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 June 30, 1996
----------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------------- ----------------------
Commission file number 0-18630
---------------------------------------------
CATHAY BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4274680
- - --------------------------------------------------------------------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
777 North Broadway, Los Angeles, California 90012
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (213) 625-4700
----------------------------
- - --------------------------------------------------------------------------------
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common stock, $.01 par value, 7,930,786 shares outstanding as of June 30,
1996.
<PAGE>
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION ............................................. 3
Item 1. Financial Statements .......................................... 4-6
Note to Condensed Consolidated Financial Statements ........... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ..............8-18
PART II - OTHER INFORMATION ................................................ 19
Item 1. Legal Proceedings ............................................. 19
Item 2. Changes in Securities ......................................... 19
Item 3. Defaults upon Senior Securities ............................... 19
Item 4. Submission of Matters to a Vote of Security Holders ........... 19
Item 5. Other Information ........................................... 19
Item 6. Exhibits and Reports on Form 8-K .............................. 20
SIGNATURES ............................................................... 21
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
3
<PAGE>
<TABLE>
CATHAY BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
As of June 30, 1996 and December 31, 1995
(in thousands)
<CAPTION>
June 30, 1996 Dec. 31, 1995
(unaudited) (unaudited)
------------- --------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 30,140 $ 70,126
Federal funds sold 44,300 1,200
------------- --------------
Cash and cash equivalents 74,440 71,326
Securities available-for-sale 300,435 243,252
Securities held-to-maturity (with estimated fair values of
$186,108 in 1996 and $164,145 in 1995) 187,566 159,376
Loans (net of allowance for loan losses of
$11,635 in 1996 and $12,742 in 1995) 548,935 542,995
Other real estate owned, net 12,170 13,879
Investments in real estate, net 4,167 4,304
Premises and equipment, net 26,147 26,586
Customers' liability on acceptance 6,117 3,675
Accrued interest receivable 12,328 11,715
Other assets 11,430 10,292
------------- --------------
Total assets $ 1,183,735 $ 1,087,400
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing demand deposits $ 119,929 $ 117,974
Interest bearing accounts
NOW accounts 91,937 88,917
Money market deposits 100,129 102,167
Savings deposits 138,157 134,045
Time deposits under $100,000 190,437 156,927
Time deposits of $100,000 or more 438,154 384,196
------------- --------------
Total deposits 1,078,743 984,226
------------- --------------
Securities sold under agreements to repurchase -- 1,500
Acceptances outstanding 6,117 3,675
Other liabilities 3,184 3,470
------------- --------------
Total liabilities 1,088,044 992,871
------------- --------------
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par value; 10,000,000
shares authorized, none issued -- --
Common stock, $.01 par value; 25,000,000 shares
authorized, 7,930,786 and 7,867,164 shares issued
outstanding in 1996 and 1995, respectively 80 79
Additional paid-in-capital 43,049 42,014
Unrealized holding gain (loss) on securities
available-for-sale, net of tax (2,093) 1,403
Retained earnings 54,655 51,033
------------- --------------
Total stockholders' equity 95,691 94,529
------------- --------------
Total liabilities and stockholders' equity $ 1,183,735 $ 1,087,400
============= ==============
<FN>
See accompanying note to unaudited condensed consolidated financial statements.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
CATHAY BANCORP, INC AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three and six months ended June 30, 1996 and 1995
(In thousands, except per share data)
(unaudited)
<CAPTION>
2nd Qtr. 2nd Qtr. YTD YTD
June 1996 June 1995 June 1996 June 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 13,370 $ 14,375 $ 26,682 $ 28,501
Interest on securities available-for-sale 4,336 1,011 8,016 2,018
Interest on securities held-to-maturity 2,680 2,864 5,049 5,449
Interest on Federal funds sold 405 340 840 527
Interest on deposits with banks -- -- 40 --
----------- ----------- ----------- -----------
Total interest income 20,791 18,590 40,627 36,495
----------- ----------- ----------- -----------
INTEREST EXPENSE
Time deposits of $100,000 or more 5,618 4,117 11,006 7,560
Other deposits 3,884 3,366 7,558 6,478
Other borrowed funds 11 13 57 35
----------- ----------- ----------- -----------
Total interest expense 9,513 7,496 18,621 14,073
----------- ----------- ----------- -----------
Net interest income before provision for loan losses 11,278 11,094 22,006 22,422
Provision for loan losses 900 1,350 1,800 3,000
----------- ----------- ----------- -----------
Net interest income after provision for loan losses 10,378 9,744 20,206 19,422
----------- ----------- ----------- -----------
NON-INTEREST INCOME
Securities gains -- 92 22 140
Letter of credit commissions 322 386 603 751
Service charges 713 763 1,469 1,683
Other operating income 304 172 573 451
----------- ----------- ----------- -----------
Total non-interest income 1,339 1,413 2,667 3,025
----------- ----------- ----------- -----------
NON-INTEREST EXPENSE
Salaries and employee benefits 3,092 3,010 6,197 5,942
Occupancy expense 575 558 1,128 1,083
Computer and equipment expense 516 515 1,023 1,080
Professional services expense 837 324 1,550 1,090
FDIC and State assessments 97 482 183 963
Marketing expense 257 305 586 531
Net other real estate owned expense 812 431 1,309 930
Other operating expense 837 1,386 1,609 2,166
----------- ----------- ----------- -----------
Total non-interest expense 7,023 7,011 13,585 13,785
----------- ----------- ----------- -----------
Income before income tax expense 4,694 4,146 9,288 8,662
Income tax expense 1,598 1,538 3,304 3,310
----------- ----------- ----------- -----------
Net Income $ 3,096 $ 2,608 $ 5,984 $ 5,352
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE, based on the
weighted average number of shares
outstanding during the periods: $ 0.39 0.34 0.76 0.69
Weighted average number of common shares outstanding 7,912,070 7,783,019 7,894,413 7,774,963
<FN>
See accompanying note to unaudited condensed consolidated financial statements.
