<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, 1998
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, 8,953,307 shares outstanding as of March 31,
1998.
<PAGE> 2
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION ........................................... 3
Item 1. Financial Statements .......................................... 4-6
Notes to Condensed Consolidated Financial Statements .......... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .............. 8-17
PART II - OTHER INFORMATION .............................................. 18
Item 1. Legal Proceedings .............................................. 18
Item 2. Changes in Securities .......................................... 18
Item 3. Defaults upon Senior Securities ................................ 18
Item 4. Submission of Matters to a Vote of Security Holders ............ 18
Item 5. Other Information .............................................. 18
Item 6. Exhibits and Reports on Form 8-K ............................... 18
SIGNATURES ............................................................... 19
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, 1998 AND DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
MAR. 31, 1998 DEC. 31, 1997
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
ASSETS
Cash and due from banks $ 84,631 $ 57,728
Federal funds sold and securities purchased under
agreement to resell 24,400 67,000
---------- ----------
Cash and cash equivalents 109,031 124,728
Securities available-for-sale (with amortized costs of
$218,104 in 1998 and $215,466 in 1997) 218,602 216,158
Securities held-to-maturity (with estimated fair
values of $362,622 in 1998 and $356,187 in 1997) 356,590 350,336
Loans (net of allowance for loan losses of
$16,435 in 1998 and $15,379 in 1997) 878,516 846,151
Other real estate owned, net 13,481 13,269
Investments in real estate, net 1,610 1,654
Premises and equipment, net 25,376 25,202
Customers' liability on acceptance 9,200 10,296
Accrued interest receivable 10,498 12,246
Goodwill 9,356 9,530
Other assets 10,337 12,892
---------- ----------
Total assets $1,642,597 $1,622,462
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing demand deposits $ 169,030 $ 175,875
Interest bearing accounts
NOW accounts 114,458 111,653
Money market deposits 96,090 94,708
Savings deposits 206,825 210,291
Time deposits under $100,000 316,141 307,504
Time deposits of $100,000 or more 565,094 549,090
---------- ----------
Total deposits 1,467,638 1,449,121
---------- ----------
Securities sold under agreements to repurchase 15,261 23,419
Acceptances outstanding 9,200 10,296
Other liabilities 10,455 3,749
---------- ----------
Total liabilities 1,502,554 1,486,585
---------- ----------
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, 8,953,307 and 8,941,743 shares issued and
outstanding in 1998 and 1997, respectively 90 89
Additional paid-in-capital 61,665 61,271
Accumulated other comprehensive income 289 370
Retained earnings 77,999 74,147
---------- ----------
Total stockholders' equity 140,043 135,877
---------- ----------
Total liabilities and stockholders' equity $1,642,597 $1,622,462
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 5
CATHAY BANCORP, INC AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 19,554 $ 17,459
Interest on securities available-for-sale 3,198 5,442
Interest on securities held-to-maturity 5,720 3,239
Interest on Federal funds sold and securities sold
under agreement to resell 702 576
Interest on deposits with banks 5 --
----------- -----------
Total interest income 29,179 26,716
----------- -----------
INTEREST EXPENSE
Time deposits of $100,000 or more 7,373 5,979
Other deposits 5,856 6,003
Other borrowed funds 262 23
----------- -----------
Total interest expense 13,491 12,005
----------- -----------
Net interest income before provision for loan losses 15,688 14,711
Provision for loan losses 900 900
----------- -----------
Net interest income after provision for loan losses 14,788 13,811
----------- -----------
NON-INTEREST INCOME
Securities gains 35 4
Letter of credit commissions 444 209
Service charges 1,018 816
Other operating income 505 361
----------- -----------
Total non-interest income 2,002 1,390
----------- -----------
NON-INTEREST EXPENSE
Salaries and employee benefits 4,364 3,951
Occupancy expense 653 678
Computer and equipment expense 595 600
Professional services expense 755 737
FDIC and State assessments 99 55
Marketing expense 332 411
Net other real estate owned expense 145 226
Other operating expense 939 970
----------- -----------
Total non-interest expense 7,882 7,628
----------- -----------
Income before income tax expense 8,908 7,573
Income tax expense 3,490 3,054
----------- -----------
Net Income $ 5,418 $ 4,519
Other comprehensive loss, net of tax :
Unrealized holding losses arising during the period (96) (1,154)
Less: reclassification of the portion of realized loss included in
net income previously included in other comprehensive loss 15 8
----------- -----------
Total other comprehensive loss, net of tax (81) (1,146)
----------- -----------
Comprehensive income $ 5,337 $ 3,373
=========== ===========
NET INCOME PER COMMON SHARE, based on the
weighted average number of common shares
outstanding during the periods: $ 0.61 $ 0.51
Weighted average number of common shares outstanding 8,949,825 8,890,703
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE> 6
CATHAY BANCORP, INC. & SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
(In thousands)
---------------------------
1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 5,418 $ 4,519
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 55 133
Depreciation 298 348
Net gain(loss) on sale of other real estate owned (9) 76
Net gain on sales and calls of securities (35) (4)
Amortization and accretion of investment
security premiums, net 32 195
Amortization of goodwill 174 (89)
Decrease in deferred loan fees, net (99) (19)
Decrease in accrued interest receivable, net 1,748 3,930
(Increase) decrease in other assets, net 2,555 (905)
Increase in other liabilities, net 6,706 2,691
- ------------------------------------------------------------------------------------------------------
Total adjustments 12,325 7,256
- ------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 17,743 11,775
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available-for-sale (50,513) (5,086)
Proceeds from maturity and call of securities available-for-sale 50,723 58,935
Purchase of securities held-to-maturity (3,433) (10,240)
Proceeds from maturity and call of securities held-to-maturity 738 8,965
Proceeds from sale of securities available-for-sale 6,424 --
Purchase of mortgage-backed securities available-for-sale (24,582) --
Proceeds from repayments of mortgage-backed securities
available-for-sale 15,664 1,679
Purchase of mortgage-backed securities held-to-maturity (15,057) (39,546)
Repayments from mortgage-backed securities held-to-maturity 11,259 2,166
Proceeds from sale of loans -- 1,834
Net increase in loans (33,952) (34,441)
Purchase of premises and equipment (472) (121)
Proceeds from sale of other real estate owned 528 2,146
Decrease in investments in real estate 44 68
- ------------------------------------------------------------------------------------------------------
Net cash used in investing activities (42,629) (13,641)
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in demand deposits, NOW accounts,
money market and savings deposits (6,124) (715)
Net increase in time deposits 24,641 10,794
Net decrease in securities sold under agreement to repurchase (8,158) (7,779)
Cash dividends (1,565) (1,331)
Proceeds from shares issued to Dividend Reinvestment Plan 395 333
- ------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 9,189 1,302
- ------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (15,697) (564)
Cash and cash equivalents, beginning of the period 124,728 75,194
- ------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of the period $ 109,031 $ 74,630
- ------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 13,450 $ 11,678
Income taxes $ 570 $ 680
Non-cash investing activities:
Transfers to securities available-for-sale $ 230 $ 630
within 90 days of maturity
Net change in unrealized holding gain(loss) on securities
available-for-sale, net of tax $ (81) $ (1,146)
Transfers to other real estate owned $ 786 $ 403
Loans to facilitate the sale of other real estate owned $ -- $ 2,700
- ------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
6
<PAGE> 7
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, 1998 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1998. 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, 1997.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 131, "Disclosures
about Segments of an Enterprise and Related Information". SFAS No. 131
establishes standards to report information about operating segments in annual
financial statements and requires reporting of selected information about
operating segments in interim reports to shareholders. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. SFAS No. 131 is effective for financial statement for
periods beginning after December 15, 1997, with comparative information for
earlier years to be restated. The Company has concluded it is in one
segment-banking. Accordingly, the adoption of SFAS No. 131 did not have material
effect on the consolidated financial statements or disclosures.
