<PAGE>
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, 1997
--------------------------------------------
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, 8,895,878 shares outstanding as of March 31,
1997.
<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. . . . . . . 8-16
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
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
3
<PAGE>
CATHAY BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF MARCH 31, 1997 AND DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Mar. 31, 1997 Dec. 31, 1996
(unaudited) (unaudited)
------------ -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 54,630 $ 47,194
Federal funds sold and securities purchased under
agreement to resell 20,000 28,000
------------ -------------
Cash and cash equivalents 74,630 75,194
Securities available-for-sale (with amortized costs of
$331,021 in 1997 and $385,228 in 1996) 327,153 383,391
Securities held-to-maturity (with estimated fair
values of $246,633 in 1997 and $212,002 in 1996) 248,157 210,129
Loans (net of allowance for loan losses of
$14,414 in 1997 and $13,529 in 1996) 778,407 744,384
Other real estate owned, net 14,202 18,854
Investments in real estate, net 3,919 3,987
Premises and equipment, net 25,544 25,771
Customers' liability on acceptance 5,988 6,653
Accrued interest receivable 11,078 15,008
Goodwill 9,986 9,897
Other assets 11,966 11,061
------------ -------------
Total assets $ 1,511,030 $ 1,504,329
------------ -------------
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing demand deposits $ 139,040 $ 135,345
Interest bearing accounts
NOW accounts 117,372 118,498
Money market deposits 97,101 95,158
Savings deposits 219,216 224,443
Time deposits under $100,000 304,768 302,981
Time deposits of $100,000 or more 497,322 488,315
------------ -------------
Total deposits 1,374,819 1,364,740
------------ -------------
Securities sold under agreements to repurchase 2,221 10,000
Acceptances outstanding 5,988 6,653
Other liabilities 7,181 4,490
------------ -------------
Total liabilities 1,390,209 1,385,883
------------ -------------
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, 8,895,878 and 8,878,144 shares issued and
outstanding in 1997 and 1996, respectively 89 89
Additional paid-in-capital 60,145 59,812
Unrealized holding loss on securities
available-for-sale, net of tax (2,205) (1,059)
Retained earnings 62,792 59,604
------------ -------------
Total stockholders' equity 120,821 118,446
------------ -------------
Total liabilities and stockholders' equity $ 1,511,030 $ 1,504,329
------------ -------------
------------ -------------
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
4
<PAGE>
CATHAY BANCORP, INC AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three months ended March 31, 1997 and 1996
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 17,459 $ 13,312
Interest on securities available-for-sale 5,442 3,680
Interest on securities held-to-maturity 3,239 2,409
Interest on Federal funds sold and securities purchased
under agreement to resell 576 435
--------- ---------
Total interest income 26,716 19,836
--------- ---------
INTEREST EXPENSE
Time deposits of $100,000 or more 5,979 5,388
Other deposits 6,003 3,674
Other borrowed funds 23 46
--------- ---------
Total interest expense 12,005 9,108
--------- ---------
Net interest income before provision for loan losses 14,711 10,728
Provision for loan losses 900 900
--------- ---------
Net interest income after provision for loan losses 13,811 9,828
--------- ---------
NON-INTEREST INCOME
Securities gains 4 22
Letter of credit commissions 209 281
Service charges 816 756
Other operating income 361 269
--------- ---------
Total non-interest income 1,390 1,328
--------- ---------
NON-INTEREST EXPENSE
Salaries and employee benefits 3,951 3,105
Occupancy expense 678 553
Computer and equipment expense 600 507
Professional services expense 737 713
FDIC and State assessments 55 86
Marketing expense 411 329
Net other real estate owned expense 226 497
Other operating expense 970 772
--------- ---------
Total non-interest expense 7,628 6,562
--------- ---------
Income before income tax expense 7,573 4,594
Income tax expense 3,054 1,706
--------- ---------
Net Income $ 4,519 $ 2,888
--------- ---------
--------- ---------
NET INCOME PER COMMON SHARE, based on the
weighted average number of shares
outstanding during the periods: $ 0.51 $ 0.37
Weighted average number of common shares outstanding 8,890,703 7,876,755
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
5
<PAGE>
CATHAY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
(In thousands)
-----------------------
1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 4,519 $ 2,888
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 900 900
Provision for losses on other real estate owned 133 500
Depreciation 348 367
Net (gain) loss on disposition of other real estate owned 76 (25)
Net gain on sales and calls of securities (4) (22)
Amortization and accretion of investment
security premiums, net 195 206
Decrease in deferred loan fees, net (19) (32)
Increase in accrued interest receivable, net 3,930 2,980
(Increase) decrease in other assets, net (110) 1,919
Increase in other liabilities, net 2,691 505
- ------------------------------------------------------------------------------------------
Total adjustments 8,140 7,298