</FN>
</TABLE>
5
<PAGE>
<TABLE>
CATHAY BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1996 and 1995 (unaudited)
<CAPTION>
(In thousands)
-------------------------
1996 1995
- - ------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 5,984 $ 5,352
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan losses 1,800 3,000
Provision for losses on other real estate owned 1,192 610
Provision for investments in real estate -- 600
Depreciation 736 766
Net gain on sale of other real estate owned (22) (8)
Premises and equipment disposal (gains) losses 1 (1)
Net gain on sales and calls of securities (22) (140)
Amortization and accretion of investment
security premiums, net 396 5
Decrease in deferred loan fees, net (16) (113)
Increase in accrued interest receivable (613) (985)
Decrease in other assets, net 1,429 899
Increase (decrease) in other liabilities (286) 1,399
---------- ---------
Total adjustments 4,595 6,032
---------- ---------
Net cash provided by operating activities 10,579 11,384
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available-for-sale (89,164) (10,169)
Proceeds from maturity and call of securities available-for-sale 25,652 19,700
Purchase of securities held-to-maturity (40,193) (31,749)
Proceeds from maturity and call of securities held-to-maturity 11,894 6,235
Net change in loans (9,243) (4,130)
Purchase of premises and equipment (236) (787)
Proceeds from sale of equipment 7 6
Proceeds from sale of other real estate owned 2,058 3,223
Decrease in investments in real estate 69 --
---------- ---------
Net cash used in investing activities (99,156) (17,671)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW accounts,
money market and savings deposits 7,049 (28,208)
Net increase in time deposits 87,468 51,782
Decrease in other borrowings (1,500) (3,949)
Cash dividends (2,362) (2,341)
Proceeds from issuance of common stock 1,036 415
---------- ---------
Net cash provided by financing activities 91,691 17,699
---------- ---------
Increase in cash and cash equivalents 3,114 11,412
Cash and cash equivalents, beginning of the period 71,326 55,828
---------- ---------
Cash and cash equivalents, end of the period $ 74,440 $67,240
========== =========
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 18,685 $ 14,009
Income taxes $ 2,010 $ 2,838
Non-cash investing activities:
Transfer to securities available-for-sale $ 105 $ --
Net change in unrealized holding gain (loss) on securities
available-for-sale, net of tax $ (3,496) $ 955
Transfers to other real estate owned $ 4,439 $ 14,590
Loans to facilitate the sale of other real estate owned $ 2,920 $ --
<FN>
See accompanying note to unaudited condensed consolidated financial statements.
</FN>
</TABLE>
6
<PAGE>
CATHAY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six months ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996. For further information, refer to the consolidated financial
statements and footnotes included in the Company's annual report on Form 10-K
for year ended December 31, 1995.
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion is given based on the assumption that the reader
has access to the 1995 Annual Report of Cathay Bancorp, Inc. and its subsidiary
Cathay Bank ("the Bank"), together ("Cathay" or the "Company").
RESULTS OF OPERATIONS
For the second quarter of 1996, the Company reported net income of $3.1
million or $0.39 per common share, compared with $2.6 million or $0.34 per
common share for the same quarter of 1995, representing an increase of $488,000
or 18.7%. The increase in the quarterly net income was mainly caused by a
decrease of $450,000 in the provision for loan losses coupled with an increase
of $184,000 in the net interest income before provision for loan losses. The
annualized return on average assets and return on average stockholders' equity
for the second quarter of 1996 were 1.05% and 13.03%, respectively, compared
with 1.08% and 11.75%, respectively for the same quarter in 1995.
For the six months ended June 30, 1996, the Company reported net income of
$6.0 million or $0.76 per common share, compared with $5.4 million or $0.69 per
common share for the same period in 1995, representing an increase of $632,000
or 11.8%. The increase in the 1996 year-to-date net income was primarily due to
a reduction of $1.2 million in the provision for loan losses while the net
interest income declined by $416,000 and non-interest income by $358,000. The
annualized return on average assets and return on average stockholders' equity
for the first six months of 1996 were 1.05% and 12.58%, respectively, compared
with 1.12% and 12.22%, respectively for the corresponding period in 1995.
NET INTEREST INCOME
For the second quarter of 1996, net interest income before provision for
loan losses totaled $11.3 million, compared with $11.1 million for the same
quarter of 1995, representing an increase of $184,000 or 1.7%. On a taxable
equivalent basis, net interest income was $11,518,000 for the second quarter of
1996, an increase of $103,000 or 0.9% over $11,415,000 for the same quarter of
1995. The increase in net interest income was largely attributable to a $220.0
million growth in the average earning assets, which contributed to a $2.2
million increase in total interest income. However, the increase due to volume
was substantially offset by a decrease of 103 basis points from 8.88% to 7.85%
in the average taxable equivalent yield on earning assets. The lower taxable
equivalent yield on average earning assets was mainly due to a decrease of 75
basis points in the Bank's average reference rate on loans from 9.25% to 8.5%,
combined with the effect from continued change in the earning asset mix of loans
and investment securities. Cost of funds dropped slightly between the second
quarter of 1995 and 1996. Net interest margin, defined as taxable equivalent net
interest income to average earning assets, shrank 106 basis points from 5.36% to
4.30%.
