================================================================================
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 June 30, 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.
------------------------------------------------------
(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) 928-0700
----------------------------------------------------
(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 August 3, 1999, the Registrant had 9,333,333 shares of common stock
outstanding.
- --------------------------------------------------------------------------------
================================================================================
<PAGE>
TABLE OF CONTENTS
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...............................................21
Item 6. Exhibits and Reports on Form 8-K................................21
SIGNATURES....................................................................22
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UCBH Holdings, Inc.
Consolidated Balance Sheets
(Unaudited: Dollars in thousands)
<TABLE>
<CAPTION>
At June 30, At December 31,
1999 1998
<S> <C> <C>
Assets
Cash and due from banks $ 22,250 $ 15,109
Investment and mortgage-backed securities available for sale, at fair value 354,161 429,347
Investment and mortgage-backed securities, at cost (fair value $182,787 at
June 30,1999 and $153,072 at December 31, 1998) 192,129 158,210
Federal Home Loan Bank stock and equity securities 23,692 20,415
Loans 1,589,052 1,492,148
Allowance for loan losses (16,387) (14,922)
----------- -----------
Net loans 1,572,665 1,477,226
----------- -----------
Accrued interest receivable 13,884 13,542
Premises and equipment, net 21,997 23,462
Other assets 14,489 10,021
----------- -----------
Total assets $ 2,215,267 $ 2,147,332
=========== ===========
Liabilities
Deposits $ 1,595,607 $ 1,633,895
Borrowings 474,039 368,000
Accrued interest payable 3,131 2,440
Other liabilities 6,696 9,359
Guaranteed preferred beneficial interests in junior subordinated debentures 30,000 30,000
----------- -----------
Total liabilities 2,109,473 2,043,694
----------- -----------
Stockholders' Equity
Common stock, $.01 par value, authorized 25,000,000 shares, 9,333,333 shares
issued and outstanding at June 30, 1999 and December 31, 1998 93 93
Additional paid-in capital 59,485 59,443
Accumulated other comprehensive income (7,392) (778)
Retained earnings-substantially restricted 53,608 44,880
----------- -----------
Total stockholders' equity 105,794 103,638
----------- -----------
Total liabilities and stockholders' equity $ 2,215,267 $ 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>
Quarter Ended Quarter Ended Six Months Ended Six Months Ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
<S> <C> <C> <C> <C>
Interest income:
Loans $ 29,818 $ 24,121 $ 58,785 $ 47,954
Funds sold and securities purchased under
agreements to resell 9 305 11 471
Investment and mortgage-backed securities 8,900 5,645 17,857 9,766
----------- ----------- ----------- -----------
Total interest income 38,727 30,071 76,653 58,191
----------- ----------- ----------- -----------
Interest expense:
Deposits 15,330 15,588 31,501 31,254
Short-term borrowings 2,266 63 4,254 66
Guaranteed preferred beneficial interests in
junior subordinated debentures 703 570 1,406 570
Long-term borrowings 3,194 1,270 6,353 1,270
Long-term debt to affiliates - 97 - 599
----------- ----------- ----------- -----------
Total interest expense 21,493 17,588 43,514 33,759
----------- ----------- ----------- -----------
Net interest income 17,234 12,483 33,139 24,432
Provision for loan losses 1,278 768 2,003 1,401
----------- ----------- ----------- -----------
Net interest income after provision for loan losses 15,956 11,715 31,136 23,031
----------- ----------- ----------- -----------
Noninterest income:
Commercial banking fees 488 369 898 656
Service charges on deposit accounts 188 268 370 453
Gain on sale of loans, securities and servicing rights 672 272 680 307
Loan servicing fees 96 248 213 292
Miscellaneous (8) 17 (11) 24
----------- ----------- ----------- -----------
Total noninterest income 1,436 1,174 2,150 1,732
----------- ----------- ----------- -----------
Noninterest expense:
Personnel 4,577 3,939 9,254 8,247
Occupancy 1,175 1,201 2,468 2,447
Data processing 472 431 959 1,180
Furniture and equipment 511 566 1,101 1,170
Professional fees and contracted services 604 448 1,132 902
Deposit insurance 237 226 472 457
Communication 115 104 217 201
Foreclosed assets 91 29 76 (3)
Miscellaneous 1,507 1,105 2,978 2,693
----------- ----------- ----------- -----------
Total noninterest expense 9,289 8,049 18,657 17,294
----------- ----------- ----------- -----------
Income before taxes 8,103 4,840 14,629 7,469
Income tax expense 3,303 1,992 5,901 3,070
----------- ----------- ----------- -----------
Net income $ 4,800 $ 2,848 $ 8,728 $ 4,399
=========== =========== =========== ===========
Average common and common equivalent shares 9,333,333 8,740,740 9,333,333 7,370,370
outstanding, basic
Average common and common equivalent shares
outstanding, diluted 9,510,111 9,091,674 9,421,722 8,532,837
Basic earnings per share $ 0.51 $ 0.33 $ 0.94 $ 0.60
Diluted earnings per share 0.50 0.32 0.93 0.56
</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 Six Months Ended June 30,
1999 1998
<S> <C> <C>
Operating activities
Net income $ 8,728 $ 4,399
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Provision for loan losses 2,003 1,401
Increase in accrued interest receivable (342) (2,921)
Depreciation and amortization of premises and equipment 1,184 1,323
Decrease (increase) in other assets 982 (3,401)
Increase in accrued interest payable 691 2,061
Gain on sale of loans, securities and other assets (680) (406)
Other, net (1,143) (1,713)
---------- ----------
Net cash provided by operating activities $ 11,423 $ 743
---------- ----------
Investing activities
Investments and mortgage-backed securities held to maturity:
Principal payments and maturities and securities called 9,859 11,859
Purchases (3,214) (612)
Investments and mortgage-backed securities, available for sale:
Principal payments and maturities 25,118 2,957
Purchases (6,012) (318,084)
Loans purchased (123) (217)
Loans originated net of principal collections (105,540) (62,261)
Proceeds from sale of loans 8,042 3,816
Purchases of premises and equipment (227) (942)
Proceeds from sale of other assets 64 670
---------- ----------
Net cash (used in) investing activities $ (72,033) $ (362,814)
---------- ----------
Financing activities
Net increase in demand deposits, NOW, money market and savings accounts 40,905 24,090
Net decrease in time deposits (79,193) (18,807)
Net increase in borrowings 106,039 298,000
Net decrease in long-term debt to affiliates - (20,060)
Proceeds from issuance of common stock - 29,850
Proceeds from issuance of guaranteed preferred beneficial interest in
subordinated debentures - 30,000
---------- ----------
Net cash provided by financing activities $ 67,751 $ 343,073
---------- ----------
Increase (decrease) in cash and cash equivalents 7,141 (18,998)
Cash and cash equivalents at beginning of year 15,109 34,853
---------- ----------
Cash and cash equivalents at end of year $ 22,250 $ 15,855
========== ==========
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ 42,823 $ 31,698
Cash paid during the year for income taxes 6,783 2,575
Supplemental schedule of noncash investing and financing activities
Real estate acquired through foreclosure 115 392
Securities transferred to held to maturity 43,625 -
</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 June 30, 1999, the Consolidated
Statements of Operations for the three and the six months ended June 30, 1999
and 1998, and the Consolidated Statements of Cash Flows for the six months ended
June 30, 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 six months ended June 30,
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. 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,
2000. 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 June 30, 1999 Three Months Ended June 30, 1998
-------------------------------- --------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic:
Net Income $ 4,800 9,333,333 $ 0.51 $ 2,848 8,740,740 $ 0.33
Dilutive potential common shares - 176,778 57 350,934
------- --------- ------- ---------
Diluted:
Net income and assumed conversion $ 4,800 9,510,111 $ 0.50 $ 2,905 9,091,674 $ 0.32
======= ========= ======= =========
<CAPTION>
Six Months Ended June 30, 1999 Six Months Ended June 30, 1998
------------------------------ ------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic:
Net income $ 8,728 9,333,333 $ 0.94 $ 4,399 7,370,370 $ 0.60
Dilutive potential common shares - 88,389 353 1,162,467
------- --------- ------- ---------
Diluted:
Net income and assumed conversion $ 8,728 9,421,722 $ 0.93 $ 4,752 8,532,837 $ 0.56
======= ========= ======= =========
</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 June 30,
1999, total comprehensive income was $0.1 million, a decrease of $3.5 million,
or 97.1%, compared to the three months ended June 30, 1998. Net income for the
three months ended June 30, 1999 was $4.8 million and unrealized losses on
available-for-sale securities increased by $4.7 million. For the six months
ended June 30, 1999, total comprehensive income was $2.1 million compared to
$5.7 million for the six months ended June 30, 1998. Net income was $8.7 million
and unrealized losses on available-for-sale securities increased by $6.6 million
for the six months ended June 30, 1999. For the corresponding period of 1998,
net income was $4.4 million and unrealized losses on available-for-sale
securities decreased by $1.3 million.