- ------------------------------------------------------------------------------------------
Net cash provided by operating activities 12,659 10,186
- ------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available-for-sale (5,086) (80,218)
Proceeds from sale, maturity and call of securities
available-for-sale 58,051 10,095
Purchase of securities held-to-maturity (10,240) (26)
Proceeds from maturity and call of securities held-to-maturity 8,965 11,130
Proceeds from repayments and sale of mortgage-backed securities
available-for-sale 1,679 --
Purchase of mortgage-backed securities held-to-maturity (39,546) (10,003)
Repayments from mortgage-backed securities held-to-maturity 2,166 58
Proceeds from sale of loans 1,834 --
Net change in loans (34,441) (16,353)
Purchase of premises and equipment (121) (127)
Proceeds from disposition of other real estate owned 2,146 559
Net decrease in investments in real estate 68 34
- ------------------------------------------------------------------------------------------
Net cash used in investing activities (14,525) (84,851)
- ------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW accounts,
money market and savings deposits (715) 29,671
Net increase in time deposits 10,794 67,612
Decrease in securities sold under agreements to repurchase (7,779) (1,500)
Cash dividends (1,331) (1,180)
Proceeds from shares issued to Dividend Reinvestment Plan 333 204
- ------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,302 94,807
- ------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (564) 20,142
Cash and cash equivalents, beginning of the period 75,194 71,326
- ------------------------------------------------------------------------------------------
Cash and cash equivalents, end of the period $ 74,630 $ 91,468
- ------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 11,678 $ 9,098
Income taxes $ 680 $ --
Non-cash investing activities:
Transfer to securities available-for-sale $ 630 $ --
Net change in unrealized loss on securities
available-for-sale, net of tax $ (1,146) $ (2,062)
Transfers to other real estate owned $ 403 $ 3,191
Loans to facilitate the sale of other real estate owned $ 2,700 $ 600
- ------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
6
<PAGE>
CATHAY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. 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, 1997 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1997. For further information, refer to the consolidated
financial statements and footnotes included in the Company's annual report on
Form 10-K for the year ended December 31, 1996.
2. NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the FASB issued SFAS No. 128, "EARNINGS PER SHARE". This
Statement establishes standards for computing and presenting earnings per share
(EPS) and applies to entities with publicly held common stock or potential
common stock. This statement simplifies the standards for computing earnings
per share previously found in APB Opinion No. 15, EARNINGS PER SHARE, and makes
them comparable to international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual
presentation of basic and diluted EPS on the face of the income statement for
all entities with complex capital structures and requires a reconciliation of
the numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. Basic EPS excludes dilution and is
computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. Diluted EPS is computed similarly to fully diluted EPS pursuant to
Opinion 15. This Statement supersedes Opinion 15 and AICPA Accounting
Interpretations 1-102 of Opinion 15. It also supersedes or amends other
accounting pronouncements. The provisions in this Statement are substantially
the same as those in International Accounting Standard 33, EARNINGS PER SHARE,
recently issued by the International Accounting Standards Committee. This
Statement is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods; earlier application is not
permitted. This Statement requires restatement of all prior-period EPS data
presented. Upon adoption of SFAS No. 128, the Company anticipates that its
basic EPS disclosures will be increased as compared to the primary EPS
disclosures presently required by APB Opinion 15. Diluted EPS disclosures are
not expected to differ materially from the fully-diluted disclosures presently
required by APB Opinion 15.
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 1996 Annual Report of Cathay Bancorp, Inc. ("Bancorp") and its
subsidiary Cathay Bank ("the Bank"), together ("the Company").
RESULTS OF OPERATIONS
For the first quarter of 1997, the Company reported net income of $4.5
million or $0.51 per share, as compared to $2.9 million or $0.37 per share for
the first quarter of 1996, representing an increase of $1.6 million or 56.5%.
Income before income tax expense amounted to $7.6 million for the first quarter
of 1997, an increase of $3.0 million or 64.9% over $4.6 million for the same
quarter a year ago. The strong earnings growth was due to the increase in assets
through the acquisition of First Public Savings Bank last November, increases in
loans and the resulting synergy of the combination of the two banks. The
annualized return on average assets and return on average stockholders' equity
was 1.20% and 15.11%, respectively for the first quarter of 1997, as compared to
1.02% and 12.23%, respectively for the same quarter of 1996.
