or 114.6%. The cost of interest bearing deposits decreased to 4.09% for
the first three months of 1999 from 4.39% for the first three months of 1998. In
addition, average noninterest bearing deposits increased to $49.0 million for
the first three months of 1999, from $36.2 million for the corresponding period
of the prior year.
Net Interest Margin. The net interest margin was 3.04% for the three months
ended March 31, 1999 compared with 3.14% for the three months ended March 31,
1998. The decrease in the net interest margin resulting primarily from increased
average securities outstanding. Following the capital raising in April 1998, the
Bank leveraged the new capital by purchasing securities which were funded with
Federal Home Loan Bank (FHLB) advances. While the leverage strategy reduces this
ratio, the strategy is accretive to net income and earnings per share.
7
<PAGE>
The following table presents condensed average balance sheet information
for the Company, together with interest rates earned and paid on the various
sources and uses of funds for each of the periods indicated.
<TABLE>
<CAPTION>
At
March 31,
1999 For the Three Months Ended March 31, 1999 For the Three Months Ended March 31, 1998
---- ----------------------------------------- -----------------------------------------
(Dollars in Thousands) (Dollars in Thousands)
Interest Interest
Yield/ Average Income Average Average Income Average
Rate Balance or Expense Yield/Rate Balance or Expense Yield/Rate
---- ------- ---------- ---------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning Assets:
Loans 7.83% $1,484,016 $28,949 7.80% $1,227,891 $23,833 7.76%
Securities 6.25 602,707 8,957 5.94 280,856 4,121 5.87
Other 233 3 4.72 11,795 166 5.62
---------- ------- ---------- -------
Total interest-earning assets 7.38 2,086,956 37,909 7.27 1,520,542 28,120 7.40
Noninterest-earning assets -- 62,710 -- -- 41,043 -- --
---------- ------- ---------- -------
Total assets 7.16 $2,149,666 $37,909 7.05 $1,561,585 $28,120 7.20
========== ======= ========== =======
Interest-bearing Liabilities
Deposits:
NOW and demand deposit, and
money market 1.97 $ 127,896 $ 571 1.79 101,367 343 1.36
Savings accounts 2.21 232,203 1,265 2.18 209,958 1,179 2.25
Time deposits 4.69 1,221,219 14,335 4.70 1,116,325 14,144 5.07
---------- ------- ---------- -------
Total deposits 4.08 1,581,318 16,171 4.09 1,427,650 15,666 4.39
Borrowings 5.28 366,715 5,148 5.62 16 3 74.40
Guaranteed preferred beneficial
interestsin junior subordinated
debentures 9.38 30,000 703 9.38 -- --
Long-term debt to affiliates -- -- 20,060 502 10.00
---------- ------- ---------- -------
Total interest-bearing
liabilities 4.39 1,978,033 22,022 4.45 1,447,726 16,171 4.47
---- ----
Noninterest-bearing deposits 49,011 36,165
Other noninterest-bearing
liabilities 18,356 14,231
Stockholders' equity 104,266 63,463
---------- ----------
Total liabilities and
stockholder's equity $2,149,666 1,561,585
========== ------- ========== -------
Net interest income/interest
rate spread(2) 2.99% $15,887 2.82% $11,949 2.93%
==== ======= ===== ======= =====
Net interest-earning assets/
net interest margin(3) 3.22% $ 108,923 3.04% $ 72,816 3.14%
==== ========== ===== ========== =====
Ratio of interest-earning
assets to interest 1.06x 1.06x 1.05x
==== ========== ==========
</TABLE>
Provision For Loan Losses. The provision for loan losses reflects
management's judgment of the current period cost associated with credit risk
inherent in the Company's loan portfolio. Specifically, the provision for loan
losses represents the amount charged against current period earnings to achieve
an allowance for loan losses that in management's judgment is adequate to absorb
losses inherent in the Company's loan portfolio.
The provision for loan losses of $725,000 in the three months ended March
31, 1999 represented an increase of $92,000, as compared to a provision of
$633,000 in the corresponding period of the prior year. At March 31, 1999, the
allowance for loan losses of $15.2 million was 1.00% of total loans, consistent
with December 31, 1998. Loan charge-offs of $418,000 in the first three months
of 1999. Charge-offs for the corresponding period of 1998 were $226,000. The
allowance for loan losses as a percentage of non-performing loans at March 31,
1999 was 269.03%, compared with 244.30% at December 31, 1998.
