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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[|X|] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2000
-------------------------------------------------
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
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UCBH HOLDINGS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 94-3072450
------------------------------------ --------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
711 VAN NESS AVENUE, SAN FRANCISCO, CALIFORNIA 94102
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(Address of principal executive offices) (Zip Code)
(415) 928-0700
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(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 October 31, 2000, the Registrant had 9,368,301 shares of common
stock outstanding.
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UCBH HOLDINGS, INC.
TABLE OF CONTENTS
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PART I - FINANCIAL INFORMATION
Item 1. Consolidated 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.................................................6-17
Item 3. Quantitative and Qualitative Disclosures About Market Risk......................................17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...............................................................................18
Item 2. Changes in Securities and Use of Proceeds.......................................................18
Item 3. Defaults Upon Senior Securities.................................................................18
Item 4. Submission of Matters to a Vote of Security Holders.............................................18
Item 5. Other Information...............................................................................18
Item 6. Exhibits and Reports on Form 8-K................................................................18
SIGNATURES....................................................................................................19
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
UCBH HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
At September 30, At December 31,
2000 1999
--------------- ---------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks............................................... $ 28,763 $ 23,789
Federal funds sold.................................................... 1,140 500
Investment and mortgage-backed securities available for sale, at fair
value............................................................ 305,113 328,455
Investment and mortgage-backed securities, at cost (fair value $155,534
at September 30, 2000 and $171,995 at December 31, 1999)......... 163,838 183,906
Federal Home Loan Bank Stock ......................................... 19,984 27,024
Loans................................................................. 1,865,185 1,686,695
Allowance for loan losses............................................. (25,796) (19,503)
--------------- ---------------
Net loans............................................................. 1,839,389 1,667,192
--------------- ---------------
Accrued interest receivable........................................... 16,193 14,628
Premises and equipment, net........................................... 20,237 21,064
Other assets.......................................................... 12,728 18,242
--------------- ---------------
Total assets..................................................... $ 2,407,385 $ 2,284,800
=============== ===============
LIABILITIES
Deposits.............................................................. $ 1,895,164 $ 1,676,148
Borrowings............................................................ 341,608 449,612
Guaranteed preferred beneficial interests in junior subordinated
debentures....................................................... 30,000 30,000
Accrued interest payable.............................................. 5,574 3,631
Other liabilities..................................................... 8,896 15,302
--------------- ---------------
Total liabilities................................................ 2,281,242 2,174,693
--------------- ---------------
Commitments and contingencies - -
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, authorized 25,000,000 shares, shares
issued and outstanding 9,367,967 at September 30, 2000 and
9,333,333 at December 31, 1999................................... 94 93
Additional paid-in capital............................................ 60,004 59,485
Accumulated other comprehensive income................................ (14,170) (13,419)
Retained earnings-substantially restricted............................ 80,215 63,948
--------------- ---------------
Total stockholders' equity....................................... 126,143 110,107
--------------- ---------------
Total liabilities and stockholders' equity....................... $ 2,407,385 $ 2,284,800
=============== ===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
1
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<TABLE>
<CAPTION>
UCBH HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited: Dollars in Thousands, Except for Per Share Data)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
---------------------------------- -----------------------------------
2000 1999 2000 1999
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Interest income:
Loans.................................. $ 39,342 $ 31,774 $ 111,359 $ 90,559
Funds sold and securities purchased under
agreements to resell................ 12 8 22 20
Investment and mortgage-backed
securities.......................... 8,820 8,630 25,686 26,487
------------- ------------- -------------- --------------
Total interest income............. 48,174 40,412 137,067 117,066
------------- ------------- -------------- --------------
Interest expense:
Deposits............................... 20,438 14,879 54,055 46,380
Short-term borrowings.................. 2,796 3,145 9,941 7,399
Guaranteed preferred beneficial interests
in junior subordinated debentures... 703 703 2,109 2,109
Long-term borrowings................... 3,231 3,229 9,622 9,582
------------- ------------- -------------- --------------
Total interest expense............ 27,168 21,956 75,727 65,470
------------- ------------- -------------- --------------
Net interest income............... 21,006 18,456 61,340 51,596
Provision for loan losses................... 2,862 1,475 6,568 3,478
------------- ------------- -------------- --------------
Net interest income after provision for
loan losses............................ 18,144 16,981 54,772 48,118
------------- ------------- -------------- --------------
Noninterest income:
Commercial banking fees................ 679 577 1,810 1,475
Service charges on deposit accounts.... 237 257 757 627
Gain on sale of loans, securities and
servicing rights.................... 239 54 676 734
Loan servicing fees.................... 68 97 133 310
Miscellaneous.......................... 8 12 36 2
------------- ------------- -------------- --------------
Total noninterest income.......... 1,231 997 3,412 3,148
------------- ------------- -------------- --------------
Noninterest expense:
Personnel.............................. 5,021 4,601 15,025 13,856
Occupancy.............................. 1,314 1,248 3,652 3,716
Data processing........................ 581 549 1,664 1,508
Furniture and equipment................ 565 523 1,666 1,625
Professional fees and contracted services 552 537 1,637 1,669
Deposit insurance...................... 85 233 257 705
Communication.......................... 101 115 345 332
Foreclosed assets...................... (8) 4 43 80
Miscellaneous.......................... 1,888 1,574 5,381 4,552
------------- ------------- -------------- --------------
Total noninterest expense........ 10,099 9,384 29,670 28,043
------------- ------------- -------------- --------------
Income before taxes......................... 9,276 8,594 28,514 23,223
Income tax expense.......................... 3,048 3,506 10,844 9,407
------------- ------------- -------------- --------------
Net income........................ $ 6,228 $ 5,088 $ 17,670 $ 13,816
============= ============= ============== ==============
Basic earnings per share.................... $ 0.66 $ 0.55 $ 1.89 $ 1.48
============= ============= ============== ==============
Diluted earnings per share.................. $ 0.64 $ 0.53 $ 1.82 $ 1.46
============= ============= ============== ==============
Dividends declared per share................ $ 0.05 $ - $ 0.15 $ -
============= ============= ============== ==============
The accompanying notes are an integral part of these financial statements.