NET INTEREST INCOME
For the first quarter of 1997, net interest income before provision for
loan losses totaled $14.7 million, as compared to $10.7 million for the same
quarter of 1996. This represents an increase of $4.0 million or 37.1%. On a
taxable equivalent basis, net interest income was up $4.0 million as well or
36.2% to $15.0 million for the first quarter of 1997, as compared to $11.0
million for the same quarter of 1996. The increase in net interest income was
substantially attributable to a $362.3 million growth in the average earning
assets with average loans increasing $208.8 million. Average loans consisted of
55.5% of the average earning assets in the first quarter of 1997 as compared to
54.7% a year ago. The taxable equivalent average yield on earning assets were
8.02% and 8.07% for the first quarter of 1997 and 1996, respectively. The
slightly lower yield on earning assets in the 1997 first quarter was mainly due
to a 6 basis point decline in the Bank's average reference rate on loans from
8.58% to 8.52%. A majority of the increase in the average earning assets was
funded by time deposits and, to a lesser extent, by regular savings,
interest-bearing checking and demand deposits. However, cost of funds was 3.92%
for the 1997 first quarter, which was 15 basis points lower than 4.07% for the
same quarter a year ago. This was primarily due to the lagging repricing
characterics of the Bank's time deposits in an increasing interest rate
environment in the first quarter of 1997 while the repricing of time deposits in
the first quarter of 1996 lagged in a decreasing interest rate environment. Net
interest margin, defined as taxable equivalent net interest income to average
earning assets, improved four basis points from 4.42% to 4.46% between the first
quarter of 1996 and 1997.
NON-INTEREST INCOME
Non-interest income totaled $1.4 million and $1.3 million for the first
quarter of 1997 and 1996, respectively. The slight increase resulted from a
combination of higher income in service charges, wire transfer fees and
documentation fees offset by reduced letter of credit commissions and securities
gains.
The following tables illustrate the components of non-interest income, as
well as the amount and percentage changes for the periods indicated:
(Dollars in thousands)
Three Months Ended Increase Percent
Non-interest income: 03/31/97 03/31/96 (Decrease) Change
-------- -------- -------- -------
Letter of credit commissions $ 209 $ 281 $ (72) (25.6)%
Service charges 816 756 60 7.9
Other operating income 361 269 92 34.2
Securities Gains 4 22 (18) (81.8)
------- ------- -------
Total non-interest income $ 1,390 $ 1,328 $ 62 4.7%
------- ------- -------
------- ------- -------
8
<PAGE>
NON-INTEREST EXPENSE
Non-interest expense amounted to $7.6 million and $6.6 million, respectively for
the first quarter of 1997 and 1996. The increase of $1.0 million or 16.3% in
1997 non-interest expense was primarily due to the higher operating cost
associated with added personnel and facilities from the acquisition while net
other real estate owned ("OREO") expense showed a decrease of $271,000. The
following tables present 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: 03/31/97 03/31/96 (Decrease) Change
-------- -------- --------- ------
<S> <C> <C> <C> <C>
Salaries and employee benefits $ 3,951 $ 3,105 $ 846 27.2%
Occupancy expense 678 553 125 22.6
Computer and equipment expense 600 507 93 18.3
Professional services expense 737 713 24 3.4
FDIC and State assessments 55 86 (31) (36.0)
Marketing expense 411 329 82 24.9
Net other real estate owned expense 226 497 (271) (54.5)
Other operating expense 970 772 198 25.6
-------- -------- --------- -------
Total non-interest expense $ 7,628 $ 6,562 $ 1,066 16.2%
-------- -------- --------- -------
-------- -------- --------- -------
</TABLE>
FINANCIAL CONDITION
During the three-month period since year-end 1996, the Company experienced
a steady but moderate growth. Total assets increased $6.7 million to $1,511.0
million; deposits were up $10.1 million to $1,374.8 million; loans, net of
unearned fees, grew by $34.9 million to $792.8 million; securities
held-to-maturity increased $38.0 million to $248.2 million while securities
available-for-sale decreased $56.2 million to $327.2 million; and stockholders'
equity advanced $2.4 million to $120.8 million.
