<PAGE>
As filed with the Securities and Exchange Commission on May 5, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
Mark One
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 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 000-24939
----------------
EAST WEST BANCORP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 95-4703316
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
415 Huntington Drive, San Marino, California 91108
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (626) 799-5700
----------------
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
------------------- ---------------------
<S> <C>
NONE NONE
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 Par Value
(Title of class)
----------------
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 [_]
Number of shares of common stock of the registrant outstanding as of April
30, 1999: 22,925,000 shares
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I--FINANCIAL INFORMATION............................................. 3
Item 1. Interim Consolidated Financial Statements....................... 4-7
Notes to Interim Consolidated Financial Statements.............. 8
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations.................. 9-25
Item 3. Quantitative and Qualitative Disclosures of Market Risks........ 25
PART II--OTHER INFORMATION................................................ 26
Item 1. Legal Proceedings............................................... 26
Item 2. Changes in Securities and Use of Proceeds....................... 26
Item 3. Defaults upon Senior Securities................................. 26
Item 4. Submission of Matters to a Vote of Security Holders............. 26
Item 5. Other Information............................................... 26
Item 6. Exhibits and Reports on Form 8-K................................ 26
SIGNATURES................................................................ 27
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS
- -------
Cash and cash equivalents........................... $ 80,954 $ 161,131
Investment securities available for sale, at fair
value (with amortized cost of $638,391 in 1999 and
$683,355 in 1998).................................. 637,074 682,436
Loans receivable, net of allowance for loan losses
of $17,560 in 1999 and $16,506 in 1998............. 1,167,721 1,100,579
Investment in Federal Home Loan Bank stock, at
cost............................................... 33,288 32,874
Other real estate owned............................. 3,585 4,600
Investment in affordable housing partnerships....... 21,605 18,602
Premises and equipment, net......................... 23,064 23,406
Premiums on deposits acquired, net.................. 2,387 2,648
Excess of purchase price over fair value of net
assets acquired, net............................... 3,541 3,590
Accrued interest receivable and other assets........ 27,839 28,294
---------- ----------
TOTAL........................................... $2,001,058 $2,058,160
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------
Customer deposit accounts........................... $1,307,805 $1,292,937
Securities sold under agreements to repurchase...... 21,078 33,000
Federal Home Loan Bank advances..................... 500,000 563,000
Notes payable....................................... 3,952 1,820
Accrued expenses and other liabilities.............. 15,900 12,871
Deferred income taxes............................... 1,071 1,259
---------- ----------
Total liabilities................................. 1,849,806 1,904,887
---------- ----------
FAIR VALUE OF NET ASSETS ACQUIRED IN EXCESS OF
PURCHASE PRICE, NET................................ 2,340 2,443
STOCKHOLDERS' EQUITY
Common stock (par value of $0.001 per share)
Authorized -- 50,000,000 shares
Issued and outstanding -- 23,050,000 shares and
23,775,000 shares in 1999 and 1998, respectively.. 23 24
Additional paid in capital.......................... 102,968 109,976
Accumulated other comprehensive loss:
Unrealized losses on securities available for
sale, net of tax................................. (1,095) (888)
Retained earnings................................... 47,016 41,718
---------- ----------
Total stockholders' equity........................ 148,912 150,830
---------- ----------
TOTAL........................................... $2,001,058 $2,058,160
========== ==========
</TABLE>
See accompanying notes to interim consolidated financial statements.
4
<PAGE>
EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans receivable, including fees...................... $23,259 $20,368
Investment securities available for sale.............. 9,778 4,693
Short-term investments................................ 1,205 3,332
Federal Home Loan Bank stock.......................... 420 189
---------- ----------
Total interest and dividend income................... 34,662 28,582
---------- ----------
INTEREST EXPENSE
Customer deposit accounts............................. 11,495 12,505
Short-term borrowings................................. 348 1,649
Federal Home Loan Bank advances....................... 6,588 2,030
---------- ----------
Total interest expense............................... 18,431 16,184
---------- ----------
NET INTEREST INCOME.................................... 16,231 12,398
PROVISION FOR LOAN LOSSES.............................. 1,200 1,742
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES.... 15,031 10,656
---------- ----------
NONINTEREST INCOME
Loan fees............................................. 528 507
Branch fees........................................... 728 577
Letters of credit fees and commissions................ 982 463
Net gains on sales of investment securities........... 398 137
Net gains on sales of investment in affordable housing
partnerships......................................... 402 --
Amortization of fair value of net assets acquired in
excess of purchase price............................. 103 103
Other operating income................................ 191 132
---------- ----------
Total noninterest income............................. 3,332 1,919
---------- ----------
NONINTEREST EXPENSE
Compensation and employee benefits.................... 4,674 4,403
Net occupancy......................................... 1,364 1,236
Data processing....................................... 332 308
Amortization of premiums on deposits acquired and
excess of purchase price over fair value of net
assets acquired...................................... 310 310
Amortization of investment in affordable housing
partnerships......................................... 410 226
Deposit insurance premiums and regulatory
assessments.......................................... 208 210
Other real estate owned operations, net............... (284) (81)
Other operating expenses.............................. 1,803 1,445
---------- ----------
Total noninterest expense............................ 8,817 8,057
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES............... 9,546 4,518
PROVISION FOR INCOME TAXES............................. 3,534 1,502
---------- ----------
NET INCOME............................................. $ 6,012 $ 3,016
========== ==========
BASIC AND DILUTED EARNINGS PER SHARE................... $ 0.26 $ 0.13
AVERAGE NUMBER OF SHARES OUTSTANDING................... 23,559 23,775
</TABLE>
See accompanying notes to interim consolidated financial statements.
5
<PAGE>
EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Paid-In Comprehensive Retained Comprehensive Stockholders'
Stock Capital Income (Losses) Earnings Income Equity
------ ---------- --------------- -------- ------------- -------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1998..................
Comprehensive income... $24 $109,976 $ (1,138) $23,690 $132,552
Net income for the
year................. 18,028 $18,028 18,028
Other comprehensive
income, net of tax...
Net change in
unrealized losses on
securities, net of
tax................. 250 250 250
--- -------- -------- ------- ------- --------
Comprehensive income... $18,278
=======
BALANCE, DECEMBER 31,
1998.................. 24 109,976 (888) 41,718 150,830
Comprehensive income...
Net income for the
period............... 6,012 $ 6,012 6,012
Other comprehensive
income, net of tax...
Net change in
unrealized losses on
securities, net of
tax................. (207) (207) (207)
-------
Comprehensive income... $ 5,805
=======
Repurchase of common
stock................. (1) (7,008) (7,009)
Dividends declared on
common stock.......... (714) (714)
--- -------- -------- ------- --------
BALANCE, MARCH 31,
1999.................. $23 $102,968 $(1,095) $47,016 $148,912
=== ======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
For the
Three Months For the
Ended Year Ended
March 31, December 31,
1999 1998
------------ ------------
(In thousands)
<S> <C> <C>
Disclosure of reclassification amounts:
Unrealized holding gains arising during period, net
of tax expense of $26 in 1999 and $595 in 1998..... $ 44 $1,109
Less: Reclassification adjustment for gains included
in net income, net of tax expense of $147 in 1999
and $461 in 1998................................... (251) (859)
----- ------
Net change in unrealized losses on securities, net
of tax benefit (expense) of $122 in 1999 and $(134)
in 1998............................................ $(207) $ 250
===== ======
</TABLE>
See accompanying notes to interim consolidated financial statements.