</TABLE>
2
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<TABLE>
<CAPTION>
UCBH HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited: Dollars in Thousands)
For the Nine Months Ended
September 30,
-----------------------------------
2000 1999
--------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.......................................................... $ 17,670 $ 13,816
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Provision for loan losses........................................ 6,568 3,478
Increase in accrued interest receivable.......................... (1,565) (539)
Depreciation and amortization of premises and equipment.......... 1,912 1,979
Decrease in other assets......................................... 5,930 528
(Decrease) increase in other liabilities......................... (6,874) 2,313
Increase in accrued interest payable............................. 1,943 1,551
Gain on sale of loans, securities and other assets............... (676) (734)
Other, net....................................................... 500 2,120
--------------- --------------
Net cash provided by operating activities.................... $ 25,408 $ 24,512
--------------- --------------
INVESTING ACTIVITIES:
Investments and mortgage-backed securities, available for sale:
Principal payments and maturities................................ $ 22,297 $ 13,832
Purchases........................................................ (3,348) (4,773)
Sales............................................................ 2,321 -
Investments and mortgage-backed securities held to maturity:
Principal payments and maturities................................ 29,571 33,451
Purchases........................................................ (1,636) (6,012)
Loans originated and purchased, net of principal collections........ (191,372) (160,901)
Proceeds from sale of loans......................................... 12,478 9,544
Purchases of premises and equipment................................. (923) (1,070)
Proceeds from sale of other assets.................................. 221 166
--------------- --------------
Net cash used in investing activities............................ $ (130,391) $ (115,763)
--------------- --------------
FINANCING ACTIVITIES
Net increase in demand deposits, NOW, money market and savings
accounts......................................................... 138,319 71,035
Net increase (decrease) in time deposits............................ 80,697 (66,817)
Net (decrease) increase in borrowings............................... (108,004) 91,405
Proceeds from issuance of common stock.............................. 520 -
Payment of cash dividend on common stock............................ (935) -
--------------- --------------
Net cash provided by financing activities......................... $ 110,597 $ 95,623
--------------- --------------
Net (decrease) increase in cash and cash equivalents.................. 5,614 4,372
Cash and cash equivalents at beginning of period...................... 24,289 15,109
--------------- --------------
Cash and cash equivalents at end of period............................ $ 29,903 $ 19,481
=============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest......................... $ 73,784 $ 63,919
Cash paid during the period for income taxes..................... 11,230 6,928
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Real estate acquired through foreclosure......................... 268 115
Securities transferred to held to maturity....................... - 43,624
The accompanying notes are an integral part of these financial statements.
</TABLE>
3
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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 September 30, 2000, the Consolidated
Statements of Income for the three and the nine months ended September 30, 2000
and 1999, and the Consolidated Statements of Cash Flows for the nine months
ended September 30, 2000 and 1999 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,
1999. 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 nine months ended September
30, 2000 are not necessarily indicative of the results to be expected for the
full year.
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" as amended by FAS 138 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.
In September 2000, the FASB issued Statement 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities. The new
Statement replaces Statement 125, issued in June 1996. It revises the standards
for accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but it carries over most of
Statement 125's provisions without reconsideration.
This Statement is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after March 31, 2001. This
Statement is effective for recognition and reclassification of collateral and
for disclosures relating to securitization transactions and collateral for
fiscal years ending after December 15, 2000. Disclosures about securitizations
and collateral accepted need not be reported for periods ending on or before
December 15, 2000, for which financial statements are presented for comparative
purposes. This Statement is to be applied prospectively with certain exceptions.
Implementation of FASB Statement No. 140 is not expected to have a material
effect on the Company's financial position or results of operations.
4
<PAGE>
3. EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share (dollars in thousands, except for per share
data):
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<CAPTION>
Three Months Ended September 30, 2000 Three Months Ended September 30, 1999
--------------------------------------- --------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------ ------------- --------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic:
Net income.......................... $ 6,228 9,365,533 $ 0.66 $ 5,088 9,333,333 $ 0.55
Dilutive potential common shares.... - 416,740 - 215,000
------------ ------------- ------------ -------------
Diluted:
Net income and assumed conversion... $ 6,228 9,782,273 $ 0.64 $ 5,088 9,548,333 $ 0.53
============ ============= ============ =============
Nine Months Ended September 30, 2000 Nine Months Ended September 30, 1999
--------------------------------------- --------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------ ------------- --------- ------------ ------------- ---------
Basic:
Net income.......................... $ 17,670 9,349,605 $ 1.89 $ 13,816 9,333,333 $ 1.48
Dilutive potential common shares.... - 349,569 - 130,593
------------ ------------- ------------ -------------
Diluted:
Net income and assumed conversion... $ 17,670 9,699,174 $ 1.82 $ 13,816 9,463,926 $ 1.46
============ ============= ============ =============
</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
September 30, 2000, total comprehensive income was $8.4 million, an increase of
$6.7 million, compared to the three months ended September 30, 1999. Net income
for the three months ended September 30, 2000 was $6.2 million and unrealized
losses on available-for-sale securities decreased by $2.1 million. For the
corresponding period of 1999, net income was $5.1 million and unrealized losses
on available-for-sale securities increased by $3.4 million. For the nine months
ended September 30, 2000, total comprehensive income was $16.9 million, an
increase of $13.1 million, or 346.8%, compared to the nine months ended
September 30, 1999. Net income for the nine months ended September 30, 2000
was $17.7 million and unrealized losses on available-for-sale securities
increased by $751,000. For the corresponding period of 1999, net income was
$13.8 million and unrealized losses on available-for-sale securities increased
by $10.0 million.