EARNING ASSET MIX
Total earning assets reached $1,388.1 million as of March 31, 1997, as
compared to $1,379.4 million at year-end 1996, representing an increase of $8.7
million. The Bank continued to experience good loan growth in the first quarter
of 1997. Loans, net of unearned fees, accounted for 57.1% of total earning
assets as of March 31, 1997 as compared to 55.0% at year-end 1996, while
securities available-for-sale and securities held-to-maturity together comprised
41.5% of total earning assets as of March 31, 1997 as compared to 43.0% at
year-end 1996. As a result, net interest margin improved moderately comparing
the first quarter of 1997 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 03/31/97 As of 12/31/96
---------------------- ----------------------
Types of earning assets: Amount Percent Amount Percent
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Federal funds sold $ 20,000 1.4% $28,000 2.0%
Securities available-for-sale 327,153 23.6 383,391 27.8
Securities held-to-maturity 248,157 17.9 210,129 15.2
Loans (net of deferred fees) 792,821 57.1 757,913 55.0
---------- ------- ---------- ------
Total earning assets $1,388,131 100.0% $1,379,433 100.0%
---------- ------- ---------- ------
---------- ------- ---------- ------
</TABLE>
9
<PAGE>
SECURITIES
As of March 31, 1997 securities available-for-sale decreased $56.2 million
or 14.7% to $327.2 million from $383.4 million at year-end 1996, and securities
held-to-maturity increased $38.0 million or 18.1% to $248.2 million from $210.1
million at year-end 1996. The decrease of $18.2 million in the overall
investment securities was primarily attributable to a stronger loan demand that
the Company experienced during the first quarter of 1997. 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 03/31/97
-----------------------------------------------------------------
Amortized Gross Gross
Cost Unrealized Gains Unrealized Losses Fair Value
------------ ---------------- ----------------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 91,076 $ 73 $ 655 $ 90,494
U.S. government agencies 202,541 3 2,739 199,805
State and municipal securities 630 -0- -0- 630
Mortgage-backed securities 21,374 -0- 538 20,836
Assets-backed securities 4,999 -0- 8 4,991
Federal Home Loan Bank stock 5,401 -0- -0- 5,401
Other securities 5,000 -0- 4 4,996
---------- -------- ------ --------
Total $331,021 $ 76 $3,944 $327,153
---------- -------- ------ --------
---------- -------- ------ --------
</TABLE>
<TABLE>
<CAPTION>
As of 12/31/96
-----------------------------------------------------------------
Amortized Gross Gross
Cost Unrealized Gains Unrealized Losses Fair Value
------------ ---------------- ----------------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $122,116 $ 197 $ 544 $121,769
U.S. government agencies 229,695 128 1,446 228,377
State and municipal securities 50 -0- -0- 50
Mortgage-backed securities 23,053 7 178 22,882
Assets-backed securities 4,999 -0- 1 4,998
Federal Home Loan Bank stock 5,315 -0- -0- 5,315
-------- -------- ------ ---------
Total $385,228 $ 332 $2,169 $ 383,391
-------- -------- ------ ---------
-------- -------- ------ ---------
</TABLE>
<TABLE>
<CAPTION>
(Dollars in thousands)
SECURITIES HELD-TO-MATURITY: As of 03/31/97
-----------------------------------------------------------------
Carrying Gross Gross Estimated
Value Unrealized Gains Unrealized Losses Fair Value
------------ ---------------- ----------------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 26,074 $ -0- $ 254 $ 25,820
U.S. government agencies 59,394 -0- 690 58,704
State and municipal securities 40,253 1,094 150 41,197
Mortgage-backed securities 100,504 4 1,470 99,038
Assets-backed securities 3,027 -0- 9 3,018
Corporate bonds 8,904 -0- -0- 8,904
Other securities 10,001 -0- 49 9,952
-------- ------ ------ --------
Total $248,157 $1,098 $2,622 $246,633
-------- ------ ------ --------
-------- ------ ------ --------
</TABLE>
<TABLE>
<CAPTION>
As of 12/31/96
-----------------------------------------------------------------
Carrying Gross Gross Estimated
Value Unrealized Gains Unrealized Losses Fair Value
------------ ---------------- ----------------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 26,081 $ 91 $ 9 $ 26,163
U.S. government agencies 66,900 -0- 106 66,794
State and municipal securities 40,393 1,513 31 41,875
Mortgage-backed securities 63,109 504 103 63,510
Assets-backed securities 3,545 -0- 1 3,544
Other securities 10,101 15 -0- 10,116
-------- ------ ------- --------
Total $210,129 $2,123 $ 250 $212,002
-------- ------ ------- --------
-------- ------ ------- --------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
SECURITIES PORTFOLIO MATURITY DISTRIBUTION: (Dollars in thousands)
As of March 31, 1997
Maturity Schedule
----------------------------------------------------------------------
After 1 But After 5 But
SECURITIES AVAILABLE-FOR-SALE: Within 1 Yr Within 5 Yrs Within 10Yrs Over 10rs Total