For the first six months of 1996 and 1995, net interest income before
provision for loan losses totaled $22.0 million and $22.4 million, respectively,
representing a decrease of $416,000 or 1.9% for 1996. On a taxable equivalent
basis, net interest income totaled $22.6 million and $23.1 million for the first
six months of 1996 and 1995, respectively, representing a decrease of $552,000
or 2.4% for 1996. Average earning assets grew by $195.7 million between the
first six months of 1995 and 1996 contributing to an increase of $4.1 million in
total interest income, which however, was offset by a decline of 90 basis points
in the average taxable equivalent yield on earning assets from 8.84% to 7.94%.
This was primarily a result of lower average reference rate on the Bank's loans
from 9.16% to 8.54% reflecting the prevailing interest rate environment, and a
relative change in the earning assets from loans to investment securities. To
illustrate, average loans consisted of 66.51% of total average earning assets in
the first six months of 1995, but decreased to 53.35% in 1996. In addition, cost
of funds increased by 18 basis points from 3.82% to 4.00% primarily due to a
$194.6 million increase in average interest-bearing liabilities between the
first six months of 1995 and 1996, of which $185.7
8
<PAGE>
million were in higher costing time deposits. Consequently, net interest margin
decreased 114 basis points from 5.49% in the first six months of 1995 to 4.35%
in 1996.
NON-INTEREST INCOME
For the first six months of 1996, non-interest income totaled $2.7 million,
compared with $3.0 million for the same period a year ago. This represents a
decrease of $358,000 or 11.8% resulting primarily from a one-time income of
approximately $205,000 recorded in the first quarter of 1995 and a reduction of
$118,000 in securities gains. The decrease in letter of credit commissions of
$148,000 was due to a reclassification of $141,000 in wire transfer fees to
other operating income.
On a quarterly basis, non-interest income was $1.3 million and $1.4
million, respectively for the second quarter of 1996 and 1995. The decrease in
the 1996 second quarter non-interest income was mainly attributable to a decline
in securities gains of $92,000. The reduction in letter of credit commissions of
$64,000 was caused by a reclassification of wire transfer fees of $78,000 to
other operating income.
<TABLE>
The following tables illustrate the components of non-interest income, as
well as the amount and percentage changes for the periods indicated:
<CAPTION>
(Dollars in thousands)
Six Months Ended Increase Percent
Non-interest income: 06/30/96 06/30/95 (Decrease) Change
-------- -------- ---------- ------
<S> <C> <C> <C> <C>
Letter of credit commissions $ 603 $ 751 $ (148) (19.7)%
Service charges 1,469 1,683 (214) (12.7)
Other operating income 573 451 122 27.1
Securities Gains 22 140 (118) (84.3)
------ ------ -------
Total non-interest income $2,667 $3,025 $ (358) (11.8)%
====== ====== =======
2nd Qtr. 2nd Qtr. Increase Percent
Non-interest income: 1996 1995 (Decrease) Change
--------- --------- ---------- ------
Letter of credit commissions $ 322 $ 386 $ (64) (16.6)%
Service charges 713 763 (50) (6.6)
Other operating income 304 172 132 76.7
Securities Gains -0- 92 (92) (100.0)
------ ------ -------
Total non-interest income $1,339 $1,413 $ (74) (5.2)%
====== ====== =======
</TABLE>
NON-INTEREST EXPENSE
Non-interest expense amounted to $13.6 million and $13.8 million,
respectively for the first six months of 1996 and 1995. The decrease of $200,000
or 1.5% in 1996 was attributed to decreases of $782,000 in FDIC assesment and
$600,000 in the provision for real estate investment ("REI") losses offset by an
increase of $582,000 in the provision for other real estate owned ("OREO")
losses, higher legal fees, and higher salaries expense.
<TABLE>
Quarterly, non-interest expense totaled $7.0 million for the second quarter
of both 1996 and 1995. Nevertheless, this was achieved by a decrease of $600,000
in the provision for REI losses and a decrease of $385,000 in FDIC assessment
offset by an increase of $513,000 in professional services expense mainly due to
legal fees, and an increase of $381,000 in net OREO expense primarily from the
provision for OREO losses mentioned above. The following table presents the
components of the non-interest expense with the amount and percentage changes
for the periods indicated:
9
<PAGE>
<CAPTION>
(Dollars in thousands)
Six Months Ended Increase Percent
Non-interest expense: 06/30/96 06/30/95 (Decrease) Change
-------- -------- ---------- ------
<S> <C> <C> <C> <C>
Salaries and employee benefits $ 6,197 $ 5,942 $ 255 4.3%
Occupancy expense 1,128 1,083 45 4.2
Computer and equipment expense 1,023 1,080 (57) (5.3)
Professional services expense 1,550 1,090 460 42.2
FDIC and State assessments 183 963 (780) (81.0)
Marketing expense 586 531 55 10.4
Net other real estate owned expense 1,309 930 379 40.8
Other operating expense 1,609 2,166 (557) (25.7)
------- --------- -------
Total non-interest expense $13,585 $13,785 $ (200) (1.5)%
======= ======= =======
2nd Qtr. 2nd Qtr. Increase Percent
Non-interest expense: 1996 1995 (Decrease) Change
--------- --------- ---------- ------
Salaries and employee benefits $ 3,092 $ 3,010 $ 82 2.7%
Occupancy expense 575 558 17 3.1
Computer and equipment expense 516 515 1 0.2
Professional services expense 837 324 513 158.3
FDIC and State assessments 97 482 (385) (79.9)
Marketing expense 257 305 (48) (15.7)
Net other real estate owned expense 812 431 381 88.4
Other operating expense 837 1,386 (549) (39.6)
-------- -------- -------
Total non-interest expense $ 7,023 $ 7,011 $ 12 0.2%
======== ======== =======
</TABLE>
FINANCIAL CONDITION
From year-end 1995 to June 30, 1996, total assets grew by $96.3 million or
8.9% to $1,183.7 million; deposits were up $94.5 million or 9.6% to $1,078.7
million; securities available-for-sale increased $57.2 million or 23.5% to
$300.4 million; securities held-to-maturity increased $28.2 million or 17.7% to
$187.6 million; loans, net of unearned fees, advanced moderately to $560.6
million; and stockholders' equity was up slightly to $95.7 million primarily due
to the year-to-date earnings offset by a decrease of $3.5 million in unrealized
holding gains on securities available-for-sale and dividends paid in the amount
of $2.4 million.