5. SEGMENT INFORMATION
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: Commercial Banking and Consumer Banking.
Both segments serve all of California's residents. Historically, our customer
base has been primarily the ethnic Chinese communities located mainly in the San
Francisco Bay area, Sacramento/Stockton and metropolitan Los Angeles.
The financial results of the Company's operating segments are presented on
an accrual basis. There are no significant differences between the accounting
policies of the segments as compared to the Company's consolidated financial
statements. The Company evaluates the performance of its segments and allocates
resources to them based on interest income, interest expense and net interest
income. There are no material intersegment revenues.
5
<PAGE>
The table below presents information about the Company's operating segments
for the three and the nine months ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
Reconciling
Commercial Consumer Items Total
------------- ----------- ------------ ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
For the Three Months Ended
September 30, 2000:
Net interest income............. $ 9,465 $ 11,541 $ - $ 21,006
Segment profit.................. 2,911 3,317 - 6,228
Segment assets.................. 1,230,498 1,176,887 - 2,407,385
September 30, 1999:
Net interest income............. $ 6,016 $ 12,441 $ - $ 18,457
Segment profit.................. 1,320 3,768 - 5,088
Segment assets.................. 930,158 1,320,490 - 2,250,648
For the Nine Months Ended
September 30, 2000:
Net interest income............. $ 25,963 $ 35,377 $ - $ 61,340
Segment profit.................. 8,099 9,571 - 17,670
Segment assets.................. 1,230,498 1,176,887 - 2,407,385
September 30, 1999:
Net interest income............. $ 16,412 $ 35,184 $ - $ 51,596
Segment profit.................. 3,063 10,569 184 (1) 13,816
Segment assets.................. 930,158 1,320,490 - 2,250,648
(1) Reconciling item represents gain on sale of nonperforming asset.
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Form 10-Q may include certain forward-looking statements based on
current management expectations. The Company's actual results could differ
materially from those management expectations. Factors that could cause future
results to vary from current management expectations include, but 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, 1999 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 nine months
ended September 30, 2000 and 1999 and financial condition at September 30, 2000
and at December 31, 1999. The following discussion should be read in conjunction
with the information set forth in the Company's Consolidated Financial
Statements and notes thereto and other financial data included.
RESULTS OF OPERATIONS
GENERAL. The Company's primary source of income is net interest income,
which is the difference between interest income from interest-earning assets and
interest paid on interest-bearing liabilities, such as deposits and other
borrowings used to fund those assets. The Company's net interest income is
affected by changes in the volume of interest-earning assets and
interest-bearing liabilities as well as by changes in yields earned on
interest-earning assets and rates paid on interest-bearing deposits and other
borrowed funds. The Company also generates noninterest income, including
commercial banking fees and other transactional fees and seeks to generate
additional fees in connection with the shift in its business focus to commercial
banking. The Company's noninterest expenses consist primarily of personnel,
occupancy, and furniture and equipment expenses and other operating expenses.
The Company's results of operations are affected by its provision for loan
losses and may also be significantly affected by other factors including general
economic and competitive conditions, changes in market interest rates,
governmental policies and actions of regulatory agencies.
6
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NET INCOME. The consolidated net income of the Company during the three
months ended September 30, 2000 increased by $1.1 million, or 22.4%, to $6.2
million, compared to $5.1 million for the corresponding period of the preceding
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 September
30, 2000 were 21.29% and 1.04%, respectively. This compares with annualized ROE
and ROA ratios of 19.43% and 0.91%, respectively, for the three months ended
September 30, 1999. The resulting efficiency ratios improved to 45.42% for the
three months ended September 30, 2000 compared with 48.24% for the corresponding
period of the preceding year. Diluted earnings per common share were $0.64 for
the three months ended September 30, 2000 compared with $0.53 for the comparable
period of the preceding year.
The consolidated net income of the Company during the nine months ended
September 30, 2000 increased by $3.9 million, or 27.9%, to $17.7 million,
compared to $13.8 million for the corresponding period of the preceding 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 and
average assets ratios for the nine months ended September 30, 2000 were 20.69%
and 1.01%, respectively. This compares with annualized ROE and ROA ratios of
17.55% and 0.84%, respectively, for the nine months ended September 30, 1999.
The resulting efficiency ratios improved to 45.82% for the nine months ended
September 30, 2000 compared with 51.23% for the corresponding period of the
prior year. Diluted earnings per common share were $1.82 for the nine months
ended September 30, 2000 compared with $1.46 for the comparable period of the
preceding year.
The provision for loan losses of $2.9 million for the three months ended
September 30, 2000 is an increase of $1.4 million compared to a provision of
$1.5 million for the corresponding period of 1999. See "Provision for Loan
Losses." Noninterest expense for the three months ended September 30, 2000 was
$10.1 million, an increase of $715,000, or 7.6%, compared with $9.4 million for
the corresponding period of the prior year.
The provision for loan losses of $6.6 million for the nine months ended
September 30, 2000 is an increase of $3.1 million compared to a provision of
$3.5 million for the corresponding period of 1999. See "Provision for Loan
Losses." Noninterest expense for the nine months ended September 30, 2000 was
$29.7 million, an increase of $1.6 million, or 5.8%, compared with $28.0 million
for the corresponding period of the prior year.
NET INTEREST INCOME. Net interest income before provision for loan losses
of $21.0 million for the three months ended September 30, 2000 represented a
$2.6 million, or 13.8%, increase over net interest income of $18.5 million for
the three months ended September 30, 1999. This increase was primarily due to
$162.7 million growth in the average interest-earning assets and an increase in
the average yield on interest-earning assets. The yield on interest-earning
assets increased to 8.25% for the three months ended September 30, 2000 from
7.44% for the corresponding period of 1999. The average cost of deposits
increased to 4.50% for the three months ended September 30, 2000 from 3.69% for
the three months ended September 30, 1999, primarily due to increases in market
interest rates. The increase in loans contributed to an increase of $7.8 million
in interest on earning assets to $48.2 million for the three months ended
September 30, 2000, from $40.4 million for the three months ended September 30,
1999. This compares with an increase of $5.2 million in interest expense, to
$27.2 million for the three months ended September 30, 2000 from $22.0 million
for the three months ended September 30, 1999.
