looking forward
Annual Report 2001
shanghai
40years of dedicated service
40years and
beyond
...the next
About the Cover
Cathay Bancorp Inc. is the holding company for Cathay Bank. This year, 2002, will be a busy and exciting one.
To celebrate our first 40 years in business and to rededicate the company to the next 40 years and beyond, the
Board has planned activities to thank our stockholders, customers, employees, and the community that has
supported and nurtured us. In addition, we shall be opening two new offices – one in Brooklyn, New York,
and another in Sacramento, California. The Bank is also setting up its third overseas representative office, in
Shanghai, China. Over the last several years, our customers have seen a significant increase in import business
from China. With China’s accession into the World Trade Organization and China’s increasing importance in
the world economy, we believe the Shanghai Office will allow Cathay Bank to project our presence into China
and be helpful in promoting the Bank’s services in this potent new market.
financial highlights
$43
$39
$246
$215
$179
$157
$136
$1,622
$30
$25
$20
$2,453
$2,207
$1,996
$1,781
97 98 99 00 01
97 98 99 00 01
97 98 99 00 01
Net Income
(in millions)
Stockholder’s Equity
(in millions)
Total Assets
(in millions)
(dollars in thousands, except per share data)
2001
2000
Amount
Percentage
Increase (Decrease)
For the Year
Net income
Net income per common share
Basic
Diluted
Cash dividends paid per common share
At Year-End
Securities
Loans, net
Assets
Deposits
Stockholders’ equity
Book value per common share
Profitability Ratios
Return on average assets
Return on average stockholders’ equity
Capital Ratios
Tier 1 capital ratio
Total capital ratio 1
Leverage ratio
$
42,620
$
38,587
$
4,033
10.45%
4.71
4.69
1.00
4.26
4.25
0.88
0.45
0.44
0.120
$
$
623,314
1,640,032
2,453,114
2,122,348
246,011
27.40
$
564,996
1,437,307
2,206,834
1,876,447
214,787
23.67
58,318
202,725
246,280
245,901
31,224
3.73
10.56
10.35
13.64
10.32%
14.10
11.16
13.10
14.54
15.76
1.82%
18.36%
1.81%
20.09%
11.15%
12.30%
9.48%
11.05%
12.25%
9.28%
1 Total capital ratio represents stockholders’ equity plus the allowance for loan losses allowable as a percentage of risk-weighted assets.
Annual Report 2001 Cathay Bancorp, Inc. and Subsidiary 1
letter to stockholders
Record Earnings $42.6
$246$204
million deposit growth
million
loan growth
million
Dear Stockholders:
In the Chinese zodiac, 2001 was the Year of the Snake. According to folklore, the Year of the Snake would be
both eventful and challenging. For the year past, that proved to be extremely prescient.
On September 11, our country faced unprecedented terrorist attacks, which resulted in the tragic
deaths of over 3,000 innocent people, and precipitated the war in Afghanistan. This immense tragedy
prompted our Board, on September 20, to donate $250,000 to the related relief efforts. In addition, it author-
ized the formation of a non-profit organization, 911 Healing Hands, Inc., to encourage further donations to
the 911 Healing Hands Fund from our stockholders, customers, and friends. To make it convenient for
donors to give, the Bank worked with Gus Networks to establish a website, 911healinghands.org, to process
donations online. The Bank also invited the Organization for Chinese Americans and other community
organizations to join in this effort. The Fund closed at year-end, having raised approximately $400,000. The
severity of the impact of September 11 on New York Chinatown, according to the New York Times, was sec-
ond only to Ground Zero, leading to many business closures and a tremendous loss of jobs. Therefore, the
911 Healing Hands Board of Directors voted to allocate 85% of the funds towards a grant to the Asian
American Federation (AAF). AAF will use the grant money for job assistance programs, coordination with
community and government sectors for case management for victims, and to promote Chinatown tourism.
The remaining 15% of the funds will be devoted to two programs: one for public education to promote
understanding and harmony amongst various communities, and the second to raise funds for a monument to
memorialize Chinese-American victims of September 11.
After ten years of continuous expansion, the longest in history, the economy slowed abruptly at the
beginning of 2001. In an attempt to wrest the economy from a recession, the Federal Reserve Bank lowered
interests rates successively and aggressively 11 times for a total 475 basis points. As a result, the Wall Street
Prime Lending rate dropped from 9.50% to 4.75%. As a commercial bank, with many of our loans tied to the
prime rate, the interest income of the bank declined with the drop in prime. On the other hand, much of our
deposit base was in fixed-maturity time certificates of deposit that could not simultaneously be repriced. The
net result was a narrowing of our net interest margin from 4.52% during the fourth quarter of 2000 to 4.09%
in the last quarter of 2001.