The Bank continued to experience an improvement in asset quality during the
three months ended March 31, 1999. The nonaccrual loans at March 31, 1999 of
$5.7 million were $447,000, or 7.3% less than the $6.1 million at December 31,
1998. In the three months ended March 31, 1999 and 1998, provisions for loan
losses were increased to keep pace with the growth in the Bank's loan portfolio,
and in particular, growth in commercial loan products. The Bank's allowance
methodology provides higher loss factors for commercial loan products than for
residential mortgage (one to four family) loans.
Noninterest Income. Noninterest income of $732,000 for the three months
ended March 31, 1999 increased
8
<PAGE>
$174,000, or 31.2% over noninterest income for the corresponding period of 1998.
Increases were made in commercial banking fees and service charges on deposit
accounts. Commercial banking fees increased to $313,000 for the three months
ended March 31, 1999 from $254,000, an increase of 23.2%, from the corresponding
period of the previous year. Service charges on deposit accounts increased to
$274,000, an increase of 25.7 %, from the corresponding period of the prior year
due to an increased volume of commercial accounts. Loan servicing income
increased to $142,000 for the three months of 1999, compared with $44,000 for
the corresponding period of the prior year, an increase of $98,0000, or 222.7%,
reflecting the reduced amortization of the servicing asset which is made in
correlation with prepayments of the underlying loans.
Noninterest Expense. Noninterest expense of $9.4 million for the three
months ended March 31, 1999 was 1.3% greater than the $9.2 million of
noninterest expense for the same period of the preceding year. Personnel
expenses increased to $4.7 million in the three months ended March 31, 1999 from
$4.3 million in the corresponding period of the preceding year, due to
additional staffing of the commercial banking division.
During the first three months of 1998, the Bank successfully completed a
core computer conversion to a system which was implemented to support the
Company's commercial banking activities. Total nonrecurring conversion expenses
for the three months ended March 31, 1998 were $328,000. Data processing
expenses decreased to $487,000 in the first three months of 1999 from $749,000
in the corresponding period of 1998, a decrease of $262,000, or 35.0%,
reflecting system conversion costs incurred in the three months ended March 31,
1998.
Provision for Income Taxes. The provision for income taxes of $2.6 million
and $1.1 million on the income before taxes of $6.5 million and $2.6 million for
the three months ended March 31, 1999 and 1998, respectively, represents
effective tax rates of 39.8% and 41.0%, respectively.
FINANCIAL CONDITION
The Company experienced continued asset growth during the three months
ended March 31, 1999. Total assets increased by $18.3 million, or 0.9%, to $2.17
billion at March 31, 1999. The growth resulted primarily from an increase in the
loan portfolio, offset by a decrease in the securities portfolio.
During the three months ended March 31, 1999, loans increased by $30.8
million, or 2.1%, to $1.52 billion. Loan runoff was high during the three months
ended March 31, 1999 in the residential one to four family loan portfolio. The
annualized runoff rate of 31.1% reflected the low market interest rates and
increased property values. The runoff on the commercial real estate loan
portfolio was significantly lower during this period, with an annualized
prepayment rate of 8.3%.
The quality of loans continued to be strong. Total past due loans were
1.10% of total loans at March 31, 1999, and 0.78% at December 31, 1998.
Nonperforming assets of $6.4 million, or 0.30% of total assets at March 31,
1999, reflected a reduction from the $6.9 million level at December 31, 1998.
9
<PAGE>
The following table shows the composition of the Bank's loan portfolio by
amount and percentage of gross loans in each major loan category at the dates
indicated:
<TABLE>
<CAPTION>
At March 31, At December 31,
1999 1998
------------ ---------------
Amount % Amount %
------ - ------ -
<S> <C> <C> <C> <C>
(Dollars in thousands)
Consumer
Residential mortgage (one to four family) $ 762,629 50.08% $ 790,789 53.01%
Home equity 13,246 0.87 14,450 0.97
Other 1,851 0.12 2,261 0.15
---------- ------ ---------- ------
777,726 51.07 807,500 54.13
---------- ------ ---------- ------
Commercial
Secured by real estate-multifamily 354,986 23.31 346,967 23.25
Secured by real estate-nonresidential 271,592 17.83 229,693 15.40
Construction 68,368 4.49 61,486 4.12
Commercial business 50,251 3.30 46,240 3.10
---------- ------ ---------- ------
745,197 48.93 684,386 45.87
---------- ------ ---------- ------
Total gross loans 1,522,923 100.00% 1,491,886 100.00%
====== ======
Net deferred loan origination costs 26 262
Allowance for loan losses (15,230) (14,922)
---------- ----------
Net loans $1,507,719 $1,477,226
========== ==========
</TABLE>
In 1996, management made a strategic decision to reduce its concentration
of assets with interest rates based on the Eleventh District Cost of Funds Index
(COFI). COFI generally lags market interest rate changes and assets tied to COFI
can suppress net interest margins during periods of rapidly escalating interest
rates. In addition, the Bank began to reduce its COFI-based loan portfolio
through amortization and sales and replace it with current-index products
including adjustable-rate mortgage loans and loans with an initial rate of
interest for a fixed term (generally 3 to 5 years), the interest rates on which
adjust annually thereafter ('intermediate fixed-rate loans'). As a result of
this initiative, the Bank's COFI-based loans declined to $421.4 million at March
31, 1999 from $455.2 million at December 31, 1998.