6
<PAGE>
EAST WEST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
----------------------
1999 1998
----------- ---------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................ $ 6,012 $ 3,016
Adjustments to reconcile net income to net cash
provided by operating activities:
Net amortization of premiums.......................... 197 222
Depreciation and amortization......................... 537 539
Net loan fees deferred................................ 462 508
Deferred tax provision................................ (49) (1,271)
Provision for other real estate owned losses.......... 8 10
Provision for loan losses............................. 1,200 1,742
Net gains on sales of investment securities and other
assets............................................... (1,405) (463)
Federal Home Loan Bank stock dividends................ (414) (180)
Proceeds from sale of loans held for sale............. 21,624 23,078
Originations of loans held for sale................... (17,495) (20,526)
Decrease (increase) in accrued interest receivable and
other assets......................................... 455 (2,489)
Increase in accrued expenses and other liabilities.... 3,029 151
----------- ---------
Total adjustments.................................... 8,149 1,321
----------- ---------
Net cash provided by operating activities............ 14,161 4,337
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net disbursements of loans............................ (31,289) (52,295)
Purchases of:
Premises and equipment................................ (204) (193)
Loans receivable...................................... (40,223) (2,599)
Investment securities available for sale.............. (259,800) (36,039)
Investment in affordable housing partnerships......... (3,247) (475)
Proceeds from sale, maturity, redemption or repayment
of:
Investment securities available for sale.............. 304,942 108,016
Investment in affordable housing partnerships......... 3,267 --
Premises and equipment................................ 2 --
Other real estate owned............................... 890 801
----------- ---------
Net cash (used in) provided by investing activities.. (25,662) 17,216
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits................................ $ 14,869 $ (9,494)
Proceeds from Federal Home Loan Bank advances......... 2,695,300 403,608
Repayment of Federal Home Loan Bank advances.......... (2,758,300) (502,608)
Net (decrease) increase in federal funds purchased and
securities sold under agreements to repurchase....... (11,922) 32,575
Repayments of notes payable on affordable housing
investments.......................................... (900) --
Repurchase of common stock............................ (7,009) --
Dividends paid on common stock........................ (714) --
----------- ---------
Net cash used in financing activities................ (68,676) (75,919)
----------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS.............. (80,177) (54,366)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD......... 161,131 347,601
----------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD............... $ 80,954 $ 293,235
=========== =========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid......................................... $ 17,897 $ 17,087
Income tax payments, net.............................. 1,400 --
Noncash investing and financing activities:
Other real estate acquired through foreclosure........ 270 3,516
Loans made to facilitate sales of other real estate
owned................................................ 650 --
Investment in affordable housing partnerships acquired
through notes payable................................ 3,033 --
Net change in unrealized losses on securities
available for sale, net of tax....................... (207) 613
</TABLE>
See accompanying notes to interim consolidated financial statements.
7
<PAGE>
EAST WEST BANCORP, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31,1999 and 1998
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of East West
Bancorp, Inc. (the "Company") and its wholly-owned subsidiary bank, East West
Bank and subsidiaries (the "Bank"). All material intercompany transactions and
accounts have been eliminated.
The interim consolidated financial statements are unaudited and reflect all
adjustments which, in the opinion of management, are necessary for a fair
statement of financial condition and results of operations for the interim
periods. All adjustments are of a normal and recurring nature. Results for the
period ended March 31, 1999 are not necessarily indicative of results which
may be expected for any other interim period or for the year as a whole.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The unaudited consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements and notes included in the Company's annual
report for the year ended December 31, 1998.
Certain reclassifications have been made to the prior period financial
statements to conform to the current period presentation.
2.STOCKHOLDERS' EQUITY
Earnings Per Share
The actual number of shares outstanding at March 31, 1999, was 23,050,000.
Basic earnings per share are calculated on the basis of the weighted number of
shares outstanding during the period. Diluted earnings per share are
calculated on the basis of the weighted average number of shares outstanding
during the period plus shares issuable upon the assumed exercise of
outstanding common stock options and warrants. All 1998 per share information
in the financial statements and in Management's Discussion and Analysis has
been restated to give retroactive effect to the 118,875 for 550,000 reverse
stock split effective June 11, 1998. The basic earnings per share is equal to
the diluted earnings per share due to the fact that the average market price
of the options and warrants is less than their exercise price for the three
months ended March 31, 1999.
Quarterly Dividends
A quarterly cash dividend of $0.03 per share totaling $714 thousand was paid
on or about February 16, 1999 to shareholders of record at February 2, 1999.
Stock Repurchase Program
On January 25, 1999, the Company's Board of Directors authorized the Company
to repurchase up to $7.0 million of its common stock. As of the quarter ended
March 31, 1999, 725,000 shares of the Company's common stock were repurchased
totaling approximately $7.0 million which completed the first stock repurchase
program. On March 29, 1999, the Company's Board of Directors initiated a
second stock repurchase program, authorizing the repurchase of up to an
additional $7.0 million of its common stock.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion provides information about the results of
operations, financial condition, liquidity, and capital resources of East West
Bancorp, Inc. and its subsidiaries (the "Company"). This information is
intended to facilitate the understanding and assessment of significant changes
and trends related to the financial condition of the Company and the results
of its operations. This discussion and analysis should be read in conjunction
with the Company's 1998 annual report on Form 10-K for the year ended December
31, 1998, and the accompanying interim unaudited consolidated financial
statements and notes thereto.
In addition to historical information, this discussion includes certain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 which involve inherent risks and uncertainties.
A number of important factors could cause the Company's actual results to
differ materially from those discussed in such forward-looking statements.
These factors include, but are not limited to, economic conditions and
competition in the geographic and business areas in which the Company
operates, demographic changes, inflation or deflation, fluctuations in
interest rates, changes in business strategy or development plans, and changes
in legislation and governmental regulation. Given these uncertainties, the
reader is cautioned not to place undue reliance on such forward-looking
statements. The Company disclaims any obligation to update any such factors or
to publicly announce the results of any revisions to any of the forward-
looking statements contained herein to reflect future events or developments.
Quarterly Cash Dividend
On January 20, 1999, the Company announced that the Board of Directors had
initiated a regular quarterly cash dividend of $0.03 per share. The first
dividend payment was made on or about February 16, 1999 to shareholders of
record at February 2, 1999.
Stock Repurchase Programs
On January 25, 1999, the Company announced that the Board of Directors had
authorized the Company to repurchase up to $7.0 million of its common stock.
As of March 31, 1999, the Company has completed its initial stock repurchase
program, repurchasing 725,000 shares for a total of $7.0 million.
On March 29, 1999, the Company announced that the Board of Directors had
authorized a second stock repurchase program, authorizing the Company to
repurchase an additional $7.0 million of its common stock. As of April 30,
1999, the Company had repurchased $1.2 million or 125,000 shares of the total
$7.0 million authorized in the second repurchase program.
Commencement of Stock Trading
On February 8, 1999, the Company commenced trading of its common stock on
the National Association of Securities Dealers Automated Quotations (NASDAQ)
National Market under the ticker symbol EWBC.
Results of Operations
East West Bancorp, Inc, parent company of East West Bank (the "Bank")
reported first quarter 1999 net income of $6.0 million or $0.26 basic and
diluted earnings per share. These results represent a twofold increase when
compared to the $3.0 million or $0.13 basic and diluted earnings per share
reported during the first quarter of 1998.
9
<PAGE>
Components of Net Income
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1999 1998
--------- ---------
(In millions)
<S> <C> <C>
Net interest income................................... $ 16.2 $ 12.4
Provision for loan losses............................. (1.2) (1.7)
Noninterest income.................................... 3.3 1.9
Noninterest expense................................... (8.8) (8.1)
Provision for income taxes............................ (3.5) (1.5)
--------- ---------
Net income.......................................... $ 6.0 $ 3.0
========= =========
Net income as a percentage of average total assets.... 1.19% 0.74%
========= =========
</TABLE>
Pre-tax income amounted to $9.5 million for the first quarter of 1999,
compared with $4.5 million for the same period a year ago, representing an
increase of $5.0 million or 111%. The increase in 1999 pre-tax income was
primarily attributed to a $3.8 million increase in net interest income before
provision for loan losses and a $1.4 million increase in noninterest income.
The Company's annualized return on average total assets and return on
average stockholders' equity was 1.19% and 15.98% for the three months ended
March 31, 1999, compared with 0.74% and 9.06%, respectively, for the same
period in 1998.
Net Interest Income
The Bank's primary source of revenue is net interest income, which is the
difference between interest income on earning assets and interest expense on
interest-bearing liabilities. Net interest income for the first quarter of
1999 totaled $16.2 million, a 31% increase over net interest income of $12.4
million for the same period in 1998.
Total interest and dividend income during the first three months of 1999
increased 21% to $34.7 million compared to $28.6 million during the first
three months of 1998. This increase is derived primarily from a 24% growth in
average interest-earning assets to $1,939.1 million during the first quarter
of 1999, compared to $1,567.8 million during the same period a year ago. The
$371.3 million net growth in average earning assets was primarily attributed
to a $337.3 million increase in mortgage-backed securities and a $156.9
million increase in loans receivable partially offset by a $142.1 decrease in
average short-term investments. The net growth in average earning assets was
funded almost entirely by an increase of $383.1 million in average FHLB
advances.
Although the Bank's prevailing reference rate declined 75 basis points from
the first quarter of 1998 to the first quarter of 1999, the overall yield on
earning assets during the first three months of 1999 only declined 14 basis
points to 7.15% from 7.29% for the same period a year ago. Higher yields on
mortgage-backed securities from 5.34% a year ago to 5.68% for the current
period more than offset the decrease in yields for all other categories of
earning assets. Overall, the impact of interest rate changes on total interest
and dividend income was marginal when comparing the two periods.
