<PAGE> 1
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, 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)
<TABLE>
<S> <C>
Delaware 95-4274680
- - ---------------------------------------------------------------------------------------------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
<TABLE>
<S> <C>
777 North Broadway, Los Angeles, California 90012
- - ------------------------------------------------------------------------------------------------ -----------
(Address of principal executive offices) (Zip Code)
</TABLE>
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, 7,880,102 shares outstanding as of March 31,
1996.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
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 . . . . . . . . . . . . . . . . . . 8-16
PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 3. Defaults upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . 17
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . 17
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
3
<PAGE> 4
CATHAY BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF MARCH 31, 1996 AND DECEMBER 31, 1995
(In thousands)
<TABLE>
<CAPTION>
Mar. 31, 1996 Dec. 31, 1995
(unaudited) (unaudited)
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 46,268 $ 70,126
Federal funds sold 45,200 1,200
----------- -----------
Cash and cash equivalents 91,468 71,326
Securities available-for-sale 309,607 243,252
Securities held-to-maturity (with estimated fair values of
$159,390 in 1996 and $164,145 in 1995) 158,225 159,376
Loans (net of allowance for loan losses of
$13,406 in 1996 and $12,742 in 1995) 555,889 542,995
Other real estate owned 15,436 13,879
Investments in real estate 4,236 4,304
Premises and equipment, net 26,380 26,586
Customers' liability on acceptance 3,963 3,675
Accrued interest receivable 8,735 11,715
Other assets 9,887 10,292
----------- -----------
Total assets $ 1,183,826 $ 1,087,400
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing demand deposits $ 118,331 $ 117,974
Interest bearing accounts
NOW accounts 102,501 88,917
Money market deposits 107,656 102,167
Savings deposits 144,286 134,045
Time deposits under $100,000 180,205 156,927
Time deposits of $100,000 or more 428,530 384,196
----------- -----------
Total deposits 1,081,509 984,226
----------- -----------
Securities sold under agreements to repurchase -- 1,500
Acceptances outstanding 3,963 3,675
Other liabilities 3,975 3,470
----------- -----------
Total liabilities 1,089,447 992,871
----------- -----------
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, 7,880,102 and 7,867,164 shares issued and
outstanding in 1996 and 1995, respectively 79 79
Additional paid-in-capital 42,218 42,014
Unrealized holding gain (loss) on securities
available-for-sale, net of tax (659) 1,403
Retained earnings 52,741 51,033
----------- -----------
Total stockholders' equity 94,379 94,529
----------- -----------
Total liabilities and stockholders' equity $ 1,183,826 $ 1,087,400
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
CATHAY BANCORP, INC AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
1996 1995
- - -------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 13,312 $ 14,126
Interest on securities available-for-sale 3,680 1,007
Interest on securities held-to-maturity 2,369 2,585
Interest on Federal funds sold 435 187
Interest on deposits with banks 40 --
---------- ----------
Total interest income 19,836 17,905
---------- ----------
INTEREST EXPENSE:
Time deposits of $100,000 or more 5,388 3,443
Other deposits 3,674 3,112
Interest on other borrowed funds 46 22
---------- ----------
Total interest expens 9,108 6,577
---------- ----------
Net interest income before provision for loan losses 10,728 11,328
---------- ----------
Provision for loan losses 900 1,650
---------- ----------
Net interest income after provision for loan losses 9,828 9,678
---------- ----------
NON-INTEREST INCOME:
Securities gains 22 48
Letter of credit commissions 281 365
Service charges 756 920
Other operating income 269 279
---------- ----------
Total non-interest income 1,328 1,612
---------- ----------
NON-INTEREST EXPENSE:
Salaries and employee benefits 3,105 2,932
Occupancy expense 553 525
Computer and equipment expense 507 565
Professional services expense 713 766
FDIC and state assessments 86 481
Marketing expense 329 226
Net other real estate owned expense 497 499
Other operating expense 772 780
---------- ----------
Total non-interest expense 6,562 6,774
---------- ----------
Income before income tax expense 4,594 4,516
Income tax expense 1,706 1,772
---------- ----------
Net Income $ 2,888 $ 2,744
========== ==========
NET INCOME PER COMMON SHARE, based on the
weighted average number of shares
outstanding during the periods: $ 0.37 $ 0.35