Fixed-rate loans at March 31, 1999 were $538.3 million compared with $491.8
million at December 31, 1998, an increase of $46.5 million, or 9.5%, which
resulted primarily from the origination of real estate loans for which the rate
was fixed for periods ranging from five to fifteen years. At March 31, 1999,
total gross loans included $295.5 million of intermediate fixed-rate loans
compared with $301.0 million at December 31, 1998, a decrease of $5.5 million,
or 4.8%, as a result of runoff of this portfolio.
10
<PAGE>
The following table shows the Bank's loan originations during the periods
indicated.
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
1999 1998
---- ----
<S> <C> <C>
(Dollars in Thousands)
Consumer
Residential mortgage (one to four family)
For resale:
FHLMC and FNMA $ -- $ 4,978
For portfolio
Fully documented loans 2,377 4,441
Limited documentation loans 30,852 71,178
Home equity 1,948 1,068
Other 716 --
-------- --------
Total consumer loans 35,893 81,665
-------- --------
Commercial
Secured by real estate-multifamily 28,874 1,401
Secured by real estate-nonresidential 44,900 3,159
Construction (1) 32,127 11,202
Commercial business 13,751 9,196
Small Business Administration 4,544 60
-------- --------
Total commercial loans 124,196 25,018
-------- --------
Total loan originations $160,089 $106,683
======== ========
</TABLE>
(1) Includes unfunded commitments
Non-Performing Assets and OREO. Management generally places loans on
non-accrual status when they become 90 days past due, unless they are both well
secured and in the process of collection. When a loan is placed on non-accrual
status, any interest previously accrued but not collected is reversed from
income. Other real estate owned (OREO) consists of real property acquired
through foreclosure on the collateral underlying defaulted loans.
11
<PAGE>
The following table sets forth information regarding non-performing assets
at the dates indicated.
<TABLE>
<CAPTION>
At March 31, At December 31,
1999 1998
---- ----
<S> <C> <C>
(Dollars in Thousands)
Nonaccrual loans:
Consumer
Residential mortgage (one to four family) $ 2,714 $ 3,341
---------- ---------
Total Consumer 2,714 3,341
---------- ---------
Commercial
Secured by real estate-nonresidential 2,244 2,663
Construction loans 103 104
Commercial business 600
---------- ---------
Total Commercial 2,947 2,767
---------- ---------
Total non-accrual loans 5,661 6,108
Other Real Estate Owned (OREO) 783 772
---------- ---------
Total non-performing assets $ 6,444 $ 6,880
========== =========
Non-performing assets to total assets 0.30% 0.32%
Non-accrual loans to total loans 0.37% 0.41%
Non-performing assets to total loans and OREO 0.42% 0.46%
---------- ----------
Total gross loans $1,522,923 $1,491,886
========== ==========
Gross Income not recognized on nonaccrual loans $ 52 $ 135
Accruing loans contractually past due 90 days or more -- --
Troubled debt restructurings not included above 1,251 1,251
</TABLE>
The Bank records OREO at the lower of carrying value or fair value less
estimated costs to sell. Estimated losses that result from the ongoing periodic
valuation of these properties are charged to earnings with a provision for
losses on foreclosed property in the period in which they are identified.
During the three months ended March 31, 1999, the Bank reduced total
non-performing assets to $6.4 million from $6.9 million at December 31, 1998, a
decrease of $436,000 or 6.3%. The reduction was the result of the sale of
non-performing loans and the reclassification of other loans which became
current and were reclassified to performing status. Foreclosures are a normal
part of the credit process. At March 31, 1999, OREO consisted of two properties
acquired through foreclosure with a carrying value of $783,000.