Total interest expense during the first quarter of 1999 increased $2.2
million or 14% to $18.4 million compared to $16.2 million for the same period
a year ago. The increase is primarily attributable to the 260% increase in
average FHLB advances to $530.2 million for the 1999 first quarter. This is
partially offset by a 77% decrease in average short-term borrowings and a
decrease in the cost of funds for all categories of interest-bearing
liabilities. The overall cost of funds decreased 36 basis points from 4.56% a
year ago to 4.20% for the current period.
Net interest margin, defined as taxable equivalent net interest income to
average earning assets, increased 19 basis points from 3.16% to 3.35% between
the first quarter of 1998 and 1999.
10
<PAGE>
The following table presents the net interest spread, net interest margin,
average balances, interest income and expense, and the average yields and
rates by asset and liability component:
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------------------------------
1999 1998
----------------------------- ----------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Rate (1) Balance Interest Rate (1)
--------------------- ------- ---------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Short-term investments.. $ 85,691 $ 1,205 5.62% $ 227,781 $ 3,332 5.85%
Taxable investment
securities (2)(3)...... 688,515 9,778 5.68 351,224 4,693 5.34
Loans receivable, net
(2)(4)................. 1,131,692 23,259 8.22 974,749 20,368 8.36
FHLB stock.............. 33,177 420 5.06 14,003 189 5.40
----------- ------- ---------- -------
Total interest-earning
assets................ 1,939,075 34,662 7.15 1,567,757 28,582 7.29
------- ---- ------- ----
Noninterest-earning
assets:
Cash and due from
banks.................. 28,304 24,353
Allowance for loan
losses................. (16,815) (12,263)
Other assets............ 66,999 54,012
----------- ----------
Total assets........... $ 2,017,563 $1,633,859
=========== ==========
LIABILITIES AND STOCKHOLDERS EQUITY
Interest-bearing
liabilities:
Checking accounts....... $ 79,684 $ 225 1.13 $ 76,556 $ 279 1.46
Money market accounts... 38,070 274 2.88 22,224 211 3.80
Savings deposits........ 221,342 1,020 1.84 204,558 1,252 2.45
Time deposits........... 857,831 9,976 4.65 853,721 10,763 5.04
Short-term borrowings... 26,713 348 5.21 115,471 1,649 5.71
FHLB advances........... 530,226 6,588 4.97 147,168 2,030 5.52
----------- ------- ---------- -------
Total interest-bearing
liabilities........... 1,753,866 18,431 4.20 1,419,698 16,184 4.56
------- ---- ------- ----
Noninterest-bearing
liabilities:
Demand deposits......... 98,837 67,075
Other liabilities....... 14,388 13,888
Stockholders' equity.... 150,472 133,198
----------- ----------
Total liabilities and
stockholders' equity.. $ 2,017,563 $1,633,859
=========== ==========
Interest rate spread..... 2.95% 2.73%
==== ====
Net interest income and
net interest margin..... $16,231 3.35% $12,398 3.16%
======= ==== ======= ====
</TABLE>
- -------
(1) Annualized.
(2) Includes amortization of premiums and accretion of discounts on loans
receivable and investment securities. Also includes the amortization of
deferred loan fees.
(3) Average balances exclude unrealized gains or losses on available for sale
securities.
(4) Average balances include nonperforming loans.
11
<PAGE>
Analysis of Changes in Net Interest Margin
Changes in the Bank's net interest income are a function of changes in rates
and volumes of both interest-earning assets and interest-bearing liabilities.
The following table sets forth information regarding changes in interest
income and interest expense for the years indicated. The total change for each
category of interest-earning asset and interest-bearing liability is segmented
into the change attributable to variations in volume (changes in volume
multiplied by old rate) and the change attributable to variations in interest
rates (changes in rates multiplied by old volume). Nonaccrual loans are
included in average loans used to compute this table.
<TABLE>
<CAPTION>
Three Months Ended March
31, 1999 vs. 1998
----------------------------
Total Changes Due to
Change Volume (1) Rates (1)
------- --------- --------
(In thousands)
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Short-term investments......................... $(2,127) $(2,079) $ (48)
Taxable investment securities.................. 5,085 4,507 578
Loans receivable, net.......................... 2,891 3,279 (388)
FHLB stock..................................... 231 260 (29)
------- ------- -------
Total interest income........................ $ 6,080 $ 5,967 $ 113
======= ======= =======
INTEREST-BEARING LIABILITIES:
Checking accounts.............................. $ (54) $ 11 $ (65)
Money market accounts.......................... 63 150 (87)
Savings deposits............................... (232) 103 (335)
Time deposits.................................. (787) 52 (839)
Short-term borrowings.......................... (1,301) (1,268) (33)
FHLB advances.................................. 4,558 5,285 (727)
------- ------- -------
Total interest expense....................... $ 2,247 $ 4,333 $(2,086)
======= ======= =======
CHANGE IN NET INTEREST INCOME.................. $ 3,833 $ 1,634 $ 2,199
======= ======= =======
</TABLE>
- --------
(1) Changes in interest income/expense not arising from volume or rate
variances are allocated proportionately to rate and volume.
Provision for Loan Losses
The provision for loan losses was $1.2 million for the first quarter of 1999
compared to $1.7 million for the same period in 1998. The decrease of $542
thousand or 31% from 1998 reflects favorable trends in the Bank's asset
quality. The Bank has ongoing efforts to improve loan quality through the
implementation of more stringent underwriting parameters and administration
procedures, and aggressively pursuing collection efforts with troubled
debtors. These efforts have resulted in lower net chargeoffs and a continued
decline in nonperforming loans. For further information regarding net credit
losses and the allowance for loan losses, see the "Allowance for Loan Losses"
section of this report.
12
<PAGE>
Noninterest Income
Components of Noninterest Income
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1999 1998
--------- ---------
(In millions)
<S> <C> <C>
Loan fees............................................... $ 0.53 $ 0.51
Branch fees............................................. 0.73 0.58
Letters of credit fees and commissions.................. 0.98 0.46
Net gains on sales of securities........................ 0.40 0.14
Gain on sale of affordable housing investments.......... 0.40 --
Amortization of negative intangibles.................... 0.10 0.10
Other................................................... 0.19 0.13
--------- ---------
Total................................................. $3.33 $1.92
========= =========
</TABLE>
Noninterest income includes revenues earned from sources other than interest
income. These sources include: ancillary fees on loans, service charges and
fees on deposit accounts, fees and commissions generated from trade finance
activities and the issuance of letters of credit, and net gains on sales of
investment securities and affordable housing investments.
Noninterest income totaled $3.3 million for the three months ended March 31,
1999. This represented an increase of $1.4 million or 74% from noninterest
income of $1.9 million for the three months ended March 31, 1998. Branch fees
for the first quarter of 1999 amounted to $728 thousand, an increase of $151
thousand or 26% from the $577 thousand earned during the same period last
year. This was primarily due to higher revenues derived from analysis charges
on commercial deposit accounts, increased ATM surcharge income, and increased
fees related to transaction accounts.
Letters of credit fees and commissions amounted to $982 thousand for the
first three months of 1999 compared to $463 thousand for the same period in
1998. This increase of $519 thousand or 112% is attributed primarily to a $393
thousand increase in revenues from the issuance of standby letters of credit,
reflecting a 72% growth in volume to $137.3 million as of March 31, 1999 from
$79.7 million as of March 31, 1998. The remainder of the increase was
attributed to trade finance activities which experienced a 39% growth in the
number of transactions processed for the three months ended March 31, 1999 in
comparison to the same period a year ago.
Other contributions to noninterest income for the 1999 first quarter include
a $402 thousand gain on sale of an investment in affordable housing
partnerships, as well as a $261 thousand, or 191%, increase in gains on sales
of investment securities when compared to the same period in 1998.
Noninterest Expense
Components of Noninterest Expense
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1999 1998
--------- ---------
(In millions)
<S> <C> <C>
Compensation and other employee benefits............. $ 4.68 $ 4.40
Net occupancy........................................ 1.36 1.24
Data processing...................................... 0.33 0.31
Amortization of positive intangibles................. 0.31 0.31
Amortization of affordable housing investments....... 0.41 0.23
Deposit insurance premiums and regulatory
assessments......................................... 0.21 0.21
Other real estate owned operations, net.............. (0.28) (0.08)
Other................................................ 1.80 1.44
--------- ---------
Total.............................................. $ 8.82 $ 8.06
========= =========
</TABLE>
13
<PAGE>
Noninterest expense increased $760 thousand or 9% during the first three
months of 1999 in comparison to the same period in 1998. Noninterest expense
is comprised primarily of compensation and employee benefits, occupancy and
other operating expenses. The increase in compensation and employee benefits
of $271 thousand or 6% can be attributed to the Company's growth including the
opening of a new branch office in Milpitas, California in August 1998. Other
factors contributing to the increase in compensation and employee benefits
includes the impact of annual salary and cost increases for existing
employees, as well as an increase in incentive compensation tied to the
Company's performance.