EARNING ASSET MIX
Total earning assets amounted to $1,092.9 million as of June 30, 1996,
compared with $974.6 million at year-end 1995, representing an increase of
$118.3 million or 12.1%. A majority of the increase in earning assets was funded
by growth in deposits. A change in the earning asset mix from loans to other
types of investments, primarily securities and Federal funds sold, continued to
exist reflecting the slow loan growth as well as the keen competition for loans
in the Company's market area. However, the change in the earning asset mix
continued to improve the Company's liquidity ratio from 43.6% at year-end 1995
to 48.3% as of June 30, 1996, but it had unfavorably impacted the net interest
margin, which declined 114 basis points comparing the first six months of 1995
and 1996. The table below shows the changes in the earning asset mix as of the
dates indicated:
10
<PAGE>
(Dollars in thousands)
As of 06/30/96 As of 12/31/95
---------------------- --------------------
Types of earning assets: Amount Percent Amount Percent
------ ------- ------ -------
Federal funds sold $ 44,300 4.0% $ 1,200 0.1%
Securities available-for-sale 300,435 27.5 243,252 25.0
Securities held-to-maturity 187,566 17.2 159,376 16.4
Time deposits with other banks -0- -0- 15,001 1.5
Loans (net of deferred fees) 560,570 51.3 555,737 57.0
---------- ----- ---------- -----
Total earning assets $1,092,871 100.0% $ 974,566 100.0%
========== ===== ========== =====
SECURITIES
As of June 30, 1996 securities available-for-sale and held-to-maturity
increased $57.2 million or 23.5% to $300.4 million and $28.2 million or 17.7% to
$187.6 million, respectively, compared with $243.3 million and $159.4 million,
respectively at year-end 1995. As explained previously, the substantial increase
in securities was largely due to slow loan growth while the Company continued to
experience deposit growth.
<TABLE>
The following tables summarize the composition and maturity distribution of
the investment portfolio as of the dates indicated:
<CAPTION>
(Dollars in thousands)
Securities Available-for-Sale: As of 06/30/96
--------------------------------------------------------------------------
Amortized Gross Gross
Cost Unrealized Gains Unrealized Losses Fair Value
---- ---------------- ----------------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 90,033 $ 126 $ 528 $ 89,631
U.S. government agencies 202,078 13 3,194 198,897
State and municipal securities 105 -0- -0- 105
Mortgage-backed securities* 8,346 -0- 47 8,299
Federal Home Loan Bank stock 3,503 -0- -0- 3,503
-------- ------ -------- --------
Total $304,065 $ 139 $ 3,769 $300,435
======== ====== ======== ========
</TABLE>
<TABLE>
<CAPTION>
As of 12/31/95
--------------------------------------------------------------------------
Amortized Gross Gross
Cost Unrealized Gains Unrealized Losses Fair Value
---- ---------------- ----------------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $110,049 $ 749 $ 412 $110,386
U.S. government agencies 127,750 2,097 -0- 129,847
State and municipal securities 95 -0- -0- 95
Federal Home Loan Bank stock 2,924 -0- -0- 2,924
-------- -------- -------- --------
Total $240,818 $ 2,846 $ 412 $243,252
======== ======== ======== ========
<FN>
* The mortgage-backed securities reflect stated maturities and not anticipated
prepayments.