2 Cathay Bancorp, Inc. and Subsidiary Annual Report 2001
Dunson K. Cheng
Chairman of the Board and President
Despite the many challenges, our company went on to report record results for 2001. Our net income
was $42.6 million, an increase of 10.45% over the $38.6 million reported for the year 2000, and diluted earn-
ings per share were $4.69 compared to $4.25 per diluted share for the previous year. Return on average stock-
holders’ equity totaled 18.36% in 2001 compared to 20.09% in 2000. Return on average assets was 1.82% for
the year 2001 compared to 1.81% for the previous year. We are gratified that our performance was recognized
when American Banker, the authoritative banking newspaper, published a study that named us the 25th best
performing banking company in the country and the 11th most efficient.
Our loans increased by 14.10% to $1.7 billion, while deposits rose by 13.10% to $2.1 billion at year-end.
Our total assets grew by 11.16% to $2.5 billion for the same period. Stockholders’ equity of $246.0 million
was up $31.2 million or 14.54% from December 31, 2000 and our tier 1 leverage capital ratio was 9.48%,
qualifying our bank as “well-capitalized”, in accordance with the Federal Deposit Insurance Corporation’s
requirement for such classification.
On October 5, we opened a new branch in Union City, California, our 7th in the San Francisco Bay Area.
With this addition, we have built a complete branch network in the Chinese American market of this dynamic
high growth area. As a result, no Bay Area customer is now more than 12 miles away from a Cathay Bank branch.
This year, 2002, will be a busy and exciting one. To celebrate our first 40 years in business and to reded-
icate the company to the next 40 years and beyond, the Board has planned activities to thank our stockholders,
customers, employees, and the community that has supported and nurtured us. In addition, we shall be opening
two new offices – one in Brooklyn, New York, and another in Sacramento, California. The Bank is also setting
up its third overseas representative office, in Shanghai, China. Over the last several years, our customers have
seen a significant increase in import business from China. With China’s accession into the World Trade
Organization and China’s increasing importance in the world economy, we believe the Shanghai Office will allow
us to project our presence into China and be helpful in promoting the Bank’s services in this potent new market.
In its first forty years, Cathay Bank grew from a very humble community organization to a respected
$2.5 billion regional financial institution. This could not have been accomplished without the support of our
stockholders. The Board, our management, and our employees would like to express their gratitude to you.
Dunson K. Cheng
Chairman of the Board and President
Annual Report 2001 Cathay Bancorp, Inc. and Subsidiary 3
4 Cathay Bancorp, Inc. and Subsidiary Annual Report 2001
Annual Report 2001 Cathay Bancorp, Inc. and Subsidiary 5
American Banker rankings
11 th
Most
Efficient
25 th
Best
Performing
among the largest 500 U.S. bank holding companies
among 300 publicly traded banking companies
40years
of dedicated service
...the next 40 years and beyond
Y e a r i n R e v i e w
Continued Growth In a Difficult Environment
In 2001, Cathay Bancorp, Inc., the holding company for Cathay Bank (together, “Cathay”), prepared to cele-
brate 40 stellar years of financial strength, superior performance and outstanding service to the Chinese-
American community. Again, it delivered record results. Earnings increased 10.4%, from $38.6 million to $42.6
million, an all-time high, marking 21 consecutive quarters of double-digit earnings growth. Total deposits
increased $246.0 million to $2.1 billion, compared with $1.9 billion in 2000. Gross loans grew $204.5 million.
Total assets were up 11.2% at year end to $2.5 billion, a solid foundation from which to begin a new era.
Cathay was able to achieve this record growth, despite an economy in recession and the debilitating
attack on the U.S. on September 11, by remaining intensely focused on its strategies: prudent financial man-
agement, strategic market expansion, proactive technological modernization, competitive products and ser-
vices, and employee excellence.
The financial community recognizes Cathay’s achievements. In a survey published in the authoritative
banking newspaper American Banker, the Bancorp ranked 11th among the 500 most efficient U.S. bank hold-
ing companies, based on the ratio of expenses to assets. It ranked 25th among the 300 best performing pub-
licly traded banking companies in America, based on the ratio of net income to assets. Cathay Bank was the
first Chinese-American financial institution to offer full banking services in the three largest U.S. markets—
California, New York, and Texas—and it remains so.
Strategic Branch Expansion
Cathay Bank will also be one of the leading Chinese-American banks to establish a representative office in
mainland China. On February 5, 2002, the Bancorp announced that the People’s Bank of China had officially
approved the Bank’s application to open a representative office in Shanghai. This new expansion comes as
increasing numbers of customers seek services to support their export-import trade with China. With China’s
admission into the World Trade Organization, the commercial relationship between the U.S. and China will
be even stronger, providing Cathay Bank with new market opportunities.