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.
5
<PAGE>
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 the three and the six months ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
Reconciling
Consumer Commercial Items Total
-------- ---------- ----- -----
For the Three Months Ended, (Dollars in thousands)
<S> <C> <C> <C> <C>
June 30, 1999
Net interest income $ 12,024 5,210 - $ 17,234
Segment profit 3,511 1,105 184(1) 4,800
Segment assets 1,364,142 851,125 - 2,215,267
June 30, 1998
Net interest income $ 10,082 2,401 - $ 12,483
Segment profit 2,902 (54) - 2,848
Segment assets 1,415,394 494,985 - 1,910,379
<CAPTION>
Reconciling
Consumer Commercial Items Total
-------- ---------- ----- -----
For the Six Months Ended, (Dollars in thousands)
<S> <C> <C> <C> <C>
June 30, 1999
Net interest income $ 22,743 $ 10,396 - $ 33,139
Segment profit 6,801 1,743 184(1) 8,728
Segment assets 1,364,142 851,125 - 2,215,267
June 30, 1998
Net interest income $ 19,359 $ 5,073 - $ 24,432
Segment profit 4,535 (136) - 4,399
Segment assets 1,415,394 494,985 - 1,910,379
</TABLE>
(1) Reconciling item represents gain on sale of nonperforming asset.
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 are 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 in 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 and the six months
ended June 30, 1999 and 1998 and financial condition at June 30, 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.
6
<PAGE>
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 June 30, 1999 increased by $2.0 million, or 68.5%, to $4.8 million,
compared to $2.8 million for the corresponding quarter of the prior year. The
increase resulted primarily from an increase in interest income on loans due to
growth in commercial loans. The annualized return on average equity ("ROE") and
average assets ("ROA") ratios for the three months ended June 30, 1999 were
18.15% and 0.88%, respectively. This compares with annualized ROE and ROA ratios
of 12.72% and 0.68%, respectively, for the three months ended June 30, 1998. The
resulting efficiency ratios were 49.75% for the three months ended June 30, 1999
and 58.94% for the corresponding period for the prior year. Diluted earnings per
share were $0.50 for the three months ended June 30, 1999 compared with $0.32
for the comparable period of the preceding year.
The consolidated net income of the Company during the six months ended June
30, 1999 increased by $4.3 million, or 98.4%, to $8.7 million, compared to $4.4
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 six months
ended June 30, 1999 were 16.62% and 0.81%, respectively. This compares with
annualized ROE and ROA ratios of 11.50% and 0.54%, respectively, for the six
months ended June 30, 1998. The resulting efficiency ratios were 52.87% for the
six months ended June 30, 1999 and 66.10% for the corresponding period of the
prior year. Diluted earnings per share were $0.93 for the six months ended June
30, 1999 compared with $0.56 for the comparable period of the preceding year.
The increase in net income for the six months ended June 30, 1999 from the
six months ended June 30, 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 average securities portfolio, and (3) a reduction in the cost of
deposits. Partially offsetting the increases to net income was a $1.4 million
increase in noninterest expense.
The provision for loan losses of $1.3 million for the three months ended
June 30, 1999 is an increase of $510,000 compared to a provision of $768,000 for
the second quarter of 1998. Net charge-offs for the three months ended June 30,
1999 were $121,000 compared to $113,000 for the corresponding period of the
prior year. Noninterest expense for the three months ended June 30, 1999 was
$9.3 million, an increase of $1.2 million or 15.4%, compared with $8.0 million
for the corresponding period in the prior year. Personnel expenses increased to
$4.6 million for the three months ended June 30, 1999 compared to $3.9 million
for the three months ended June 30, 1998 primarily due to the additional
staffing required to support growth of the Bank's commercial banking businesses.
The provision for loan losses increased from $1.4 million for the six
months ended June 30, 1998 to $2.0 million for the corresponding period of 1999.
As of June 30, 1999, the allowance for loan losses was $16.4 million.
Noninterest expense was $18.7 million for the six months ended June 30, 1999, an
increase of $1.4 million, or 7.9%, from the corresponding period of the prior
year. Personnel expenses increased to $9.3 million during the six months ended
June 30, 1999 compared with $8.2 million, an increase of $1.0 million, or 12.2%,
for the corresponding period of the previous year due to the addition of
commercial banking personnel.
Net Interest Income. Net interest income before provision for loan losses
of $17.2 million for the three months ended June 30, 1999 represented a $4.8
million, or 38.1%, increase over net interest income of $12.5 million for the
three months ended June 30, 1998.
7
<PAGE>
Net interest income of $33.1 million for the six months ended June 30, 1999
represented an $8.7 million, or 35.6%, increase from the corresponding period of
the prior year. Average outstanding loans increased to $1.51 billion for the six
months ended June 30, 1999 from $1.23 billion for the six months ended June 30,
1998, an increase of $283.9 million, or 23.10%. Average securities increased to
$593.1 million for the six months ended June 30, 1999 from $312.3 million for
the six months ended June 30, 1998, an increase of $280.8 million, or 89.9%. The
cost of interest-bearing deposits decreased to 4.01% for the first six months of
1999 from 4.40% for the first six months of 1998. In addition, average
noninterest-bearing deposits increased to $51.3 million for the first six months
of 1999, from $37.2 million for the corresponding period of the prior year.
Net Interest Margin. The net interest margin was 3.15% for the six months
ended June 30, 1999 compared with 3.13% for the six months ended June 30, 1998.
The increase in the net interest margin resulted primarily from an increase in
average securities outstanding. Following the capital raised 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.