</FN>
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
(Dollars in thousands)
Securities Held-to-Maturity: As of 06/30/96
---------------------------------------------------------------------------
Carrying Gross Gross Estimated
Value Unrealized Gains Unrealized Losses Fair Value
----- ---------------- ----------------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 50,055 $ -0- $ 787 $ 49,268
U.S. government agencies 64,413 -0- 882 63,531
State and municipal securities 38,376 1,209 115 39,470
Mortgage-backed securities* 34,722 -0- 883 33,839
-------- ------- -------- --------
Total $187,566 $ 1,209 $ 2,667 $186,108
======== ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
As of 12/31/95
---------------------------------------------------------------------------
Carrying Gross Gross Estimated
Value Unrealized Gains Unrealized Losses Fair Value
----- ---------------- ----------------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 50,062 $ 922 $ 96 $ 50,888
U.S. government agencies 69,428 1,693 -0- 71,121
State and municipal securities 39,620 2,274 24 41,870
Mortgage-backed securities* 266 -0- -0- 266
-------- -------- -------- --------
Total $159,376 $ 4,889 $ 120 $164,145
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Securities Portfolio Maturity Distribution: (Dollars in thousands)
As of June 30, 1996
Maturity Schedule
--------------------------------------------------------------------------
After 1 But After 5 But
Securities Available-for-Sale: Within 1 Yr Within 5 Yrs Within 10 Yrs Over 10 Yrs Total
- - ----------------------------- ----------- ------------ ------------- ----------- -----
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities $ 59,920 $ 29,711 $ -0- $ -0- $ 89,631
U.S. government agencies 29,895 149,212 19,790 -0- 198,897
State and municipal securities 105 -0- -0- -0- 105
Mortgage-backed securities* -0- -0- 8,299 -0- 8,299
Federal Home Loan Bank stock 3,503 -0- -0- -0- 3,503
-------- -------- -------- -------- ---------
Total $ 93,423 $178,923 $ 28,089 $ -0- $300,435
======== ======== ======== ======== ========
Securities Held-to-Maturity:
U.S. Treasury securities $ -0- $ 50,055 $ -0- $ -0- $ 50,055
U.S. government agencies 4,999 39,414 20,000 -0- 64,413
State and municipal securities 1,295 8,649 13,452 14,980 38,376
Mortgage-backed securities* -0- 14,793 4,987 14,942 34,722
-------- -------- ---------- -------- --------
Total $ 6,294 $112,911 $ 38,439 $ 29,922 $187,566
======== ======== ======== ======== ========
<FN>
* The mortgage-backed securities reflect stated maturities and not anticipated
prepayments.
</FN>
</TABLE>
LOANS
Total gross loans amounted to $562.7 million as of June 30, 1996, compared
with $557.9 million at year-end 1995. The moderate increase of $4.8 million
resulted from a $15.6 million increase in real estate mortgage loans and a $6.7
million increase in other loans due to investments in banker's acceptances,
offset by decreases of $12.1 million, $4.1 million and $1.3 million in
commercial loans, construction loans and installment loans, respectively.
<TABLE>
The following table sets forth the classification of loans by type and mix
as of the dates indicated:
12
<PAGE>
<CAPTION>
(Dollars in thousands)
As of 06/30/96 As of 12/31/95
----------------------------- --------------------------------
Types of loans: Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Commercial loans $ 280,551 51.1% $ 292,612 53.9%
Real estate mortgage loans 246,989 45.0 231,360 42.6
Real estate construction loans 9,452 1.7 13,606 2.5
Installment loans 18,494 3.4 19,748 3.6
Other loans 7,189 1.3 533 0.1
--------- ----- --------- --------
Total loans - Gross 562,675 557,859
Allowance for loan losses (11,635) (2.1) (12,742) (2.3)
Unamortized deferred loan fees (2,105) (0.4) (2,122) (0.4)
--------- ----- --------- --------
Total loans - Net $ 548,935 100.0% $ 542,995 100.0%
========= ===== ========= ========
</TABLE>
<TABLE>
RISK ELEMENTS OF THE LOAN PORTFOLIO
Non-performing Assets
As of June 30, 1996 the Company's non-performing assets decreased $2.5
million to $35.2 million, compared with $37.7 million at year-end 1995.
Non-performing assets include loans past due 90 days or more (including both
loans that are still accruing interest, and those on a non-accrual status),
troubled debt restructurings, as well as real estate acquired through
foreclosures. The decrease in non-performing assets was accomplished by a
reduction of $4.5 million in troubled debt restructurings and a decline of $1.7
million in OREO offset by an increase of $3.9 million in non-accrual loans. The
coverage ratio, which is the allowance for loan losses to non-performing loans,
decreased from 53.57% at year-end 1995 to 50.61% as of June 30, 1996, primarily
due to a $1.1 million decrease in the allowance for loan losses. However,
management believes the allowance for loan losses was adequate as of June 30,
1996 since a majority of the non-accrual loans, especially the commercial real
estate loans, are secured by the first trust deeds of the respective properties.
The following table presents the breakdown of non-performing assets by
categories as of the dates indicated:
<CAPTION>
(Dollars in thousands)
As of As of As of As of
Non-Performing Assets: 06/30/96 03/31/96 12/31/95 09/30/95
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Loans past due 90 days or more and
still accruing interest $ 1,171 $ 1,571 $ 1,344 $ 8,860
Non-accrual loans 17,875 17,621 14,012 22,528
------- ------- ------- -------
Total past due loans 19,046 19,192 15,356 31,388
Troubled debt restructurings 3,945 8,419 8,429 8,617
Real estate acquired in foreclosure 12,170 15,436 13,879 19,452
------- ------- ------- -------
Total non-performing assets $35,161 $43,047 $37,664 $59,457
======= ======= ======= =======
Non-performing assets as a percentage of
period-end total loans plus OREO 6.12% 7.34% 6.59% 10.46%
</TABLE>
<TABLE>
The balance of non-accrual loans consisted mainly of $6.9 million in
commercial real estate loans and $11.0 million in commercial loans. The
following tables present the type of properties securing the loans and the type
of businesses the borrowers engaged in under different non-accrual loan
categories as of the dates indicated:
13
<PAGE>
<CAPTION>
(Dollars in thousands)
06/30/96 12/31/95
---------------------------- ----------------------------
Loan Balance
---------------------------------------------------------------
Commercial Commercial
Type of property: Real Estate Commercial Real Estate Commercial
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Single/multi-family residence $ 485 $ 2,255 $ -0- $ 2,940
Commercial 355 6,038 -0- 2,765
Motel 6,010 532 4,519 557
Others -0- 256 -0- 521
Marina -0- 1,875 -0- 1,900
Unsecured -0- 52 -0- 158
-------- ------- -------- --------
$ 6,850 $11,008 $ 4,519 $ 8,841
======== ======= ======== ========
Type of business:
Real estate development $ 355 $ 1,374 $ -0- $ -0-
Retail 485 77 -0- 599
Restaurant -0- 26 -0- 26
Import -0- 502 -0- 1,050
Motel 6,010 532 4,519 879
Wholesale -0- 4,755 -0- 3,115
Marina -0- 1,875 -0- 1,900
Others -0- 1,867 -0- 1,272
-------- ------- -------- --------
$ 6,850 $11,008 $ 4,519 $ 8,841
======== ======= ======== ========
</TABLE>
The $6.0 million non-accrual motel loans as of June 30, 1996 comprised
three credits secured by the first trust deeds of the respective motels located
in Southern California with a single family residence as an added collateral on
one credit.