The policy of the Bank is to review each loan in the portfolio to identify
problem credits. There are four classifications for problem loans 'special
mention,' 'substandard,' 'doubtful' and 'loss.' Substandard loans have one or
more well-defined weaknesses and are characterized by the distinct possibility
that the Bank will sustain some loss if the deficiencies are not corrected.
Doubtful loans have the weaknesses of substandard loans with the additional
characteristic that the weaknesses make collection or liquidation in full on the
basis of currently existing facts, conditions and values questionable, and there
is a high possibility of loss. A loan classified as 'loss' is considered
uncollectible and its continuance as an asset is not warranted.
12
<PAGE>
The following table sets forth criticized loans at the dates indicated.
<TABLE>
<CAPTION>
At March 31, At December 31,
1999 1998
---- ----
<S> <C> <C>
(Dollars in Thousands)
Special mention loans $ 1,745 $ 8,084
Substandard and doubtful loans 9,989 9,638
------- -------
Total criticized loans $11,734 $17,722
======= =======
Total allowance for loan losses $15,230 $14,922
======= =======
Special mention loans to total loans 0.11% 0.54%
Substandard and doubtful loans to total loans 0.66 0.65
Criticized loans to total loans 0.77 1.19
Allowance for loan losses to substandard and doubtful loans 152.47 154.82
Allowance for loan losses to criticized loans 129.79 84.20
</TABLE>
With the exception of the criticized loans described above, management is
not aware of any other loans as of March 31, 1999 where the known credit
problems of the borrower would cause management to doubt such borrower's ability
to comply with their present loan repayment terms or that would result in such
loans being included in the non-performing asset table above at some future
date.
Management cannot predict the extent to which economic conditions in the
Bank's market area may worsen or the full impact such conditions may have on the
Bank's loan portfolio. Accordingly, there can be no assurance that other loans
will not become 90 days or more past due, be placed on non-accrual status or
become impaired or restructured loans or OREO in the future.
At both March 31, 1999 and March 31, 1998, the Company's level of
delinquent loans was very low in relation to previous years. Management
attributes this to good economic conditions and continued efforts to maintain
delinquent loans at this level. During the three months ended March 31, 1999,
residential mortgages (one to four family) delinquent two or more payments
decreased to $1.9 million, or 0.25%, of gross residential mortgages (one to four
family) from $2.1 million or 0.26% of gross residential mortgages (one to four
family) at December 31, 1998. Management attributes the reduction in delinquent
loans to good economic conditions in the Bank's market and continued focus by
management on the reduction of delinquent loans. Mortgage loans secured by
nonresidential real estate delinquent 60 days or more were $2.2 million at March
31, 1999, a decrease of $419,000, or 15.7%, from the $2.7 million delinquent at
December 31, 1998.
Allowance For Loan Losses. The Bank has established a formalized process
for determining an adequate allowance for loan losses. This process results in
an allowance that consists of two components, allocated and unallocated. The
allocated component includes allowance estimates that result from analyzing
certain individual loans (including impaired loans), and includes the results of
analyzing loans on a pool basis. For loans that are analyzed individually, third
party information such as appraisals may be used to supplement management's
analysis. For loans that are analyzed on a pool basis, such as residential
mortgage loans (one to four family), management's analysis consists of reviewing
delinquency trends, charge-off experience, economic conditions, current
composition of the loan portfolio, regional collateral value trends, and other
factors. The unallocated component of the allowance for loan losses is intended
to compensate for the subjective nature of estimating an adequate allowance for
loan losses, economic uncertainties, and other factors. In addition to the
assessment performed by management, the Bank's loan portfolio is subject to an
internal asset review function and is examined by its regulators. The results of
these examinations are incorporated into management's assessment of the
allowance for loan losses.
The allowance for loan losses is increased by provisions for loan losses
and reduced by charge-offs, net of recoveries. Loans are charged off to the
extent they are classified as loss either internally or by the Bank's
regulators. For any loan that is past due for more than 90 days, management will
generally charge-off the amount by which the recorded loan amount exceeds the
value of the underlying collateral, unless the loan is both well-secured and in
the process of collection. Recoveries of amounts that have previously been
charged off are generally recorded only to
13
<PAGE>
the extent that cash is received.
While management uses available evidence in assessing the adequacy of the
allowance for loan losses, future additions to the allowance for loan losses
will be subject to continuing evaluations of the inherent risk in the portfolio.