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 For the Six Months Ended For the Six Months Ended
June 30, June 30, 1999 June 30, 1998
1999 ----------------------------------- -----------------------------------
---- (Dollars in Thousands) (Dollars in Thousands)
Interest Interest
Average Income Average Average Income Average
Yield/ 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% $ 1,512,797 $ 58,784 7.77% $ 1,228,933 $ 47,954 7.80%
Securities 6.09 593,071 17,857 6.02 312,287 9,766 6.25
Other - 501 12 4.69 16,825 471 5.60
----------- -------- ----------- --------
Total interest-earning assets 7.37 2,106,369 76,653 7.28 1,558,045 58,191 7.47
Noninterest-earning assets - 57,508 - - 61,557 - -
----------- -------- ----------- --------
Total assets 7.13 $ 2,163,877 $ 76,653 7.08 $ 1,619,602 $ 58,191 7.19
---- =========== ======== ---- =========== ======== -----
Interest-bearing liabilities
Deposits:
NOW, demand deposits and money market
accounts 1.88 $ 134,698 $ 1,249 1.85 101,089 719 1.42
Savings accounts 1.99 235,234 2,474 2.10 211,834 2,391 2.26
Time deposits 4.48 1,201,979 27,778 4.62 1,108,121 28,144 5.08
----------- -------- ----------- --------
Total deposits 3.85 1,571,911 31,501 4.01 1,421,044 31,254 4.40
Borrowings 5.29 388,605 10,608 5.46 47,022 1,336 5.68
Guaranteed preferred beneficial interests
in junior subordinated debentures 9.38 30,000 1,406 9.38 12,160 570 9.38
Long-term debt to affiliates - - 11,970 599 10.01
----------- -------- ----------- --------
Total interest-bearing liabilities 4.27 1,990,516 43,515 4.37 1,492,196 33,759 4.52
---- ----------- -------- ---- ----------- -------- -----
Noninterest-bearing deposits 51,326 37,180
Other noninterest-bearing liabilities 17,002 13,725
Stockholders' equity 105,033 76,501
----------- -----------
Total liabilities and stockholders' equity $ 2,163,877 1,619,602
=========== ===========
Net interest income / interest rate spread 3.10% $ 33,138 2.91% $ 24,432 2.95%
==== ======== ==== ======== =====
Net interest-earning assets / net interest
margin 3.30% $ 115,853 3.15% $ 65,849 3.13%
==== =========== ==== =========== =====
Ratio of interest-earning assets to
interest-bearing liabilities 1.05x 1.06x 1.04x
==== =========== ===========
</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 $2.0 million for the six months ended June
30, 1999 represented an increase of $602,000, as compared to a provision of $1.4
million for the corresponding period of the prior year. At June 30, 1999, the
allowance for loan losses was $16.4 million. Net loan charge-offs were $538,000
for the first six months of 1999. Net charge-offs for the corresponding period
of 1998 were $336,000.
8
<PAGE>
The Bank continued to experience an improvement in asset quality during the
six months ended June 30, 1999. The non-accrual loans at June 30, 1999 of $3.7
million were $2.4 million, or 39.9% less than the $6.1 million at December 31,
1998. For the six months ended June 30, 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 since commercial loan products
are generally considered to be higher risk than residential mortgage (one-to-
four family) loans.
Noninterest Income. Noninterest income for the three months ended June 30,
1999 was $1.4 million compared to $1.2 million for the three months ended June
30, 1998, an increase of $262,000, or 22.3%. Gain on sale of loans increased
147.1% to $672,000, for the three months compared to $272,000 for the
corresponding period of 1998, primarily as a result of increased SBA loan sales.
Commercial banking fees increased 32.3% to $488,000 for the three months as
compared to $369,000 for the corresponding period of 1998, as a result of
increased commercial banking activities.
Noninterest income of $2.2 million for the six months ended June 30, 1999
increased $418,000, or 24.1% 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 $898,000 for
the six months ended June 30, 1999 from $656,000, an increase of 36.9%, from the
corresponding period of the previous year. Service charges on deposit accounts
decreased to $370,000, a decrease of 18.3%, from the corresponding period of the
prior year. Loan servicing income decreased to $213,000 for the six months of
1999, compared with $292,000 for the corresponding period of the prior year, a
decrease of $79,000, or 27.1%.
Noninterest Expense. Noninterest expense of $9.3 million for the three
months ended June 30, 1999 represented a growth of $1.2 million, or 15.4%,
compared with $8.0 million at June 30, 1998. Personnel expenses increased to
$4.6 million for the three months ended June 30, 1999, from $3.9 million for the
corresponding period of 1998, an increase of $638,000, or 16.2%, primarily due
to the additional staffing required to support growth of the Bank's commercial
banking business.
Noninterest expense of $18.7 million for the six months ended June 30, 1999
was 7.9% greater than the $17.3 million of noninterest expense for the same
period of the preceding year. Personnel expenses increased to $9.3 million for
the six months ended June 30, 1999 from $8.2 million for the corresponding
period of the preceding year, due to additional staffing of the commercial
banking division.
In the first quarter 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
six months ended June 30, 1998 were $333,000. Data processing expenses decreased
to $959,000 in the first six months of 1999 from $1.2 million in the
corresponding period of 1998, a decrease of $221,000, or 18.7%, reflecting
system conversion costs incurred in the six months ended June 30, 1998.
Provision for Income Taxes. The provision for income taxes of $3.3 million
and $2.0 million on the income before taxes of $8.1 million and $4.8 million for
the three months ended June 30, 1999 and 1998, respectively, represents
effective tax rates of 40.8% and 41.2%, respectively.
The provision for income taxes of $5.9 million and $3.1 million on the
income before taxes of $14.6 million and $7.5 million for the six months ended
June 30, 1999 and 1998, respectively, represents effective tax rates of 40.3%
and 41.1%, respectively.
FINANCIAL CONDITION
The Company experienced continued asset growth during the six months ended
June 30, 1999. Total assets increased by $67.9 million, or 3.2%, to $2.22
billion at June 30, 1999. The growth resulted primarily from an increase in the
loan portfolio, partially offset by a decrease in the securities portfolio.
During the six months ended June 30, 1999, loans increased by $96.9
million, or 6.5%, to $1.59 billion. Loan runoff was high during the six months
ended June 30, 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 13.3%.
9
<PAGE>
The quality of loans continued to be strong. Total past due loans were
0.58% of total loans at June 30, 1999, and 0.78% at December 31, 1998.
Non-performing assets of $4.5 million, or 0.20% of total assets at June 30,
1999, reflected a reduction from the $6.9 million level at December 31, 1998.
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 June 30, At December 31,
1999 1998
---- ----
Amount % Amount %
------ - ------ -
(Dollars in thousands)
<S> <C> <C> <C> <C>
Consumer
Residential mortgage
(one-to-four family) $ 715,087 44.99% $ 790,789 53.01%
Home equity 12,279 0.77 14,450 0.97
Other 1,690 0.11 2,261 0.15
----------- ------ ----------- ------
729,056 45.87 807,500 54.13
----------- ------ ----------- ------
Commercial
Secured by real estate-multifamily 376,242 23.67 346,967 23.25
Secured by real estate-nonresidential 348,930 21.95 229,693 15.40
Construction 76,252 4.80 61,486 4.12
Commercial business 59,062 3.71 46,240 3.10
----------- ------ ----------- ------
860,486 54.13 684,386 45.87
----------- ------ ----------- ------
Total gross loans 1,589,542 100.00% 1,491,886 100.00%
====== =======
Net deferred loan origination fee (costs) (490) 262
Allowance for loan losses (16,387) (14,922)
----------- -----------
Net loans $ 1,572,665 $ 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 of which
adjust annually thereafter ("intermediate fixed-rate loans"). As a result of
this initiative, the Bank's COFI-based loans declined to $391.4 million at June
30, 1999 from $455.2 million at December 31, 1998.
Fixed-rate loans at June 30, 1999 were $579.0 million compared with $491.8
million at December 31, 1998, an increase of $87.2 million, or 17.7%, 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 June 30, 1999,
total gross loans included $291.8 million of intermediate fixed-rate loans
compared with $301.0 million at December 31, 1998, a decrease of $9.2 million,
or 3.1%, 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 Six Months Ended June 30,
1999 1998
---- ----
(Dollars in Thousands)
<S> <C> <C>
Consumer
Residential mortgage (one-to-four family)
For resale:
FHLMC and FNMA $ - $ 9,327
For portfolio:
Fully documented loans 3,242 8,456
Limited documentation loans 44,045 117,714
Home equity 3,624 2,819
Other 1,497 1,714
--------- ---------
Total consumer loans 52,408 140,030
--------- ---------
Commercial
Secured by real estate-multifamily 64,954 15,580
Secured by real estate-nonresidential 136,608 35,266
Construction 76,575 41,693
Commercial business 31,922 23,319
Small Business Administration 7,601 2,515
--------- ---------
Total commercial loans 317,660 118,373
--------- ---------
Total loan originations $ 370,068 $ 258,403
========= =========
</TABLE>
Nonperforming Assets and OREO. Management generally places loans on
nonaccrual 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 nonaccrual
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.