- ----------------------------- ----------- ------------ ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities $ 48,988 $ 41,506 $ -0- $ -0- $ 90,494
U.S. government agencies 5,003 173,015 21,787 -0- 199,805
State and municipal securities 630 -0- -0- -0- 630
Mortgage-backed securities* -0- -0- 3,586 17,250 20,836
Assets-backed securities* -0- 4,991 -0- -0- 4,991
Federal Home Loan Bank stock 5,401 -0- -0- -0- 5,401
Other securities 4,996 -0- -0- -0- 4,996
--------- -------- --------- --------- --------
Total $ 65,018 $219,512 $ 25,373 $ 17,250 $327,153
--------- -------- --------- --------- --------
--------- -------- --------- --------- --------
SECURITIES HELD-TO-MATURITY:
- ----------------------------
U.S. Treasury securities $ -0- $ 26,074 $ -0- $ -0- $ 26,074
U.S. government agencies -0- 39,394 20,000 -0- 59,394
State and municipal securities -0- 9,478 15,817 14,958 40,253
Mortgage-backed securities* -0- 23,319 11,793 65,392 100,504
Assets-backed securities* -0- -0- -0- 3,027 3,027
Corporate bonds -0- 8,904 -0- -0- 8,904
Other securities 10,001 -0- -0- -0- 10,001
--------- -------- --------- --------- --------
Total $ 10,001 $107,169 $ 47,610 $ 83,377 $248,157
--------- -------- --------- --------- --------
--------- -------- --------- --------- --------
</TABLE>
* The mortgage-backed securities and asset-backed securities reflect stated
maturities and not anticipated prepayments.
LOANS
The Bank continued to experience fair loan demand in the first quarter of
1997. Total gross loans increased $34.9 million or 4.6% to $796.5 million as of
March 31, 1997, from $761.6 million at year-end 1996. In addition to a $12.0
million increase in commercial real estate loans and a $2.0 million increase in
construction loans, the Bank also made $27.7 million investments in the banker's
acceptances which were included in the other loan category as of March 31, 1997.
However, commercial loans continued to decrease from $283.9 million at year-end
1996 to $277.9 million as of March 31, 1997 largely due to pay-offs.
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 03/31/97 As of 12/31/96
--------------------------------------------
Types of loans: Amount Percent Amount Percent
-------- ------- ------ -------
<S> <C> <C> <C> <C>
Commercial loans $277,873 35.7% $283,894 38.1%
Real estate mortgage loans 430,802 55.3 420,315 56.5
Real estate construction loans 35,547 4.6 33,510 4.5
Installment loans 24,109 3.1 23,551 3.1
Other loans 28,214 3.6 385 0.1
-------- ------ -------- ------
Total loans - Gross 796,545 761,655
Allowance for loan losses (14,414) (1.8) (13,529) (1.8)
Unamortized deferred loan fees (3,724) (0.5) (3,742) (0.5)
-------- ------ -------- ------
Total loans - Net $778,407 100.0% $744,384 100.0%
-------- ------ -------- ------
-------- ------ -------- ------
</TABLE>
11
<PAGE>
RISK ELEMENTS OF THE LOAN PORTFOLIO
NON-PERFORMING ASSETS
Non-performing assets were reduced by $5.8 million to $24.4 million or
3.01% of total loans plus OREO as of March 31, 1997, as compared to $30.2
million or 3.87% of total loans plus OREO at year-end 1996. Non-performing
assets include loans past due 90 days or more and still accruing interest,
non-accrual loans, and OREO. The decrease of $5.8 million in non-performing
assets was accomplished by a $4.6 million reduction in OREO and a $2.0 million
reduction in loans past due 90 days or more and still accruing interest offset
by a $0.8 million increase in non-accrual loans. The non-accrual coverage
ratio, which is the allowance for loan losses to non-performing loans, jumped
from 119.15% at year-end 1996 to 141.65% as of March 31, 1997, primarily due to
the combination of a $1.2 million decrease in non-performing loans along with a
$0.9 million increase in the allowance for loan losses. The following table
presents the breakdown of non-performing assets by categories as of the dates
indicated:
<TABLE>
<CAPTION>
(Dollars in thousands)
As of As of As of As of
Non-Performing Assets: 03/31/97 12/31/96 09/30/96 06/30/96
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Loans past due 90 days or more and
still accruing interest $ 56 $ 2,050 $ 2,272 $ 1,171
Non-accrual loans 10,120 9,305 12,928 17,875
-------- -------- -------- --------
Total past due loans 10,176 11,355 15,200 19,046
Real estate acquired in foreclosure 14,202 18,854 15,570 12,170
-------- -------- -------- --------
Total non-performing assets $ 24,378 $ 30,209 $ 30,770 $ 31,216
-------- -------- -------- --------
-------- -------- -------- --------
Accruing troubled debt restructurings 3,195 3,201 2,737 3,945
Non-performing assets as a percentage of
period-end total loans plus OREO 3.01% 3.87% 5.12% 5.43%
</TABLE>
The balance of $10.1 million in non-accrual loans consisted mainly of $4.8
million in commercial real estate loans and $4.8 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 commercial real estate and
commercial non-accrual loan categories as of the dates indicated:
(Dollars in thousands)
03/31/97 12/31/96
----------------------- -----------------------
Non-accrual Loan Balance
------------------------------------------------
Commercial Commercial
Type of property: Real Estate Commercial Real Estate Commercial
----------- ---------- ----------- ----------
Single/multi-family residence $ 2,212 $ 595 $ 583 $ 1,707
Commercial 377 3,436 226 3,302
Motel 1,350 503 1,350 511
Marina 769 -0- 769 -0-
Others 86 194 -0- 399
Unsecured -0- 84 -0- 84
-------- -------- -------- --------
$ 4,794 $ 4,812 $ 2,928 $ 6,003
-------- -------- -------- --------
-------- -------- -------- --------
Type of business:
Real estate development $ 769 $ 561 $ 995 $ 562
Wholesale -0- 762 -0- 780
Restaurant 613 -0- -0- -0-
Import -0- -0- -0- 305
Motel 1,916 503 1,933 511
Others 1,496 2,986 -0- 3,845
-------- -------- -------- --------
$ 4,794 $ 4,812 $ 2,928 $ 6,003
-------- -------- -------- --------
-------- -------- -------- --------
12
<PAGE>
The above tables show a $1.4 million balance in non-accrual motel loan as
of March 31, 1997, which represents one credit secured by the first trust deed
on the respective motel located in Southern California. Under the non-accrual
commercial loan category as of March 31, 1997, the $3.4 million balance
consisted of nine credits. The collateral on these credits include primarily
first trust deeds and secondarily second and third trust deeds on commercial
buildings and warehouses.
Troubled debt restructurings were $3.2 million as of March 31, 1997,
approximately the same level as year-end 1996. All of the restructured loans
were current under their revised terms as of March 31, 1997 with the exception
of one credit in the amount of $473,000 which was 11 days past due.
There were no loan concentrations to multiple borrowers in similar
activities, which exceeded 10% of total loans as of March 31, 1997.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses amounted to $14.4 million or 1.81% of total
loans as of March 31, 1997, as compared to $13.5 million or 1.78% of total loans
at year-end 1996. 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: 03/31/97 12/31/96 09/30/96 06/30/96
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance at beginning of period $13,529 $12,742 $12,742 $12,742
Allowance from acquisition -0- 1,644 -0- -0-
Provision for loan losses 900 3,600 2,700 1,800
Loans charged-off (39) (5,388) (3,867) (3,489)
Recoveries of charged-off loans 24 931 620 582
------- ------- ------- -------
Balance at end of period $14,414 $13,529 $12,195 $11,635
------- ------- ------- -------
------- ------- ------- -------
Average loans outstanding during the period $756,679 $579,634 $555,382 $553,370
Ratio of net charge-offs to average loans outstanding
during the period (annualized) 0.01% 0.77% 0.78% 1.05%
Provision for loan losses to average loans outstanding
during the period (annualized) 0.48% 0.62% 0.65% 0.65%
Allowance to non-performing loans at period-end 141.65% 119.15% 80.22% 61.09%
Allowance to total loans at period-end 1.81% 1.78% 2.08% 2.07%
</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 Bank's allowance for loan losses consists of a specific allowance and a
general allowance. The specific allowance is further broken down to provide for
impaired loans and the remaining internally classified loans. Management
allocates a specific allowance to those remaining internally classified loans
which do not require impairment allowance, based on the current financial
condition of the borrowers and guarantors, the prevailing value of the
underlying collateral and 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:
13
<PAGE>
(Dollars in thousands)
As of March 31, 1997
---------------------------
Impaired loans: Recorded Impairment
Loans with impairment allowance: Investment Allowance
---------- ----------
Commercial $ 7,068 $ 1,374
Commercial real estate 10,545 1,718
Other 178 142
------- -------
Total loans with impairment allowance $17,791 $ 3,234
------- -------
------- -------
With the reduction of non-performing loans and the increase in the coverage
ratio from 119.15% at year-end 1996 to 141.65% as of March 31, 1997, management
believes the allowance level as of March 31, 1997 to be adequate 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 $1.7
million, were carried at $14.2 million as of March 31, 1997. This compares with
OREO, net of a valuation allowance of $1.6 million, carried at $18.8 million at
year-end 1996. During the first quarter of 1997, five properties totaling $5.0
million were disposed of with a net loss of $76,000. As of March 31, 1997, the
Bank's 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 Bank maintains a valuation allowance for the OREO properties in order
to record estimated fair 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 1997, management
provided approximately $133,000 to the provision for OREO losses based on new
listing prices or new appraisals received.