Occupancy expenses increased $128 thousand or 10% for the first quarter of
1999, reflecting three months of operations for the new Milpitas branch, an
overhead factor which was not present during the first quarter of 1998. In
addition, occupancy expense also increased during the first three months of
1999, in comparison the same period a year ago, as a result of the impact of
normal rent adjustments in existing leases, as well as increased expenses
related to the outsourcing of computer hardware maintenance.
The amortization of investments in affordable housing partnerships increased
$184 thousand, reflecting the impact of additional investment purchases made
since the first quarter of 1998. Total investment in affordable housing
partnerships amounted to $21.6 million as of March 31, 1999 compared to $14.6
million as of March 31, 1998.
Expenses related to OREO operations decreased $203 thousand or 251% during
the first quarter of 1999 when compared to the first quarter of 1998. This is
primarily due to an increase in net gains on sales of OREO properties of $174
thousand and higher rental income collected on such properties.
Other operating expenses include advertising and public relations, telephone
and postage, stationery and supplies, bank and item processing charges,
insurance, legal and other professional fees. The $358 thousand or 25%
increase in other operating expenses when comparing the first quarter of 1999
and 1998 is primarily due to the overall growth of the Bank. Various expenses
incurred as a result of the Company's recent registration and filing with the
Securities and Exchange Commission and NASDAQ also contributed to the increase
in other operating expenses.
Provision for Income Taxes
The provision for income taxes increased $2.0 million or 135% during the
first quarter of 1999 in comparison to the same period a year ago mainly as a
direct result of higher pretax income partially offset by the utilization of
tax credits from qualified affordable housing investments amounting to $550
thousand. The first quarter 1999 provision of $3.5 million reflects an
effective tax rate of 37.0% compared to the first quarter 1998 provision of
$1.5 million which represents an effective tax rate of 33.2%.
Balance Sheet Analysis
The Company's total assets at March 31, 1999 were $2.00 billion, a decrease
of $57.1 million or 3% when compared to December 31, 1998. This decline was
primarily due to decreases in short-term investments of $70.0 million and
investment securities of $45.4 million, partially offset by a $67.1 million
increase in loans receivable. The decrease in total assets is prompted by
decreases of $11.9 million in short-term borrowings and $63.0 million in FHLB
advances, partially offset by an increase in deposits of $14.9 million.
Investment Securities Available for Sale
Investment securities available for sale of $637.1 million as of March 31,
1999 represents a decrease of $45.4 million or 7% compared to the December 31,
1998 balance of $682.4 million. Total repayments on mortgage-backed
securities, including calls and redemptions, totaled $216.5 million for the
first quarter of 1999. Proceeds from such repayments were utilized to purchase
additional mortgage-backed securities with more attractive yields. During the
first three months of 1999, the Bank sold mortgage-backed securities with
total carrying value of $87.9 million. The Bank recorded net gains on sale of
$380 thousand from these transactions. Proceeds from the sale of these
securities were used to repay $63.0 million of FHLB advances and $11.9 million
of short-term borrowings. The remaining proceeds were used to fund a portion
of the loan originations and loan purchases made during the first three months
of 1999.
14
<PAGE>
The following table sets forth the amortized cost and the estimated fair
values of investment securities available for sale as of March 31, 1999 and
December 31, 1998:
<TABLE>
<CAPTION>
Amortized Gross Gross Estimated
Cost Unrealized Unrealized Fair
Gains Losses Value
--------- ---------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C>
As of March 31, 1999:
Mortgage-backed securities........ $638,391 $616 $(1,933) $637,074
As of December 31, 1998:
Mortgage-backed securities........ $683,335 $471 $(1,370) $682,436
</TABLE>
Loans
The Company continued to experience strong loan demand during the first
quarter of 1999. Net loans receivable at March 31, 1999 totaled $1.17 billion,
representing a $67.1 million or 6% increase from December 31, 1998. The
increase in loans was funded, in large part, through the liquidation of lower-
yielding short-term investments and, to a lesser extent, through sales of
mortgage-backed securities.
The Company continues to focus its lending efforts in originating
multifamily and commercial loan products, as evidenced by the composition of
the net growth in loans during the first quarter of 1999. Specifically, the
growth in net loans receivable during the first three months of 1999 is
comprised of increases in multifamily loans of $31.7 million, commercial real
estate loans of $22.4 million, construction loans of $9.0 million, and
commercial loans, including trade finance products, of $23.3 million.
Management anticipates strong loan demand in these categories throughout 1999.
Partially offsetting the increases in the multifamily and commercial loan
categories is a decline of $18.7 million in single family residential loans
which is consistent with the Bank's strategy of de-emphasizing the retention
of single family mortgage loans for its portfolio. Under the Bank's current
lending strategy, substantially all new fixed-rate single family residential
loans are sold into the secondary market.
The following table sets forth the composition of the loan portfolio as of
the dates indicated:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998 March 31, 1998
------------------- ------------------- -----------------
Balance Percent Balance Percent Balance Percent
---------- ------- ---------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential, one to
four units............ $ 251,728 21.2% $ 270,444 24.2% $345,608 34.7%
Residential,
multifamily........... 199,256 16.8 167,545 15.0 145,973 14.6
Commercial and
industrial real
estate................ 381,220 32.1 358,850 32.0 295,012 29.6
Construction........... 87,873 7.4 78,922 7.0 32,795 3.3
---------- ----- ---------- ----- -------- -----
Total real estate
loans................ 920,077 77.5 875,761 78.2 819,388 82.2
---------- ----- ---------- ----- -------- -----
Other loans:
Business, commercial... 246,582 20.8 223,318 20.0 164,579 16.5
Automobile............. 4,652 0.4 4,972 0.4 5,429 0.5
Other consumer......... 15,594 1.3 15,156 1.4 8,075 0.8
---------- ----- ---------- ----- -------- -----
Total other loans..... 266,828 22.5 243,446 21.8 178,083 17.8
---------- ----- ---------- ----- -------- -----
Total gross loans.... 1,186,905 100.0% 1,119,207 100.0% 997,471 100.0%
===== ===== =====
Unearned fees, premiums
and discounts, net..... (1,624) (2,122) (2,432)
Allowance for loan
losses................. (17,560) (16,506) (12,947)
---------- ---------- --------
Loans receivable,
net.................. $1,167,721 $1,100,579 $982,092
========== ========== ========
</TABLE>
15
<PAGE>
Nonperforming Assets
Nonaccrual loans, which include loans 90 days or more past due, totaled $4.0
million at March 31, 1999, compared with $9.8 million at December 31,1998. The
$5.8 million decrease in nonaccrual loans is primarily due to $4.8 million in
payoffs, $1.5 million in loans brought current and one loan for $270 thousand
that was transferred to other real estate owned. These decreases in nonaccrual
loans were offset in part by three single family loans totaling $746 thousand
and one commercial real estate loan for $43 thousand that were placed on
nonaccrual status during the first quarter of 1999.
Restructured loans or loans that have had their original terms modified
totaled $6.2 million at March 31, 1999, representing a slight increase of $218
thousand from the $5.9 million reported at December 31, 1998. The increase in
restructured loans is primarily due to the addition of one commercial loan.
Other real estate owned ("OREO") includes properties acquired through
foreclosure or through full or partial satisfaction of loans. Other real
estate owned totaled $3.6 million, $4.6 million and $6.0 million at March 31,
1999, December 31, 1998 and March 31, 1998, respectively. For the three months
ended March 31, 1999, one multifamily property with a book value of $270
thousand was added to OREO and six properties with a combined book value of
$1.3 million were sold.