Weighted average number of common shares outstanding 7,876,755 7,766,818
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
CATHAY BANCORP, INC. & SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
(In thousands)
-----------------------
1996 1995
- - --------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 2,888 $ 2,744
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 900 1,650
Provision for losses on other real estate owned 500 428
Depreciation 367 350
Net gain on sale of other real estate owned (25) (2)
Premises and equipment disposal gains -- (1)
Net gain on sales and calls of securities (22) (48)
Amortization and accretion of investment
security premiums, net 206 3
Increase (decrease) in deferred loan fees, net (32) 87
(Increase) decrease in accrued interest receivable 2,980 (42)
Decrease in other assets, net 1,919 1,522
Increase in other liabilities, net 505 2,481
-------- --------
Total adjustments 7,298 6,428
-------- --------
Net cash provided by operating activities 10,186 9,172
======== ========
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available-for-sale (80,218) (5,111)
Proceeds from maturity and call of securities available-for-sale 10,095 5,125
Purchase of securities held-to-maturity (10,029) (7,869)
Proceeds from maturity and call of securities held-to-maturity 11,188 1,566
Net change in loans (16,353) 7,379
Purchase of premises and equipment (127) (496)
Proceeds from sale of equipment -- 25
Proceeds from sale of other real estate owned 559 232
Decrease in investments in real estate 34 --
-------- --------
Net cash used in investing activities (84,851) 851
======== ========
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW accounts,
money market and savings deposits 29,671 (15,220)
Net increase in time deposits 67,612 29,575
Net increase (decrease) in securities sold under
agreements to repurchase (1,500) 751
Decrease in Borrowing from Federal Home Loan Bank -- (4,000)
Cash dividends (1,180) (1,169)
Proceeds from issuance of common stock 204 217
-------- --------
Net cash provided by financing activities 94,807 10,154
======== ========
Increase in cash and cash equivalents 20,142 20,177
Cash and cash equivalents, beginning of the period 71,326 55,828
-------- --------
Cash and cash equivalents, end of the period $ 91,468 $ 76,005
======== ========
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 9,098 $ 6,535
Income taxes $ -- $ 225
Non-cash investing activities:
Net change in unrealized holding gain (loss) on securities
available-for-sale, net of tax $ (2,062) $ 633
Transfers to other real estate owned $ 3,191 $ 1,936
Loans to facilitate the sale of other real estate owned $ 600 $ --
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE> 7
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 three months
ended March 31, 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> 8
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 three months ended March 31, 1996, the Company reported net income
of $2.9 million or $0.37 per common share, compared with $2.7 million or $0.35
per common share for the same period in 1995, representing an increase of
$144,000 or 5.3%. The increase in the 1996 first quarter net income was
attributable to a combination of the following: 1) a decrease of $750,000 in
the provision for loan losses; 2) a decrease of $600,000 in net interest income
before provision for loan losses; 3) a decrease of $284,000 in non-interest
income; and 4) a decrease of $212,000 in non-interest expense. The annualized
return on average assets and return on average stockholders' equity for the
first quarter of 1996 were 1.02% and 12.23%, respectively, compared with 1.16%
and 12.67%, respectively, for the first quarter of 1995.
NET INTEREST INCOME
Net interest income before provision for loan losses totaled $10.7 million
for the first quarter of 1996, compared with $11.3 million for the same quarter
in 1995. This represents a decrease of $600,000 or 5.3%. On a taxable
equivalent basis, net interest income totaled $11.0 million and $11.7 million
for the first quarter of 1996 and 1995, respectively, representing a decrease
of $656,000 or 5.6% for 1996. Average earning assets grew by $171.6 million
from the first quarter of 1995 to 1996 contributing to an increase of $1.9
million in total interest income, which however, was offset by a decline of 75
basis points in the average yield on earning assets from 8.78% to 8.03%. This
was primarily a result of lower average reference rate on the Bank's loans from
9.08% to 8.58%, and a relative change in the earning asset mix from loans to
investment securities. Average loans consisted of 67.49% of total average
earning assets in the first quarter of 1995, but decreased to 54.67% in 1996.