DEPOSITS
As of March 31, 1997, total deposits increased $10.1 million to $1,374.8
million as compared to $1,364.7 million at year-end 1996. Time deposits over
$100,000 ("Jumbo CD's") continued to account for the majority of the increase
while core deposits (defined as total deposits excluding brokered deposits and
Jumbo CD's) advanced slightly. The ratio of core deposits to total deposits
declined barely from 64.22% at year-end 1996 to 63.83% at the end of the first
quarter of 1997.
Management continues to monitor the Jumbo CD portfolio. The Bank's Jumbo
CD's are considered generally less volatile since 1) a majority of the Bank's
Jumbo CD's have been fairly consistent based on statistics which support that a
considerable portion of the Jumbo CD's stayed with the Bank for more than two
years; 2) the Jumbo CD portfolio continued to be diversified with 2,900
individual accounts owned by 2,083 individual depositors as of January 28, 1997;
and 3) this phenomenon of having relatively higher percentage of Jumbo CD's
exists in most of the Asian 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 acquisition, to lower the interest rates paid on Jumbo CD's and to develop
new transaction-based products to attract depositors. There were no brokered
deposits as of March 31, 1997. The following table illustrates the deposit mix
on the dates indicated:
14
<PAGE>
(Dollars in thousands)
As of 03/31/97 As of 12/31/96
-------------------- --------------------
Types of deposits: Amount Percent Amount Percent
---------- ------- ---------- -------
Demand $ 139,040 10.1% $ 135,345 9.9%
NOW accounts 117,372 8.5 118,498 8.7
Money market accounts 97,101 7.1 95,158 7.0
Savings deposits 219,216 15.9 224,443 16.4
Time deposits under $100,000 304,768 22.2 302,981 22.2
Time deposits of $100,000 or more 497,322 36.2 488,315 35.8
---------- ------ ---------- ------
Total deposits $1,374,819 100.0% $1,364,740 100.0%
---------- ------ ---------- ------
---------- ------ ---------- ------
CAPITAL RESOURCES
Stockholders' equity amounted to $120.8 million or 8.00% of total assets as
of March 31, 1997, as compared to $118.4 million or 7.87% of total assets at
year-end 1996. The $2.4 million increase in stockholders' equity was primarily
due to year-to-date net income of $4.5 million and $333,000 from issuance of
additional common shares through Dividend Reinvestment Plan and ESOP purchases,
which were partially offset by an increase of $1.1 million in the unrealized
holding losses on securities available-for-sale, net of tax, and dividends paid
in the amount of $1.3 million.
The Company declared a cash dividend of $0.15 per share in January and
April of 1997, on 8,878,144 and 8,895,878 shares outstanding, respectively.
Total cash dividends paid in 1997, including the $1.3 million paid in April
1997, amounted to $2.7 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.
As presented in the following tables, the Company and the Bank's capital
and leverage ratios as of March 31, 1997 well exceeded the regulatory minimum
requirements. The capital ratios of the Bank place it in the "well capitalized"
category which is defined as institutions with total risk-based ratio equal to
or greater than 10.0%, Tier 1 risk-based capital ratio equal to or greater than
6.0% and Tier 1 leverage capital ratio equal to or greater than 5.0%.