The following table sets forth information regarding nonperforming assets
at the dates indicated.
<TABLE>
<CAPTION>
At June 30, At December 31,
1999 1998
---- ----
(Dollars in Thousands)
<S> <C> <C>
Nonaccrual loans:
Consumer
Residential mortgage (one-to-four family) $ 2,199 $ 3,341
Home equity 27 -
----------- -----------
Total Consumer 2,226 3,341
----------- -----------
Commercial
Secured by real estate-nonresidential 740 2,663
Construction loans 104 104
Commercial business 601 -
----------- -----------
Total Commercial 1,445 2,767
----------- -----------
Total nonaccrual loans 3,671 6,108
Other real estate owned (OREO) 828 772
----------- -----------
Total nonperforming assets $ 4,499 $ 6,880
=========== ===========
Nonperforming assets to total assets 0.20% 0.32%
Nonaccrual loans to total loans 0.23% 0.41%
Nonperforming assets to total loans and OREO 0.28% 0.46%
Total gross loans $ 1,589,542 $ 1,491,886
=========== ===========
Gross income not recognized on nonaccrual loans $ 71 $ 135
Accruing loans contractually past due 90 days or more - -
Troubled debt restructured not included above 1,252 1,251
</TABLE>
11
<PAGE>
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 six months ended June 30, 1999, the Bank reduced total
nonperforming assets to $4.5 million from $6.9 million at December 31, 1998, a
decrease of $2.4 million or 34.6%. The reduction was the result of the sale of
nonperforming 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 June 30, 1999, OREO consisted of three properties
acquired through foreclosure with a carrying value of $828,000, compared to
$772,000 at December 31, 1998.
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
questionable on the basis of currently existing facts, conditions and values,
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.
The following table sets forth criticized loans at the dates indicated.
<TABLE>
<CAPTION>
At June 30, At December 31,
----------- ---------------
1999 1998
---- ----
(Dollars in Thousands)
<S> <C> <C>
Special mention loans $ 1,715 $ 8,084
Substandard and doubtful loans 7,962 9,638
-------- --------
Total criticized loans $ 9,677 $ 17,722
======== ========
Total allowance for loan losses $ 16,387 $ 14,922
======== ========
Special mention loans to total loans 0.11% 0.54%
Substandard and doubtful loans to total loans 0.50 0.65
Criticized loans to total loans 0.61 1.19
Allowance for loan losses to substandard and doubtful loans 205.82 154.82
Allowance for loan losses to criticized loans 169.34 84.20
</TABLE>
With the exception of the criticized loans described above, management is
not aware of any other loans as of June 30, 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 nonperforming 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 June 30, 1999 and June 30, 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 six months ended June 30, 1999, residential mortgages
(one-to-four family) delinquent two or more payments decreased to $1.7 million,
or 0.23%, 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.
12
<PAGE>
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 $740,000 at June 30, 1999, a decrease of
$1.9 million, or 72.2%, 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 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 Six Months Ended June 30,
---------------------------------
(Dollars in thousands)
1999 1998
---- ----
<S> <C> <C>
Balance at beginning of period $ 14,922 $ 12,142
Provision for loan losses 2,003 1,401
Loans charged off (549) (346)
Recoveries of loans previously charged off 11 10
-------- --------
Balance at end of period $ 16,387 $ 13,207
======== ========
Allowance for loan losses to loans 1.03% 1.04%
Net charge-offs to average loans (1) 0.07% 0.05%
</TABLE>
(1) annualized
13
<PAGE>
Securities. Securities (including available-for-sale and held-to-maturity)
decreased during the first six months of 1999 by $41.3 million, or 7.0%, to
$546.3 million at June 30, 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.
The following table sets forth the Bank's securities portfolio on the dates
indicated.
<TABLE>
<CAPTION>
At June 30, 1999 At December 31, 1998
---------------- --------------------
Amortized Market Amortized Market
Cost Value Cost Value
---- ----- ---- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Investment securities available for sale
Municipals $ - $ - $ 43,617 $ 44,464
Trust Preferred Securities 103,858 98,228 99,436 97,711
Other - - 1,500 1,500
--------- --------- --------- ---------
Total $ 103,858 $ 98,228 $ 144,553 $ 143,675
========= ========= ========= =========
Mortgage-backed securities available for sale
FNMA $ 76,147 $ 72,419 $ 80,660 $ 78,370
GNMA 107,230 104,664 114,403 115,555
Other 79,958 78,850 91,071 91,747
--------- --------- --------- ---------
Total $ 263,335 $ 255,933 $ 286,134 $ 285,672
========= ========= ========= =========
Investment securities held to maturity
Municipals $ 43,625 $ 42,046 $ - $ -
========= ========= ========= =========
Mortgage-backed securities held to maturity
FHLMC $ 42,871 $ 40,658 $ 44,218 $ 42,714
FNMA 98,226 92,985 103,961 100,645
Other 7,407 7,098 10,031 9,713
--------- --------- --------- ---------
Total $ 148,504 $ 140,741 $ 158,210 $ 153,072
========= ========= ========= =========
</TABLE>
As of June 30, 1999, the aggregate amortized cost of the securities was
$559.3 million and the fair value was $536.9 million. Of the total $22.4 million
unrealized loss on these securities, $9.3 million of unrealized losses relate to
securities which are held to maturity, and $13.0 million of unrealized losses
relate to securities which are held as available for sale. Such unrealized
losses, net of the related tax benefit of $5.6 million, are reflected as a
decrease of stockholders' equity. The $9.3 million unrealized loss relating to
the $192.1 million of securities held to maturity has not been recognized in the
financial statements.
Deposits. Deposit balances were $1.6 billion at June 30, 1999, which
represented a decrease of $38.3 million, or 2.3% from December 31, 1998. The
core deposit balances increased by $40.9 million, or 10.3%, during this period,
and time deposits decreased by $79.2 million. Core deposits include NOW, demand
deposit, money market and savings accounts. The Company reduced its overall cost
of deposits from 4.17% at December 31, 1998 to 3.72% at June 30, 1999. Deposits
are the Bank's primary source of funding. At June 30, 1999, the Bank had a
deposit mix of 72.6% in time deposits, 15.1% in savings accounts and 12.3% in
NOW, demand deposit, and money market accounts. This compares with a deposit mix
of 75.7%, 14.2% and 10.1% 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 June 30, 1999, less than 2.0% 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 10.0% 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
14
<PAGE>
customers. Included in time deposits as of June 30, 1999, is $339.3 million, or
21.3% of total deposits, of deposits of $100,000 or greater. At June 30, 1999,
the Bank had no brokered deposits. Substantially all of the time deposits as of
June 30, 1999 mature in one year or less.
The following table sets forth the balances and rates paid for the major
categories of deposits at the dates indicated:
<TABLE>
<CAPTION>
At June 30, At December 31,
----------- ---------------
1999 1998
---- ----
Amount Interest Rate Amount Interest Rate
------ ------------- ------ -------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
NOW, demand deposits and
money market accounts $ 195,889 1.36% $ 163,954 1.28%
Savings accounts 241,605 1.99% 232,635 2.20%
Time deposits 1,158,113 4.48% 1,237,306 4.93%
----------- -----------
Total $ 1,595,607 3.72% $ 1,633,895 4.17%
=========== ===========
</TABLE>
The average cost of deposits during the six months ended June 30, 1999 was
3.88% as compared to 4.29% for the same period in the previous year.