The following table sets forth information regarding nonaccrual loans,
restructured loans and other real estate owned as of the dates indicated:
<TABLE>
<CAPTION>
June
March 31, December 31, September 30, 30,
1999 1998 1998 1998
--------- ------------ ------------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Nonaccrual loans............. $ 3,983 $ 9,762 $ 9,415 $ 4,378
Loans past due 90 days or
more but not on nonaccrual.. -- 129 -- --
------- ------- ------- -------
Total nonperforming loans.. 3,983 9,891 9,415 4,378
------- ------- ------- -------
Restructured loans........... 6,154 5,936 6,430 6,279
Other real estate owned,
net......................... 3,585 4,600 5,088 5,386
------- ------- ------- -------
Total nonperforming
assets.................... $13,722 $20,427 $20,933 $16,043
======= ======= ======= =======
Total nonperforming assets to
total assets................ 0.69% 0.99% 1.12% 0.89%
Allowance for loan losses to
nonperforming loans......... 440.87 166.88 167.92 324.65
Nonperforming loans to total
gross loans................. 0.34 0.88 0.90 0.44
</TABLE>
Loans classified as impaired totaled $10.9 million at March 31, 1999,
compared with $10.0 million at December 31, 1998. Specific reserves on
impaired loans were $540 thousand and $350 thousand as of March 31, 1999 and
December 31, 1998, respectively. Chargeoffs related to impaired loans totaled
$1.6 million during the three months ended March 31, 1999. A significant
portion of the impaired loans, 62% at March 31, 1999 and 67% at December 31,
1998, were secured by real estate. The Bank's average recorded investment in
impaired loans for the three months ended March 31, 1999 was $11.1 million.
During the three months ended March 31, 1999, gross interest income that would
have been recorded on impaired loans, had they performed in accordance with
their original terms, totaled $263 thousand. Of this amount, actual interest
recognized on impaired loans, on a cash basis, was $210 thousand.
Allowance for Loan Losses
A certain degree of risk is inherent in the extension of credit. The
allowance for loan losses is maintained at a level considered by management to
be commensurate with the estimated known and inherent risks in the existing
portfolio. Management performs an ongoing assessment of the risks inherent in
the loan portfolio. The allowance for loan losses is increased by the
provision for loan losses which is charged against current period
16
<PAGE>
operating results, and is decreased by the amount of net charge-offs during
the period. The Bank determines the level of the allowance for loan losses,
and correspondingly, the provision for loan losses based upon various
judgments and assumptions, including general economic conditions (especially
in California), loan portfolio composition and concentrations, prior loan loss
experience, collateral value, identification of problem and potential problem
loans, and other relevant data. While management believes that the allowance
for loan losses is adequate at March 31, 1999, future additions to the
allowance will be subject to continuing evaluation of inherent risks in the
loan portfolio.
At March 31, 1999, the allowance for loan losses amounted to $17.6 million,
or 1.48% of total loans, as compared to $16.5 million, or 1.47% of total
loans, at December 31, 1998, and $12.9 million, or 1.30% of total loans, at
March 31, 1998. The following table summarizes activity in the allowance for
loan losses for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1999 1998
------------ -----------
(Dollars in thousands)
<S> <C> <C>
Allowance balance at beginning of period............ $ 16,506 $ 12,273
Provision for loan losses........................... 1,200 1,742
Actual chargeoffs:
1-4 family residential real estate................. 3 68
Multifamily real estate............................ -- 33
Commercial and industrial real estate.............. -- 60
Business, commercial............................... 327 1,361
Automobile......................................... -- 43
Other.............................................. -- 3
------------ ----------
Total chargeoffs.................................. 330 1,568
------------ ----------
Recoveries:
1-4 family residential real estate................. -- 71
Multifamily real estate............................ 70 --
Commercial and industrial real estate.............. 70 275
Business, commercial............................... 30 143
Automobile......................................... 14 11
Other.............................................. -- --
------------ ----------
Total recoveries.................................. 184 500
------------ ----------
Net chargeoffs................................... 146 1,068
------------ ----------
Allowance balance at end of period.................. $ 17,560 $ 12,947
============ ==========
Average net loans outstanding....................... $ 1,131,692 $ 974,749
============ ==========
Total gross loans outstanding at end of period...... $ 1,186,905 $ 997,471
============ ==========
Net chargeoffs to average loans..................... 0.01% 0.11%
Allowance for loan losses to total gross loans at
end of year........................................ 1.48 1.30
Provision for loan losses to net chargeoffs......... 8.22 1.63
</TABLE>
The provision for loan losses totaled $1.2 million for the quarter ended
March 31, 1999, as compared to $1.7 million for the same period in 1998. The
decline reflects improvement in the Company's asset quality. Net chargeoffs
totaled $146 thousand for the three months ended March 31, 1999, a significant
reduction from $1.1 million for the same period a year ago. As a percentage of
average loans outstanding, net charge-offs were 0.01% and 0.11%, respectively,
for the three months ended March 31, 1999 and 1998.
17
<PAGE>
The Bank uses several methodologies to test the overall adequacy of the
allowance. The two primary methodologies, the classification migration model
and the individual loan review analysis methodology, provide the basis for
determining the overall adequacy of the allowance. These methodologies are
augmented by ancillary analyses, which include historical loss analyses, peer
group comparisons, and analyses based on the federal regulatory interagency
policy for loan and lease losses. The Bank also performs an analysis to
quantify the potential impact on asset quality created by customer
preparedness or lack thereof to "Year 2000" technology requirements.
The classification migration model utilizes net losses incurred by the Bank
during the preceding five years in conjunction with current asset
classifications to extrapolate loss factors for various loan categories in
determining an estimated allowance requirement. The individual loan review
analysis method provides a more contemporaneous assessment of the portfolio by
incorporating individual asset evaluations prepared by the Bank's credit
administration department. Loans are reviewed at least annually and more
frequently if warranted by circumstances. Real estate loans and commercial
business loans not subject to individual loan review, as well as out-of-cycle
individually reviewed loans, are monitored based on problem loan indicators
such as loan payment and property tax status. The estimated exposure and
subsequent charge-offs that result from these individual loan reviews provide
the basis for loss factors assigned to the various loan categories.
The following table reflects management's allocation of the allowance for
loan losses by loan category and the ratio of each loan category to total
loans as of the dates indicated:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
--------------- -------------------
Amount Percent Amount Percent
------- ------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
1-4 family residential real estate...... $ 391 21.2% $ 500 24.2%
Multifamily real estate................. 2,686 16.8 2,435 15.0
Commercial and industrial real estate... 2,772 32.1 1,373 32.0
Construction............................ 1,277 7.4 2,339 7.0
Business, commercial.................... 7,071 20.8 7,679 20.0
Automobile.............................. 25 0.4 45 0.4
Consumer and other...................... 15 1.3 22 1.4
Year 2000 exposure...................... 500 600
Unallocated............................. 2,823 1,513
------- ----- --------- -------
Total................................. $17,560 100.0% $ 16,506 100.0%
======= ===== ========= =======
</TABLE>
The allowance for loan losses of $17.6 million at March 31, 1999 exceeded
the Bank's estimated allowance requirement by $3.3 million. The estimated
allowance requirement as of March 31, 1999 was $14.2 million as compared to
$14.4 million as of December 31, 1998. The improvement in the requirement is
indicative of improved asset quality. Notwithstanding this improvement,
however, the Bank continues to record loan loss provisions on a monthly basis
to compensate for actual and anticipated growth in the various loan
portfolios. Moreover, it is management's opinion that the commercial loan
portfolio has not fully seasoned, and therefore, current positive loss trends
and loan quality may not necessarily be reflective of potential future losses.
As of March 31, 1999, the Bank has earmarked $500 thousand of the
unallocated allowance to absorb any potential exposure to "Year 2000" issues.
The remaining unallocated allowance at March 31, 1999 is $2.8 million compared
to the $1.5 million unallocated allowance at December 31, 1998. These amounts
represent 16% and 9% of the total allowance for loan losses at March 31, 1999
and December 31, 1998, respectively. The maintenance of the unallocated
portion of the allowance is considered necessary for the reasons outlined in
the preceding paragraph. Specifically, management believes that the
maintenance of the unallocated portion of the allowance is considered prudent
to mitigate the uncertainties associated with the Bank's relatively untested
loan portfolios. Loan seasoning, economic conditions, growth projections,
sustained asset classification trends, and loan concentrations are some of the
factors considered when determining the necessity, or lack thereof, for the
unallocated allowance amount.
18
<PAGE>
Deposits
Deposits of $1.31 billion at March 31, 1999, represented an increase of
$14.9 million or 1% over December 31, 1998. The increase in deposits is
comprised primarily of increases in time deposits of $18.0 million or 2%
partially offset by a slight decrease in noninterest-bearing demand accounts
of $4.3 million or 4%. The increase in time deposits during the first quarter
of 1999 is largely a due to a promotion associated with the Chinese New Year
holiday. Although the Company occasionally promotes certain time deposit
products, its efforts are largely concentrated in increasing the volume of
low-cost transaction accounts which generate higher fee income and are a less
costly source of funds in comparison to time deposits. The average balance of
non-time deposit accounts, which include noninterest-bearing demand accounts,
interest-bearing checking accounts, savings deposits and money market
accounts, increased $67.5 million or 18% during the three months ended March
31, 1999, compared with the same period in 1998. This increase was comprised
of a $31.8 million or 47% increase in noninterest-bearing demand accounts, a
$16.8 million or 8% increase in savings deposits, a $15.8 million or 71%
increase in money market accounts and a $3.1 million or 4% increase in
interest-bearing checking accounts.