<TABLE>
<CAPTION>
(Dollars in thousands)
Company Bank
As of 03/31/1997 As of 03/31/1997
--------------------- ---------------------
Balance Percent Balance Percent
------- ------- ------- -------
<S> <C> <C> <C> <C>
Tier 1 capital (to risk-weighted assets) $113,040* 12.65% $110,525* 12.37%
Tier 1 capital minimum requirement 35,736 4.00 35,735 4.00
-------- ------ -------- -----
Excess $ 77,304 8.65% $ 74,790 8.37%
-------- ------ -------- -----
-------- ------ -------- -----
Total capital (to risk-weighted assets) $124,247* 13.91% $121,732* 13.63%
Total capital minimum requirement 71,471 8.00 71,471 8.00
-------- ------ -------- -----
Excess $ 52,776 5.91% $ 50,261 5.63%
-------- ------ -------- -----
-------- ------ -------- -----
Risk-weighted assets $893,389 $893,382
Tier 1 capital (to average assets)
- Leverage ratio $113,040* 7.55% $110,525* 7.38%
Minimum leverage requirement 59,908 4.00 59,908 4.00
-------- ------ -------- -----
Excess $ 53,132 3.55% $ 50,617 3.38%
-------- ------ -------- -----
-------- ------ -------- -----
Total average assets $1,497,694 $1,497,690
</TABLE>
15
<PAGE>
* Excluding the unrealized holding losses on securities available-for-sale of
$2,205,000, and goodwill of $9,986,000.
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 derives
liquidity primarily from various types of deposits. In addition, liquidity can
be obtained from assets as well, which include cash and cash equivalents, time
deposits with other depository institutions, Federal funds sold and repurchases,
unpledged securities available-for-sale, and unpledged securities
held-to-maturity. The Company's liquidity ratio (defined as net cash,
short-term and marketable securities to net deposits and short-term liabilities)
stood at 45.68% as of March 31, 1997, as compared to 47.09% at year-end 1996.
To further enhance its liquidity, the Bank 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 $209 million with three
brokerage firms. Moreover, the Bank is a shareholder of Federal Home Loan Bank
(FHLB) since January 1993, which enables the Bank 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 Bank's
Investment Committee monitors interest sensitivity risk on an on-going basis by
using, among other things, simulation model, 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. As of March 31, 1997, the Company's rate sensitive liabilities exceeded
rate sensitive assets by roughly $176.4 million with a cumulative gap ratio of a
negative 11.68% within a 1-year period.
16
<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
There were no reportable events.
ITEM 5. OTHER INFORMATION
There were no reportable events.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company filed a report on Form 8-K/A dated February 13, 1997 to amend the
report on Form 8-K dated November 18, 1996 to report the completion of the
merger with First Public.
Exhibit:
27 Financial Data Schedule
17
<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: May 13, 1997 DUNSON K. CHENG
------------ ---------------
Dunson K. Cheng
Chairman and President
Date: May 13, 1997 ANTHONY M. TANG
------------ ---------------
Anthony M. Tang
Chief Financial Officer
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 54,630
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 20,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 327,153
<INVESTMENTS-CARRYING> 248,157
<INVESTMENTS-MARKET> 246,633
<LOANS> 792,821
<ALLOWANCE> 14,414
<TOTAL-ASSETS> 1,511,030
<DEPOSITS> 1,374,819
<SHORT-TERM> 2,221
<LIABILITIES-OTHER> 13,169
<LONG-TERM> 0
0
0
<COMMON> 89
<OTHER-SE> 120,732
<TOTAL-LIABILITIES-AND-EQUITY> 1,511,030
<INTEREST-LOAN> 17,459
<INTEREST-INVEST> 8,681
<INTEREST-OTHER> 576
<INTEREST-TOTAL> 26,716
<INTEREST-DEPOSIT> 11,982
<INTEREST-EXPENSE> 12,005
<INTEREST-INCOME-NET> 14,711
<LOAN-LOSSES> 900
<SECURITIES-GAINS> 4
<EXPENSE-OTHER> 7,628
<INCOME-PRETAX> 7,573
<INCOME-PRE-EXTRAORDINARY> 7,573
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,519
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.51
<YIELD-ACTUAL> 4.46
<LOANS-NON> 10,120
<LOANS-PAST> 56
<LOANS-TROUBLED> 3,195
<LOANS-PROBLEM> 7,660
<ALLOWANCE-OPEN> 13,529
<CHARGE-OFFS> 39
<RECOVERIES> 24
<ALLOWANCE-CLOSE> 14,414
<ALLOWANCE-DOMESTIC> 14,414
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