Domestically, the Bank’s branch expansion strategy targets growth opportunities in flourishing
Chinese-American communities, where there is demand for its niche services. On October 5, the Bank opened
a new branch in Union City, California, its seventh in the Bay Area. It now has 12 branches in Southern
California, seven in Northern California, two in New York State and one in Houston, Texas. In April 2002,
the Bank will open two additional branches, one in Brooklyn, New York, and one in Sacramento, California,
strengthening its bi-coastal presence.
Annual Report 2001 Cathay Bancorp, Inc. and Subsidiary 7
Departmental Performance
The exciting growth in our service network was matched by encouraging performance in the Bank’s lending
and international services.
Real Estate and Construction Lending In 2001, demand in the real estate sector continued to be strong and
Cathay Bank was well positioned to take advantage of the opportunities. Real estate and construction loan
profitability increased nearly 8.0%. Fee income increased by 34.7%. The Bank has relationships with major
developers and strives for diversity in the projects and borrowers it funds.
Some of its 2001 loans included:
• $17 million for construction of a residential development in Redondo Beach, California;
• $12 million for development of a shopping center in San Diego, California;
• $11 million for refinancing of a commercial building in Torrance, California; and
• $7 million for construction of a commercial/retail building in Los Angeles, California.
Corporate and Commercial Lending Cathay Bank made great strides forward by intensifying its focus on the
financing needs of its corporate customers. In 2001, its Corporate and Commercial Lending officers generated
more than double the number of loans generated in 2000, and increased fee income by 3.7%.
International Banking Services Growth at the Bank’s international banking services exceeded expectations.
The Bank’s wire transfer service served more than 100,000 customers. Total fee income increased 15.1% to
$2,381,000. In addition, the Bank works closely with customers engaged in foreign financial transactions,
helping them hedge against currency fluctuations by offering both spot and forward contracts. With competitive
exchange rates and fee-free transaction advantage, the Bank makes it possible for customers to control their costs
and remain competitive. In 2001, total customer volume for commercial foreign exchange trading services
increased a remarkable 51.7%. Total fee income increased 46.0%, and the number of trades increased 26.0%.
New Products and Services
The Bank developed additional opportunities for fee income with two new insurance products at Cathay
Global Investment Services offered through UVest Financial Services: Long-Term Care Insurance and
Variable Life Insurance. Both products address growing markets created by an aging population.
According to industry estimates, in 2002 more than 7 million Americans will need long-term care, at a
per-person cost of approximately $50,000 a year. Demand and cost will increase as the aging baby boom gener-
ation puts pressure on available resources. Few group health insurance policies cover the cost of long-term care.
Long Term Care Insurance enables customers to ensure that they have the care they need as they grow older.
With Variable Life Insurance, Cathay Bank again increases the investment choices available to
customers wishing to plan for their golden years. This flexible tool enables customers to combine the death-
benefit security of term life insurance with the loan option to withdraw income before retirement.
A third new product addresses another demographic: the second baby boom. Today’s young parents
will pay tomorrow’s college bills, expected in 20 years to be $100,000 or more for a four-year degree. Through
its relationship with UVest Financial Services, Cathay Global Investment Services now offers a College Savings
Investment Account, giving parents a valuable financial planning tool with tax-deferred earnings to help them
save for their children’s education.
8 Cathay Bancorp, Inc. and Subsidiary Annual Report 2001
relief fund
119
healing
hands
Community-Focused for 40 Years
Cathay Bank has responded compassionately to community needs since its inception in 1962. In 2001, the
Bank financed a number of affordable-housing projects, established a relief fund in response to the events of
September 11, and gave to numerous other deserving causes.
September 11 Relief Fund In response to the horrific attacks on the World Trade Center and the Pentagon,
Cathay Bank reached out to help by donating $250,000 to establish the 911 Healing Hands Fund. The
Organization of Chinese Americans (OCA) helped the Bank launch a nationwide campaign to seek additional
donations. At year-end, the fund had raised approximately $400,000. The funds will be devoted to public
education promoting understanding and harmony amongst various communities, job assistance programs,
and case management for victims. In 2002, Cathay Bank plans to join OCA in building a monument as a
memorial to the Chinese-American victims of September 11.
40years
of dedicated service
...the next 40 years and beyond
Affordable Housing Beginning in 1999, the Bank invested more than $5 million for a 99.9% limited partner-
ship interest in Wilshire Courtyard, a 102-unit senior housing project in Los Angeles. This five-story building,
fully leased prior to completion of construction, will address a critical shortage by providing affordable hous-
ing for senior citizens.
In September, Cathay Bank also provided $9.3 million in financing the construction and renovation of
Pine Villa, an assisted living facility in Long Beach.
In addition, the Bank financed $5.3 million in construction loan bonds for Cesar Chavez Gardens, a
four-story complex in Los Angeles Chinatown that will provide affordable housing apartments and a day care
center. Construction should be complete by October 2002.