In the non-accrual commercial loan category, $6.0 million secured by
commercial properties consisted of 10 credits. The collateral on these credits
include primarily first trust deeds and secondarily second and third trust deeds
on commercial buildings and warehouses. The $1.9 million secured by marinas
represented one credit secured by two marinas which are currently in
foreclosure. The Bank anticipates to complete the foreclosure sales on the
marinas in the third quarter and expects no loss from the sales transaction.
Troubled debt restructurings were reduced to $3.9 million as of June 30,
1996, compared with $8.4 million at year-end 1995. All of these restructured
loans, except one in the amount of $666,000 which was 60 days past due, were
current under their revised terms as of June 30, 1996.
There were no loan concentrations to multiple borrowers in similar
activities, which exceeded 10% of total loans as of June 30, 1996.
<TABLE>
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses amounted to $11.6 million or 2.1% of total
loans as of June 30, 1996, compared with $12.7 million or 2.3% of total loans at
year-end 1995. The following table presents information relating to the
allowance for loan losses for the periods indicated:
14
<PAGE>
<CAPTION>
(Dollars in thousands)
YTD YTD YTD YTD
Allowance for loan losses: 06/30/96 03/31/96 12/31/95 09/30/95
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance at beginning of period $ 12,742 $ 12,742 $ 12,271 $ 12,271
Provision for loan losses 1,800 900 7,300 4,650
Loans charged-off (3,489) (710) (7,018) (4,747)
Recoveries of charged-off loans 582 474 189 101
-------- -------- -------- --------
Balance at end of period $ 11,635 $ 13,406 $ 12,742 $ 12,275
======= ======= ======= =======
Average loans outstanding during the period $553,370 $547,915 $549,660 $553,929
Ratio of net charge-offs to average loans outstanding
during the period (annualized) 1.05% 0.17% 1.24% 1.12%
Provision for loan losses to average loans outstanding
during the period (annualized) 0.65% 0.66% 1.33% 1.12%
Allowance to non-performing loans at period end 50.61% 48.55% 53.57% 30.68%
Allowance to total loans at period-end 2.07% 2.35% 2.28% 2.24%
</TABLE>
In determing the allowance for loan losses, management continues to assess
the risks inherent in the loan portfolio, the possible impact of known and
potential problem loans, and other factors such as collateral value, portfolio
composition, loan concentration, financial strength of borrower, and trends in
local economic conditions.
The Company's allowance for loan losses consists of a specific allowance
for impaired and classified loans and a general allowance for non-classified
loans. The impairment allowance is defined as the difference between the
recorded investment and the fair value of the impaired loan. For the remaining
internally classified loans which do not require impairment allowance,
management allocates a specific allowance to each loan based on the current
financial condition of the borrowers and guarantors, the prevailing value of the
underlying collateral and the general economic conditions. The general allowance
is determined by an assessment of the overall quality of the unclassified
portion of the loan portfolio as a whole, and by loan type. Management
maintained the percentage assigned to the general allowance based on charge-off
history and management's knowledge of the quality of the portfolio. The
following table presents a breakdown of impaired loans and the impairment
allowance related to impaired loans:
(Dollars in thousands)
As of June 30, 1996
--------------------------
Impaired loans: Recorded Impairment
Loans with impairment allowance: Investment Allowance
---------- ---------
Commercial $ 9,153 $ 1,558
Commercial real estate 15,320 2,039
-------- --------
Total loans with impairment allowance $ 24 473 $ 3,597
======== ========
Loans without impairment allowance:
Commercial $ 4,369
Commercial real estate 1,472
Other 2
--------
Total loans without impairment allowance $ 5,843
========
Based on the Company's evaluation process to determine the level of the
allowance for loan losses mentioned previously and the fact that a majority of
the Company's non-performing loans are secured, management believes the
allowance level to be adequate as of June 30, 1996 to absorb the estimated known
and inherent risks identified through its analysis.
15
<PAGE>
Other Real Estate Owned
The Company's OREO properties, net of a valuation allowance of $1.7
million, were carried at $12.2 million on June 30, 1996. This compares with
OREO, net of a valuation allowance of $869,000, carried at $13.9 million at
year-end 1995. During the first six months of 1996, six properties with a fair
value of $4.6 million were added to OREO, and seven properties totaling $5.0
million were disposed of with a net gain of $56,000. The existing OREO
properties include different types of residential properties, commercial
buildings, warehouses, land, and a motel. With an exception of one single family
residence which is out of state, all other properties are located in Southern
California.