Other Borrowings. At June 30, 1999, the Bank had $474.0 million of
borrowings outstanding compared with $368.0 million outstanding at December 31,
1998, an increase of $106.0 million, or 28.8%. 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 in April 1998, consistent with its asset and liability objectives and the
maintenance of its status as a 'Well capitalized' institution for regulatory
capital purposes. As of June 30, 1999, the Bank had borrowed $429.0 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 $196.0 million were
overnight borrowings. Included in the long-term advances of $233.0 million were
$17.0 million which were fixed-rate for ten years and $216.0 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.
15
<PAGE>
The following table sets forth certain information regarding borrowings of
the Bank at or for the dates indicated.
<TABLE>
<CAPTION>
At or For the Six Months Ended
------------------------------
June 30, 1999 June 30, 1998
------------- -------------
(Dollars in Thousands)
<S> <C> <C>
FHLB of San Francisco advances
Average balance outstanding $ 355,662 $ 46,927
Maximum amount outstanding at any month end 429,000 298,000
Balance outstanding at end of period 429,000 298,000
Weighted average interest rate during the period 5.26% 5.68%
Weighted average interest rate at end of period 5.33% 5.64%
Weighted average remaining term to maturity at end of period
(in years) 5 7
FRB direct investment borrowings
Average balance outstanding $ 32,725 -
Maximum amount outstanding at any month end 83,739 -
Balance outstanding at end of period 45,039 -
Weighted average interest rate during the period 4.53% -
Weighted average interest rate at end of period 4.95% -
Weighted average remaining term to maturity at end of period
(in years) - -
Securities sold under agreements to repurchase
Average balance outstanding $ 218 $ 95
Maximum amount outstanding at any month end 1,500 -
Balance outstanding at end of period - -
Weighted average interest rate during the period 5.40% 5.79%
Weighted average interest rate at end of period - -
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 June
30, 1999 was 10.95%, as compared with 11.61% at December 31, 1998. The ratio of
Tier 1 capital to total assets of the Bank at June 30, 1999 was 6.42% 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 Examination
Council (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
16
<PAGE>
June 30, 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, Validation, and
Implementation phases of our mission-critical systems. The period from July 1,
1999 through December 31, 1999 will be used for fine-tuning our Business
Resumption/Interruption Contingency Plans for the Year 2000.
As the result of the aforementioned efforts, we believe we have resolved
our Year 2000 issues with respect to our mission-critical computer systems and
applications. In addition, the process of testing and implementing Year 2000
modifications to non-mission-critical systems and applications is substantially
complete.
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 could have a material impact on our financial condition and results
of operations. It should be noted, however, that we have developed contingency
plans designed to mitigate such impact.
Our Vendors. 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 has
completed 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.
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
complete and indicates that the system is Year 2000 compliant.
In addition to our extensive contacts with our major service providers, we
have communicated with other vendors 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 follow up regularly and will continue to
do so through 1999. These vendors have advised us that they expect to be Year
2000 compliant prior to December 31, 1999. If, at any point, these vendors do
not demonstrate satisfactory progress in our judgment, we will implement other
alternatives in accordance with our contingency plan.
Our Borrowers. We have reviewed our loan portfolio to identify those
borrowers who engaged in business activities that, in our judgment, were highly
dependent on Year 2000 compliance. We obtained documents from these borrowers
which assisted us in determining any Year 2000 risk as well as the borrowers'
current state of Year 2000 readiness. We require updated documents on a periodic
basis so that we may continually reassess the borrowers' status with respect to
Year 2000 compliance.
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 in light of the fact that
the vendor of the old system had informed 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 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.
17
<PAGE>
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
unforeseen 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 Business Resumption/Interruption Contingency Plans. Business
Resumption/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. We will invoke these plans if
unanticipated Year 2000 problems occur. We have established 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
completed preparation of these plans and now 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).
18
<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
---------------------------------------------------
On April 29, 1999, the Company held its annual meeting of stockholders for
the purpose of the election of directors of the Company for three-year terms;
for the approval of an amendment to the Company's 1998 Stock Option Plan by
increasing the number of shares reserved for awards to 933,333; and for the
ratification of PricewaterhouseCoopers LLP as the Company's independent
accountants.
<TABLE>
<CAPTION>
Number of Number
Votes of Votes Broker
For Withheld Non-Votes
--------- -------- ---------
<S> <C> <C> <C>
1. Election of Directors of the
Company for three-year terms:
Robert Fell 7,807,903 59,450 0
Ronald McMeekin 7,807,903 59,450 0
</TABLE>
Messrs. Robert Fell and Ronald McMeekin were elected to terms which expire
in 2002.
<TABLE>
<CAPTION>
Number of Number Number of
Votes of Votes Votes Broker
For Withheld Abstaining Non-Votes
--------- -------- ---------- ---------
<S> <C> <C> <C> <C>
2. Approval of the amendment to the 1998
Stock Option Plan of the Company by
increasing the number of shares
reserved for awards to 933,333 6,640,202 768,901 458,250 0
<CAPTION>
Number of Number Number of
Votes of Votes Votes Broker
For Withheld Abstaining Non-Votes
--------- -------- ---------- ---------
<S> <C> <C> <C> <C>
3. Ratification of PricewaterhouseCoopers LLP
as the Company's independent accountants 7,797,434 65,967 550 0
</TABLE>
19
<PAGE>
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) List of Exhibits (Filed 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 Amended 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: August 6, 1999 /s/ Thomas S. Wu
-------------------------------------
Thomas S. Wu
President and Chief Executive Officer
(principal executive officer)
Date: August 6, 1999 /s/ Jonathan H. Downing
-------------------------------------
Jonathan H. Downing
Senior Vice President and
Chief Financial Officer
(principal financial officer)
21
<PAGE>
AMENDED UCBH HOLDINGS, INC.
1998 STOCK OPTION PLAN
1. DEFINITIONS.
(a) "Affiliate" means (i) a member of a controlled group of
corporations of which the Company is a member or (ii) an unincorporated trade or
business which is under common control with the Company as determined in
accordance with Section 414(c) of the Internal Revenue Code of 1986, as amended,
(the "Code") and the regulations issued thereunder. For purposes hereof, a
"controlled group of corporations" shall mean a controlled group of corporations
as defined in Section 1563(a) of the Code determined without regard to Section
1563(a)(4) and (e)(3)(C).
(b) "Alternate Option Payment Mechanism" refers to one of several
methods available to a Participant to fund the exercise of a stock option set
out in Section 13 hereof. These mechanisms include: broker assisted cashless
exercise and stock for stock exchange.
(c) "Award" means a grant of one or some combination of one or more
Non-statutory Stock Options, Incentive Stock Options and Option related rights
under the provisions of this Plan.
(d) "Bank" means United Commercial Bank.
(e) "Board of Directors" or "Board" means the board of directors of the
Company.