If the economy declines or asset quality deteriorates, additional provisions for
loan losses could be required. Additionally, the Bank's regulators review the
adequacy of the allowance for loan losses as part of their examination process
and may require the Bank to record additional provisions for loan losses based
on their judgment or information available to them at the time of their
examinations. Management believes that the allowance for loan losses is adequate
to provide for estimated losses inherent in the Bank's loan portfolio.
The following table sets forth information concerning the Bank's allowance
for loan losses for the dates indicated:
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
(Dollars in thousands)
1999 1998
---- ----
<S> <C> <C>
Balance at beginning of period $14,922 $12,142
Provision for loan losses 725 633
Loans charged-off (418) (226)
Recoveries of loans previously charged off 1 3
------- -------
Balance at end of period $15,230 $12,552
======= =======
Allowance for loan losses to loans 1.00% 1.01%
Net charge-offs to average loans 0.03% 0.02%
</TABLE>
Securities. Securities (including available-for-sale and held-to-maturity)
decreased during the first three months of 1999 by $15.3 million, or 2.6%, to
$572.3 million at March 31, 1999. The decrease in the securities balances
resulted primarily from the amortization and prepayment of residential loans
underlying the mortgage-backed securities portfolio. This asset runoff was
replaced with new loan originations.
14
<PAGE>
The following table sets forth the Bank's securities
portfolio on the date indicated.
<TABLE>
<CAPTION>
At March 31, 1999 At December 31, 1998
------------------------- -------------------------
Amortized Market Amortized Market
Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Investment securities available for sale
Municipals $ 43,621 $ 43,997 $ 43,617 $ 44,464
Trust Preferred Securities 104,047 100,749 99,436 97,711
Other 1,000 1,000 1,500 1,500
-------- -------- -------- --------
Total $148,668 $145,746 $144,553 $143,675
======== ======== ======== ========
Mortgage-backed securities available for sale
FNMA $ 77,538 $ 75,453 $ 80,660 $ 78,370
GNMA 110,445 110,492 114,403 115,555
Other 85,021 85,334 91,071 91,747
-------- -------- -------- --------
Total $273,004 $271,279 $286,134 $285,672
======== ======== ======== ========
Mortgage-backed securities held to maturity
FHLMC $ 43,985 $ 42,188 $ 44,218 $ 42,714
FNMA 102,362 99,192 103,961 100,645
Other 8,891 8,586 10,031 9,713
-------- -------- -------- --------
Total $155,238 $149,966 $158,210 $153,072
======== ======== ======== ========
</TABLE>
As of March 31, 1999, the aggregate amortized cost of the securities was
$576.9 million and the fair value was $567.0 million. Of the total $9.9 million
unrealized loss on these securities, $5.3 million of unrealized losses relate to
securities which are held to maturity, and $4.6 million of unrealized losses
relate to securities which are held as available for sale. Such unrealized
losses, net of the related tax benefit of $1.9 million, are reflected as an
increase of stockholders' equity. The $5.3 million unrealized loss relating to
the $155.2 million of securities held to maturity has not been recognized in the
financial statements.
Deposits. Deposit balances were $1.63 billion at March 31, 1999, which
represented a decrease of $3.0 million, or 0.2% from December 31, 1998. The core
deposit balances increased by $29.3 million, or 7.4%, during this period, and
time deposits decreased by $32.4 million. Through careful management of interest
rate negotiations by the retail branch managers, the Company was able to reduce
the higher cost time deposits and thereby reduced its overall cost of deposits
from 4.17% at December 31, 1998 to 3.95% at March 31, 1999. Deposits are the
Bank's primary source of funding. At March 31, 1999, the Bank had a deposit mix
of 73.9% in time deposits, 3.1% in money market accounts, 14.4% in savings
accounts and 8.6% in NOW and demand deposit accounts. This compares with a
deposit mix of 75.7%, 2.2%, 14.2% and 7.9% at December 31, 1998, respectively.
The Bank obtains deposits primarily from the communities it serves. No
material portion of its deposits have been obtained from or are dependent on any
one person or industry. At March 31, 1999, less than 2% of the Bank's deposits
were held by customers with addresses located outside the United States. In
addition, as of such date, the 100 depositors with the largest aggregate average
deposit balances comprised less than 10% of the Bank's total deposits. The
Bank's business is not seasonal in nature. The Bank accepts deposits in excess
of $100,000 from customers. Included in time deposits as of March 31, 1999, is
$352.8 million, or 21.6% of total deposits, of deposits of $100,000 or greater.