The Company maintains a valuation allowance for the OREO properties in
order to record fair estimated value of these properties. Periodic evaluation is
performed on each property and corresponding adjustment is made to the valuation
allowance. Any decline in value is recognized as non-interest expense in the
current period and any balance in the valuation allowance is reversed when the
respective property is sold. During the first six months of 1996, management
provided approximately $1.2 million to the provision for OREO losses based on
new listing prices or new appraisals received. It is still unpredictable when
the Southern California real estate market will regain its momentum, therefore
additional provision for OREO losses may be made in the future, and the Company
may incur losses on sales of these properties.
DEPOSITS
Total deposits reached $1,078.7 million as of June 30, 1996, compared with
$984.2 million at year-end 1995, representing an increase of $94.5 million or
9.6%. Accounting for most of the increase were time deposits of $100,000 or more
("Jumbo CD's") and time deposits under $100,000, which rose $53.9 million and
$33.5 million, respectively, due in large part to an inflow of capital from
Pacific Rim during the first quarter of 1996.
<TABLE>
Although Jumbo CD's increased remarkably causing the percentage of core
deposits to decline from 61.0% at year-end 1995 to 59.4% at June 30, 1996,
management maintains they are considered generally less volatile since 1) a
majority of the Company's Jumbo CD's have been fairly consistent based on
historical experience which support that approximately half of the Jumbo CD's
stayed with the Bank for more than two years; 2) the jumbo CD portfolio
continued to be diversified with 2,801 individual accounts as of June 30, 1996;
and 3) this phenomenon of having relatively higher percentage of Jumbo CD's
exists in most of the Chinese American banks in the Company's market which is
dictated by the fact that the customers in this market tend to have a higher
savings rate. However, management has taken steps to monitor the continued
growth in Jumbo CD's, such as to diversify the customer base by branch
expansion, and to develop new transaction-based products to attract depositors.
There were no brokered deposits as of June 30, 1996. The following table
illustrates the deposit mix on the dates indicated:
<CAPTION>
(Dollars in thousands)
As of 06/30/96 As of 12/31/95
-------------------------- ------------------------
Types of deposits: Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Demand $ 119,929 11.1% $117,974 12.0%
NOW accounts 91,937 8.5 88,917 9.0
Money market accounts 100,129 9.3 102,167 10.4
Savings deposits 138,157 12.8 134,045 13.6
Time deposits under $100,000 190,437 17.7 156,927 15.9
Time deposits of $100,000 or more 438,154 40.6 384,196 39.1
--------- ----- -------- -----
Total deposits $1,078,743 100.0% $984,226 100.0%
========== ===== ======== =====
</TABLE>
16
<PAGE>
CAPITAL RESOURCES
Stockholders' equity amounted to $95.7 million or 8.08% of total assets as
of June 30, 1996, compared with $94.5 million or 8.69% of total assets at
year-end 1995. The slight increase in stockholders' equity was primarily due to
year-to-date net income of $6.0 million and $1.0 million from issuance of
additional common shares through Dividend Reinvestment Plan and ESOP purchases,
which were largely offset by a decrease of $3.5 million in the unrealized
holding gains on securities available-for-sale, net of tax, and dividends paid
in the amount of $2.4 million.
The Company declared a cash dividend of $0.15 per share in January, April
and July of 1996, on 7,867,164, 7,880,102 and 7,930,786 shares outstanding,
respectively. Total cash dividends paid in 1996, including the $1.2 million paid
in July 1996, amounted to $3.6 million.
Management is committed to retain the Company's capital at a level
sufficient to support future growth, to protect depositors, to absorb any
unanticipated losses and to comply with various regulatory requirements.
<TABLE>
The Company and the Bank's capital and leverage ratios as of June 30, 1996
well exceeded the regulatory minimum requirements. They are presented in the
tables below:
<CAPTION>
(Dollars in thousands)
Company Bank
As of 06/30/1996 As of 06/30/1996
--------------------------- ----------------------------
Balance Percent Balance Percent
------- ------- ------- -------
<S> <C> <C> <C> <C>
Tier 1 Capital $ 97,784** 14.04% $ 96,160** 13.81%
Tier 1 Capital minimum requirement 27,859 4.00 27,858 4.00
---------- ------ ---------- ------
Excess $ 69,925 10.04% $ 68,302 9.81%
========== ====== ========== ======
Total Capital $ 106,526** 15.30% $ 104,902** 15.06%
Total Capital minimum requirement 55,718 8.00 55,716 8.00
---------- ------ ---------- ------
Excess $ 50,808 7.30% $ 49,186 7.06%
========== ====== ========== ======
Risk-weighted assets $ 696,475 $ 696,444
Leverage ratio 8.26% 8.12%
Minimum leverage requirement 4.00 4.00
------ ------
Excess 4.26% 4.12%
====== =======
Total average assets $1,183,781 $1,183,759
<FN>
** Excluding the unrealized holding losses on securities available-for-sale of
$2,093,000.
</FN>
</TABLE>
LIQUIDITY AND INTEREST RATE SENSITIVITY
Liquidity is the Company's ability to maintain sufficient cash flow to meet
maturing financial obligations and customer credit needs. The Company's
liquidity came primarily from various types of deposits. In addition, liquidity
can be obtained from assets as well, which include cash and cash equivalents,
Federal funds sold, unpledged securities available-for-sale, and unpledged
securities held-to-maturity. The Company's liquidity ratio (defined as net
liquid assets to total deposits) continued to improve from 43.64% at year-end
1995 to 48.27% as of June 30, 1996 due to the gradual change in the earning
asset mix of loans and other types of investments.