Net interest income before provision for loan losses of $61.3 million for
the nine months ended September 30, 2000 represented a $9.7 million, or 18.9%,
increase over net interest income before provision for loan losses of $51.6
million for the nine months ended September 30, 1999. This increase was
primarily due to $159.5 million growth in the average interest-earning assets
and an increase in the average yield on interest-earning assets. The yield on
interest-earning assets increased to 7.99% for the nine months ended September
30, 2000 from 7.33% for the corresponding period of 1999. The increase in loans
contributed to an increase of $20.0 million in interest on earning assets to
$137.1 million for the nine months ended September 30, 2000, from $117.1 million
for the nine months ended September 30, 1999. This compares with an increase of
$10.3 million in interest expense to $75.7 million for the nine months ended
September 30, 2000, from $65.5 million for the nine months ended September 30,
1999.
Average outstanding loans increased to $1.77 billion for the nine months
ended September 30, 2000 from $1.55 billion for the corresponding period of
1999, an increase of $224.5 million, or 14.5%, as a result of the Bank's
continued focus on commercial lending activities. Average commercial loans
increased $325.8 million to $1.12 billion for the nine months ended September
30, 2000, from $792.1 million for the nine months ended September 30,
7
<PAGE>
1999 while average consumer loans decreased $101.3 million to $652.4 million for
the nine months ended September 30, 2000, from $753.6 million for the nine
months ended September 30, 1999. Average securities decreased to $517.3 million
for the nine months ended September 30, 2000 from $582.3 million for the same
period of 1999, a decrease of $65.0 million, or 11.2%. The decrease in average
securities resulted primarily from the amortization and prepayment of loans
underlying the mortgage-backed securities portfolio. Average noninterest-bearing
deposits increased to $72.7 million for the nine months ended September 30, 2000
from $52.7 million for the corresponding period of the prior year, representing
an increase of $20.0 million, or 38.0%.
NET INTEREST MARGIN. The net interest margin, calculated on a fully tax
equivalent basis, improved to 3.61% for the nine months ended September 30,
2000, from 3.28% for the corresponding period of 1999. The increase in the net
interest margin resulted primarily from a change in the mix of interest-earning
assets due to continued growth in our commercial loan portfolio, a reduction in
our securities portfolio and a significant increase in core deposits.
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
September 30, For the Nine Months Ended For the Nine Months Ended
2000 September 30, 2000 September 30, 1999
------------- ------------------------------ -----------------------------
(Dollars in Thousands)
Interest Interest
Average Income Average Average Income Average
Yield/Cost Balance or Expense Yield/Cost Balance or Expense Yield/Cost
---------- ------- ---------- ---------- ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (1)............................ 8.64% $1,770,331 $ 111,359 8.39% $1,545,791 $ 90,559 7.81%
Securities........................... 6.87 517,254 25,686 6.62 582,252 26,487 6.07
Other................................ 6.38 494 22 6.20 537 20 4.90
----------- ---------- ---------- ---------
Total interest-earning assets............. 8.27 2,288,079 137,067 7.99 2,128,580 117,066 7.33
Noninterest-earning assets................ - 49,660 - - 55,676 - -
----------- ---------- ---------- ---------
Total assets.............................. 8.09 $2,337,739 $ 137,067 7.82 $2,184,256 $ 117,066 7.15
------------- =========== ---------- ========== ---------
Interest-bearing liabilities:
Deposits:
NOW, demand deposits and
money market accounts............. 2.26 $ 147,199 $ 2,135 1.93 $ 136,484 $ 1,887 1.84
Savings accounts.................... 2.33 289,447 4,824 2.22 241,535 3,691 2.04
Time deposits....................... 5.82 1,223,527 47,096 5.13 1,188,709 40,802 4.58
----------- ---------- ---------- ---------
Total deposits....................... 4.83 1,660,173 54,055 4.34 1,566,728 46,380 3.95
Borrowings........................... 5.84 439,120 19,563 5.94 413,177 16,981 5.48
Guaranteed preferred beneficial
interests in junior subordinated
debentures........................ 9.38 30,000 2,109 9.38 30,000 2,109 9.38
----------- ---------- ---------- ---------
Total interest-bearing liabilities........ 5.05 2,129,293 75,727 4.74 2,009,905 65,470 4.34
------------- ----------- ---------- ---------- ---------
Noninterest-bearing deposits.............. 72,675 52,656
Other noninterest-bearing liabilities..... 21,886 16,757
Stockholders' equity...................... 113,885 104,938
----------- ----------
Total liabilities and stockholders'
equity.................................... $2,337,739 $2,184,256
=========== ==========
Net interest income/interest
rate spread (2)........................... 3.22% $ 61,340 3.25% $ 51,596 2.99%
============= ========== ========= ========= ========
Net interest-earning assets/net interest
margin (3)................................ 3.60% $ 158,786 3.57% $ 118,675 3.23%
============= =========== ========= ========== ========
Ratio of interest-earning assets to
interest-bearing liabilities.............. 1.08x 1.07x 1.06x
============= =========== ========
(1) Nonaccrual loans are included in the table for computation purposes, but the
foregone interest on such loans is excluded.
(2) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing liabilities.
(3) Net interest margin represents net interest income divided by average
interest-earning assets.
</TABLE>
8
<PAGE>
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 $6.6 million for the nine months ended
September 30, 2000 represented an increase of $3.1 million as compared to a
provision of $3.5 million for the corresponding period of the preceding year.