(f) "Change in Control" means a change in control of the Bank or the
Company of a nature that; (i) would be required to be reported in response to
Item 1 of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"); or (ii) results in a Change in Control within the
meaning of the Home Owners' Loan Act of 1933, as amended ("HOLA") and the Rules
and Regulations promulgated by the Office of Thrift Supervision ("OTS") (or its
predecessor agency), as in effect on the date hereof (provided, that in applying
the definition of change in control as set forth under such rules and
regulations the Board shall substitute its judgment for that of the OTS); or
(iii) without limitation such a Change in Control shall be deemed to have
occurred at such time as (A) any "person" (as the term is used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Bank or the Company, representing 25% or more of the Bank's or Company's
outstanding securities except for any securities of the Bank purchased by the
Company formed by the Bank for that purpose in connection with the
reorganization of the Bank and any securities purchased by any tax qualified
employee benefit plan of the Bank or Company; or (B) individuals who constitute
the Board on the date hereof (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any person becoming a
director subsequent to the date hereof whose election was approved by a vote of
at least three-quarters of the directors comprising the Incumbent Board, or
whose nomination for election by the Company's stockholders was approved by the
same Nominating Committee serving under an Incumbent Board, shall be, for
purposes of this clause (B), considered as though he were a member of the
Incumbent Board; or (C) a plan of reorganization, merger, consolidation, sale of
all or substantially all the assets of the Bank or Company or similar
transaction occurs in which the Bank or Company is not the resulting entity; or
(D) a solicitation of shareholders of the Company, by someone other than the
current management of the Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Bank or Company or similar
transaction with one or more corporations, as a result of which the outstanding
shares of the class of securities then subject to the plan are exchanged for or
converted into cash or property or securities not
1
<PAGE>
issued by the Bank or Company; or (E) a tender offer is made for 25% or more of
the voting securities of the Bank or Company.
(g) "Code" means the Internal Revenue Code of 1986, as amended.
(h) "Committee" means a committee consisting of the entire Board of
Directors or consisting solely of two or more members of the Board of Directors
who are non-employee directors as such term is defined under Rule 16b-3(b)(3)(i)
under the Exchange Act as promulgated by the Securities and Exchange Commission.
(i) "Common Stock" means the Common Stock of the Company, par value,
$.01 per share or any stock exchanged for shares of Common Stock pursuant to
Section 14 hereof.
(j) "Company" means UCBH Holdings, Inc.
(k) "Date of Grant" means the effective date of an Award.
(l) "Disability" means the permanent and total inability by reason of
mental or physical infirmity, or both, of a Participant to perform the work
customarily assigned to him, or in the case of a Director, to serve on the
Board. Additionally, a medical doctor selected or approved by the Board of
Directors must advise the Committee that it is either not possible to determine
when such Disability will terminate or that it appears probable that such
Disability will be permanent during the remainder of said Participant's
lifetime.
(m) "Effective Date" means April 17, 1998, the effective date of the
Plan.
(n) "Employee" means any person who is currently employed by the
Company or an Affiliate, including officers, but such term shall not include
Outside Directors.
(o) "Employee Participant" means an Employee who holds an outstanding
Award under the terms of the Plan.
(p) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(q) "Exercise Price" means the purchase price per share of Common Stock
deliverable upon the exercise of each Option in order for the option to be
exchanged for shares of Common Stock.
(r) "Fair Market Value" means, when used in connection with the Common
Stock on a certain date, the average of the high and low bid prices of the
Common Stock as reported by the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), the New York Stock Exchange ("NYSE") or
the American Stock Exchange ("AMEX") (as published by the Wall Street Journal,
if published) on such date or if the Common Stock was not traded on such date,
on the next preceding day on which the Common Stock was traded thereon or the
last previous date on which a sale is reported. If the Common Stock is not
reported on the NASDAQ, AMEX or the NYSE, the Fair Market Value of the Common
Stock is the value so determined by the Board in good faith.
(s) "Incentive Stock Option" means an Option granted by the Committee
to a Participant, which Option is designated by the Committee as an Incentive
Stock Option pursuant to Section 7 hereof and is intended to be such under
Section 422 of the Code.
2
<PAGE>
(t) "Limited Right" means the right to receive an amount of cash based
upon the terms set forth in Section 8 hereof.
(u) "Non-statutory Stock Option" means an Option granted by the
Committee to a Participant pursuant to Section 6 hereof, which is not designated
by the Committee as an Incentive Stock Option or which is redesignated by the
Committee under Section 7 as a Non-Statutory Stock Option.
(v) "Option" means the right to buy a fixed amount of Common Stock at
the Exercise Price within a limited period of time designated as the term of the
option as granted under Section 6 or 7 hereof.
(w) "Outside Director" means a member of the Board of Directors of the
Company or its Affiliates, who is not also an Employee.
(x) "Outside Director Participant" means an Outside Director who holds
an outstanding Award under the terms of the Plan.
(y) "Participant" means any Employee or Outside Director who holds an
outstanding Award under the terms of the Plan.
(z) "Retirement" with respect to an Employee Participant means
termination of employment which constitutes retirement under any tax qualified
plan maintained by the Bank or the Company. However, "Retirement" will not be
deemed to have occurred for purposes of this Plan if a Participant continues to
serve on the Board of Directors of the Company or its Affiliates even if such
Participant is receiving retirement benefits under any retirement plan of the
Bank or the Company. With respect to an Outside Director Participant
"Retirement" means the termination of service from the Board of Directors of the
Company or its Affiliates following written notice to the Board as a whole of
such Outside Director's intention to retire or retirement as determined by the
Bank (or the Company's) bylaws, or by reaching age 65, except that an Outside
Director shall not be deemed to have retired for purposes of the Plan in the
event he continues to serve as a consultant to the Board or as an advisory
director.
(aa) "Termination for Cause" shall mean, in the case of an Outside
Director, removal from the Board of Directors, or, in the case of an Employee,
termination of employment, in both such cases as determined by the Board of
Directors, because of an act or acts of gross misconduct, willful neglect of
duties or commission of a felony or equivalent violation of law. No act, or the
failure to act, on Participant's part shall be "willful" unless done, or omitted
to be done, not in good faith and without reasonable belief that the action or
omission was in the best interest of the Bank or one of its Affiliates.
2. ADMINISTRATION.
(a) The Plan as regards Awards to employees of the Company or its
Affiliates, shall be granted and administered by the Committee. The Committee is
authorized, subject to the provisions of the Plan, to grant awards to Employees
and Outside Directors and to establish such rules and regulations as it deems
necessary for the proper administration of the Plan and to make whatever
determinations and interpretations in connection with the Plan it deems
necessary or advisable. All determinations and interpretations made by the
Committee shall be binding and conclusive on all Participants in the Plan and on
their legal representatives and beneficiaries.
(b) Awards to Outside Directors shall be granted and administered by
the Committee, pursuant to the terms of this Plan.
3
<PAGE>
3. TYPES OF AWARDS AND RELATED RIGHTS.
The following Awards and related rights as described in Sections 6
through 11 hereof may be granted under the Plan:
(a) Non-statutory Stock Options;
(b) Incentive Stock Options;
(c) Limited Rights
4. STOCK SUBJECT TO THE PLAN.
Subject to adjustment as provided in Section 14, the maximum number of
shares reserved for Awards under the Plan is 933,333 shares of the Common Stock.
These shares of Common Stock may be either authorized but unissued shares or
authorized shares previously issued and reacquired by the Company. To the extent
that Awards are granted under the Plan, the shares underlying such Awards will
be unavailable for any other use including future grants under the Plan except
that, to the extent that Awards terminate, expire, are forfeited or are canceled
without having been exercised (in the case of Limited Rights, exercised for
cash), new Awards may be made with respect to these shares.
5. ELIGIBILITY.
Subject to the terms herein all Employees and Outside Directors shall
be eligible to receive Awards under the Plan.
6. NON-STATUTORY STOCK OPTIONS.
The Committee may, subject to the limitations of the Plan and the
availability of shares reserved but unawarded in the Plan, from time to time,
grant Non-statutory Stock Options to Employees and Outside Directors and, upon
such terms and conditions as the Committee may determine, grant Non-statutory
Stock Options in exchange for and upon surrender of previously granted Awards
under this Plan. Non-statutory Stock Options granted under this Plan are subject
to the following terms and conditions:
(a) Exercise Price. The Exercise Price of each Non-statutory Stock
Option shall be determined by the Committee on the date the option is granted.