Supporting Community Organizations In 2001, the Bank continued to support worthy causes in the commu-
nities it serves. These included:
• funding low-income housing and community economic development projects through the Federal
Home Loan Bank of San Francisco’s Affordable Housing Program;
• providing grants to the First African Methodist Episcopal Church (FAME) and the Valley Economic
Development Center (VEDC) to help meet the loan loss reserve requirement for their SBA Micro
Loan Program;
• expanding early childhood programs through Child Care, Inc., in New York City;
• supporting youth banking education in underserved communities through Operation HOPE;
• supporting public health programs in the City of Long Beach; and
• financing the $7 million construction of a low-income housing project in Brooklyn, New York.
The Bank is also in the process of establishing a Cathay Bank Foundation to contribute to the many worth-
while charitable organizations that help those in need.
2002 and Beyond
The entire Cathay family has entered 2002 with a great sense of excitement, proud of its 40 years of achieve-
ment and energized by the opportunities ahead. Throughout the coming Year of the Horse, Cathay will hold
40th anniversary celebration activities to thank the stockholders, customers, employees and community mem-
bers who have supported and nurtured its growth and helped make it the successful financial institution it
continues to be.
As it prepares for the next milestone, Cathay rededicates itself to continued banking excellence.
Forty years is a mere beginning. In the infinite universe that is the future, Cathay has mapped a pow-
erful trajectory for ascendancy in the many years to come.
10 Cathay Bancorp, Inc. and Subsidiary Annual Report 2001
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
¥
n
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Ñscal year ended December 31, 2001
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission Ñle number 0-18630
Cathay Bancorp, Inc.
(Exact name of Registrant as speciÑed in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
95-4274680
(I.R.S. Employer
IdentiÑcation No.)
777 North Broadway, Los Angeles, California 90012
(Address of principal executive oÇces) (Zip Code)
Registrant's telephone number, including area code: (213) 625-4700
Securities registered pursuant to Section 12(b) of the Act:
None
Name of each exchange on which registered
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of class)
Indicate by check mark whether the registrant (1) has Ñled all reports required to be Ñled 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 Ñle such reports), and (2) has been subject to such Ñling requirements for
the past 90 days. Yes ¥
No n
Indicate by check mark if disclosure of delinquent Ñlers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of registrant's knowledge, in deÑnitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ¥
The aggregate market value of the voting stock held by non-aÇliates of Registrant as of February 26,
2002 was $477,272,693 (computed on the basis of $65.50 per share, which was the closing price of our
Common Stock reported by the Nasdaq National Market on February 26, 2002).*
The number of shares outstanding as of February 26, 2002: Common Stock, $.01 par value Ì 8,985,667
shares.
DOCUMENTS INCORPORATED BY REFERENCE
‚ Portions of Registrant's deÑnitive proxy statement relating to Registrant's 2002 Annual Meeting of
Stockholders to be held April 15, 2002, as Ñled, are incorporated by reference into Part I and Part III.
* Estimated solely for the purposes of this cover page. The market value of shares held by Registrant's directors, oÇcers, and Employee
Stock Ownership Plan have been excluded.
CATHAY BANCORP
2001 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
ITEM 1. BUSINESS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Business of Bancorp ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Overview ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Competition ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Employees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Business of the BankÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
General ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Asset Quality ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deposits ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Borrowings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Return on Equity and Assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest Rates and DiÅerentials ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Analysis of Changes in Net Interest Income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Commitments and Lines of Credit ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Subsidiaries of Cathay Bank ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expansion ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Competition ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Employees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Principal OÇcers ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Regulation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Regulation of Bancorp and the Bank ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Regulatory EnvironmentÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fiscal and Monetary Policies ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Bank Holding Company Regulation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Financial Services Modernization Legislation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
USA Patriot ActÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Banking Regulations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
ITEM 2. PROPERTIES ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
ITEM 3. LEGAL PROCEEDINGS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
PART IIÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
ITEM 5. MARKET FOR CATHAY BANCORP'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
ITEM 6. SELECTED FINANCIAL DATAÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
General ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Results of Operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Review of Financial ConditionÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Risk Elements of the Loan Portfolio ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Capital Resources ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Liquidity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Critical Accounting Policies ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Recent Accounting Pronouncements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Factors That May AÅect Future ResultsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ÏÏÏÏÏÏÏÏÏÏÏÏ
Market Risk ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Quantitative Information About Interest Rate Risk ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Financial DerivativesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
PART III ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
ITEM 11. EXECUTIVE COMPENSATION ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ÏÏÏÏÏÏ
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
PART IV ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-KÏÏÏÏÏÏÏ
SIGNATURESÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Index To Consolidated Financial Statements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
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2
In this annual report on Form 10-K, ""Bancorp""refers to Cathay Bancorp, Inc. and the ""Bank'' refers to
Cathay Bank. The terms ""Company,'' ""we,'' ""us,'' and ""our'' refer to Bancorp and the Bank collectively. The
statements in this report include forward-looking statements regarding management's beliefs, projections, and
assumptions concerning future results and events. These forward-looking statements may, but do not
necessarily, also include words such as ""believes,'' ""expects,'' ""anticipates,'' ""intends,'' ""plans,'' ""estimates'' or
similar expressions. Forward-looking statements are not guarantees. They involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance, or achievements to be
materially diÅerent from any future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things, adverse developments, or conditions
related to or arising from:
‚ our expansion into new market areas
‚ Öuctuations in interest rates
‚ demographic changes
‚ increases in competition
‚ deterioration in asset or credit quality
‚ changes in the availability of capital
‚ adverse regulatory developments
‚ changes in business strategy or development plans, including plans regarding the registered investment
company
‚ general economic or business conditions
‚ other factors discussed in Part II Ì Item 7 Ì ""Factors that May AÅect Future Results.''