Borrowings
Short-term borrowings, which consist primarily of federal funds purchased
and securities sold under agreements to repurchase, decreased $11.9 million or
57% to $21.1 million as of March 31, 1999 from $33.0 million as of December
31, 1998. FHLB advances totaled $500.0 million as of March 31, 1999,
representing a $63.0 million or 13% decrease from the December 31, 1998
balance of $563.0 million. Decreases or repayments in both short-term
borrowings and FHLB advances were derived from proceeds resulting from the
sale of mortgage-backed securities.
Capital Resources
The primary source of capital for the Company is the retention of net after
tax earnings. At March 31, 1999, stockholders' equity totaled $148.9 million,
a decrease of $1.9 million or 1% from $150.8 million as of December 31, 1998.
The decrease is due primarily to: (i) repurchase of $7.0 million or 725,000
shares of common stock authorized by the Board of Directors during the first
quarter of 1999; (ii) payment of a $0.03 per share quarterly cash dividend
totaling $714 thousand in February 1999; and (iii) a net increase of $207
thousand in unrealized losses on available-for-sale securities. These
transactions were offset in part by first quarter 1999 net income of $6.0
million.
On March 29, 1999, the Company's Board of Directors authorized a second
stock repurchase program, authorizing the repurchase of an additional $7.0
million of the Company's common stock. As of April 30, 1999, the Company had
repurchased $1.2 million or 125,000 shares of the total $7.0 million
authorized in the second repurchase program.
Management is committed to maintaining capital at a level sufficient to
assure shareholders, customers and regulators that the Company and its bank
subsidiary are financially sound. The Company and its bank subsidiary are
subject to risk-based capital regulations adopted by the federal banking
regulators in January 1990. These guidelines are used to evaluate capital
adequacy and are based on an institution's asset risk profile and off-balance
sheet exposures. According to the regulations, institutions whose Tier 1 and
total capital ratios meet or exceed 6% and 10%, respectively, are deemed to be
"well-capitalized." At March 31, 1999, the Company's Tier 1 and total capital
ratios were 10.15% and 11.36%, respectively, compared to 10.28% and 11.42%,
respectively, at December 31, 1998, and 12.01% and 13.19%, respectively, at
March 31, 1998.
19
<PAGE>
The following table compares the Company's and the Bank's actual capital
ratios at March 31, 1999, to those required by regulatory agencies for capital
adequacy and well-capitalized classification purposes:
<TABLE>
<CAPTION>
Minimum Well
East West East West Regulatory Capitalized
Bancorp Bank Requirements Requirements
--------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Total Capital (to Risk-
Weighted Assets)............ 11.36% 11.35% 8.0% 10.0%
Tier 1 Capital (to Risk-
Weighted Assets)............ 10.15 10.14 4.0 6.0
Tier 1 Capital (to Average
Assets)..................... 7.28 7.24 4.0 5.0
</TABLE>
ASSET LIABILITY AND MARKET RISK MANAGEMENT
Liquidity
Liquidity management involves the Bank's ability to meet cash flow
requirements arising from fluctuations in deposit levels and demands of daily
operations, which include funding of securities purchases, providing for
customers' credit needs and ongoing repayment of borrowings. The Bank's
liquidity is actively managed on a daily basis and reviewed periodically by
the Asset/Liability Committee and the Board of Directors. This process is
intended to ensure the maintenance of sufficient funds to meet the needs of
the Bank, including adequate cash flow for off-balance sheet instruments.
The Bank's primary sources of liquidity are derived from financing
activities which include the acceptance of customer deposits, federal funds
facilities, repurchase agreement facilities and advances from the Federal Home
Loan Bank of San Francisco. These funding sources are augmented by payments of
principal and interest on loans, the routine liquidation of securities from
the available-for-sale portfolio and securitizations of eligible loans.
Primary uses of funds include withdrawal of and interest payments on deposits,
originations and purchases of loans, purchases of investment securities, and
payment of operating of operating expenses.
For the three months ended March 31, 1999, the Bank experienced net cash
outflows from both its financing and investing activities. The net cash
outflow from financing activities of approximately $68.7 million can be
attributed primarily to the partial repayment of FHLB advances and short-term
borrowings. The net cash outflow of $25.7 million from investing activities is
largely due to the growth in the Bank's loan portfolio. Partially offsetting
these net cash outflows from financing and investing activities is $14.2
million in net cash provided by operating activities, primarily derived from
increased interest income received on loans and investment securities and net
proceeds from sales of loans held for sale.
As a means of augmenting its liquidity, the Bank has established federal
funds lines with two correspondent banks and several master repurchase
agreements with major brokerage companies. At March 31, 1999, the Bank's
available borrowing capacity includes approximately $14.0 million in
repurchase arrangements and $35.0 million in federal funds line facilities.
Management believes its liquidity sources to be stable and adequate. At March
31, 1999, management was not aware of any information that would result in or
that was reasonably likely to have a material effect on the Bank's liquidity
position.
The liquidity of the parent company, East West Bancorp, Inc. is primarily
dependent on the payment of cash dividends by its subsidiary, East West Bank,
subject to limitations imposed by the Financial Code of the State of
California. For the first quarter of 1999, East West Bank declared dividends
amounting to $8.0 million to East West Bancorp, Inc. As of March 31, 1999,
approximately $24.2 million of undivided profits of the Bank was available for
dividends to the Company.
Interest Rate Sensitivity Management
The Bank's success is largely dependent upon its ability to manage interest
rate risk, which is the impact of adverse fluctuations in interest rates on
the Bank's net interest income and net portfolio value. Although in the normal
course of business the Bank manages other risks, such as credit and liquidity
risk, management considers interest rate risk to be its most significant
market risk and could potentially have the largest material effect on the
Bank's financial condition and results of operations.
20
<PAGE>
The fundamental objective of the asset liability management process is to
manage the Bank's exposure to interest rate fluctuations while maintaining
adequate levels of liquidity and capital. The Bank's strategy is formulated by
the Asset/Liability Committee, which coordinates with the Board of Directors
to monitor the Bank's overall asset and liability composition. The Committee
meets regularly to evaluate, among other things, the sensitivity of the Bank's
assets and liabilities to interest rate changes, the book and market values of
assets and liabilities, unrealized gains and losses on its available-for-sale
portfolio (including those attributable to hedging transactions), purchase and
securitization activity, and maturities of investments and borrowings.
The Bank's overall strategy is to minimize the adverse impact of immediate
incremental changes in market interest rates (rate shock) on net interest
income and net portfolio value. Net portfolio value is defined as the present
value of assets, minus the present value of liabilities and off-balance sheet
instruments. The attainment of this goal requires a balance between
profitability, liquidity and interest rate risk exposure. The table below
shows the estimated impact of changes in interest rates on net interest income
and market value of equity as of March 31, 1999, assuming a parallel shift of
100 to 200 basis points in both directions:
<TABLE>
<CAPTION>
Change in Interest Rates Net Interest Income Net Portfolio Value
(Basis Points) Volatility (1) Volatility (2)
------------------------ ------------------- -------------------
<S> <C> <C>
+200 1.1% (8.2)%
+100 2.6% (1.4)%
-100 (3.8)% (4.8)%
-200 (7.2)% (10.5)%
</TABLE>
- --------
(1) The percentage change represents net interest income for twelve months in
a stable interest rate environment versus the net interest income in the
various rate scenarios.
(2) The percentage change represents net portfolio value of the Bank in a
stable rate environment versus the net portfolio value in the various rate
scenarios.
All interest-earning assets, interest-bearing liabilities and derivative
contracts are included in the interest rate sensitivity analysis at March 31,
1999. At March 31, 1999, the Bank's estimated changes in net interest income
and net portfolio value were within the ranges established by the Board of
Directors.
The primary analytical tool used by the Bank to gauge interest rate
sensitivity is a simulation model used by many major banks and bank
regulators, and is based on the actual maturity and repricing characteristics
of interest-rate sensitive assets and liabilities. The model attempts to
predict changes in the yields earned on assets and the rates paid on
liabilities in relation to changes in market interest rates. The model also
incorporates prepayment assumptions and market rates of interest provided by
independent broker/dealer quotations, an independent pricing model and other
available public sources. Adjustments are made to reflect the shift in the
Treasury and other appropriate yield curves. The model factors in projections
of anticipated activity levels by Bank product line and takes into account the
Bank's increased ability to control rates offered on deposit products in
comparison to its ability to control rates on adjustable-rate loans tied to
published indices.