Such Exercise Price shall not be less than 100% of the Fair Market Value of the
Common Stock on the Date of Grant. Shares may be purchased only upon full
payment of the Exercise Price or upon operation of an Alternate Option Payment
Mechanism set out in Section 9 hereof.
(b) Terms of Options. The term during which each Non-statutory Stock
Option may be exercised shall be determined by the Committee, but in no event
shall a Non-statutory Stock Option be exercisable in whole or in part more than
10 years from the Date of Grant. The Committee shall determine the date on which
each Non-statutory Stock Option shall become exercisable. The shares comprising
each installment may be purchased in whole or in part at any time during the
term of such Option after such installment becomes exercisable. The Committee
may, in its sole discretion, accelerate the time at which any Non-statutory
Stock Option may be exercised in whole or in part. The acceleration of any
Non-statutory Stock Option under the authority of this paragraph creates no
right, expectation or reliance on the part of any other Participant or that
certain Participant regarding any other unaccelerated Non-statutory Stock
Options.
4
<PAGE>
(c) Termination of Employment or Service. Upon the termination of a
Participant's employment or service in the event of Disability, death or Change
in Control, all Non-statutory Stock Options shall immediately vest and be
exercisable for one year after such termination. In the event of Termination for
Cause or termination of a Participant's employment or service for any other
reason including voluntary resignation, all Non-statutory Stock Options shall be
exercisable for a period of one year only as to those options which have vested
as of the date of the Participant's termination of employment or service. Any
unvested Non-statutory Stock Options shall become null and void and shall not be
exercisable by or delivered to the Participant after such date of termination.
7. INCENTIVE STOCK OPTIONS.
The Committee may, subject to the limitations of the Plan and the
availability of shares reserved but unawarded in the Plan, from time to time,
grant Incentive Stock Options to Employees. Incentive Stock Options granted
pursuant to the Plan shall be subject to the following terms and conditions:
(a) Exercise Price. The Exercise Price of each Incentive Stock Option
shall be not less than 100% of the Fair Market Value of the Common Stock on the
Date of Grant. However, if at the time an Incentive Stock Option is granted to a
Participant, the Participant owns Common Stock representing more than 10% of the
total combined voting securities of the Bank (or, under Section 424(d) of the
Code, is deemed to own Common Stock representing more than 10% of the total
combined voting power of all classes of stock of the Bank, by reason of the
ownership of such classes of stock, directly or indirectly, by or for any
brother, sister, spouse, ancestor or lineal descendent of such Participant, or
by or for any corporation, partnership, estate or trust of which such
Participant is a shareholder, partner or beneficiary), ("10% Owner"), the
Exercise Price per share of Common Stock deliverable upon the exercise of each
Incentive Stock Option shall not be less than 110% of the Fair Market Value of
the Common Stock on the Date of Grant. Shares may be purchased only upon payment
of the full Exercise Price or upon operation of an Alternate Option Payment
Mechanism set out in Section 9 hereof.
(b) Amounts of Options. Incentive Stock Options may be granted to any
Employee in such amounts as determined by the Committee; provided that the
amount granted is consistent with the terms of Section 422 of the Code. In the
case of an option intended to qualify as an Incentive Stock Option, the
aggregate Fair Market Value (determined as of the time the Option is granted) of
the Common Stock with respect to which Incentive Stock Options granted are
exercisable for the first time by the Participant during any calendar year
(under all plans of the Participant's employer corporation and its parent and
subsidiary corporations) shall not exceed $100,000. The provisions of this
Section 7(b) shall be construed and applied in accordance with Section 422(d) of
the Code and the regulations, if any, promulgated thereunder. To the extent an
award under this Section 7 exceeds this $100,000 limit, the portion of the
Options in excess of such limit shall be deemed a Non-statutory Stock Option.
The Committee shall have discretion to redesignate Options granted as Incentive
Stock Options as Non-Statutory Stock Options. Such redesignation shall not be
deemed to be a new grant or a regrant of such Options. Such Non-statutory Stock
Options shall be subject to Section 6 hereof.
(c) Terms of Options. The term during which each Incentive Stock Option
may be exercised shall be determined by the Committee, but in no event shall an
Incentive Stock Option be exercisable in whole or in part more than 10 years
from the Date of Grant. If at the time an Incentive Stock Option is granted to a
Participant who is a 10% Owner, the Incentive Stock Option granted to such
Employee Participant shall not be exercisable after the expiration of five years
from the Date of Grant. No Incentive Stock Option granted under this Plan is
transferable except by will or the laws of descent and distribution and is
exercisable in his lifetime only by the Employee Participant to whom it is
granted.
5
<PAGE>
The Committee shall determine the date on which each Incentive Stock
Option shall become exercisable. The shares comprising each installment may be
purchased in whole or in part at any time during the term of such option after
such installment becomes exercisable. The Committee may, in its sole discretion,
accelerate the time at which any Incentive Stock Option may be exercised in
whole or in part. The acceleration of any Incentive Stock Option under the
authority of this paragraph creates no right, expectation or reliance on the
part of any other Participant or that certain Participant regarding any other
unaccelerated Incentive Stock Options.
(d) Termination of Employment. Upon the termination of a Participant's
employment or service in the event of Disability, Retirement, death or Change in
Control, all Incentive Stock Options shall immediately vest and be exercisable
for one year after such termination. In the event of Termination for Cause or
termination of a Participant's employment or service for any other reason
including voluntary resignation , all Incentive Stock Options shall be
exercisable for a period of one year only as to those options which have vested
as of the date of the Participant's termination of employment or service. Any
unvested Incentive Stock Options shall become null and void and shall not be
exercisable by or delivered to the Participant after such date of termination.
(e) Compliance with Code. The Options granted under this Section are
intended to qualify as incentive stock options within the meaning of Section 422
of the Code, but the Company makes no warranty as to the qualification of any
option as an incentive stock option within the meaning of Section 422 of the
Code. All Options that do not so quality shall be treated as Non-statutory Stock
Options.
8. LIMITED RIGHTS.
Simultaneously with the grant of any Option to an Employee, the
Committee may grant a Limited Right with respect to all or some of the shares
covered by such Option. Limited Rights granted under this Plan are subject to
the following terms and conditions:
(a) Terms of Rights. In no event shall a Limited Right be exercisable
in whole or in part before the expiration of six months from the Date of Grant
of the Limited Right. A Limited Right may be exercised only in the event of a
Change in Control.
The Limited Right may be exercised only when the underlying Option is
eligible to be exercised, and only when the Fair Market Value of the underlying
shares on the day of exercise is greater than the Exercise Price of the
underlying Option.
Upon exercise of a Limited Right, the underlying Option shall cease to
be exercisable. Upon exercise or termination of an Option, any related Limited
Rights shall terminate. The Limited Rights may be for no more than 100% of the
difference between the purchase price and the Fair Market Value of the Common
Stock subject to the underlying option. The Limited Right is transferable only
when the underlying option is transferable and under the same conditions.
(b) Payment. Upon exercise of a Limited Right, the holder shall
promptly receive from the Company an amount of cash or some other payment option
found in Section 12, equal to the difference between the Exercise Price of the
underlying option and the Fair Market Value of the Common Stock subject to the
underlying Option on the date the Limited Right is exercised, multiplied by the
number of shares with respect to which such Limited Right is being exercised.
Payments shall be less an applicable tax withholding as set forth in Section 15.
6
<PAGE>
9. ALTERNATE OPTION PAYMENT MECHANISM
The Committee has sole discretion to determine what form of payment it
will accept for the exercise of an Option. The Committee may indicate acceptable
forms in the Award Agreement covering such Options or may reserve its decision
to the time of exercise. No Option is to be considered exercised until payment
in full is accepted by the Committee or its agent.
(a) Cash Payment. The exercise price may be paid in cash or by
certified check.