At March 31, 1999, the Bank had no brokered deposits. Substantially all of the
time deposits as of March 31, 1999 mature in one year or less.
15
<PAGE>
The following table sets forth the balances and rates paid for the major
categories of deposits at the dates indicated:
<TABLE>
<CAPTION>
At March 31, At December 31,
------------ ---------------
1999 1998
---- ----
Amount Interest Rate Amount Interest Rate
------ ------------- ------ -------------
<S> <C> <C> <C> <C>
(Dollars in Thousands)
NOW and demand deposit accounts and
money market accounts $ 190,913 1.41% $ 163,954 1.28%
Savings accounts 235,009 2.21% 232,635 2.20%
Time deposits 1,204,945 4.69% 1,237,306 4.93%
---------- ----------
Total $1,630,867 3.95% $1,633,895 4.17%
========== ==========
</TABLE>
The average cost of deposits during the three months ended March 31, 1999
was 3.97% as compared to 4.28% for the same period in the previous year.
Other Borrowings. At March 31, 1999, the Bank had $384.7 million of
borrowings outstanding compared with $368.0 million outstanding at December 31,
1998, an increase of $16.7 million, or 4.5%. Although the Bank eliminated its
outside borrowings in 1996, the Bank has utilized borrowings as a funding source
in conjunction with its strategy of leveraging the proceeds from the capital
raised, consistent with its asset and liability objectives and the maintenance
of its status as a 'well capitalized' institution for regulatory capital
purposes. As of March 31, 1998, the Bank had borrowed $343.9 million from the
Federal Home Loan Bank (FHLB) of San Francisco in conjunction with the leverage
strategy, of which $233 million were long-term and $110.9 million were overnight
borrowings. Included in the long-term advances of $233 million were $17 million
which were fixed-rate for ten years and $216 million which were for ten years
but contained provisions that the FHLB could, at their option, terminate the
advances at quarterly intervals at specified periods ranging from three to five
years beyond the advance dates.
16
<PAGE>
The following table sets forth certain information regarding the short-term
borrowings of the Bank at or for the dates indicated.
<TABLE>
<CAPTION>
At or For the Three Months Ended
----------------------------------
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
(Dollars in Thousands)
FHLB of San Francisco advances
Average balance outstanding $338,556 $332,318
Maximum amount outstanding at any month end 370,000 368,000
Balance outstanding at end of period 343,949 368,000
Weighted average interest rate during the period 5.25% 3.09%
Weighted average interest rate at end of period 5.13% 5.33%
Weighted average remaining term to maturity at end of period (in years) 6 6
FRB direct investment borrowings
Average balance outstanding $ 28,024 --
Maximum amount outstanding at any month end 83,739 --
Balance outstanding at end of period 39,274 --
Weighted average interest rate during the period 4.49% --
Weighted average interest rate at end of period 4.84% --
Weighted average remaining term to maturity at end of period (in years) -- --
Securities sold under agreements to repurchase
Average balance outstanding $ 136 $ 132
Maximum amount outstanding at any month end 1,500 --
Balance outstanding at end of period 1,500 --
Weighted average interest rate during the period 5.41% 5.71%
Weighted average interest rate at end of period 5.63% --
Weighted average remaining term to maturity at end of period -- --
</TABLE>
The Bank maintains a secured credit facility with the FHLB of San Francisco
against which advances may be made. The terms of this credit facility require
the Bank to maintain in safekeeping with the FHLB of San Francisco eligible
collateral of at least 100% of outstanding advances.
Regulatory capital. The total risk-based capital ratio of the Bank at March
31, 1999 was 11.76%, as compared with 11.61% at December 31, 1998. The ratio of
Tier 1 capital to total assets of the Bank at March 31, 1999 was 6.30% compared
with 6.25% at December 31, 1998. The Bank's capital ratios exceed the regulatory
requirements, and the Bank continues to be categorized as "Well Capitalized."
The Company's capital ratios are approximately those of the Bank, and similarly
the Company is categorized as "Well Capitalized."
Year 2000 Compliance
Introduction. The Year 2000 issue is the result of certain computer
programs being written using two digits rather than four to define the
applicable year. As a result, date-sensitive software and/or hardware may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or other disruption of operations and impede
normal business activities. The Federal Financial Institutions
ExaminationCounsel (FFIEC), through the bank regulatory agencies, has issued
compliance guidelines that require financial institutions to develop and
implement plans for addressing the Year 2000 problem.