The increased provisions reflect continued growth in the Company's loan
portfolio and increased concentration in commercial loans. At September 30,
2000, the allowance for loan losses was $25.8 million. Net loan charge-offs were
$275,000 for the nine months ended September 30, 2000 and $597,000 for the
corresponding period of 1999.
NONINTEREST INCOME. Noninterest income for the three months ended September
30, 2000 was $1.2 million compared to $1.0 million for the corresponding period
of 1999, an increase of $234,000, or 23.5%, primarily as a result of an increase
in the sale of SBA loans. Commercial banking fees increased 17.7% to $679,000
for the three months ended September 30, 2000 as compared to $577,000 for the
corresponding period of 1999, as a result of increased commercial banking
activities.
Noninterest income for the nine months ended September 30, 2000 was $3.4
million, an increase of $264,000, or 8.4%, compared to noninterest income of
$3.1 million for the corresponding period of 1999. Commercial banking fees
increased 22.7% to $1.8 million for the nine months ended September 30, 2000 as
compared to $1.5 million for the corresponding period of 1999, as a result of
increased commercial banking activities. Service charges on deposit accounts
increased 20.7% to $757,000 for the nine months ended September 30, 2000 from
$627,000 for the corresponding period of 1999.
NONINTEREST EXPENSE. Noninterest expense of $10.1 million for the three
months ended September 30, 2000 represented growth of $715,000, or 7.6%,
compared with $9.4 million for the corresponding quarter of 1999. Personnel
expenses increased to $5.0 million for the three months ended September 30,
2000, from $4.6 million for the corresponding period of 1999, an increase of
$420,000, or 9.1%, primarily due to the additional staffing required to support
growth of the Bank's commercial banking business.
Noninterest expense of $29.7 million for the nine months ended September
30, 2000 represented growth of $1.6 million, or 5.8%, compared with $28.0
million for the corresponding period of 1999. Personnel expenses increased to
$15.0 million for the nine months ended September 30, 2000, from $13.9 million
for the corresponding period of 1999, an increase of $1.1 million, or 8.4%,
primarily due to the additional staffing required to support growth of the
Bank's commercial banking business and personnel salary level increases.
PROVISION FOR INCOME TAXES. The provision for income taxes was $3.0 million
and $3.5 million on the income before taxes of $9.3 million and $8.6 million for
the three months ended September 30, 2000 and 1999, respectively. The effective
tax rate for the quarter ended September 30, 2000 was 32.9%, compared with 40.8%
for the quarter ended September 30, 1999, primarily as a result of the
realization of tax benefits generated through the Bank's lending activities in
Enterprise Zones. The Company's lending activities in Enterprise Zones can
result in favorable tax treatment; however, the Company does not compromise its
credit standards when underwriting credits collaterized by properties in
Enterprise Zones.
The provision for income taxes was $10.8 million and $9.4 million on the
income before taxes of $28.5 million and $23.2 million for the nine months ended
September 30, 2000 and 1999, respectively. The effective tax rate for the nine
months ended September 30, 2000 was 38.0%, compared with 40.5% for the same
period of the prior year, primarily as a result of the realization of tax
benefits generated through the Bank's lending activities in Enterprise Zones.
FINANCIAL CONDITION
The Company experienced continued asset growth during the nine months ended
September 30, 2000. Total assets at September 30, 2000 were $2.41 billion, an
increase of $122.6 million, or 5.4%, from $2.28 billion at December 31, 1999.
The growth resulted primarily from an increase in the loan portfolio, partially
offset by a decrease in the securities portfolio.
9
<PAGE>
During the nine months ended September 30, 2000, loans increased by $178.5
million, or 10.6%, to $1.87 billion, from $1.69 billion at December 31, 1999.
This growth was led by an increase in commercial loans due to the Bank's
continuing focus on originating such loans. Total commercial loans grew to $1.24
billion at September 30, 2000, from $1.01 billion at December 31, 1999. Loan
originations of $483.0 million for the nine months ended September 30, 2000 were
comprised of $449.3 million of commercial loans and $33.7 million of consumer
loans. Securities (including available-for-sale and held-to-maturity) totaled
$469.0 million at September 30, 2000, a decrease of $43.4 million, or 8.5%, from
$512.4 million at December 31, 1999, due to the runoff of existing securities.
The quality of loans continued to be strong. Total past due loans were
0.68% of total loans at September 30, 2000, compared with 1.12% at December 31,
1999. Nonperforming assets were $3.2 million, or 0.13% of total assets at
September 30, 2000, compared with nonperforming assets of $5.4 million, or 0.23%
of total assets at December 31, 1999. For the sixth consecutive quarter, the
Company had a nonperforming asset ratio below 0.25%. The allowance for loan
losses was $25.8 million at September 30, 2000, an increase of $6.3 million from
$19.5 million at December 31, 1999. The increase in the allowance for loan
losses reflected the growth in the loan portfolio during the nine months ended
September 30, 2000 and increased concentration in commercial loans.
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 September 30, 2000 At December 31, 1999
---------------------------- ------------------------------
Amount % Amount %
------------ ----------- ------------- -------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Commercial:
Secured by real estate-nonresidential...... $ 550,905 29.51% $ 435,061 25.77%
Secured by real estate-multifamily......... 493,756 26.44 423,838 25.11
Construction............................... 108,649 5.82 89,710 5.31
Commercial business........................ 86,414 4.63 59,332 3.52
------------ ----------- ------------- ---------
Total commercial loans..................... 1,239,724 66.40 1,007,941 59.71
------------ ----------- ------------- ---------
Consumer:
Residential mortgage (one to four family).. 612,252 32.79 665,923 39.45
Other...................................... 15,107 0.81 14,248 0.84
------------ ----------- ------------- ---------
Total consumer loans....................... 627,359 33.60 680,171 40.29
------------ ----------- ------------- ---------
Total gross loans............................... 1,867,083 100.00% 1,688,112 100.00%
=========== =========
Net deferred loan origination fees.............. (1,898) (1,417)
------------ -------------
Loans .......................................... 1,865,185 1,686,695
Allowance for loan losses....................... (25,796) (19,503)
------------ -------------
Net loans....................................... $ 1,839,389 $ 1,667,192
============ =============
</TABLE>
The Company continues to emphasize production of commercial real estate and
commercial business loans and to place reduced emphasis on the origination
volume of residential mortgage (one to four family) loans. The Bank holds
substantially all of its loan originations in portfolio.