In February 1998, the FASB issued SFAS No. 132, "Employers Disclosure About
Pensions and Other Postretirement Benefits". SFAS No. 132 standardizes the
disclosure requirement for pension and other postretirement benefits, requires
additional information on changes in the benefit obligations and fair values of
plan assets that will facilitate analysis; and eliminates certain disclosure
required by SFAS No. 87, "Employers' Accounting for Pensions", SFAS No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination of Benefits", and SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pension" which are no longer
useful. SFAS No. 132 is effective for fiscal years beginning after December 15,
1997, with comparative information for earlier years to be restated. The impact
on the Company of adopting SFAS No. 132 is not expected to be material.
3. STATEMENT OF COMPREHENSIVE INCOME
Effective with the quarter ended March 31, 1998, the Company adopted SFAS
No. 130, "Reporting Comprehensive Income". SFAS No. 130 requires all items that
are required to be recognized under accounting standards as components of
comprehensive income to be reported in a financial statement that is displayed
in equal prominence with the other financial statements and to disclose as a
part of shareholders' equity accumulated comprehensive income. Comprehensive
income is defined as the change in equity during a period from transactions and
other events and circumstances from non-owner sources. Comprehensive income
generally includes net income, foreign currency items, minimum pension liability
adjustments, and unrealized gains and losses on investments in certain debt and
equity securities (i.e., securities available-for-sale).
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 1997 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 1998, the Company reported net income of $5.4
million or $0.61 per common share, compared with $4.5 million or $0.51 per
common share for the first quarter of 1997, representing an increase of $0.9
million or 19.9%. Pre-tax income amounted to $8.9 million for the first quarter
of 1998, compared with $7.6 million for the same period a year ago, representing
an increase of $1.3 million or 17.6%. The increase in 1998 first quarter pre-tax
income was attributed to a $1.0 million increase in net interest income before
provision for loan losses and a $0.6 million increase in non-interest income
while non-interest expense advanced moderately. The annualized return on average
assets ("ROA") and return on average stockholders' equity ("ROE") were 1.35% and
15.93%, respectively, compared with 1.22% and 15.32%, respectively, for the
first quarter of 1997.
NET INTEREST INCOME
Net interest income before provision for loan losses totaled $15.7 million
for the first quarter of 1998, which represents an increase of $1.0 million or
6.6% over the $14.7 million for the same quarter of 1997. On a taxable
equivalent basis, net interest income rose $1.0 million or 6.6% as well to $16.0
million for the first quarter of 1998, compared with $15.0 million for the same
quarter of 1997. The increase in net interest income before provision for loan
losses was substantially attributable to a $99.8 million growth in the average
earning assets, mainly loans. Average net loans amounted to $854.2 million and
accounted for 57.9% of average earning assets in the first quarter of 1998,
compared with $756.7 million or 55.0% of average earning assets for the same
period a year ago. The increase in average loans was primarily funded by time
deposits and secondarily demand deposits and securities sold under agreement to
repurchase. The increase in volume contributed an additional $2.1 million to net
interest income, which was slightly offset by a seven basis point decrease in
the average yield on loans despite a 23 basis point increase in the Bank's
reference rate in the first quarter of 1998. The keen competition in the Bank's
marketplace played an important role in the decrease in the average loan yield.
Nevertheless, the taxable equivalent average yield on earning assets advanced 14
basis points from 7.95% a year ago to 8.10% due to higher yields on securities
(including available-for-sale and held-to-maturity) and securities purchased
under agreement to resell. Meanwhile, cost of funds increased 27 basis points
from 3.92% to 4.19% largely due to higher rates paid on time deposits.
Consequently, net interest margin, defined as taxable equivalent net interest
income to average earning assets, decreased 3 basis points from 4.42% to 4.39%
between the first quarter of 1997 and 1998.
NON-INTEREST INCOME
Non-interest income totaled $2.0 million and $1.4 million for the first
quarter of 1998 and 1997, respectively, representing an increase of $612,000 or
44.0% for 1998. The increase in 1998 resulted from: 1) higher letter of credit
commissions due to increased transaction volume; 2) higher service charges due
to fee increases; 3) income earned in outsourcing the issuing and processing of
cashier's checks and money orders; 4) higher fees related to loan documentation
and other charges; 5) more securities gains; and 6) higher wire transfer fees.
The following tables illustrate the components of non-interest income, as
well as the amount and percentage changes for the periods indicated:
8
<PAGE> 9
<TABLE>
<CAPTION>
(Dollars in thousands)
Three Months Ended Percent
Non-interest income: 03/31/98 03/31/97 Increase Change
- -------------------- -------- -------- -------- ------
<S> <C> <C> <C> <C>
Letter of credit commissions $ 444 $ 209 $235 112.4%
Service charges 1,018 816 202 24.8
Other operating income 505 361 144 39.9
Securities Gains 35 4 31 775.0
-------- --------- -----
Total non-interest income $2,002 $1,390 $612 44.0%
======== ========= =====
</TABLE>
NON-INTEREST EXPENSE
Non-interest expense amounted to $7.9 million and $7.6 million,
respectively for the first quarter of 1998 and 1997, respectively. The moderate
increase of $254,000 or 3.3% in 1998 non-interest expense was primarily
attributed to higher salaries and employee benefits of $413,000 due in large
part to added personnel to support the newly opened Berkeley/Richmond Branch as
well as new officers for northern California branches. All other categories in
non-interest expense showed reduction with the exception of FDIC and State
assessments and professional services expense both of which advanced slightly.
The following tables present the components of the non-interest expense
with the amount and percentage changes for the periods indicated:
<TABLE>
(Dollars in thousands)
Three Months Ended Increase Percent
Non-interest income: 03/31/98 03/31/97 (Decrease) Change
-------- -------- -------- ------
<S> <C> <C> <C> <C>
Salaries and employee benefits $4,364 $3,951 $ 413 10.5%
Occupancy expense 653 678 (25) (3.7)
Computer and equipment expense 595 600 (5) (0.8)
Professional services expense 755 737 18 2.4
FDIC and State assessments 99 55 44 80.0
Marketing expense 332 411 (79) (19.2)
Net other real estate owned expense 145 226 (81) (35.8)
Other operating expense 939 970 (31) (3.2)
-------- -------- --------
Total non-interest expense $7,882 $7,628 $ 254 3.3%
======== ======== ========
</TABLE>
FINANCIAL CONDITION
The Company experienced moderate growth during the first quarter of 1998.
Total assets increased $20.1 million to $1,642.6 million; loans, net of deferred
loan fees, gained $33.4 million to $895.0 million; investment securities
(including available-for-sale and held-to-maturity) advanced $8.7 million to
$575.2 million; deposits grew $18.5 million to $1,467.6 million; and
stockholders' equity increased $4.2 million to $140.0 million, compared to
December 31, 1997.
EARNING ASSET MIX
Total earning assets amounted to $1,494.9 million at March 31, 1998,
compared with $1,495.9 million at year-end 1997. The $940,000 decrease was
primarily due to a $42.6 million decrease in securities purchased under
agreement to resell offset by a $33.4 million increase in loans, net of deferred
fees, and a $8.7 million increase in investment securities (including
available-for-sale and held-to-maturity). However, average earning assets
increased $99.8 million to $1,476.2 million for the first quarter of 1998,
compared with $1,376.4 million for the same quarter a year ago. The Bank
continued to experience good loan growth in the first quarter of 1998. Average
net loans continued to increase as a percentage of total earning assets from
55.0% for the first quarter of 1997 to 57.9% for the first quarter of 1998,
while investment securities (including available-for-sale and held-to-maturity)
9
<PAGE> 10
decreased from 41.9% for the first quarter of 1997 to 38.8% for the same quarter
of 1998. This change in the earning asset mix from securities to loans is
favorable to net interest income.