In addition, cost of funds went up 43 basis points from 3.62% to 4.05%
primarily due to an increase in average interest-bearing liabilities of $173.2
million from the first quarter of 1995 to that of 1996, of which $170.8 million
were in time deposits. Moreover, the lagging repricing characterics of the
Bank's time deposits in a decreasing interest rate environment in the first
quarter of 1996 played a role in the higher cost of funds. On the contrary,
the repricing of time deposits in the first quarter of 1995 lagged in an
increasing interest rate environment contributing to lower cost of funds. As a
result of all the above, net interest margin, defined as taxable equivalent net
interest income to average earning assets, decreased 122 basis points from
5.61% in the first quarter of 1995 to 4.39% in 1996.
NON-INTEREST INCOME
For the first quarter of 1996 and 1995, non-interest income totaled $1.3
million and $1.6 million, respectively. The decrease of $284,000 or 17.6% in
non-interest income in the first quarter of 1996 was mainly due to reduced
service charge income resulting largely from an escrow fee income transferred
from an escrow trust fund bank control account in the first quarter of 1995,
and lower letter of credit commissions as illustrated in the table below:
<TABLE>
<CAPTION>
(Dollars in thousands)
Three Months Ended Increase Percent
Non-interest income: 03/31/96 03/31/95 (Decrease) Change
-------- -------- ---------- ------
<S> <C> <C> <C> <C>
Letter of credit commissions $ 281 $ 365 $ (84) (23.0)%
Service charges 756 920 (164) (17.8)
Other operating income 269 279 (10) (3.6)
Securities Gains 22 48 (26) (54.2)
------ ------ ------
Total non-interest income $1,328 $1,612 $ (284) (17.6)%
====== ====== ======
</TABLE>
8
<PAGE> 9
NON-INTEREST EXPENSE
For the first quarter of 1996, non-interest expense totaled $6.6 million,
compared with $6.8 million for the same quarter of 1995, representing a
decrease of $212,000 or 3.1%. The decrease was primarily attributable to lower
FDIC assessment partially offset by higher salary expense due to annual salary
adjustments and higher marketing expense due to increased advertising,
promotion and new brochure printing. The following table presents the
components of the non-interest expense with the amount and percentage changes
for the periods indicated:
<TABLE>
<CAPTION>
(Dollars in thousands)
Three Months Ended Increase Percent
Non-interest expense: 03/31/96 03/31/95 (Decrease) Change
-------- -------- ---------- -------
<S> <C> <C> <C> <C>
Salaries and employee benefits $3,105 $2,932 $ 173 5.9%
Occupancy expense 553 525 28 5.3
Computer and equipment expense 507 565 (58) (10.3)
Professional services expense 713 766 (53) (6.9)
FDIC and State assessments 86 481 (395) (82.1)
Marketing expense 329 226 103 45.6
Net other real estate owned expense 497 499 (2) (0.4)
Other operating expense 772 780 (8) (1.0)
------ ------ -------
Total non-interest expense $6,562 $6,774 $ (212) (3.1)%
====== ====== =======
</TABLE>
FINANCIAL CONDITION
From year-end 1995 to March 31, 1996, total assets increased $96.4 million
or 8.9% to $1,183.8 million; deposits were up $97.3 million or 9.9% to $1,081.5
million; securities available-for-sale increased $66.4 million or 27.3% to
$309.6 million; loans, net of unearned fees, advanced $13.6 million or 2.4% to
$569.3 million; and stockholders' equity remained approximately the same at
$94.4 million due to the quarterly earnings offset by a decrease of $2.1
million in unrealized holding gains on securities available-for-sale and
dividends paid in the amount of $1.2 million.