Due to changing the loan origination focus to commercial loans, the Bank is
originating more loans which reprice in shorter time periods than the
traditional repricing terms of residential mortgage (one to four family) loans.
Construction, commercial business loans and SBA loans generally have monthly
repricing terms. Commercial real estate loans generally reprice each month or
are intermediate fixed, meaning that the loans have interest rates which are
fixed for a period, typically five years, and then generally reprice monthly or
become due and payable. Residential mortgage (one to four family) loans may be
fixed rate for terms of 15 or 30 years, have interest rates that are fixed for a
period, typically five years, and then generally reprice semi-annually, or
reprice semi-annually or annually.
As a result of the change of focus to commercial lending, adjustable-rate
loans increased to $995.2 million, an increase of $233.3 million, or 30.6%, from
$761.9 million at December 31, 1999. Fixed-rate loans at September 30, 2000 were
$611.4 million compared with $628.0 million at December 31, 1999, a decrease of
$16.6 million, or 2.6%. At September 30, 2000, total gross loans included $260.5
million of intermediate fixed-rate loans compared with $298.3 million at
December 31, 1999, a decrease of $37.8 million, or 12.7%.
10
<PAGE>
The following table shows the Bank's new loan commitments during the
periods indicated:
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
-----------------------------
2000 1999
----------- ------------
(Dollars in Thousands)
<S> <C> <C>
Commercial:
Secured by real estate-nonresidential (1)....... $ 175,373 $ 201,525
Secured by real estate-multifamily (1).......... 97,528 108,948
Construction.................................... 114,453 124,111
Commercial business............................. 61,933 59,753
----------- ------------
Total commercial loans...................... $ 449,287 $ 494,337
----------- ------------
Consumer:
Residential mortgage (one to four family) (1)... $ 24,027 $ 56,351
Home equity and other........................... 9,644 7,305
----------- ------------
Total consumer loans........................ 33,671 63,656
----------- ------------
Total new commitments........................... $ 482,958 $ 557,993
=========== ============
</TABLE>
(1) For nonresidential loans, substantially all commitments have been
funded. For multifamily and residential mortgage (one to four
family) loans, all commitments have been funded.
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. Nonaccrual loans were $2.4 million at September 30, 2000 compared to
$4.6 million at December 31, 1999. Foreclosures are a normal part of the credit
process. Other real estate owned ("OREO") consists of real property acquired
through foreclosure on the collateral underlying defaulted loans.
11
<PAGE>
The following table sets forth information regarding nonperforming
assets at the dates indicated:
<TABLE>
<CAPTION>
At September 30, At December 31,
2000 1999
------------------ -----------------
(Dollars in Thousands)
<S> <C> <C>
Nonaccrual loans:
Commercial
Secured by real estate-nonresidential............. $ 740 $ 3,806
Construction loans................................ 104 104
------------------ -----------------
Total commercial.............................. 844 3,910
------------------ -----------------
Consumer
Residential mortgage (one to four family)......... 1,479 722
Other............................................. 31 -
------------------ -----------------
Total consumer................................ 1,510 722
------------------ -----------------
Total nonaccrual loans.................... 2,354 4,632
Other real estate owned ("OREO")............................ 813 722
------------------ -----------------
Total nonperforming assets.................................. $ 3,167 $ 5,354
================== =================
Nonperforming assets to total assets........................ 0.13% 0.23%
Nonaccrual loans to loans................................... 0.13 0.27
Nonperforming assets to loans and OREO...................... 0.17 0.32
Loans....................................................... $ 1,865,185 $ 1,686,695
================== =================
Gross income not recognized on nonaccrual loans............. $ 101 $ 201
Accruing loans contractually past due 90 days or more....... - -
</TABLE>
Total nonperforming assets were $3.2 million at September 30, 2000, a
decrease of $2.2 million, or 40.8%, from $5.4 million at December 31, 1999. The
Bank records OREO at the lower of carrying value or fair value less estimated
disposal costs. Any write-down of OREO is charged to earnings. At September 30,
2000, OREO consisted of two properties acquired through foreclosure with a
carrying value of $813,000, compared to $722,000 at December 31, 1999.
The Bank has a risk-rating process to which all loans in the portfolio are
subjected. Criticized loans are classified in the following categories:
"Special Mention": loans that should not yet be adversely classified, but
have credit deficiencies or potential weaknesses that warrant attention.
"Substandard": loans with one or more well-defined weaknesses which have
the distinct possibility that some loss will be sustained if the weaknesses
are not corrected.
"Doubtful": loans with the weaknesses of a substandard loan plus such
weaknesses which make collection or liquidation in full questionable, based
on current information, and have a high probability of loss.
"Loss": loan considered uncollectible.
12
<PAGE>
The following table sets forth criticized loans at the dates indicated:
<TABLE>
<CAPTION>
At September 30, At December 31,
2000 1999
------------------- -------------------
(Dollars in Thousands)
<S> <C> <C>
Special mention loans............................................. $ 4,588 $ 833
Substandard and doubtful loans.................................... 5,990 10,889
------------------- -------------------
Total criticized loans....................................... $ 10,578 $ 11,722
=================== ===================
Total allowance for loan losses................................... $ 25,796 $ 19,503
=================== ===================
Special mention loans to total loans.............................. 0.25% 0.05%
Substandard and doubtful loans to total loans..................... 0.32 0.65
Criticized loans to total loans................................... 0.57 0.69
Allowance for loan losses to substandard and doubtful loans....... 430.65 179.11
Allowance for loan losses to criticized loans..................... 243.85 166.38
</TABLE>
With the exception of the criticized loans described above, management is
not aware of any other loans as of September 30, 2000 where the known credit
problems of the borrower would cause management to doubt such borrower's ability
to comply with their loan repayment schedule, or that would result in such loans
being included in the criticized loan table above at some future date.