The table below shows the changes in the earning asset mix as of the dates
indicated:
<TABLE>
<CAPTION>
(Dollars in thousands)
As of 03/31/98 As of 12/31/97
Types of earning assets: Amount Percent Amount Percent
---------- ----- ---------- -----
<S> <C> <C> <C> <C>
Federal funds sold and securities purchased
under agreement to resell $ 24,400 1.6% $ 67,000 4.5%
Securities available-for-sale 218,602 14.6 216,158 14.4
Securities held-to-maturity 356,590 23.8 350,336 23.4
Loans (net of deferred fees) 894,951 59.9 861,530 57.6
Deposits with banks 396 0.1 855 0.1
---------- ----- ---------- -----
Total earning assets $1,494,939 100.0% $1,495,879 100.0%
========== ===== ========== =====
</TABLE>
SECURITIES
As of March 31, 1998 securities available-for-sale and held-to-maturity
increased $2.4 million and $6.3 million, respectively, from $216.2 million and
$350.3 million at year-end 1997 to $218.6 million and $356.6 million,
respectively. The moderate increase of $8.7 million in the overall investment
securities was primarily attributable to healthy loan demand that the Company
experienced during the first quarter of 1998. 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 03/31/98
Amortized Gross Gross Estimated
Cost Unrealized Gains Unrealized Losses Fair Value
--------- ---------------- ----------------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 21,014 $ 4 $ 25 $ 20,993
U.S. government agencies 108,101 233 -0- 108,334
State and municipal securities 230 1 -0- 231
Mortgage-backed securities 31,215 272 22 31,465
Assets-backed securities 16,167 25 -0- 16,192
Federal Home Loan Bank stock 5,736 -0- -0- 5,736
Commercial paper 30,997 3 -0- 31,000
Other securities 4,644 10 3 4,651
-------- -------- -------- --------
Total $218,104 $ 548 $ 50 $218,602
======== ======== ======== ========
</TABLE>
<TABLE>
As of 12/31/97
Amortized Gross Gross Estimated
Cost Unrealized Gains Unrealized Losses Fair Value
--------- ---------------- ----------------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 38,020 $ 11 $ 60 $ 37,971
U.S. government agencies 113,255 97 46 113,306
Mortgage-backed securities 28,689 685 6 29,368
Assets-backed securities 19,878 11 -0- 19,889
Federal Home Loan Bank stock 5,653 -0- -0- 5,653
Commercial paper 9,971 -0- -0- 9,971
-------- -------- -------- --------
Total $215,466 $ 804 $ 112 $216,158
======== ======== ======== ========
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
(Dollars in thousands)
SECURITIES HELD-TO-MATURITY: As of 03/31/98
Carrying Gross Gross Estimated
Value Unrealized Gains Unrealized Losses Fair Value
---------- ---------------- ----------------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 26,047 $ 368 $ -0- $ 26,415
U.S. government agencies 39,368 384 -0- 39,752
State and municipal securities 47,696 2,011 32 49,675
Mortgage-backed securities 234,371 3,140 72 237,439
Assets-backed securities 187 -0- 6 181
Other securities 8,921 239 -0- 9,160
---------- ---------------- ----------------- ----------
Total $356,590 $6,142 $ 110 $362,622
======== ====== ======= ========
</TABLE>
<TABLE>
As of 12/31/97
Carrying Gross Gross Estimated
Value Unrealized Gains Unrealized Losses Fair Value
---------- ---------------- ----------------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 26,054 $ 354 $ -0- $ 26,408
U.S. government agencies 39,374 291 -0- 39,665
State and municipal securities 44,497 2,264 -0- 46,761
Mortgage-backed securities 230,573 2,762 35 233,300
Assets-backed securities 922 -0- 6 916
Other securities 8,916 221 -0- 9,137
---------- -------- --------- ----------
Total $350,336 $5,892 $ 41 $356,187
======== ====== ======== ========
</TABLE>
<TABLE>
<CAPTION>
SECURITIES PORTFOLIO MATURITY DISTRIBUTION: (Dollars in thousands)
As of March 31, 1998
Maturity Schedule
-------------------------------------------------------------------------------
After 1 But After 5 But
SECURITIES AVAILABLE-FOR-SALE: Within 1 Yr Within 5 Yrs Within 10Yrs Over 10Yrs Total
- ----------------------------- ----------- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities $ 18,977 $ 2,016 $ -0- $ -0- $ 20,993
U.S. government agencies 30,005 78,329 -0- -0- 108,334
State and municipal securities 231 -0- -0- -0- 231
Mortgage-backed securities* -0- 6,533 6,827 18,105 31,465
Assets-backed securities* -0- 16,192 -0- -0- 16,192
Federal Home Loan Bank stock 5,736 -0- -0- -0- 5,736
Other securities 31,000 -0- 4,651 -0- 35,651
---------- ------------ ---------- ------------ ----------
Total $ 85,949 $103,070 $ 11,478 $ 18,105 $ 218,602
========= ======== ========= ========= ========
SECURITIES HELD-TO-MATURITY:
U.S. Treasury securities $ -0- $ 26,047 $ -0- $ -0- $ 26,047
U.S. government agencies -0- 39,368 -0- -0- 39,368
State and municipal securities 1,111 9,741 20,216 16,628 47,696
Mortgage-backed securities* -0- 17,492 60,527 156,352 234,371
Assets-backed securities* -0- -0- -0- 187 187
Corporate bonds -0- 8,921 -0- -0- 8,921
------------ ---------- ------------ ------------ -----------
Total $ 1,111 $ 101,569 $ 80,743 $ 173,167 $356,590
========== ========= =========== =========== ========
</TABLE>
* The mortgage-backed securities and assets-backed securities reflect stated
maturities and not anticipated prepayments.