EARNING ASSET MIX
Total earning assets amounted to $1,082.3 million as of March 31, 1996,
compared with $974.6 million at year-end 1995, representing an increase of
$107.7 million or 11.1%. The increase in total earning assets as well as the
continued change in the earning asset mix of loans and other types of
investments, primarily securities available-for-sale and Federal funds sold in
the first quarter of 1996 reflected the still sluggish loan demand in the
Company's markets while deposits continued to grow. The change in the earning
asset mix improved the Company's liquidity ratio from 43.6% at year-end 1995 to
47.6% as of March 31, 1996, but it had unfavorably impacted the net interest
margin, which declined 122 basis points between the first quarter of 1995 and
1996. The table below shows the changes in the earning asset mix as of the
dates indicated:
<TABLE>
<CAPTION>
(Dollars in thousands)
As of 03/31/96 As of 12/31/95
--------------------------- -----------------------
Types of earning assets: Amount Percent Amount Percent
---------- ------- -------- -------
<S> <C> <C> <C> <C>
Federal funds sold $ 45,200 4.2% $ 1,200 0.1%
Securities available-for-sale 309,607 28.6 243,252 25.0
Securities held-to-maturity 158,225 14.6 159,376 16.4
Time deposits with other banks -0- -0- 15,001 1.5
Loans (net of deferred fees) 569,295 52.6 555,737 57.0
---------- ----- ---------- -----
Total earning assets $1,082,327 100.0% $974,566 100.0%
========== ===== ======== =====
</TABLE>
9
<PAGE> 10
SECURITIES
Securities available-for-sale increased $66.4 million or 27.3% to $309.6
million as of March 31, 1996, compared with $243.3 million at year-end 1995. A
majority of securities available-for-sale were securities backed by U.S.
government agencies. The substantial increase in securities available-for-sale
was largely due to persistent soft loan demand in the Company's market area
while deposits continued to grow as mentioned previously. Securities
held-to-maturity decreased slightly from $159.4 million at year-end 1995 to
$158.2 million as of March 31, 1996.
The following tables summarize the composition and maturity distribution of
the investment portfolio as of the dates indicated:
<TABLE>
<CAPTION>
(Dollars in thousands)
SECURITIES AVAILABLE-FOR-SALE: As of 03/31/96
- - ----------------------------- ----------------------------------------------------------------------
Amortized Gross Gross
Cost Unrealized Gains Unrealized Losses Fair Value
--------- ---------------- ----------------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $105,042 $ 363 $ 506 $104,899
U.S. government agencies 202,246 252 1,251 201,247
State and municipal securities -0- -0- -0- -0-
Federal Home Loan Bank stock 3,461 -0- -0- 3,461
-------- ------- ------ --------
Total $310,749 $ 615 $1,757 $309,607
======== ======= ====== ========
</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
======== ======= ====== ========
</TABLE>
<TABLE>
<CAPTION>
(Dollars in thousands)
SECURITIES HELD-TO-MATURITY: As of 03/31/96
- - --------------------------- -------------------------------------------------------------------
Carrying Gross Gross Estimated
Value Unrealized Gains Unrealized Losses Fair Value
------------ ---------------- ----------------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 50,058 $ 197 $ 386 $ 49,869
U.S. government agencies 59,421 -0- 48 59,373
State and municipal securities 38,519 1,619 99 40,039
Other marketable equity securities 10,227 -0- 118 10,109
-------- ------- ------ --------
Total $158,225 $ 1,816 $ 651 $159,390
======== ======= ====== ========
</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
Other marketable equity securities 266 -0- -0- 266
-------- ------- ------ --------
Total $159,376 $ 4,889 $ 120 $164,145
======== ======= ====== ========
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
SECURITIES PORTFOLIO MATURITY DISTRIBUTION: (Dollars in thousands)
As of March 31, 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 $ 59,819 $ 45,080 $ -0- $ -0- $104,899
U.S. government agencies 29,898 151,227 20,122 -0- 201,247
State and municipal securities -0- -0- -0- -0- -0-
Federal Home Loan Bank stock 3,461 -0- -0- -0- 3,461