Actual results in any future period may also vary from the past results discussed in this report. Given
these risks and uncertainties, we caution readers not to place undue reliance on any forward-looking
statements, which speak as of the date of this report. We have no intention and undertake no obligation to
update any forward-looking statement or to publicly announce the results of any revision of any forward-
looking statement to reÖect future developments or events.
PART I
Items 1. Business
Business of Bancorp
Overview
Cathay Bancorp, Inc. is a business corporation organized under the laws of the State of Delaware on
March 1, 1990. Our only oÇce, and our principal place of business, is located at the main oÇce of Cathay
Bank at 777 North Broadway, Los Angeles, California 90012. Our telephone number is (213) 625-4700.
We are the holding company of Cathay Bank, a California state-chartered commercial bank. Our sole
current business activity is to hold all of the outstanding stock of Cathay Bank. In the future, we may become
an operating company or acquire savings institutions, banks or companies engaged in bank-related activities
and may engage in or acquire such other businesses, or activities as may be permitted by applicable law.
Competition
Our primary business is the business of the Bank. Therefore, the competitive conditions to be faced by us
are expected to continue to include those faced by the Bank. See ""Business of the Bank Ì Competition.'' In
addition, many banks and Ñnancial institutions have formed holding companies. It is likely that these holding
companies will attempt to acquire other banks, thrift institutions, or companies engaged in bank-related
3
activities. Thus, we may face increased competition in undertaking acquisitions of such institutions and in
operating after any such acquisition.
Employees
Due to the limited nature of our activities, Bancorp currently does not employ any persons other than our
management, which includes the President, the Chief Financial OÇcer, and the General Counsel. In the
future, if we acquire other Ñnancial institutions or pursue other lines of business, we may hire additional
employees. See ""Business of the Bank Ì Employees'' below.
Business of the Bank
General
The Bank was incorporated under the laws of the State of California on August 22, 1961 and was licensed
by the Department of Financial Institutions (previously known as the California State Banking Department)
and commenced operations as a California state-chartered bank on April 19, 1962. Cathay Bank is an insured
bank under the Federal Deposit Insurance Act but, like most state-chartered banks of similar size in
California, it is not a member of the Federal Reserve System.
The Bank's main oÇce is located in the Chinatown area of Los Angeles, at 777 North Broadway, Los
Angeles, California 90012.
In addition, the Bank has the following branch oÇces:
‚ Southern California Ì 11 branches located in the cities of:
‚ Monterey Park
‚ Alhambra (2 locations)
‚ City of Industry (2 locations)
‚ Westminster
‚ San Gabriel
‚ Torrance
‚ Cerritos
‚ Irvine
‚ Diamond Bar
‚ Northern California Ì Seven branches located in the cities of:
‚ San Jose
‚ Oakland
‚ Cupertino
‚ Milpitas
‚ Millbrae
‚ Richmond
‚ Union City
‚ New York Ì Two branches located in the cities of:
‚ Flushing
‚ New York
4
‚ Texas Ì One branch located in the city of Houston
‚ Hong Kong Ì One representative oÇce.
Our primary market area is deÑned by the Community Reinvestment Act delineation, which includes the
contiguous areas surrounding each of the Bank's branch oÇces. It is the Bank's policy to reach out and
actively oÅer services to low and moderate income groups in the delineated branch service areas. Many of the
Bank's employees speak both English and one or more Chinese dialects or Vietnamese, and are thus able to
serve the Bank's Chinese, Vietnamese, and English speaking customers.
The Bank conducts substantially the same business operations as a typical commercial bank. It accepts
checking, savings, and time deposits, and makes commercial, real estate, personal, home improvement,
automobile, and other installment and term loans. From time to time, the Bank invests available funds in other
interest-earning assets, such as U.S. Treasury securities, U.S. government agencies securities, state and
municipal securities, mortgage-backed securities, asset-backed securities, corporate bonds and venture capital
investments.