11
<PAGE> 12
LOANS
The Bank continued to experience satisfactory loan demand in the first
quarter of 1998. Total gross loans increased $33.3 million or 3.9% to $898.6
million as of March 31, 1998, from $865.3 million at year-end 1997. Excluding
the $18.1 million investments in banker's acceptances which were included in
commercial loans at year-end 1997, total commercial loans increased $19.1
million or 6.0% to $339.2 million at March 31, 1998. Real estate mortgage loans
comprised primarily of real estate commercial loans and real estate residential
loans, which increased $11.4 million or 3.8% and $8.3 million or 6.1%,
respectively, to $315.1 million and $145.3 million, respectively, during the
first quarter of 1998. The increase in real estate residential loans was
attributable to low interest rates which brought up new purchases and
refinancing activities. As of March 31, 1998, construction loans totaled $49.9
million, an increase of $8.2 million or 19.7% over $41.7 million at year-end
1997. Construction loans are made on a selective basis to those projects with
good location and experienced, financially strong borrowers. The projects are
primarily in southern California and secondarily in northern California and Las
Vegas area. 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 03/31/98 As of 12/31/97
Types of loans: Amount Percent Amount Percent
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Commercial loans $339,210 38.6% $338,285 40.0%
Real estate mortgage loans 478,684 54.5 458,417 54.2
Real estate construction loans 49,958 5.7 41,736 4.9
Installment loans 25,866 2.9 26,611 3.1
Other loans 4,920 0.6 267 0.1
-------- ----- -------- -----
Total loans - Gross 898,638 865,316
Allowance for loan losses (16,435) (1.9) (15,379) (1.8)
Unamortized deferred loan fees (3,687) (0.4) (3,786) (0.5)
-------- ----- -------- -----
Total loans - Net $878,516 100.0% $846,151 100.0%
======== ====== ======== ======
</TABLE>
RISK ELEMENTS OF THE LOAN PORTFOLIO
NON-PERFORMING ASSETS
Non-performing assets were reduced slightly to $31.9 million or 3.5% of
total loans plus OREO as of March 31, 1998, compared with $32.5 million or 3.7%
of total loans plus OREO at year-end 1997. Non-performing assets include loans
past due 90 days or more and still accruing interest, non-accrual loans, and
OREO. The slight decrease of $613,000 at March 31, 1998 resulted primarily from
a reduction of $910,000 in loans past due 90 days or more and still accruing
interest offset by a $212,000 increase in OREO. The non-performing loan coverage
ratio, defined as the allowance for loan losses to non-performing loans,
advanced from 79.85% at year-end 1997 to 89.16% as of March 31, 1998, due to the
combination of a $1.1 million increase in the allowance for loans losses and a
$825,000 decrease in non-performing loans. 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: 03/31/98 12/31/97 09/30/97 06/30/97
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Loans past due 90 days or more and
still accruing interest $ 1,463 $ 2,373 $ 3,516 $ 4,943
Non-accrual loans 16,971 16,886 16,841 13,618
-------- -------- -------- --------
Total non-performing loans 18,434 19,259 20,357 18,561
Real estate acquired in foreclosure 13,481 13,269 10,063 10,390
-------- -------- -------- --------
Total non-performing assets $31,915 $32,528 $30,420 $28,951
======= ======= ======= =======
Accruing troubled debt restructurings 4,379 4,874 2,911 3,673
Non-performing assets as a percentage of
period-end total loans plus OREO 3.50% 3.70% 3.63% 3.60%
</TABLE>
12
<PAGE> 13
The non-accrual loans of $17.0 million consisted mainly of $10.5 million in
commercial real estate loans and $5.3 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:
<TABLE>
<CAPTION>
(Dollars in thousands)
03/31/98 12/31/97
-------------------------- -----------------------------
Non-accrual Loan Balance
--------------------------------------------------------------
Commercial Commercial
Type of property: Real Estate Commercial Real Estate Commercial
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Single/multi-family residence $ 373 $ 266 $ 593 $ 311
Commercial 7,993 4,262 8,471 5,095
Motel 1,602 -0- 1,350 -0-
Marina -0- -0- -0- -0-
Others 534 193 214 73
Unsecured -0- 550 -0- 37
--------- --------- ----------- ---------
Total $ 10,502 $ 5,271 $10,628 $ 5,516
======= ======== ======= ========
Type of business:
Real estate development $ -0- $ 615 $ -0- $ 134
Real estate management 6,315 36 6,303 36
Wholesale 678 2,144 430 2,994
Food/Restaurant -0- 1,151 -0- 1,190
Import -0- 29 752 4
Motel 1,602 -0- 1,350 -0-
Investments 406 -0- 1,194 -0-
Industrial 199 224 214 263
Clothing 373 376 385 441
Others 929 696 -0- 454
--------- --------- --------- ---------
Total $10,502 $ 5,271 $ 10,628 $ 5,516
========= ======== ========= ========
</TABLE>
As shown in the above tables under the commercial real estate loan category
as of March 31, 1998, the $8.0 million balance in commercial loans represents
eight credits, 97% of which were secured by first trust deeds on commercial
buildings and warehouses. The $1.6 million balance in motel loans represents two
credits secured by first trust deeds on the respective motels located in
Southern California. Under the commercial loan category as of March 31, 1998,
the $4.3 million balance consisted of 13 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 $4.4 million as of March 31, 1998,
compared with $4.9 million at year-end 1997, representing a decrease of $495,000
or 10.2%. All of these restructured loans were current under their revised terms
as of March 31, 1998.
There were no loan concentrations to multiple borrowers in similar
activities, which exceeded 10% of total loans as of March 31, 1998.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses amounted to $16.4 million or 1.83% of total
loans as of March 31, 1998, compared with $15.4 million or 1.78% of total loans
at year-end 1997. The following table presents information relating to the
allowance for loan losses for the periods indicated:
13
<PAGE> 14
<TABLE>
<CAPTION>
(Dollars in thousands)
YTD YTD YTD YTD
Allowance for loan losses: 03/31/98 12/31/97 09/30/97 06/30/97
<S> <C> <C> <C> <C>
Balance at beginning of period $ 15,379 $13,529 $13,529 $13,529
Provision for loan losses 900 3,600 2,700 1,800
Loans charged-off (147) (2,139) (1,568) (1,346)
Recoveries of charged-off loans 303 389 308 43
-------- -------- -------- --------
Balance at end of period $ 16,435 $ 15,379 $ 14,969 $ 14,026
======== ======== ======== =======
Average loans outstanding during the period $854,161 $792,176 $780,756 $770,763
Ratio of net charge-offs to average loans
outstanding during the period (annualized) (0.07)% 0.22% 0.22% 0.34%
Provision for loan losses to average loans
outstanding during the period (annualized) 0.43% 0.45% 0.46% 0.47%
Allowance to non-performing loans at period-end 89.16% 79.85% 73.53% 75.57%
Allowance to total loans at period-end 1.83% 1.78% 1.81% 1.77%
</TABLE>
In determining 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:
<TABLE>
<CAPTION>
(Dollars in thousands)
As of March 31, 1998 As of December 31, 1997
-------------------------------- ------------------------
Impaired loans: SFAS No. 114 SFAS No. 114
Recorded Impairment Recorded Impairment
Loans with impairment allowance: Investment Allowance Investment Allowance
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Commercial $ 6,954 $1,307 $ 7,784 $1,499
Commercial real estate 15,129 2,875 14,027 2,396
Other 59 59 95 95
-------- -------- -------- ------
Total loans with impairment allowance $ 22,142 $4,241 $ 21,906 $3,990
======= ====== ======= ======
</TABLE>
Based on the Company's evaluation process and the methodology 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 as of March 31, 1998 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 valuation allowance, were carried at
$13.5 million as of March 31, 1998, compared with those carried at $13.3 million
at year-end 1997. During the first quarter of 1998, the Company acquired one
property at $786,000 and disposed three properties totaling $775,000 with a net
gain of $9,000. As of March 31, 1998, the Bank's OREO properties
14
<PAGE> 15
include commercial buildings, warehouses, land, single family residences and
apartments, all of which are located in Southern California.
The Bank continues to maintain a valuation allowance for the OREO
properties in order to record estimated fair value of the 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 1998,
management provided approximately $56,000 to the provision for OREO losses based
on new listing prices or new appraisals received bringing the valuation
allowance to $881,000 as of March 31, 1998.
DEPOSITS
Total deposits increased moderately to $1,467.6 million at March 31, 1998,
compared with $1,449.1 million at year-end 1997. Of the $18.5 million increase
in deposits, $16.0 million came from time deposits over $100,000 ("Jumbo CD's").
This continued growth in Jumbo CD's was primarily a result of the widening of
the interest rate spread between time deposits and other interest-bearing
deposits. Consequently, the ratio of core deposits (defined as all deposits
excluding Jumbo CD's and brokered deposits) to total deposits continued to
decline from 62.11% at year-end 1997 to 61.50% at March 31, 1998. There were no
brokered deposits as of March 31, 1998.