The Bank engages an independent loan review firm to examine the
classification of our commercial loan portfolio. This firm is comprised of
former bank regulators and former bankers. They made no material recommendations
for changes to our classifications as a result of their review.
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 nonaccrual status, or
become impaired or restructured loans or OREO in the future.
ALLOWANCE FOR LOAN LOSSES. The Bank has established a formal 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 in groups. 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 in groups, such as residential mortgage
(one to four family) loans, management's analysis consists of reviewing
delinquency trends, charge-off experience, current economic conditions,
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 the Bank's 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,
which are charged against earnings, and reduced by charge-offs, net of any
recoveries. Loans are charged off when they are classified as loss either
internally or by the Bank's regulators. For any loan that is past due 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.
13
<PAGE>
While management uses all 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 Nine Months Ended
September 30,
--------------------------------
2000 1999
------------ ---------------
(Dollars in Thousands)
<S> <C> <C>
Balance at beginning of period............................... $ 19,503 $ 14,922
Provision for loan losses.................................... 6,568 3,478
Loans charged off............................................ (802) (613)
Recoveries................................................... 527 16
------------ ---------------
Balance at end of period..................................... $ 25,796 $ 17,803
============ ===============
Allowance for loan losses to loans........................... 1.38% 1.08%
Annualized net charge-offs to average loans................. 0.02% 0.05%
</TABLE>
SECURITIES. Securities (including available-for-sale and held-to-maturity)
decreased during the nine months of 2000 by $43.4 million, or 8.5%, to $469.0
million at September 30, 2000 from $512.4 million at December 31, 1999. The
decrease in the securities balances resulted primarily from the amortization and
prepayment of loans underlying the mortgage-backed securities portfolio. This
runoff was replaced with new loan originations.
14
<PAGE>
The following table presents the Bank's securities portfolio on the dates
indicated:
<TABLE>
<CAPTION>
At September 30, 2000 At December 31, 1999
------------------------ -----------------------
Amortized Market Amortized Market
Cost Value Cost Value
----------- ---------- ------------ ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Investment securities available for sale:
Trust Preferred Securities................................... $ 101,230 $ 84,685 $ 103,182 $ 91,270
----------- ---------- ------------ ---------
Total investment securities available for sale.......... 101,230 84,685 103,182 91,270
----------- ---------- ------------ ---------
Mortgage-backed securities available for sale:
GNMA......................................................... 94,799 91,930 102,417 97,399
FNMA......................................................... 67,438 64,455 72,698 69,067
Other........................................................ 66,078 64,043 73,295 70,719
----------- ---------- ------------ ---------
Total mortgage-backed securities available for sale..... 228,315 220,428 248,410 237,185
----------- ---------- ------------ ---------
Total investment and mortgage-backed securities available for sale $ 329,545 $ 305,113 $ 351,592 $ 328,455
=========== ========== ============ =========
Investment securities held to maturity:
Municipals................................................... $ 43,644 $ 41,186 $ 43,633 $ 39,250
----------- ---------- ------------ ---------
Mortgage-backed securities held to maturity:
FNMA......................................................... 82,611 78,628 91,307 86,395
FHLMC........................................................ 36,497 34,634 41,848 39,560
Other........................................................ 1,086 1,086 7,118 6,790
----------- ---------- ------------ ---------
Total mortgage-backed securities held to maturity....... 120,194 114,348 140,273 132,745
----------- ---------- ------------ ---------
Total investment and mortgage-backed securities held to maturity. $ 163,838 $ 155,534 $ 183,906 $ 171,995
=========== ========== ============ =========
</TABLE>
As of September 30, 2000, the carrying value of the securities was $493.4
million and the market value was $460.6 million. The total unrealized loss on
these securities was $32.8 million. Of this total, $24.4 million relates to
securities which are available for sale on which the unrealized loss, net of tax
of $10.3 million, is included as a reduction of stockholders' equity. The
difference between the carrying value and market value aggregating $8.3 million
of securities which are held to maturity has not been recognized in the
financial statements as of September 30, 2000. The unrealized losses are
primarily the result of movements in market interest rates.
DEPOSITS. Deposits are the Bank's primary source of funds to use in lending
and investment activities. Deposit balances were $1.90 billion at September 30,
2000, which represented an increase of $219.0 million, or 13.1%, from $1.68
billion at December 31, 1999. Core deposit balances increased by $138.3 million,
or 30.2%, and time deposits increased by $80.7 million, or 6.6%, during this
period. Core deposits include NOW, demand deposit money market and savings
accounts. The growth in core deposits resulted primarily from the Bank's
continued focus on developing new commercial relationships and further expansion
into the Bank's retail niche market, the ethnic Chinese community. At September
30, 2000, 68.5% of our deposits were time deposits, 18.7% were savings accounts,
and 12.8% were NOW, demand deposit and money market accounts. By comparison, at
December 31, 1999, 72.7% of our deposits were time deposits, 15.7% were savings
accounts, and 11.6% were NOW, demand deposits and money market accounts. The
Bank's overall cost of deposits rose from 3.80% at December 31, 1999 to 4.61% at
September 30, 2000 as a result of increases in market interest rates.