Our State of Readiness. In accordance with the FFIEC guidelines, we have
developed a comprehensive plan which we believe has resulted in timely and
adequate modifications of our systems and technology to address our Year 2000
issues. Also included in this Year 2000 plan is a detailed review of the
readiness of our service providers, vendors, major provider of funds, certain
borrowers and companies with which we have material investments. As of
17
<PAGE>
March 31, 1999, we have met all current target objectives of the Year 2000 plan,
and we believe that we will continue to meet all future goals according to the
plan. We have completed the Awareness, Assessment, Renovation, and Validation
Phases of our mission-critical systems. The final Phase, Implementation, is
scheduled for completion on June 30, 1999. The period from April 1, 1999 through
December 31, 1999 will be used for fine-tuning our Business Interruption
Contingency Plans for the Year 2000.
Like virtually all financial institutions, we rely on computers to conduct
our business, including data processing activities. As part of our conversion to
a commercial bank, we installed a new core computer system to better serve our
computing needs as a commercial bank. This system is run in a service bureau
environment by one of the leading national vendors of data processing services
for banks. This vendor is completing its Year 2000 readiness plan in cooperation
with us. Our testing of this system, performed in conjunction with the vendor,
indicates that the system is Year 2000 compliant.
In addition to our core computer system, we also depend on computerized
financial accounting and mortgage loan origination systems. New Year 2000
compliant systems were installed in October 1998 and December 1998,
respectively. Additionally, our mortgage loan servicing system vendor has
certified that their new system is Year 2000 compliant and our review of vendor
test results is substantially complete and indicates that the system is Year
2000 compliant.
As a result of the new core computer system and the new financial
accounting and mortgage loan origination systems, we believe we have resolved
our Year 2000 issues with respect to our most critical computer systems and
applications. We are currently testing and fixing, if necessary, other equipment
which may be Year 2000 sensitive, which includes equipment with embedded
microprocessors or other technology related to dates. We expect to complete our
Year 2000 conversion by June 30, 1999.
Due to our substantial progress, we do not expect that any additional
significant changes will be necessary or that the Year 2000 issue will pose
significant problems with our operations. However, unanticipated problems could
arise that would cause us to take longer to resolve the Year 2000 issue, and
could have an material impact on our financial condition and results of
operations.
In addition to our extensive contacts with our major service providers, we
have corresponded with other vendors inquiring about their compliance with Year
2000. For those vendors that have responded that they are Year 2000 compliant
and that we have determined to not have a material impact on our operations, no
further work has been performed. For those vendors that have responded that they
are working towards Year 2000 compliance and that we have determined to be
significant, including mission critical vendors, we will follow up regularly
through 1999. These vendors have advised us that they expect to be Year 2000
compliant prior to December 31, 1999. If those vendors do not demonstrate
satisfactory progress, we will seek other alternatives in accordance with our
contingency plan.
To determine the readiness of our borrowers, we have sent a questionnaire
to, and received responses from, each of our applicable borrowers to determine
the extent of risk created by any failure by them to resolve their own Year 2000
issues. Each borrower is categorized according to their state of readiness as
based on their response to the questionnaire and our review. We will reassess
each borrower's risk periodically.
Our Costs. We converted to our new core banking system because of the
change in our business focus to commercial banking. Our new commercial banking
products were not supported by the previous software packages. Additionally, the
vendor that ran the old core system had indicated to us that it would not
support that platform beyond 1998, and service quality had deteriorated during
1997. We installed the new financial accounting system because the vendor of the
old system had told us it would stop supporting the software at the end of 1998.
We purchased our new mortgage loan origination system to replace the existing
system with a lower cost software package.
We put the new systems into place as a result of our closing our mortgage
banking division, our new emphasis on portfolio lending in our niche market, and
our commercial banking focus. In each case, we made the system conversions for
business reasons unrelated to the Year 2000 problem, and therefore they did not
contribute to the direct cost of our Year 2000 compliance. However, all new
systems are Year 2000 compliant. Our additional costs
18
<PAGE>
to achieve Year 2000 compliance are currently estimated to be $500,000, and are
not expected to materially impact our financial condition or results of
operations.
Our Risks. We believe there are no mission-critical systems which presents
a material risk of not being Year 2000 compliant in a timely fashion, or for
which we cannot provide a suitable alternative. It is possible, however, that
unforseen disruptions may occur as a result of the date change. Such disruptions
may include, among other things, the inability to process and underwrite loan
applications, to credit deposits and withdrawals from and post interest to
customer accounts, to credit loan payments, interest paid or track
delinquencies, to properly reconcile and record daily activity or to engage in
similar normal banking activities. Additionally, if our commercial customers are
not Year 2000 compliant and suffer adverse effects on their operations, their
ability to meet their obligations to us may be impacted.