Management continues to monitor the Jumbo CD portfolio to identify any
changes in the deposit behavior in the market and of the patrons the Bank is
servicing. Although the Bank's Jumbo CD portfolio kept growing, management
considers the Bank's Jumbo CD's 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
3,434 individual accounts owned by 2,409 individual depositors as of February
23, 1998. The balance of the accounts averaged approximately $164,000; 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 constantly made efforts to discourage the continued
growth in Jumbo CD's, such as to diversify the customer base by branch expansion
and acquisition, to offer non-competitive interest rates paid on Jumbo CD's and
to develop new transaction-based products to attract depositors. The following
table illustrates the deposit mix as of the dates indicated:
<TABLE>
<CAPTION>
(Dollars in thousands)
As of 03/31/98 As of 12/31/97
-------------- --------------
Types of deposits: Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Demand $ 169,030 11.5% $ 175,875 12.1%
NOW accounts 114,458 7.8 111,653 7.7
Money market accounts 96,090 6.6 94,708 6.6
Savings deposits 206,825 14.1 210,291 14.5
Time deposits under $100,000 316,141 21.5 307,504 21.2
Time deposits of $100,000 or more 565,094 38.5 549,090 37.9
---------- ----- ---------- -----
Total deposits $1,467,638 100.0% $1,449,121 100.0%
========== ===== ========== =====
</TABLE>
CAPITAL RESOURCES
Stockholders' equity amounted to $140.0 million or 8.53% of total assets as
of March 31, 1998, compared with $135.9 million or 8.37% of total assets at
year-end 1997. The $4.2 million or 3.1% increase in stockholders' equity was
primarily due to year-to-date net income of $5.4 million and $395,000 from
issuance of additional common shares through Dividend Reinvestment Plan, which
were partially offset by a decrease of $81,000 in the unrealized holding gain on
securities available-for-sale, net of tax, and dividends paid in the amount of
$1.6 million.
15
<PAGE> 16
The Company declared a cash dividend of $0.175 per share in January and
April of 1998, on 8,941,743 and 8,953,307 shares outstanding, respectively.
Total cash dividends paid in 1998, including the $1.6 million paid in April
1998, amounted to $3.2 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, 1998 continued to be well above 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 03/31/1998 As of 03/31/1998
---------------- ----------------
Balance Percent Balance Percent
------- ------- ------- -------
<S> <C> <C> <C> <C>
Tier 1 capital (to risk-weighted assets) $ 130,398* 11.49% $ 126,491* 11.14%
Tier 1 capital minimum requirement 45,399 4.00 45,398 4.00
---------- ----- ---------- -----
Excess $ 84,999 7.49% $ 81,093 7.14%
========== ===== ========== =====
Total capital (to risk-weighted assets) $ 144,613* 12.74% $ 140,706* 12.40%
Total capital minimum requirement 90,798 8.00 90,797 8.00
---------- ----- ---------- -----
Excess $ 53,815 4.74% $ 49,909 4.40%
========== ===== ========== =====
Risk-weighted assets $1,134,971 $1,134,960
Tier 1 capital (to average assets)
- Leverage ratio $ 130,398* 8.03% $ 126,491* 7.79%
Minimum leverage requirement 64,927 4.00 64,927 4.00
---------- ----- ---------- -----
Excess $ 65,471 4.03% $ 61,564 3.79%
========== ===== ========== =====
Total average assets $1,623,173 $1,623,167
</TABLE>
* Excluding the unrealized holding gains on securities available-for-sale of
$289,000, and goodwill of $9,356,000.
ASSET/LIABILITY MANAGEMENT AND MARKET RISK
The Company manages its assets and liabilities to maximize its net interest
income through growth opportunities and competitive pricing, while striving to
minimize its market risk and to maintain adequate liquidity to meet the maturing
financial obligations and customer credit needs. The Company can but is not
utilizing hedging instruments currently to maintain and/or augment its spread,
as management believes that it is not cost-effective at this time.
The market risks to the Company are the risks that are by nature of its
activities and the economic environment. The principal market risk to the
Company is the interest rate risk inherent in its lending, investing and deposit
taking activities, due to the fact that interest-earning assets and
interest-bearing liabilities of the Company do not change at the same speed, to
the same extent, or on the same basis.
The Company actively monitors and manages its interest rate risk through
analyzing the repricing characteristics of its loans, securities, and deposits
on an on-going basis. The primary objective is to minimize the adverse effects
of changes in interest rates on its earnings and ultimately the underlying
16
<PAGE> 17
market value of equity while structuring the Company's asset-liability
composition to obtain the maximum spread. Management uses certain basic
measurement tools in conjunction with established risk limits to regulate its
interest rate exposure. Because of the limitation inherent in any individual
risk management tool, the Company uses both an interest rate sensitivity
analysis and a simulation model to measure and quantify the impact to the
Company's profitability or the market value of its assets and liabilities.
The interest rate sensitivity analysis measures the Company's exposure to
differential changes in interest rates between assets and liabilities. This
analysis details the expected maturity and repricing opportunities mismatch or
sensitivity gap between interest-earning assets and interest-bearing liabilities
over a specified timeframe. A positive gap exists when rate sensitive assets
which reprice over a given time period exceed rate sensitive liabilities. During
periods of increasing interest rates environment, net interest margin may be
enhanced with a positive gap. Contrarily, a negative gap exists when rate
sensitive liabilities which reprice over a given time period exceed rate
sensitive assets. During periods of increasing interest rate environment, net
interest margin may be impaired. As of March 31, 1998, the Company was asset
sensitive with a cumulative gap ratio of a positive 9.36% within three months,
and liability sensitive with a cumulative gap ratio of a negative 18.67% within
a 1-year period, compared to a positive 17.28% within three months, and a
negative 10.49% within a 1-year period as of December 31, 1997.
Since interest rate sensitivity analysis does not measure the timing
differences in the repricing of asset and liabilities, the Company uses a
simulation model to quantity the extent of the differences in the behavior of
the lending and funding rates, so as to project future earnings or market values
under alternative interest scenarios.
The simulation measures the volatility of net interest income and market
value of equity under immediate rising or falling interest rate scenarios in 100
basis point increments. The Company establishes a tolerance level in its policy
to define and limit interest income volatility to a change of plus or minus 30%
when the hypothetical rate change is plus or minus 200 basis points. When the
tolerance level is met or exceeded, the Company then seeks corrective action
after considering among other things market conditions, customer reaction and
the estimated impact on profitability. As of March 31, 1998, the Company's
interest income volatility was within the Company's established tolerance level.
The Company derives liquidity primarily from various types of deposits. The
Company's principal sources of liquidity have been growth in deposits, proceeds
from the maturity or sale of securities and other financial instruments, and
repayments from securities and loans. The Company's liquidity ratio (defined as
net cash, short-term and marketable securities to net deposits and short-term
liabilities) stood at 45.24% as of March 31, 1998, compared to 45.59% at
year-end 1997.
The Bank maintains a total credit line of $45 million for Federal funds
with three correspondent banks, a repo line of $30 million with a brokerage firm
and a total retail certificate of deposit line of approximately $213 million
with three brokerage firms. Moreover, the Bank is a shareholder of Federal Home
Loan Bank (FHLB) 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.
17
<PAGE> 18
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
Exhibit:
10.4 Cathay Bancorp, Inc. Equity Incentive Plan
27 Financial Data Schedule
18
<PAGE> 19
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, 1998 DUNSON K. CHENG
------------ -----------------------
Dunson K. Cheng
Chairman and President
Date: May 13, 1998 ANTHONY M. TANG
------------ -----------------------
Anthony M. Tang
Chief Financial Officer
19
<PAGE> 1
EXHIBIT 10.4
---------
CATHAY BANCORP, INC.
EQUITY INCENTIVE PLAN
---------------------
SECTION 1. PURPOSE; DEFINITIONS.