15
<PAGE>
The Bank obtains deposits primarily from the communities it serves. No
material portion of its deposits are from or are dependent on any one person or
industry. At September 30, 2000, less than 2% of the Bank's deposits were held
by customers with addresses located outside the United States. Additionally, at
that date, the 100 depositors with the largest aggregate average deposit
balances comprised less than 15% of the Bank's total deposits. The Bank accepts
deposits in excess of $100,000 from customers. Included in time deposits as of
September 30, 2000, is $499.0 million of deposits of $100,000 or greater. Such
deposits make up 26.3% of total deposits. At September 30, 2000, the Bank had no
brokered deposits. Substantially all of the time deposits as of September 30,
2000 mature in one year or less.
The following table presents the balances and rates paid for categories of
deposits at the dates indicated:
<TABLE>
<CAPTION>
At September 30, 2000 At December 31, 1999
-------------------------- -----------------------------
Weighted Weighted
Balance Average Rate Balance Average Rate
-------------------------- ----------- ---------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
NOW, demand deposits and money market accounts........ $ 242,677 1.45% $ 193,995 1.14%
Savings accounts...................................... 353,775 2.33 264,138 1.92
Time deposits:
Less than $100,000............................... 799,679 5.59 821,355 4.50
$100,000 or greater.............................. 499,033 6.18 396,660 4.91
------------ -----------
Total time deposits.............................. 1,298,712 5.82 1,218,015 4.64
------------ -----------
Total deposits........................................ $ 1,895,164 4.61 $ 1,676,148 3.80
============ ===========
</TABLE>
OTHER BORROWINGS. At September 30, 2000, the Bank had $341.6 million of
borrowings outstanding compared with $449.6 million outstanding at December 31,
1999, a decrease of $108.0 million, or 24.0%. Advances are obtained from the
Federal Home Loan Bank ("FHLB") of San Francisco to supplement our supply of
lendable funds. Advances from the FHLB of San Francisco are typically secured by
a pledge of the Bank's stock in the FHLB of San Francisco and mortgage loans and
securities with a market value of at least equal to outstanding advances. At
September 30, 2000, the Bank had $335.1 million of advances outstanding from the
FHLB of San Francisco, compared with $421.5 million outstanding at December 31,
1999. Included in the $335.1 million of FHLB advances as of September 30, 2000
were $17.0 million of fixed-rate advances for ten years. An additional $216.0
million of the advances had ten-year terms but contained provisions that the
FHLB could, at its option, terminate the advances at quarterly intervals at
specified periods ranging from three to five years beyond the advance dates.
The Bank also participates in the Treasury Investment Program with the Federal
Reserve Bank of San Francisco ("FRB"), which allows the Bank to utilize deposits
made to the U.S. Treasury for federal tax payments until the Treasury needs the
funds. Borrowings outstanding at September 30, 2000 under this line were $6.6
million.
16
<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 Nine Months Ended
September 30,
-------------------------------
2000 1999
------------ -------------
(Dollars in Thousands)
<S> <C> <C>
FHLB of San Francisco advances:
Average balance outstanding............................................ $ 433,274 $ 385,927
Maximum amount outstanding at any month end............................ 472,000 468,000
Balance outstanding at end of period................................... 335,055 431,000
Weighted average interest rate during the period....................... 5.87 % 5.32 %
Weighted average interest rate at end of period........................ 5.82 % 5.42 %
Weighted average remaining term to maturity at end of period (in years) 5 5
FRB direct investment borrowings:
Average balance outstanding............................................ $ 5,846 $ 27,099
Maximum amount outstanding at any month end............................ 10,000 83,739
Balance outstanding at end of period................................... 6,553 28,405
Weighted average interest rate during the period....................... 5.76 % 4.61 %
Weighted average interest rate at end of period........................ 6.60 % 5.51 %
Weighted average remaining term to maturity
at end of period (in years)............................................ - -
Securities sold under agreements to repurchase:
Average balance outstanding............................................ $ - $ 151
Maximum amount outstanding at any month end............................ - 1,500
Balance outstanding at end of period................................... - -
Weighted average interest rate during the period....................... - 5.42 %
Weighted average interest rate at end of period........................ - -
Weighted average remaining term to maturity at end of period........... - -
</TABLE>
REGULATORY CAPITAL. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific capital
guidelines as calculated under regulatory accounting practices. As of September
30, 2000, the Bank met the "Well Capitalized" requirements under these
guidelines. The total risk-based capital ratio of the Bank at September 30, 2000
was 11.23%, as compared with 11.29% at December 31, 1999. The ratio of Tier I
capital (as defined in the regulations) to average assets (as defined) of the
Bank at September 30, 2000 was 6.89% compared with 6.58% at December 31, 1999.
The Company's capital ratios are approximately those of the Bank, and similarly
the Company is categorized as "Well Capitalized."
YEAR 2000 COMPLIANCE
As of September 30, 2000, all Y2K-sensitive systems were functioning
within normal parameters. Total expenditures on the project were less than
$500,000. Although the Company has not encountered any significant problems nor
incurred significant additional expense in conjunction with the Y2K issue, there
can be no assurance that the Company and the Bank will not encounter significant
Y2K-related problems and/or cost during the course of 2000 or beyond.
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, 1999 on file with the Securities and Exchange Commission (SEC File No.
0-24947).
17
<PAGE>
PART II- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company's wholly-owned subsidiary, United Commercial Bank, has been a
party to ordinary routine litigation incidental to various aspects of its
operations.
Management is not currently aware of any litigation that will have a
material adverse impact on the Company's consolidated financial condition, or
the results of operations.
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits (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 File No. 333-58325).
** Incorporated by reference to the exhibit of the same number from the
Company's Form 10-Q for the quarter ended June 30, 1999, filed with the
Securities and Exchange Commission on August 6, 1999 (SEC File No.
0-24947).
18
<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: November 1, 2000 /s/ THOMAS S. WU
-------------------------------------
Thomas S. Wu
President and Chief Executive Officer
(principal executive officer)
Date: November 1, 2000 /s/ JONATHAN H. DOWNING
-------------------------------------
Jonathan H. Downing
Senior Vice President and
Chief Financial Officer
(principal financial officer)
19