21
<PAGE>
The following table provides the outstanding principal balances and the
weighted average interest rates of the Bank's non-derivative financial
instruments as of March 31, 1999. The Bank does not consider these financial
instruments to be materially sensitive to interest rate fluctuations.
Historically, the balances of these financial instruments have remained fairly
constant over various economic conditions. The information presented below is
based on the repricing date for variable rate instruments and the expected
maturity date for fixed rate instruments.
<TABLE>
<CAPTION>
Expected Maturity or Repricing Date by Year
-------------------------------------------------------- Fair value at
After March 31,
1999 2000 2001 2002 2003 2003 Total 1999
---------- ------- ------- ------- -------- ------- ---------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Short-term investments.. $ 54,000 $ -- $ -- $ -- $ -- $ -- $ 54,000 $ 54,000
Weighted average rate.. 5.65% -- % -- % -- % -- % -- % 5.65%
Investment securities
available-for-sale
(fixed rate)........... $ 85,264 $59,112 $40,960 $28,368 $ 19,637 $43,866 $ 277,207 $ 276,383
Weighted average rate.. 6.33% 6.33% 6.33% 6.33% 6.33% 6.31% 6.33%
Investment securities
available-for-sale
(variable rate)........ $ 361,181 $ -- $ -- $ -- $ -- $ -- $ 361,181 $ 360,691
Weighted average rate.. 5.66% -- % -- % -- % -- % -- % 5.66%
Total gross loans....... $1,064,327 $41,288 $26,527 $19,219 $ 17,719 $17,825 $1,186,905 $1,194,959
Weighted average rate.. 7.96% 8.00% 8.30% 8.36% 8.39% 8.16% 7.98%
Liabilities:
Checking accounts....... $ 81,059 $ -- $ -- $ -- $ -- $ -- $ 81,059 $ 81,059
Weighted average rate.. 1.15% -- % -- % -- % -- % -- % 1.15%
Money market accounts... $ 41,988 $ -- $ -- $ -- $ -- $ -- $ 41,988 $ 41,988
Weighted average rate.. 3.04% -- % -- % -- % -- % -- % 3.04%
Savings deposits........ $ 216,756 $ -- $ -- $ -- $ -- $ -- $ 216,756 $ 216,756
Weighted average rate.. 1.90% -- % -- % -- % -- % -- % 1.90%
Time deposits........... $ 844,199 $22,023 $ 483 $ 743 $ 1,764 $ -- $ 869,212 $ 869,170
Weighted average rate.. 4.62% 4.87% 5.76% 5.50% 5.64% -- % 4.63%
Short-term borrowings... $ 21,078 $ -- $ -- $ -- $ -- $ -- $ 21,078 $ 21,078
Weighted average rate.. 4.89% -- % -- % -- % -- % -- % 4.89%
FHLB advances........... $ 381,000 $10,000 $ -- $ -- $109,000 $ -- $ 500,000 $ 502,175
Weighted average rate.. 4.93% 5.50% -- % -- % 5.20% -- % 5.00%
</TABLE>
Expected maturities of assets are contractual maturities adjusted for
projected payment based on contractual amortization and unscheduled
prepayments of principal as well as repricing frequency. Expected maturities
for deposits are based on contractual maturities adjusted for projected
rollover rates and changes in pricing for deposits with no stated maturity
dates. The Bank utilizes assumptions supported by documented analyses for the
expected maturities of its loans and repricing of its deposits. It also relies
on third party data providers for prepayment projections for amortizing
securities. The actual maturities of these instruments could vary
significantly if future prepayments and repricing differ from the Bank's
expectations based on historical experience.
The fair values of short-term investments approximate their book values due
to their short maturities. The fair values of available for sale securities
are based on bid quotations from third party data providers. The fair values
of loans are estimated for portfolios with similar financial characteristics
and takes into consideration discounted cash flows based on expected
maturities or repricing dates utilizing estimated market discount rates as
projected by third party data providers.
Transaction deposit accounts, which include checking, money market and
savings accounts, are presumed to have equal book and fair values because the
interest rates paid on these accounts are based on prevailing market rates.
The fair value of time deposits is based upon the discounted value of
contractual cash flows, which is estimated using current rates offered for
deposits of similar remaining terms. The fair value of short-term borrowings
approximates book value due to their short maturities. The fair value of FHLB
advances is estimated
22
<PAGE>
by discounting the cash flows through maturity or the next repricing date
based on current rates offered by the FHLB for borrowings with similar
maturities.
The Asset/Liability Committee is authorized to utilize a wide variety of
off-balance sheet financial techniques to assist in the management of interest
rate risk. Derivative positions are integral components of the Bank's
asset/liability management strategy. Therefore, the Bank does not believe it
is meaningful to separately analyze the derivatives components of its risk
management activities in isolation from their related positions. The Bank uses
derivative instruments, primarily interest rate swap and cap agreements, as
part of its management of asset and liability positions in connection with its
overall goal of minimizing the impact of interest rate fluctuations on the
Bank's net interest margin or its stockholders' equity. These contracts are
entered into for purposes of reducing the Bank's interest rate risk and not
for trading purposes.
Interest rate swaps were designated for purposes of converting fixed rate
loans to floating rate assets while interest rate cap agreements were
designated as hedges against certain securities in the available-for-sale
portfolio. The total gross notional amount of the interest rate swaps on March
31, 1999 was $28.5 million. The net unrealized loss on the swap agreement
portfolio was $1.2 million compared to a net unrealized loss of $1.5 million
at December 31, 1998.
Interest rate caps are used as hedges against market fluctuations in the
Bank's available-for-sale securities portfolio. The total gross notional
amount of interest rate cap agreements on March 31, 1999 was $36.0 million.
The net unrealized loss on the cap agreement portfolio was $509 thousand
compared to a net unrealized loss of $580 thousand at December 31, 1998. These
cap agreements are primarily linked to the three-month LIBOR.
The following table summarizes the expected maturities, weighted average pay
and receive rates, and the unrealized gains and losses of the Bank's interest
rate contracts as of March 31, 1999. The fair values reflected in the table
are based on quoted market prices from broker dealers making a market for
these derivatives.
<TABLE>
<CAPTION>
Expected Maturity
------------------------------------- Average
After Unrealized Expected
1999 2000 2001 2002 2002 Total Gain (Loss) Maturity
----- ----- ------- ------- ----- ------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest rate swap
agreements:
Notional amount......... $ -- $ -- $10,000 $18,500 $ -- $28,500 $(1,154) 3.2 Years
Weighted average receive
rate................... --% --% 5.34% 5.39% --% 5.37%
Weighted average pay
rate................... --% --% 6.46% 6.45% --% 6.46%
Interest rate cap
agreements:
Notional amount......... $ -- $ -- $18,000 $18,000 $ -- $36,000 $ (509) 2.8 Years
LIBOR cap rate.......... --% --% 6.50% 7.00% --% 6.75%
</TABLE>
Year 2000
Many computer programs were designed and developed using only two digits in
date fields, resulting in the inability to recognize the year 2000 or years
thereafter. This "Year 2000" issue creates risks for the Bank from unforseen
or unanticipated problems in its internal computer systems as well as from
computer systems of the Federal Reserve Bank, correspondent banks, customers,
and vendors. Failures of these systems or untimely corrections could have a
material adverse impact on the Bank's ability to conduct its business and
results of operations.
The Bank's computer systems and programs are designed and supported by
companies specifically in the business of providing such products and
services. The Bank has formed a Year 2000 committee comprised of certain of
the Bank's officers to address the "Year 2000" issue. The committee's Year
2000 plan includes holding awareness seminars; evaluating existing hardware,
software, ATMs, vaults, alarm systems, communication systems, and other
electrical devices; testing critical application programs and systems, both
internally and externally; establishing a contingency plan; and upgrading
hardware and software as necessary.
23
<PAGE>
As of March 31, 1999, the Bank has successfully completed the awareness,
assessment and remediation phases of the Year 2000 plan and is currently in
the validation testing and implementation phases of the plan. The plan is on
schedule. All of the Bank's critical systems are programmed, serviced or
provided by outside system vendors. With the exception of the wire transfer
system, which is expected to be certified in May 1999, substantially all of
the systems that were identified in the assessment phase as critical to the
Bank's operations have been tested and certified as compliant by the various
"system owners" of the Bank. This meets the Federal Financial Institutions
Examination Council's ("FFIEC") time frame for year 2000 progress. The Bank
has also been reviewing and coordinating relationships with "secondary"
systems vendors, borrowers, and other third parties to ensure that their
systems will be "Year 2000" compliant. These vendors have informed the Bank
that their "Year 2000" projects are on schedule and progress is being
monitored by Bank personnel. In addition, as discussed below, manual data
processing of business functions is part of the Bank's contingency plan.