(a) Purpose. The purpose of the Plan is to provide selected eligible
employees and directors of Cathay Bancorp, Inc., a Delaware corporation, its
subsidiaries and affiliates an opportunity to participate in the Company's
future by offering them an opportunity to acquire stock in the Company so as to
retain, attract and motivate them.
(b) Definitions. For purposes of the Plan, the following terms have the
following meanings:
(i) "Award" means any award under the Plan, including any Option
or Restricted Stock Award.
(ii) "Award Agreement" means, with respect to each Award, the
signed written agreement between the Company and the Plan participant setting
forth the terms and conditions of the Award.
(iii) "Board" means the Board of Directors of the Company.
(iv) "Change in Control" has the meaning set forth in Section
7(a).
(v) "Change in Control Price" has the meaning set forth in
Section 7(c).
(vi) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor statute.
(vii) "Commission" means the Securities and Exchange Commission
and any successor agency.
(viii) "Committee" means the Committee referred to in Section 2,
or the Board in its capacity as administrator of the Plan in accordance with
Section 2.
(ix) "Company" means Cathay Bancorp, Inc., a Delaware
corporation.
(x) "Disability" means disabled within the meaning of Section
22(e)(3) of the Code.
(xi) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and any successor statute.
(xii) "Fair Market Value" means as of any given date (a) if the
Stock is listed on any established stock exchange or a national market system,
either the closing sale price for the Stock or the closing bid if no sales were
reported, or the average of the bid and ask prices, as selected by the Committee
in its discretion, as quoted on such system or exchange, as reported in The Wall
Street Journal; or (b) in the absence of an established market for the Stock,
the fair market value of the Stock as determined by the Committee in good faith.
(xiii) "Incentive Stock Option" means any Option intended to be
and designated as an "incentive stock option" within the meaning of Section 422
of the Code.
1
<PAGE> 2
(xiv) "Nonqualified Stock Option" means any Option that is not an
Incentive Stock Option.
(xiv) "Option" means an option granted under Section 5.
(xvi) "Plan" means this Cathay Bancorp, Inc. Equity Incentive
Plan, as amended from time to time.
(xvii) "Restricted Stock" means an Award of Stock subject to
restrictions, as more fully described in Section 6.
(xviii) "Restriction Period" means the period determined by the
Committee under Section 6(b).
(xix) "Rule 16b-3" means Rule 16b-3 under Section 16(b) of the
Exchange Act, as amended from time to time, and any successor rule.
(xx) "Stock" means the Common Stock, par value $.01 per share, of
the Company, and any successor security.
(xxi) "Subsidiary" has the meaning set forth in Section 424 of
the Code.
(xxii) "Tax Date" means the date defined in Section 8(f).
(xxiii) "Termination" means, for purposes of the Plan, with
respect to a participant, that (a) if the participant is a director of the
Company, he or she has ceased to be, for any reason, a director and (b) if the
participant is an employee, he or she has ceased to be, for any reason, employed
by the Company, a subsidiary or an affiliate.
SECTION 2. ADMINISTRATION.
(a) Committee. The Plan shall be administered by the Board or, upon
delegation by the Board, by a committee of the Board that will satisfy Rule
16b-3 and Section 162(m) of the Code, as in effect with respect to the Company
from time to time. In connection with the administration of the Plan, the
Committee shall have the powers possessed by the Board. The Committee may act
only by a majority of its members, except that the Committee may from time to
time select another committee or one or more other persons to be responsible for
any matters so long as the selection comports with the requirements of Section
162(m) of the Code and Rule 16b-3. The Board at any time may abolish the
Committee and revest in the Board the administration of the Plan.
(b) Authority. The Committee shall grant Awards to directors and
eligible employees. In particular and without limitation, the Committee, subject
to the terms of the Plan, shall:
(i) select the directors, officers and other employees to whom
Awards may be granted;
(ii) determine whether and to what extent Awards are to be
granted under the Plan;
(iii) determine the number of shares to be covered by each Award
granted under the Plan; and
(iv) determine the terms and conditions of any Award granted
under the Plan and any related loans to be made by the Company, based upon
factors determined by the Committee.
(c) Committee Determinations Binding. The Committee may adopt, alter and
repeal administrative rules, guidelines and practices governing the Plan as it
from time to time shall deem advisable, may interpret the terms and provisions
of the Plan, any Award and any Award Agreement and may otherwise supervise the
2
<PAGE> 3
administration of the Plan. Any determination made by the Committee pursuant to
the provisions of the Plan with respect to any Award shall be made in its sole
discretion at the time of the grant of the Award or, unless in contravention of
any express term of the Plan or Award, at any later time. All decisions made by
the Committee under the Plan shall be binding on all persons, including the
Company and Plan participants.
SECTION 3. STOCK SUBJECT TO PLAN.
(a) Number of Shares. The total number of shares of Stock reserved and
available for issuance pursuant to Awards under this Plan shall be 1,075,000
shares. Such shares may consist, in whole or in part, of authorized and unissued
shares or treasury shares or shares reacquired in private transactions or open
market purchases, but all shares issued under the Plan, regardless of source,
shall be counted against the 1,075,000 share limitation. If any Option
terminates or expires without being exercised in full or if any shares of Stock
subject to an Award are forfeited, or if an Award otherwise terminates without a
payment being made to the participant in the form of Stock, the shares issuable
under such Option or Award shall again be available for issuance in connection
with Awards. Any Award under this Plan shall be governed by the terms of the
Plan and any applicable Award Agreement.
(b) Adjustments. In the event of any merger, reorganization,
consolidation, recapitalization, stock dividend, stock split or other change in
corporate structure affecting the Stock, such substitution or adjustments shall
be made in the aggregate number of shares of Stock reserved for issuance under
the Plan, in the number and exercise price of shares subject to outstanding
Options, and in the number of shares subject to other outstanding Awards, as may
be determined to be appropriate by the Committee, in its sole discretion;
provided, however, that the number of shares subject to any Award shall always
be a whole number.
SECTION 4. ELIGIBILITY.
Awards may be granted to all employees, including officers and
directors, and non-employee directors of the Company, its subsidiaries and
affiliates.
SECTION 5. STOCK OPTIONS.
(a) Types. Any Option granted under the Plan shall be in such form as
the Committee may from time to time approve. The Committee shall have the
authority to grant to any participant Incentive Stock Options, Nonqualified
Stock Options or both types of Options.
(b) Incentive Stock Options. Incentive Stock Options may be granted only
to employees of the Company, its parent (within the meaning of Section 424 of
the Code) or a Subsidiary. Any portion of an Option that is not designated as,
or does not qualify as, an Incentive Stock Option shall constitute a
Nonqualified Stock Option.
(c) Terms and Conditions. Options granted under the Plan shall be
subject to the following terms and conditions:
(i) Option Term. The term of each Option shall be fixed by the
Committee, but no Option shall be exercisable more than 10 years after the date
the Option is granted. If, at the time the Company grants an Incentive Stock
Option, the optionee owns directly or by attribution stock possessing more than
10 percent of the total combined voting power of all classes of stock of the
Company, or any parent or Subsidiary of the Company, the Incentive Stock Option
shall not be exercisable more than five years after the date of grant.
(ii) Grant Date. The Company may grant Options under the Plan at
any time and from time to time before the Plan terminates. The Committee shall
specify the date of grant or, if it fails to, the date of grant shall be the
date of action taken by the Committee to grant the Option.
3
<PAGE> 4
(iii) Exercise Price. The exercise price per share of Stock
purchasable under an Option shall be equal to at least the Fair Market Value on
the date of grant; provided, however, that if, at the time the Company grants an
Incentive Stock Option, the optionee owns directly or by attribution stock
possessing more than 10 percent of the total combined voting power of all
classes of stock of the Company, or any parent or Subsidiary of the Company,
then the exercise price shall be not less than 110 percent of the Fair Market
Value on the date the Incentive Stock Option is granted.