Any failure on our part to identify unresolved Year 2000 issues that are
critical to our operations, or the failure of others with which we do business
to become Year 2000 ready in a timely manner could materially and adversely
impact our financial condition and results of operations. Moreover, to the
extent that data processing and transmission and communications services
worldwide are not ready, we cannot predict with any certainty that our
operations will remain materially unaffected after January 1, 2000, or on
earlier dates when post-January 1, 2000 dates become significant within our
systems.
Our Contingency Plans. We have established two types of contingency plans:
remediation plans and business interruption plans. Remediation plans are
designed to mitigate the risk that we do not achieve Year 2000 compliance in our
mission-critical systems in time. Business interruption plans are plans of
action that ensure our ability to continue functioning in the event of
unanticipated system failures at critical dates prior to, on or after the Year
2000.
Business Interruption Plan. We will invoke these plans if unanticipated
Year 2000 problems occur. We will establish special teams for mobilization in
case of emergencies that threaten the viability of the Bank, and require that
certain resources be available immediately for use. We have begun preparation of
these plans and will continue to fine-tune them, train staff to carry them out,
and test them.
The discussion above of Year 2000 issues contains certain forward-looking
statements. The costs of the Year 2000 conversion, the date which we have set to
complete the conversion and the possible associated risks are based on our
current estimates and are subject to uncertainties that could cause the actual
results to differ materially from our expectations. These uncertainties include,
among others, our success in identifying systems that are not Year 2000
compliant, the continued availability of qualified personnel, consultants and
other resources, and the success of Year 2000 conversion efforts of others.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in the Company's exposure to market risk
since the information disclosed in the Company's Annual Report dated December
31, 1998 on file with the Securities and Exchange Commission (SEC File No.
333-58325).
19
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company's wholly-owned subsidiary, United Commercial Bank, has been a
party to ordinary routine litigation incidental to various aspects of its
operations.
Management is not currently aware of any litigation that will have a
material adverse impact on the Company's consolidated financial condition, or
the results of operations.
Item 2. Change in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits (File herewith unless otherwise noted)
3.1 Amended and Restated Certificate of Incorporation of UCBH Holdings,
Inc.*
3.2 Bylaws of UCBH Holdings, Inc.*
4.0 Form of Stock Certificate of UCBH Holdings, Inc.*
10.1 Employment Agreement between United Commercial Bank and Thomas S. Wu*
10.2 Employment Agreement between UCBH Holdings, Inc. and Thomas S. Wu*
10.3 Form of Termination and Change in Control Agreement between United
Commercial Bank and certain executive officers*
10.4 Form of Termination and Change in Control Agreement between UCBH
Holdings, Inc. and certain executive officers*
10.5 UCBH Holdings, Inc. 1998 Stock Option Plan*
27.0 Financial Data Schedule
(b) Reports on Form 8-K
None.
- ----------------------
* Incorporated by reference to the exhibit of the same number from the
Company's Registration Statement on Form S-1, filed with the
Securities and Exchange Commission on July 1, 1998 (SEC No.
333-58325).
20
<PAGE>
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.
UCBH HOLDINGS, INC.
Date: May 7, 1999 /s/ Thomas S. Wu
-------------------------------------
Thomas S. Wu
President and Chief Executive Officer
(principal executive officer)
Date: May 7, 1999 /s/ Jonathan H. Downing
-------------------------------------
Jonathan H. Downing
Senior Vice President and
Chief Financial Officer
(principal financial officer)
21
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0001061580
<NAME> UCBH Holdings, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 16,875
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 417,025
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0
0
<COMMON> 93
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<INTEREST-TOTAL> 37,909
<INTEREST-DEPOSIT> 16,171
<INTEREST-EXPENSE> 22,022
<INTEREST-INCOME-NET> 15,887
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<SECURITIES-GAINS> 0
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<INCOME-PRE-EXTRAORDINARY> 6,526
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<NET-INCOME> 3,928
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
<YIELD-ACTUAL> 7.27
<LOANS-NON> 5,661
<LOANS-PAST> 0
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<ALLOWANCE-CLOSE> 15,230
<ALLOWANCE-DOMESTIC> 11,265
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,965
</TABLE>