-------- -------- -------- ------- --------
Total $ 93,178 $196,307 $ 20,122 $ -0- $309,607
======== ======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
SECURITIES HELD-TO-MATURITY:
- - ----------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities $ -0- $ 50,058 $ -0- $ -0- $ 50,058
U.S. government agencies -0- 39,421 20,000 -0- 59,421
State and municipal securities 355 9,413 12,058 16,693 38,519
Mortgage-backed securities -0- 5,001 5,226 -0- 10,227
---------- -------- -------- -------- --------
Total $ 355 $103,893 $ 37,284 $ 16,693 $158,225
========== ======== ======== ======== ========
</TABLE>
LOANS
Total gross loans amounted to $571.4 million as of March 31, 1996, compared
with $557.9 million at year-end 1995. This represents a moderate increase of
$13.5 million or 2.4%. As shown in the table below, the increase primarily
took place in the other loan category which added $11.8 million resulting from
investments in banker's acceptances.
The following table sets forth the classification of loans by type and mix
as of the dates indicated:
<TABLE>
<CAPTION>
(Dollars in thousands)
As of 03/31/96 As of 12/31/95
---------------------- ----------------------
Types of loans: Amount Percent Amount Percent
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Commercial loans $288,173 51.8% $292,612 53.9%
Real estate mortgage loans 237,394 42.7 231,360 42.6
Real estate construction loans 14,977 2.7 13,606 2.5
Installment loans 18,496 3.3 19,748 3.6
Other loans 12,344 2.2 533 0.1
-------- ------ -------- -----
Total loans - Gross $571,384 $557,859
Allowance for loan losses (13,406) (2.4) (12,742) (2.3)
Unamortized deferred loan fees (2,089) (0.3) (2,122) (0.4)
-------- ------ -------- -----
Total loans - Net $555,889 100.0% $542,995 100.0%
======== ===== ======== =====
</TABLE>
RISK ELEMENTS OF THE LOAN PORTFOLIO
NON-PERFORMING ASSETS
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. As of March 31, 1996 the Company's non-performing assets
totaled $43.0 million, compared with $37.7 million at year-end 1995. The
increase of $5.4 million in non-performing assets resulted primarily from an
increase of $3.6 million in non-accrual loans and secondarily from an increase
of $1.5 million in other real estate owned (OREO). The coverage ratio, which
is the allowance for loan losses to non-performing loans, decreased from 53.57%
at year-end 1995 to 48.55% as of March 31, 1996, largely due to a $3.8 million
increase in non-performing loans
11
<PAGE> 12
while the allowance for loan losses was only up $664,000. However, management
believes the allowance for loan losses was adequate as of March 31, 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 with
added collateral in one case. The following table presents the breakdown of
non-performing assets by different categories as of the dates indicated:
<TABLE>
<CAPTION>
(Dollars in thousands)
As of As of As of As of
Non-Performing Assets: 03/31/96 12/31/95 09/30/95 06/30/95
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Loans past due 90 days or more and
still accruing interest $ 1,571 $ 1,344 $ 8,860 $ 7,430
Non-accrual loans 17,621 14,012 22,528 19,781
------- ------- ------- -------
Total past due loans $19,192 $15,356 $31,388 $27,211
Troubled debt restructurings 8,419 8,429 8,617 9,076
Real estate acquired in foreclosure or
in-substance foreclosure 15,436 13,879 19,452 17,563
------- ------- ------- -------
Total non-performing assets $43,047 $37,664 $59,457 $53,850
======= ======= ======= =======
Non-performing assets as a percentage of
period-end total loans plus OREO 7.34% 6.59% 10.46% 9.15%
</TABLE>
The balance of non-accrual loans consisted mainly of $7.6 million in
commercial real estate loans and $9.5 million in commercial loans. The
increase of $3.6 million in non-accrual loans since year-end 1995 was primarily
due to: 1) the addition of $5.7 million commercial real estate loans, $5.1
million of which is secured by motels; and 2) foreclosure on a $2.6 million
motel. 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:
<TABLE>
<CAPTION>
(Dollars in thousands)
As of March 31, 1996
Loan Balance
------------------------------------
Commercial
Type of property: Real Estate Commercial