(iv) Exercisability. Subject to the other provisions of the
Plan, an Option shall be exercisable in its entirety at grant or at such times
and in such amounts as are specified in the Award Agreement evidencing the
Option. The Committee, in its absolute discretion, at any time may waive any
limitations respecting the time at which an Option first becomes exercisable, in
whole or in part, including acceleration in connection with a reorganization of
the Company if there are no adverse consequences to the Company therefrom.
(v) Method of Exercise; Payment. To the extent the right to
purchase shares has accrued, Options may be exercised, in whole or in part, from
time to time, by written notice from the optionee to the Company stating the
number of shares being purchased, accompanied by payment of the exercise price
for the shares.
SECTION 6. RESTRICTED STOCK.
(a) Price. The Committee may grant Restricted Stock to a participant.
The grantee shall pay such consideration therefor as determined by the
Committee, but no less than the par value of the Stock.
(b) Restrictions. Subject to the provisions of the Plan and the Award
Agreement, during the Restriction Period set by the Committee, commencing with,
and not exceeding 10 years from, the date of such Award, the participant shall
not be permitted to sell, assign, transfer, pledge or otherwise encumber shares
of Restricted Stock. Within these limits, the Committee may provide for the
lapse of such restrictions in installments and may accelerate or waive such
restrictions, in whole or in part, based on service, performance or such other
factors or criteria as the Committee may determine.
(c) Dividends. Unless otherwise determined by the Committee, with
respect to dividends on shares of Restricted Stock, dividends payable in cash
shall be automatically reinvested in additional Restricted Stock, and dividends
payable in Stock shall be paid in the form of Restricted Stock.
(d) Termination. Except to the extent otherwise provided in the Award
Agreement and pursuant to Section 6(b), in the event of a Termination during the
Restriction Period, all shares still subject to restriction shall be forfeited
by the participant.
SECTION 7. CHANGE IN CONTROL
(a) Definition of "Change in Control". For purposes of Section 7(b), a
"Change in Control" means the occurrence of any one of the following:
(i) Any "person," as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than the Company, a subsidiary, an affiliate,
or a Company employee benefit plan, including any trustee of such plan acting as
trustee) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing 35 percent or more of the combined voting power of the Company's
then outstanding securities;
(ii) The solicitation of proxies (within the meaning of Rule
14a-1(k) under the Exchange Act and any successor rule) with respect to the
election of any director of the Company where such solicitation is for any
candidate who is not a candidate proposed by a majority of the Board in office
prior to the time of such election; or
4
<PAGE> 5
(iii) The dissolution or liquidation (partial or total) of the
Company or a sale of assets involving 30 percent or more of the assets of the
Company, any merger or reorganization of the Company whether or not another
entity is the survivor, a transaction pursuant to which the holders, as a group,
of all of the shares of the Company outstanding prior to the transaction hold,
as a group, less than 70 percent of the shares of the Company outstanding after
the transaction, or any other event which the Board determines, in its
discretion, would materially alter the structure of the Company or its
ownership.
(b) Impact of Event. In the event of a "Change in Control" as defined in
Section 7(a), but only if and to the extent so specifically determined by the
Board in its discretion, which determination may be amended or reversed only by
the affirmative vote of a majority of the persons who were directors at the time
such determination was made, acceleration and valuation provisions no more
favorable to participants than the following may apply:
(i) Any Option outstanding as of the date such Change in Control
is determined to have occurred and not then exercisable and vested shall become
fully exercisable and vested.
(ii) The restrictions and limitations applicable to any
Restricted Stock shall lapse, and such Restricted Stock shall become fully
vested.
(iii) The value (net of any exercise price) of all outstanding
Options and Restricted Stock, unless otherwise determined by the Committee at or
after grant and subject to Rule 16b-3, shall be cashed out on the basis of the
"Change in Control Price," as defined in Section 7(c), as of the date such
Change in Control is determined to have occurred or such other date as the Board
may determine prior to the Change in Control.
(c) Change in Control Price. For purposes of this Section 7, "Change in
Control Price" means the highest price per share paid in any transaction
reported on the National Market System of the National Association of Securities
Dealers, Inc. Automated Quotation System or paid or offered in any bona fide
transaction related to a potential or actual Change in Control of the Company at
any time during the preceding 60-day period as determined by the Board, except
that, in the case of Incentive Stock Options, such price shall be based only on
transactions reported for the date on which the Board decides to cash out such
Options.
SECTION 8. GENERAL PROVISIONS.
(a) Award Grants. Any Award may be granted either alone or in addition
to other Awards granted under the Plan. Subject to the terms and restrictions
set forth elsewhere in the Plan, the Committee shall determine the
consideration, if any, payable by the participant for any Award and, in addition
to those set forth in the Plan, any other terms and conditions of the Awards.
The Committee may condition the grant or payment of any Award upon the
attainment of specified performance goals or such other factors or criteria,
including vesting based on continued service on the Board or employment, as the
Committee shall determine. Performance objectives may vary from participant to
participant and among groups of participants and shall be based upon such
Company, subsidiary, group or division factors or criteria as the Committee may
deem appropriate, including, but not limited to, earnings per share or return on
equity. The other provisions of Awards also need not be the same with respect to
each recipient. Unless specified otherwise in the Plan or by the Committee, the
date of grant of an Award shall be the date of action by the Committee to grant
the Award. The Committee may also substitute new Options for previously granted
Options, including previously granted Options having higher exercise prices.
(b) Award Agreement. As soon as practicable after the date of an Award
grant, the Company and the participant shall enter into a written Award
Agreement identifying the date of grant, and specifying the terms and conditions
of the Award. Options are not exercisable until after execution of the Award
Agreement by the Company and the Plan participant, but a delay in execution of
the Award Agreement shall not affect the validity of the Option grant.
(c) Certificates; Transfer Restrictions. All certificates for shares of
Stock or other securities delivered under the Plan shall be subject to such
stock transfer orders, legends and other restrictions as the
5
<PAGE> 6
Committee may deem advisable under the rules, regulations and other requirements
of the Commission, any market in which the Stock is then traded and any
applicable federal, state or foreign securities law.
(d) Termination. Unless otherwise provided in the applicable Award
Agreement or by the Committee, in the event of Termination for any reason other
than death or Disability, Awards held at the date of Termination (and only to
the extent then exercisable or payable, as the case may be) may be exercised in
whole or in part at any time within three months after the date of Termination
or such lesser period specified in the Award Agreement (but in no event after
the expiration date of the Award). If Termination is due to death or Disability,
Awards held at the date of Termination (and only to the extent then exercisable
or payable, as the case may be) may be exercised in whole or in part by the
participant in the case of Disability, by the participant's guardian or legal
representative or by the person to whom the Award is transferred by will or the
laws of descent and distribution, at any time within one year from the date of
Termination or any lesser period specified in the Award Agreement (but in no
event after the expiration of the Award).
(e) Delivery of Purchase Price. If and only to the extent authorized by
the Committee, participants may make all or any portion of any payment due to
the Company:
(i) with respect to the consideration payable for an Award;
(ii) upon exercise of an Award; or
(iii) with respect to federal, state, local or foreign tax
payable in connection with an Award, by delivery of (x) cash, (y) check, or (z)
any property other than cash (including a promissory note of the participant or
shares of Stock or securities) so long as, if applicable, such property
constitutes valid consideration for the Stock under, and otherwise complies
with, applicable law. No promissory note under the Plan shall have a term
(including extensions) of more than five years or shall be of a principal amount
exceeding 90 percent of the purchase price paid by the borrower.