(b) Borrowed Funds. To the extent permitted by law, the Committee may
permit all or a portion of the exercise price of an Option to be paid through
borrowed funds.
(c) Exchange of Common Stock.
(i) The Committee may permit payment by the tendering of
previously acquired shares of Common Stock. This includes the use of "pyramiding
transactions" whereby some number of Options are exercised. The shares gained
through the exercise are then tendered back to the Bank as payment for some
other number of Options. This transaction may be repeated as needed to exercise
all of the Options available.
(ii) Any shares of Common Stock tendered in payment of the
exercise price of an Option shall be valued at the Fair Market Value of the
Common Stock on the date prior to the date of exercise.
10. RIGHTS OF A SHAREHOLDER
No Participant shall have any rights as a shareholder with respect to
any shares covered by an Option until the date of issuance of a stock
certificate for such shares. Nothing in this Plan or in any Award granted
confers on any person any right to continue in the employ or service of the
Company or its Affiliates or interferes in any way with the right of the Company
or its Affiliates to terminate a Participant's services as an officer or other
employee at any time.
11. NON-TRANSFERABILITY
Except to the extent permitted or restricted by the Code, the rules
promulgated under Section 16(b) of the Exchange Act or any successor statutes or
rules:
(i) The recipient of an Award shall not sell, transfer,
assign, pledge, or otherwise encumber shares subject to the Award until full
vesting of such shares has occurred. For purposes of this section, the
separation of beneficial ownership and legal title through the use of any "swap"
transaction is deemed to be a prohibited encumbrance.
(ii) Unless determined otherwise by the Committee and except
in the event of the Participant's death or pursuant to a domestic relations
order, an Award is not transferable and may be earned in his lifetime only by
the Participant to whom it is granted. Upon the death of a Participant, an Award
is transferable by will or the laws of intestate succession. The designation of
a beneficiary does not constitute a transfer.
(iii) If a recipient of an Award is subject to the provisions
of Section 16 of the Exchange Act, shares of Common Stock subject to such Award
may not, without the written consent of the Committee (which consent may be
given in the Stock Award Agreement), be sold or otherwise disposed of within six
months following the date of grant of the Award.
7
<PAGE>
12. AGREEMENT WITH GRANTEES.
Each Award will be evidenced by a written agreement, executed by the
Participant and the Company or its Affiliates that describes the conditions for
receiving the Awards including the date of Award, the Exercise Price, the terms
or other applicable periods, and other terms and conditions as may be required
or imposed by the Plan, the Committee, the Board of Directors, tax law
considerations or applicable securities law considerations.
13. DESIGNATION OF BENEFICIARY.
A Participant may, with the consent of the Committee, designate a
person or persons to receive, in the event of death, any Award to which the
Participant would then be entitled. Such designation will be made upon forms
supplied by and delivered to the Company and may be revoked in writing. If a
Participant fails effectively to designate a beneficiary, then the Participant's
estate will be deemed to be the beneficiary.
14. DILUTION AND OTHER ADJUSTMENTS.
In the event of any change in the outstanding shares of Common Stock by
reason of any stock dividend or split, recapitalization, merger, consolidation,
spin-off, reorganization, combination or exchange of shares, or other similar
corporate change, or other increase or decrease in such shares without receipt
or payment of consideration by the Company, the Committee will make such
adjustments to previously granted Awards, to prevent dilution or enlargement of
the rights of the Participant including any or all of the following:
(a) adjustments in the aggregate number or kind of shares of
Common Stock that may underlie future Awards under the Plan;
(b) adjustments in the aggregate number or kind of shares of
Common Stock underlying Awards already made under the Plan;
(c) adjustments in the purchase price of outstanding Incentive
and/or Non-statutory Stock Options, or any Limited Rights
attached to such Options.
No such adjustments may, however, materially change the value of
benefits available to a Participant under a previously granted Award. All awards
under this Plan shall be binding upon any successors or assigns of the Company.
15. TAX WITHHOLDING.
Awards under this Plan shall be subject to tax withholding to the
extent required by any governmental authority. Any withholding shall comply with
Rule 16b-3, if applicable, or any amendment or successor rule. Shares of Common
Stock withheld to pay for tax withholding amounts shall be valued at their Fair
Market Value on the date the Award is deemed taxable to the Participant.
8
<PAGE>
16. AMENDMENT OF THE PLAN.
The Board of Directors may at any time, and from time to time, modify
or amend the Plan in any respect, prospectively or retroactively; provided
however, that provisions governing grants of Incentive Stock Options, unless
permitted by the rules and regulations or staff pronouncements promulgated under
the Code, shall be submitted for shareholder approval to the extent required by
such law, regulation or interpretation.
Failure to ratify or approve amendments or modifications by
shareholders shall be effective only as to the specific amendment or
modification requiring such ratification. Other provisions, sections, and
subsections of this Plan will remain in full force and effect.
No such termination, modification or amendment may affect the rights of
a Participant under an outstanding Award without the written permission of such
Participant.
17. EFFECTIVE DATE OF PLAN.
The Effective Date of the Plan shall be April 17, 1998.
18. TERMINATION OF THE PLAN.
The right to grant Awards under the Plan will terminate upon the
earlier of ten (10) years after the Effective Date of the Plan or the exercise
of Options, or related Limited Rights equivalent to the maximum number of shares
reserved under the Plan as set forth in Section 4. The Board of Directors has
the right to suspend or terminate the Plan at any time, provided that no such
action will, without the consent of a Participant or Outside Director
Participant, adversely affect his vested rights under a previously granted
Award.
19. APPLICABLE LAW.
The Plan will be administered in accordance with the laws of the State
of Delaware to the extent not superseded by federal law.
20. SUCCESSORS AND ASSIGNS.
All awards under this Plan shall be binding upon any successors or
assigns of the Company including any holding company that may be formed by the
Company.
9
<PAGE>
21. DELEGATION OF AUTHORITY.
The Committee may delegate all authority for: the determination of
forms of payment to be made by or received by the Plan; the execution of Award
Agreements; the determination of Fair Market Value; the determination of all
other aspects of administration of the Plan to the executive officer(s) of the
Company. The Committee may rely on the descriptions, representations, reports
and estimates provided to it by the management of the Company for determinations
to be made pursuant to the Plan.
10
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 22,250
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 354,161
<INVESTMENTS-CARRYING> 192,129
<INVESTMENTS-MARKET> 182,787
<LOANS> 1,589,052
<ALLOWANCE> 16,387
<TOTAL-ASSETS> 2,215,267
<DEPOSITS> 1,595,607
<SHORT-TERM> 241,039
<LIABILITIES-OTHER> 9,827
<LONG-TERM> 233,000
0
0
<COMMON> 93
<OTHER-SE> 105,701
<TOTAL-LIABILITIES-AND-EQUITY> 2,215,267
<INTEREST-LOAN> 58,785
<INTEREST-INVEST> 17,857
<INTEREST-OTHER> 11
<INTEREST-TOTAL> 76,653
<INTEREST-DEPOSIT> 31,501
<INTEREST-EXPENSE> 43,514
<INTEREST-INCOME-NET> 33,139
<LOAN-LOSSES> 2,003
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 18,657
<INCOME-PRETAX> 14,629
<INCOME-PRE-EXTRAORDINARY> 14,629
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,728
<EPS-BASIC> .94
<EPS-DILUTED> .93
<YIELD-ACTUAL> 7.28
<LOANS-NON> 3,671
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,252
<LOANS-PROBLEM> 9,677
<ALLOWANCE-OPEN> 14,922
<CHARGE-OFFS> 549
<RECOVERIES> 11
<ALLOWANCE-CLOSE> 16,387
<ALLOWANCE-DOMESTIC> 12,165
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,222
</TABLE>