17
<PAGE>
To further enhance its liquidity, the Company maintains a total credit line
of $45 million for Federal funds with three correspondent banks, and a total
retail certificate of deposit (CD) line of approximately $139 million with three
brokerage firms. Moreover, the Company has become a shareholder of Federal Home
Loan Bank (FHLB) since January 1993, which enables the Company to have access to
lower cost FHLB financing when and if necessary. Management believes all the
above-mentioned sources will provide adequate liquidity to the Company to meet
its daily operating needs.
Interest sensitivity risk management minimizes the risk to net interest
income resulting from the changes in market interest rates. The Company's
Investment Committee monitors interest sensitivity risk on an on-going basis by
using, among other things, gap analysis and certain key ratios. Gap analysis is
a measure to identify the differences between rate sensitive assets and rate
sensitive liabilities over certain periods of time. A positive gap exists when
rate sensitive assets exceed rate sensitive liabilities and a negative gap
exists when rate sensitive liabilities exceed rate sensitive assets. Generally,
a positive gap would enhance net interest margin during periods of increasing
interest rates and vice versa, and a negative gap would impair net interest
margin during periods of increasing interest rates and vice versa. Beginning in
1995, the Company's rate sensitive liabilities also included distribution of
non-maturity deposit balances over certain periods of time based on the Bank's
own assumptions and experiences. These non-maturity deposits, which contain
money market accounts, NOW accounts and savings deposits, were included in the
immediate repricing period prior to the third quarter of 1995. As of June 30,
1996, the Company's rate sensitive liabilities exceeded rate sensitive assets by
roughly $64.7 million with a cumulative gap ratio of a negative 5.46% within a
1-year period.
18
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company, including its wholly-owned subsidiary, Cathay Bank, has been a
party to ordinary routine litigation incidental to various aspects of its
operations.
Management is not currently aware of any other litigation that will have
material adverse impact on the Company's consolidated financial condition, or
the results of operations.
Item 2. CHANGES IN SECURITIES
There have been no changes in securities.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of stockholders was held on April 15, 1996.
At the 1996 Annual Meeting, the following directors (Class III) were elected
to serve until 1999:
George T.M. Ching
Gerald T. Deal
Wing K. Fat
Wilbur K. Woo
The number of votes cast for or withheld, with respect to the election of
each Class III Director was as follows:
For Withheld
--------- --------
George T.M. Ching 5,253,589 70,454
Gerald T. Deal 5,253,589 70,454
Wing K. Fat 5,253,589 70,781
Wilbur K. Woo 5,253,589 70,454
Other directors whose terms of office continued after the meeting:
Term Ending in 1997 (Class I) Term Ending in 1998 (Class II)
----------------------------- ------------------------------
Michael M.Y. Chang Ralph Roy Buon-Cristiani
Patrick S.D. Lee Kelly L. Chan
Anthony M. Tang Dunson K. Cheng
Thomas G. Tartaglia Chi-Hung Joseph Poon
Item 5. OTHER INFORMATION
There were no reportable events.
19
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
The Bancorp filed a Form 8-K on June 7, 1996 to report the Agreement and
Plan of Merger among Cathay Bancorp, Inc. and First Public Savings Bank, F.S.B.
dated as of May 30, 1996.
Exhibit:
27 Financial Data Schedule
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cathay Bancorp, Inc.
(Registrant)
Date: August 13, 1996 DUNSON K. CHENG
--------------- ----------------------------
Dunson K. Cheng
Chairman and President
Date: August 13, 1996 ANTHONY M. TANG
--------------- ----------------------------
Anthony M. Tang
Chief Financial Officer
21
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 30,140
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 44,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 300,435
<INVESTMENTS-CARRYING> 187,566
<INVESTMENTS-MARKET> 186,108
<LOANS> 560,570
<ALLOWANCE> 11,635
<TOTAL-ASSETS> 1,183,735
<DEPOSITS> 1,078,743
<SHORT-TERM> 0
<LIABILITIES-OTHER> 9,301
<LONG-TERM> 0
<COMMON> 80
0
0
<OTHER-SE> 95,611
<TOTAL-LIABILITIES-AND-EQUITY> 1,183,735
<INTEREST-LOAN> 26,682
<INTEREST-INVEST> 13,065
<INTEREST-OTHER> 880
<INTEREST-TOTAL> 40,627
<INTEREST-DEPOSIT> 18,564
<INTEREST-EXPENSE> 18,621
<INTEREST-INCOME-NET> 22,006
<LOAN-LOSSES> 1,800
<SECURITIES-GAINS> 22
<EXPENSE-OTHER> 13,585
<INCOME-PRETAX> 9,288
<INCOME-PRE-EXTRAORDINARY> 9,288
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,984
<EPS-PRIMARY> 0.76
<EPS-DILUTED> 0.76
<YIELD-ACTUAL> 4.35
<LOANS-NON> 17,875
<LOANS-PAST> 1,171
<LOANS-TROUBLED> 3,945
<LOANS-PROBLEM> 11,000
<ALLOWANCE-OPEN> 12,742
<CHARGE-OFFS> 3,489
<RECOVERIES> 582
<ALLOWANCE-CLOSE> 11,635
<ALLOWANCE-DOMESTIC> 11,635
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