The Bank's services also include:
‚ letters of credit
‚ wire transfers
‚ spot and forward contracts
‚ traveler's checks
‚ safe deposit
‚ night deposit
‚ social security payment deposit
‚ collection
‚ bank-by-mail
‚ drive-up and walk-up windows
‚ automatic teller machines (""ATM'')
‚ Internet banking services
‚ other customary bank services.
To accommodate those customers who cannot conduct banking business during normal banking hours,
the Bank has extended its banking hours to include Saturday hours for most branches and Sunday hours at its
New York branches. In addition, the operations of the drive-up and walk-up facilities are extended past
normal banking hours.
Since its inception, the Bank's policy has been to attract business from, and to focus its primary services
for the beneÑt of, individuals, professionals, and small to medium-sized businesses in the local markets in
which its branches are located. The three general areas to which the Bank has directed its lendable assets are:
‚ residential mortgage loans, commercial mortgage loans, construction loans, mortgage warehousing
loans
‚ commercial loans, trade Ñnancing loans
‚ home equity lines of credit, installment loans to individuals for automobile, household, and other
consumer expenditures.
Beginning in 1999, the Bank launched a program under the name of Cathay Global Investment Services,
which allows its customers to purchase mutual funds, annuities, equities, bonds, and short-term money market
5
instruments through Prime Vest Financial Services. In 2001, UVest Financial Services Group, Inc. replaced
Prime Vest Financial Services. In February 2001, Cathay Bank, in conjunction with Trade.com, became one
of the Ñrst Chinese-American banks to oÅer Internet stock trading services. However, Trade.com ceased
operations in July 2001, and online trading is now made available through UVest Financial Services Group,
Inc.
Securities
The Bank's securities portfolio is managed by the Vice President and Investment OÇcer in accordance
with a comprehensive written Investment Policy which addresses strategies, types, and levels of allowable
investments, and which is reviewed and approved by the Board of Directors of the Company.
Information concerning the carrying value and the maturity distribution and yield analysis of the
Company's securities available-for-sale and securities held-to-maturity portfolios is included in Part II Ì
Item 7 Ì ""Management's Discussion and Analysis of Financial Condition and Results of Operations,'' and in
""Note 4 to the Consolidated Financial Statements.'' A summary of the amortized cost and estimated fair
value of the Bank's securities by contractual maturity is included in Part II Ì Item 7 Ì ""Management
Discussion and Analysis of Financial Condition and Results of Operations,'' and in ""Note 4 to the
Consolidated Financial Statements.''
Loans
Our Board of Directors and senior management establish the basic lending policy for the Bank. Each loan
is generally considered in terms of, among other things, character, repayment ability, Ñnancial condition of the
borrower, secondary repayment source, collateral, capital, leverage capacity of the borrower, market conditions
for the borrower's business or project, and prevailing economic trends and conditions. In the case of mortgage
loans, our lending policy requires an independent appraisal on real estate property in accordance with
applicable regulatory guidelines. Loan originations are obtained by a variety of sources, including existing
customers, walk-in customers, referrals from brokers, and advertising. In its present marketing eÅorts, the
Bank emphasizes its community ties, customized personal service, competitive rates, and an eÇcient
underwriting and approval process, with loan applications taken at all of the Bank's branch oÇces. The Bank's
centralized documentation department supervises the obtaining of credit reports, appraisals, and other
documentation involved with a loan.
Distribution and maturity of loans.
Information concerning loan type and mix, distribution of loans and
maturity of loans is included in Part II Ì Item 7 Ì ""Management's Discussion and Analysis of Financial
Condition and Results of Operations,'' and in ""Note 5 to the Consolidated Financial Statements.''
Non-performing Loans and Allowance for Loan Losses.
Information concerning non-performing loans,
allowance for loan losses, loans charged-oÅ, loan recoveries, and other real estate owned is included in
Part II Ì Item 7 Ì ""Management's Discussion and Analysis of Financial Condition and Results of Opera-
tions,'' and in ""Note 5 to the Consolidated Financial Statements.''
Asset Quality
The Company monitors its asset quality with lending and credit policies, which require the regular review
of its loan portfolio. During the ordinary course of business, management becomes aware of borrowers that
may not be able to meet the contractual requirements of the loan agreements. Such loans are placed under
closer supervision with consideration given to placing the loan on non-accrual status, the need for an additional
allowance for loan losses, and (if appropriate) partial or full charge-oÅ.