----------- ----------
<S> <C> <C>
Single/multi-family residence $ 510 $ 1,301
Commercial 33 4,402
Motel 7,012 541
Land -0- -0-
Others -0- 565
Marina -0- 2,645
Unsecured -0- 31
-------- --------
$ 7,555 $ 9,485
======== ========
Type of business:
Real estate development $ 33 $ 57
Retail 510 97
Restaurant -0- 796
Import -0- 850
Motel 7,012 541
Wholesale -0- 3,455
Marina -0- 1,875
Others -0- 1,814
-------- --------
$ 7,555 $ 9,485
======== ========
</TABLE>
From the above schedule in the non-accrual commercial real estate loan
category, the motel loans totaled $7.0 million comprising 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.
12
<PAGE> 13
In the non-accrual commercial loan category, $4.4 million secured by
commercial properties was made up of 10 credits. The collateral on these
credits include first and second trust deeds, TCD's and UCC's. The $2.6
million secured by marinas consists of two credits. One in the amount of
$770,000 has been brought current since March 31, 1996. The balance of the
other credit secured by two marinas has been gradually reduced and the Bank is
in final negotiation with a third party to purchase the two marinas. The Bank
expects no loss from the sales transaction.
Troubled debt restructurings totaled $8.4 million as of March 31, 1996,
approximately the same level as year-end 1995. Of these restructured loans, 28
credits totaling $3.4 million were current under their revised terms, while two
credits totaling $5.0 million were 30 days past due as of March 31, 1996.
There were no loan concentrations to multiple borrowers in similar
activities, which exceeded 10% of total loans as of March 31, 1996.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses amounted to $13.4 million or 2.35% of total
loans on March 31, 1996, compared with $12.7 million or 2.28% of total loans at
year-end 1995. The following table presents information relating to the
allowance for loan losses for the periods indicated:
<TABLE>
<CAPTION>
(Dollars in thousands)
YTD YTD YTD YTD
Allowance for loan losses: 03/31/96 12/31/95 09/30/95 06/30/95
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance at beginning of period $12,742 $12,271 $12,271 $12,271
Provision for loan losses 900 7,300 4,650 3,000
Loans charged-off (710) (7,335) (4,747) (2,550)
Recoveries of charged-off loans 474 506 101 65
------- ------- ------- -------
Balance at end of period $13,406 $12,742 $12,275 $12,786
======= ======= ======= =======
Average loans outstanding during the period $547,915 $549,660 $553,929 $559,687
Ratio of net charge-offs to average loans outstanding
during the period (annualized) 0.17% 1.24% 1.12% 0.89%
Provision for loan losses to average loans outstanding
during the period (annualized) 0.66% 1.33% 1.12% 1.07%
Allowance to non-performing loans at period end 48.55% 53.57% 30.68% 35.24%
Allowance to total loans at period-end 2.35% 2.28% 2.24% 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 percentage
assigned and 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 adoption of Statement of Accounting Standards No. 114
(SFAS 114) "Accounting by Creditors for Impairment of a Loan" and No. 118 (SFAS
118) "Accounting by
13
<PAGE> 14
Creditors for Impairment of a Loan - Income Recognition and Disclosures" in
January 1995 did not have a material impact on the Company's results of
operatons or financial condition. The following table presents a breakdown of
impaired loans and the SFAS 114 impairment allowance related to impaired loans:
<TABLE>
<CAPTION>
(Dollars in thousands)
As of March 31, 1996
------------------------------------
SFAS 114
Impaired loans: Recorded Impairment
Loans with impairment allowance Investment Allowance
---------- ----------
<S> <C> <C>
Commercial $12,827 $ 2,349
Commercial real estate 21,262 4,369
------- --------
Total loans with impairment allowance $34,089 $ 6,718
======= ========
Loans without impairment allowance
Commercial $ 1,875
Commercial real estate 1,446
-------
Total loans without impairment allowance $ 3,321
=======
</TABLE>
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 March 31, 1996 to absorb the estimated
known and inherent risks identified through its analysis.