In addition to these software applications, much of the Bank's hardware and
network infrastructure is being replaced as part of the "Year 2000" plan. The
Bank has developed a detailed project plan for the replacement. The principal
elements are the replacement of the router network and the replacement or
upgrading of personal computers. The router network has already been replaced
and the replacement or upgrading of personal computers is in process and is
expected to be substantially complete by June 30, 1999. The hardware and
network infrastructure replacement cost of $750 thousand represents the
largest portion of the "Year 2000" plan total budget of $1.0 million. The Bank
has incurred $547 thousand in "Year 2000" expenses to date, $249 thousand of
which was incurred during 1999.
Non-information technology systems are expected to function well in 2000 and
beyond; none have been identified with "Year 2000" problems. The Bank's
environmental systems have been reviewed by the Bank's administrative services
personnel and vendor indications have been received in writing for all such
systems. In addition, the Bank has obtained a written indication of "Year
2000" compliance from the local energy company. Indications of "Year 2000"
readiness have also been received from the telecommunications companies on
which the Bank depends.
The contingency plan provides for changing outside vendors if current
vendors cannot meet their schedules to be "Year 2000" compliant and for manual
processing and other action by the Bank in the event a problem is not
discovered in a critical system that has previously been tested and certified
as compliant. An expected reasonable "worst case" scenario is that,
notwithstanding the testing and certification of all the Bank's critical
systems beforehand, a problem is discovered in the year 2000 that impacts the
core accounting systems. In this event, the Bank would be required to perform
many business functions manually until such time as the responsible vendor
corrects the problem. Such manual processing of functions is provided for in
the Bank's contingency plans, which have been reviewed and updated as of March
31, 1999. In October 1998, the Bank tested the transition from computer-
performed operations to "offline" manual operations at all branch locations.
The test was conducted while an outside vendor shut down the Bank's system to
perform "Year 2000" repairs. During the shut down, the transition to manual
procedures worked as planned. Other elements of the Bank's contingency plan
will be tested during 1999, as is the case with wire transfer operations which
were successfully tested at the Bank's offsite contingency location during
January 1999. The Bank's contingency plan will be independently reviewed by
June 30, 1999 in accordance with the FFIEC's "Year 2000" progress time frame.
Business Segments
The Company has four reportable segments: retail banking, commercial
lending, treasury and residential lending. The retail banking segment is
responsible for generating retail and commercial loans and deposits from the
23 branch locations in California. The commercial lending segment generates
commercial loans and deposits from its production offices in northern and
southern California. The treasury department is responsible for managing the
Company's investments, liquidity, and interest rate risk. The residential
lending segment is responsible for the portfolio of single-family and
multifamily residential loans.
The Company's reportable segments are strategic business units that offer
financial products and services. They are managed separately because the
retail branches focus primarily on retail operations, but some of the branches
do generate commercial loans and deposits. The commercial lending segment
specifically generates commercial loans and deposits through the efforts of
commercial lending officers.
24
<PAGE>
The following tables present information pertaining to the Company's
reportable business segments for the three months ended March 31, 1999 and
1998:
Three Months Ended March 31, 1999
(unaudited)
<TABLE>
<CAPTION>
Retail Commercial Residential
Banking Lending Treasury Lending Adjustments Total
-------- ---------- -------- ----------- ----------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income......... $ 5,467 $ 8,310 $ 11,363 $ 8,830 $ 692 $ 34,662
Charges for funds used.. (3,218) (4,772) (9,725) (5,823) -- (23,538)
-------- -------- -------- -------- ------- ----------
Interest spread on
funds used............ 2,249 3,538 1,638 3,007 692 11,124
-------- -------- -------- -------- ------- ----------
Interest expense........ (9,570) (672) (8,189) -- -- (18,431)
Credit on funds
provided............... 13,322 1,110 9,106 -- -- 23,538
-------- -------- -------- -------- ------- ----------
Interest spread on
funds provided........ 3,752 438 917 -- -- 5,107
-------- -------- -------- -------- ------- ----------
Net interest income... $ 6,001 $ 3,976 $ 2,555 $ 3,007 $ 692 $ 16,231
======== ======== ======== ======== ======= ==========
Depreciation and
amortization........... $ 367 $ 61 $ 1 $ -- $ 107 $ 536
Segment pretax profit... 855 3,753 2,570 2,368 -- 9,546
Segment assets.......... 272,416 432,583 724,366 483,488 88,205 2,001,058
</TABLE>
Three Months Ended March 31, 1998
(unaudited)
<TABLE>
<CAPTION>
Retail Commercial Residential
Banking Lending Treasury Lending Adjustments Total
-------- ---------- -------- ----------- ----------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income......... $ 3,483 $ 6,374 $ 8,324 $ 9,994 $ 407 $ 28,582
Charges for funds used.. (2,215) (3,772) (7,002) (8,377) -- (21,366)
-------- -------- -------- -------- ------- ----------
Interest spread on
funds used............ 1,268 2,602 1,322 1,617 407 7,216
-------- -------- -------- -------- ------- ----------
Interest expense........ (10,845) (636) (4,703) -- -- (16,184)
Credit on funds
provided............... 14,922 928 5,516 -- -- 21,366
-------- -------- -------- -------- ------- ----------
Interest spread on
funds provided........ 4,077 292 813 -- -- 5,182
-------- -------- -------- -------- ------- ----------
Net interest income... $ 5,345 $ 2,894 $ 2,135 $ 1,617 $ 407 $ 12,398
======== ======== ======== ======== ======= ==========
Depreciation and
amortization........... $ 393 $ 33 $ 1 $ -- $ 112 $ 539
Segment pretax profit... 167 2,425 1,442 484 -- 4,518
Segment assets.......... 169,510 308,464 587,818 502,149 93,293 1,661,234
</TABLE>
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISKS
For quantitative and qualitative disclosures regarding market risks in the
Company's portfolio, see, "Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations--Asset Liability and Market Risk
Management."
25
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Bank nor the Company is involved in any material legal
proceedings. The Bank, from time to time, is party to litigation which arises
in the ordinary course of business, such as claims to enforce liens, claims
involving the origination and servicing of loans, and other issues related to
the business of the Bank. In the opinion of management, the resolution of any
such issues would not have a material adverse impact on the financial
position, results of operations, or liquidity of the Bank or the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
No events have transpired which would make response to this item
appropriate.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
No events have transpired which would make response to this item
appropriate.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No events have transpired which would make response to this item
appropriate.
ITEM 5. OTHER INFORMATION
No events have transpired which would make response to this item
appropriate.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Index
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<C> <S>
27 Financial Data Schedule
</TABLE>
All other material referenced in this report which is required to be filed
as an exhibit hereto has previously been submitted.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the first quarter of 1999.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: May 5, 1999
EAST WEST BANCORP, INC.
(Registrant)
By /s/ Julia Gouw
-----------------------------------
JULIA GOUW
Executive Vice President and
Chief Financial Officer
27
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the Bank's
Balance Sheet as of March 31, 1999, and Statement of Earnings for the three
months ended March 31, 1999 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 26,954
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 54,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 637,074
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,167,721
<ALLOWANCE> 17,560
<TOTAL-ASSETS> 2,001,058
<DEPOSITS> 1,307,805
<SHORT-TERM> 21,078
<LIABILITIES-OTHER> 23,263
<LONG-TERM> 500,000
0
0
<COMMON> 23
<OTHER-SE> 148,889
<TOTAL-LIABILITIES-AND-EQUITY> 2,001,058
<INTEREST-LOAN> 23,259
<INTEREST-INVEST> 9,778
<INTEREST-OTHER> 1,625
<INTEREST-TOTAL> 34,662
<INTEREST-DEPOSIT> 11,495
<INTEREST-EXPENSE> 18,431
<INTEREST-INCOME-NET> 16,231
<LOAN-LOSSES> 1,200
<SECURITIES-GAINS> 398
<EXPENSE-OTHER> 8,817
<INCOME-PRETAX> 9,546
<INCOME-PRE-EXTRAORDINARY> 6,012
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,012
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
<YIELD-ACTUAL> 8.22
<LOANS-NON> 3,983
<LOANS-PAST> 0
<LOANS-TROUBLED> 6,154
<LOANS-PROBLEM> 2,370
<ALLOWANCE-OPEN> 16,506
<CHARGE-OFFS> 330
<RECOVERIES> 184
<ALLOWANCE-CLOSE> 17,560
<ALLOWANCE-DOMESTIC> 17,560
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,823
</TABLE>