The Company's policy is to place loans on a non-accrual status if interest and principal or either interest
or principal is past due 90 days or more, or in cases where management deems the full collection of principal
and interest unlikely. After a loan is placed on non-accrual status, any interest collected or accrued in the
previous three months, is generally reversed against current income. Thereafter, any payment is generally Ñrst
applied towards the principal balance. Depending on the circumstances, management may elect to continue
6
the accrual of interest on certain past due loans if partial payment is received and/or the loan is well
collateralized and in the process of collection. The loan is generally returned to accrual status when the
borrower has brought the past due principal and interest payments current and, in the opinion of management,
the borrower has demonstrated the ability to make future payments of principal and interest as scheduled.
Information concerning non-accrual, past due, and restructured loans is included in Part II Ì Item 7 Ì
""Management's Discussion and Analysis of Financial Condition and Results of Operations,'' and in ""Note 5 to
the Consolidated Financial Statements.''
Deposits
The Bank attempts to price its deposits in order to promote deposit growth and oÅers a wide array of
deposit products in order to satisfy its customers' needs. The Bank's current deposit products include passbook
accounts, checking accounts, money market deposit accounts, certiÑcates of deposit, individual retirement
accounts, college certiÑcates of deposit, and public funds deposits.
The Bank's deposits are generally obtained from residents within the Company's geographic market area.
The Bank utilizes traditional marketing methods to attract new customers and deposits, by oÅering a wide
variety of products and services and utilizing various forms of advertising media. Information concerning types
of deposit accounts, average deposits and rates, and maturity of time deposits of $100,000 or more is included
in Part II Ì Item 7 Ì ""Management's Discussion and Analysis of Financial Condition and Results of
Operations.''
Borrowings
Borrowings include securities sold under agreements to repurchase, the purchase of federal funds, and
funds obtained as advances from the Federal Home Loan Bank (""FHLB'') of San Francisco. Information
concerning the types, amounts, and maturity of our borrowings is included in ""Note 9 to the Consolidated
Financial Statements.''
Return on Equity and Assets
Information concerning the return on average assets, return on average stockholders' equity, average
equity to assets ratio and dividend payout ratio is included in Part II Ì Item 7 Ì ""Management's Discussion
and Analysis of Financial Condition and Results of Operations.''
Interest Rates and DiÅerentials
Information concerning interest-earning asset mix, average interest-earning assets, average interest-
bearing liabilities and the yields on interest-earning assets and interest-bearing liabilities is included in
Part II Ì Item 7 Ì ""Management's Discussion and Analysis of Financial Condition and Results of
Operations.''
Analysis of Changes in Net Interest Income
An analysis of changes in net interest income due to changes in rate and volume is included in Part II Ì
Item 7 Ì ""Management's Discussion and Analysis of Financial Condition and Results of Operations.''
Commitments and Lines of Credit
Information concerning the Bank's outstanding loan commitments and letters of credit is included in
""Note 12 to the Consolidated Financial Statements.''
Subsidiaries of Cathay Bank
Cathay Investment Company. Cathay Investment Company is a wholly owned subsidiary of Cathay
Bank that was formed in 1984 to invest in real property. In 1987, Cathay Investment Company opened an
7
oÇce in Taipei, Taiwan to promote Taiwanese real estate investments in Southern California. The oÇce in
Taipei is located at Sixth Floor, Suite 3, 146 Sung Chiang Road, Taipei, Taiwan.
Cathay Securities Fund, Inc. Cathay Securities Fund, Inc. is a registered investment company and a
wholly owned subsidiary of the Bank. It was formed in 2000 to engage in the business of investing in, owning,
and holding loans and securities. Its oÇce is located at 777 North Broadway, Los Angeles, California 90012.
The long-term plan for the registered investment company is currently under review.
Expansion
Management of the Bank continues to look for opportunities to expand the Bank's branch network by
seeking new branch locations and/or by acquiring other Ñnancial institutions to diversify its customer base in
order to compete for new deposits and loans, and to be able to serve its customers more eÅectively. On
October 5, 2001, we opened a new branch in Union City, Northern California. We have obtained regulatory
approval to open a new branch in Brooklyn, New York, and we have applied for regulatory approval to open a
new branch in Sacramento, California. We anticipate both branches will be opened in the early part of the
second quarter 2002. In addition, with China's accession into the World Trade Organization and its increasing
importance in the world economy, we applied and received approval to open a representative oÇce in
Shanghai, China. We expect this oÇce to be opened in the second quarter 2002.
Competition
The banking business in California, and speciÑcally in the market areas served by most of Cathay Bank's
branch oÇces, is highly competitive. The Bank competes for deposits and loans with other commercial banks,
savings and thrift institutions, brokerage houses, insurance companies, mortgage companies, credit unions,
credit card companies and other Ñnancial and non-Ñnancial institutions and entities. In addition, the Bank also
competes with other entities (both governmental and private industry) that are seeking to raise capital
through the issuance and sale of debt and equity securities. Many of these institutions and entities oÅer
services that are not oÅered directly by the Bank and have substantially greater Ñnancial resources than does
the Bank.