OTHER REAL ESTATE OWNED
The Company's OREO properties, net of a valuation allowance of $1.4
million, were carried at $15.4 million on March 31, 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 quarter of 1996, three properties with a fair
value of $3.2 million were added to OREO, and three properties totaling
$874,000 were disposed of with a net gain of $59,000. The existing OREO
properties include different types of residential properties, commercial
buildings, retail stores, land, and motels. 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 quarter of
1996, management provided approximately $500,000 to the provision for OREO
losses based on new listing prices or new appraisals received. It is
unpredictable when the Southern California real estate market will recover from
its prolonged depressed condition, 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 $1,081.5 million as of March 31, 1996, representing
an increase of $97.3 million or 9.9% over the $984.2 million at year-end 1995.
Accounting for most of the increase were time deposits of $100,000 or more
("Jumbo CD's") and time deposits under $100,000, which went up $44.3 million
and $23.3 million, respectively, due in large part to an inflow of capital from
Taiwan. The increase in other deposit categories resulted primarily from a
Chinese New Year promotion. As a result of the increase in Jumbo CD's, the
Company's core deposits, defined as total deposits excluding Jumbo CD's and
brokered deposits, have declined slightly as a percentage of total deposits
from 61.0% at year-end 1995 to 60.4% at March 31, 1996.
14
<PAGE> 15
Although Jumbo CD's increased remarkably, management maintains they are not
considered generally volatile since 1) a majority of the Company's Jumbo CD's
have been fairly consistent based on statistics which support that more than
half of the Jumbo CD's stayed with the Bank for more than two years; and 2)
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 discourage the continued growth in Jumbo
CD's, such as to diversify the customer base by branch expansion, and to
develop new products to attract depositors. There were no brokered deposits as
of March 31, 1996. The following table illustrates the deposit mix on the
dates indicated:
<TABLE>
<CAPTION>
(Dollars in thousands)
As of 03/31/96 As of 12/31/95
---------------------------- --------------------------
Types of deposits: Amount Percent Amount Percent
----------- ------- -------- -------
<S> <C> <C> <C> <C>
Demand $ 118,331 10.9% $117,974 12.0%
NOW accounts 102,501 9.5 88,917 9.0
Money market accounts 107,656 10.0 102,167 10.4
Savings deposits 144,286 13.3 134,045 13.6
Time deposits under $100,000 180,205 16.7 156,927 15.9
Time deposits of $100,000 or more 428,530 39.6 384,196 39.1
---------- ----- -------- -----
Total deposits $1,081,509 100.0% $984,226 100.0%
========== ===== ========
</TABLE>
CAPITAL RESOURCES
Stockholders' equity amounted to $94.4 million or 7.97% of total assets as
of March 31, 1996, compared with $94.5 million at year-end 1995 or 8.69% of
total assets. The slight decrease in stockholders' equity was due to a
decrease of $2.1 million in the unrealized holding gains on securities
available-for-sale, net of tax, and dividends paid in the amount of $1.2
million, which offset the 1996 first quarter earnings. The Company's primary
source of capital has been retained earnings, with the issuance of additional
common stock through Dividend Reinvestment Plan and the ESOP being the
secondary source.
The Company declared a cash dividend of $0.15 per share in January and
April of 1996, on 7,867,164 and 7,880,102 shares outstanding, respectively.
Total cash dividends paid in 1996, including the $1.2 million paid in April
1996, amounted to $2.4 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.