(f) Tax Withholding. Unless the Committee permits otherwise, the
participant shall pay to the Company in cash, promptly when the amount of such
obligations becomes determinable (the "Tax Date"), all applicable federal,
state, local and foreign withholding taxes that the Committee in its discretion
determines to result, (i) from the lapse of restrictions imposed upon an Award,
(ii) upon exercise of an Award, or (iii) from a transfer or other disposition of
shares acquired upon exercise or payment of an Award, or otherwise related to
the Award or the shares acquired in connection with an Award.
A participant who has received an Award or payment under an Award may,
to the extent, if any, authorized by the Committee in its discretion, make an
election to (x) deliver to the Company a promissory note of the participant on
the terms set forth in Section 8(e), or (y) tender any such securities to the
Company to pay the amount of tax that the Committee in its discretion determines
to be required to be withheld by the Company; provided, however, that such
election shall be subject to the disapproval of the Committee.
Any shares or other securities so withheld or tendered shall be valued
by the Committee as of the date they are withheld or tendered; provided,
however, that Stock shall be valued at Fair Market Value on such date. The value
of the shares withheld or tendered may not exceed the required federal, state,
local and foreign withholding tax obligations as computed by the Company.
(g) No Transferability. No Award shall be assignable or otherwise
transferable by the participant other than by will or by the laws of descent and
distribution. During the life of a participant, an Award shall be exercisable,
and any elections with respect to an Award may be made, only by the participant
or participant's guardian or legal representative.
(h) Adjustment of Awards; Waivers. The Committee may adjust the
performance goals and measurements applicable to Awards (i) to take into account
changes in law and accounting and tax rules, (ii) to make such adjustments as
the Committee deems necessary or appropriate to reflect the inclusion or
exclusion of the
6
<PAGE> 7
impact of extraordinary or unusual items, events or circumstances in order to
avoid windfalls or hardships, and (iii) to make such adjustments as the
Committee deems necessary or appropriate to reflect any material changes in
business conditions. In the event of hardship or other special circumstances of
a participant and otherwise in its discretion, the Committee may waive in whole
or in part any or all restrictions, conditions, vesting, or forfeiture with
respect to any Award granted to such participant.
(i) Non-Competition. The Committee may condition its discretionary
waiver of a forfeiture, the acceleration of vesting at the time of Termination
of a participant holding any unexercised or unearned Award, the waiver of
restrictions on any Award, or the extension of the expiration period to a period
not longer than that provided by the Plan upon such participant's agreement (and
compliance with such agreement) (i) not to engage in any business or activity
competitive with any business or activity conducted by the Company and (ii) to
be available for consultations at the request of the Company's management, all
on such terms and conditions (including conditions in addition to (i) and (ii))
as the Committee may determine.
(j) Dividends. The reinvestment of dividends in additional Restricted
Stock at the time of any dividend payment pursuant to Section 6(c) shall only be
permissible if sufficient shares of Stock are available under Section 3 for such
reinvestment (taking into account then outstanding Awards).
(k) Regulatory Compliance. Each Award under the Plan shall be subject to
the condition that, if at any time the Committee shall determine that (i) the
listing, registration or qualification of the shares of Stock upon any
securities exchange or for trading in any securities market or under any state
or federal law, (ii) the consent or approval of any government or regulatory
body or (iii) an agreement by the participant with respect thereto, is necessary
or desirable, then such Award shall not be consummated in whole or in part
unless such listing, registration, qualification, consent, approval or agreement
shall have been effected or obtained free of any conditions not acceptable to
the Committee.
(l) Rights as Shareholder. Unless the Plan or the Committee expressly
specifies otherwise, an optionee shall have no rights as a shareholder with
respect to any shares covered by an Award until the stock certificates
representing the shares are actually delivered to the optionee. Subject to
Sections 3(b) and 6(c), no adjustment shall be made for dividends or other
rights for which the record date is prior to the date the certificates are
delivered.
(m) Beneficiary Designation. The Committee, in its discretion, may
establish procedures for a participant to designate a beneficiary to whom any
amounts payable in the event of the participant's death are to be paid.
(n) Additional Plans. Nothing contained in the Plan shall prevent the
Company, a subsidiary or an affiliate from adopting other or additional
compensation arrangements for its directors and employees.
(o) No Employment Rights; No Right to Directorship. Neither the adoption
of this Plan nor the grant of any Award hereunder shall (i) confer upon any
employee any right to continued employment nor shall it interfere in any way
with the right of the Company, a subsidiary or an affiliate to terminate the
employment of any employee at any time; or (ii) confer upon any participant any
right with respect to continuation of the participant's membership on the Board
or shall interfere in any way with provisions in the Company's Certificate of
Incorporation and Bylaws relating to the election, appointment, terms of office,
and removal of members of the Board.
(p) Rule 16b-3. With respect to persons subject to Section 16 of the
Exchange Act, transactions under this Plan are intended to comply with the
applicable conditions of Rule 16b-3 under the Exchange Act. To the extent any
provision of this Plan or action by the Committee fails to so comply, it shall
be adjusted to comply with Rule 16b-3, to the extent permitted by law and deemed
advisable by the Committee. It shall be the responsibility of persons subject to
Section 16 of the Exchange Act, not of the Company or the Committee, to comply
with the requirements of Section 16 of the Exchange Act; and neither the Company
nor the Committee
7
<PAGE> 8
shall be liable if this Plan or any transaction under this Plan fails to comply
with the applicable conditions of Rule 16b-3, or if any such person incurs any
liability under Section 16 of the Exchange Act.
(q) Governing Law. The Plan and all Awards shall be governed by and
construed in accordance with the laws of the State of California.
(r) Use of Proceeds. All cash proceeds to the Company under the Plan
shall constitute general funds of the Company.
(s) Unfunded Status of Plan. The Plan shall constitute an "unfunded"
plan for incentive and deferred compensation. The Committee may authorize the
creation of trusts or arrangements to meet the obligations created under the
Plan to deliver Stock or make payments; provided, however, that unless the
Committee otherwise determines, the existence of such trusts or other
arrangements shall be consistent with the "unfunded" status of the Plan.
(t) Assumption by Successor. The obligations of the Company under the
Plan and under any outstanding Award may be assumed by any successor
corporation, which for purposes of the Plan shall be included within the meaning
of "Company".
(u) Limitation on Award Grants. The Company may not grant Awards under
the Plan for more than 100,000 shares to any one participant in any calendar
year.
SECTION 9. AMENDMENTS AND TERMINATION.
The Board may amend, alter or discontinue the Plan or any Award, but no
amendment, alteration or discontinuance shall be made which would impair the
rights of a participant under an outstanding Award without the participant's
consent. No amendment, alteration or discontinuance shall require shareholder
approval except:
(a) an increase in the total number of shares reserved for issuance
pursuant to Awards under the Plan; or
(b) with respect to provisions solely as they relate to Incentive Stock
Options, to the extent required for the Plan to comply with Section 422 of the
Code; or
(c) to the extent required by other applicable laws, rules or
regulations; or
(d) to the extent the Board otherwise concludes that shareholder
approval is advisable.
SECTION 10. EFFECTIVE DATE OF PLAN.
The Plan shall be effective as of February 19, 1998, but all Awards
shall be conditioned upon approval of the Plan (a) at a duly held stockholders'
meeting by the affirmative vote of the holders of a majority of the shares of
Stock of the Company represented in person or by proxy at the meeting and
entitled to vote thereon, or (b) by an action by written consent of the holders
of a majority of the voting power of the shares of the Company entitled to vote.
SECTION 11. TERM OF PLAN.
No Award shall be granted on or after February 18, 2008, but Awards
granted prior to February 18, 2008 may extend beyond that date.
8
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