The Company and the Bank's capital and leverage ratios as of March 31, 1996
well exceeded the regulatory minimum requirements. They are presented in the
tables below:
<TABLE>
<CAPTION>
(Dollars in thousands)
Company Bank
As of 03/31/1996 As of 03/31/1996
--------------------------- -------------------------
Balance Percent Balance Percent
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Tier 1 Capital $ 95,038* 13.84% $ 94,212* 13.72%
Tier 1 Capital minimum requirement 27,463 4.00 27,463 4.00
-------- ----- -------- -----
Excess $ 67,575 9.84% $ 66,749 9.72%
======== ===== ======== =====
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
(Dollars in thousands)
Company Bank
As of 03/31/1996 As of 03/31/1996
------------------------ -------------------------
Balance Percent Balance Percent
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Total Capital $ 103,680* 15.10% $ 102,854* 14.98%
Total Capital minimum requirement 54,926 8.00 54,925 8.00
---------- ----- ---------- -----
Excess $ 48,754 7.10% $ 47,929 6.98%
========== ===== ========== =====
Risk-weighted assets $ 686,577 $ 686,564
Leverage ratio 8.37% 8.30%
Minimum leverage requirement 4.00 4.00
----- -----
Excess 4.37% 4.30%
===== =====
Total average assets $1,135,613 $1,135,529
</TABLE>
* Excluding the unrealized holding losses on securities available-for-sale of
$659,000.
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. Due to the gradual change in the
earning asset mix of loans and other types of investments, the Company's
liquidity ratio (defined as net liquid assets to total deposits) has continued
to improve from 43.64% at year-end 1995 to 47.58% as of March 31, 1996.
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 $139.1 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 March 31, 1996, the Company's rate sensitive
liabilities exceeded rate sensitive assets by roughly $40.1 million with a
cumulative gap ratio of a negative 3.39% within a 1-year period.
16
<PAGE> 17
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
There were no reportable events.
ITEM 5. OTHER INFORMATION
There were no reportable events.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
17
<PAGE> 18
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.
<TABLE>
<S> <C> <C>
Cathay Bancorp, Inc.
--------------------
(Registrant)
Date: May 14, 1996 DUNSON K. CHENG
------------ ---------------
Dunson K. Cheng
Chairman and President
Date: May 14, 1996 ANTHONY M. TANG
------------ ---------------
Anthony M. Tang
Chief Financial Officer
</TABLE>
18
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 46,268
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 45,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 309,607
<INVESTMENTS-CARRYING> 158,225
<INVESTMENTS-MARKET> 159,390
<LOANS> 569,295
<ALLOWANCE> 13,406
<TOTAL-ASSETS> 1,183,826
<DEPOSITS> 1,081,509
<SHORT-TERM> 0
<LIABILITIES-OTHER> 7,938
<LONG-TERM> 0
0
0
<COMMON> 79
<OTHER-SE> 94,300
<TOTAL-LIABILITIES-AND-EQUITY> 1,183,826
<INTEREST-LOAN> 13,312
<INTEREST-INVEST> 6,049
<INTEREST-OTHER> 475
<INTEREST-TOTAL> 19,836
<INTEREST-DEPOSIT> 9,062
<INTEREST-EXPENSE> 9,108
<INTEREST-INCOME-NET> 10,728
<LOAN-LOSSES> 900
<SECURITIES-GAINS> 22
<EXPENSE-OTHER> 6,562
<INCOME-PRETAX> 4,594
<INCOME-PRE-EXTRAORDINARY> 4,594
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,888
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.37
<YIELD-ACTUAL> 4.39
<LOANS-NON> 17,621
<LOANS-PAST> 1,571
<LOANS-TROUBLED> 8,419
<LOANS-PROBLEM> 15,393
<ALLOWANCE-OPEN> 12,742
<CHARGE-OFFS> 710
<RECOVERIES> 474
<ALLOWANCE-CLOSE> 13,406
<ALLOWANCE-DOMESTIC> 13,406
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