The direction of federal legislation in recent years seems to favor increased competition between diÅerent
types of Ñnancial institutions and to foster new entrants into the Ñnancial services market. Competitive
conditions are expected to continue to intensify as legislation is enacted which has the eÅect of dissolving
historical barriers that limit participation in certain markets, increasing the cost of doing business for banks, or
aÅecting the competitive balance between banks and other Ñnancial and non-Ñnancial institutions and entities.
Technological factors, such as on-line banking and brokerage services, and economic factors can also be
expected to have an ongoing impact on increasingly competitive conditions.
To compete with other Ñnancial institutions in its primary service areas, the Bank relies principally upon
the following:
‚ local promotional activities
‚ personal contacts by its oÇcers, directors, employees, and stockholders
‚ extended hours on weekdays, Saturday banking, and in certain locations Sunday banking
‚ Internet banking
‚ an Internet website, located at ""www.cathaybank.com''
‚ certain other specialized services.
For customers whose loan demands exceed the Bank's lending limit, the Bank has arranged in the past,
and intends in the future, to arrange for such loans on a participation basis with correspondent banks. The
Bank also assists customers requiring other services not oÅered by the Bank to obtain such services from its
correspondent banks.
8
In Southern California, at least three other Chinese-American banks of comparable size compete for
loans and deposits with us and two super-regional banks also compete for deposits. In Northern California, one
of these Chinese-American banks competes for loans and deposits and the same two super-regional banks
compete for deposits as well.
In addition, there are many other Chinese-American banks in both Southern and Northern California.
Banks from the PaciÑc Rim countries, such as Taiwan, Hong Kong, and China also continue to open branches
in the Los Angeles area, thus increasing competition in the Bank's primary markets.
Employees
As of December 31, 2001, Bancorp and Bank (including subsidiaries) employed approximately 555 per-
sons, including 126 oÇcers. None of the employees are represented by a union. Management believes that its
relations with employees are excellent.
Principal OÇcers
The table below sets forth the names, ages, and positions of all executive oÇcers of the Company. See
Part III, Item 10 Ì ""Directors and Executive OÇcers of the Registrant,'' below for further information
regarding the executive oÇcers of Bancorp and Cathay Bank.
Name
Age
Dunson K. Cheng ÏÏÏÏÏÏÏÏÏÏÏÏÏ
57
Anthony M. Tang ÏÏÏÏÏÏÏÏÏÏÏÏÏ
48
Irwin Wong ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
53
Elena Chan ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
51
Present Position and Principal Occupation
During the Past Five Years
Chairman of the Board of Directors of each of Bancorp, Cathay
Bank and Cathay Investment Company since 1994. President of
Bancorp since 1990. President of Cathay Bank since 1985 and
director of Cathay Bank since 1982. Secretary of Cathay
Investment Company from 1985 until 1994; President of Cathay
Investment Company since 1999; Chief Executive OÇcer of
Cathay Investment Company since 1995 and director of Cathay
Investment Company since 1984. Chairman of the Board of
Directors and President of Cathay Securities Fund, Inc. since
July 2000.
Executive Vice President of Bancorp since 1994; Assistant
Secretary of Bancorp from 1991 to April, 2001; Chief Financial
OÇcer and Treasurer of Bancorp since 1990; and Senior Vice
President of Bancorp from 1990 until 1994. Chief Lending
OÇcer of Cathay Bank since 1985; director of Cathay Bank
since 1986; Assistant Secretary of Cathay Bank from 1994 to
April, 2001; Senior Executive Vice President of Cathay Bank
since December 1998; Senior Vice President of Cathay Bank
from 1990 until 1994; and Executive Vice President of Cathay
Bank from 1994 to December 1998. Vice President and director
of Cathay Securities Fund, Inc. since July 2000.
Executive Vice President-Branch Administration for Cathay
Bank since 1999; Senior Vice President-Branch Administration
of Cathay Bank from 1989 until 1999; and Vice President-
Branch Administration for Cathay Bank from 1988 until 1989.
Vice President and director of Cathay Securities Fund, Inc.
since July 2000.
Senior Vice President and Chief Financial OÇcer of Cathay
Bank since 1992; Internal Auditor of Cathay Bank from 1985 to
1992. Secretary and director of Cathay Securities Fund, Inc.
since July 2000.
9
Name
Age
James P. Lin ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
58
Present Position and Principal Occupation
During the Past Five Years
Senior Vice President and Manager Ì Corporate Commercial
Loan and International Banking Department of Cathay Bank
since November, 2001; Senior Vice President and Manager Ì
International Banking Department of Cathay Bank from
December, 1996 to November, 2001; First Vice President and
Manager Ì International Banking Department of Cathay Bank
from July 1990 to December, 1996.
Regulation
Regulation of Bancorp and the Bank
As a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended
and as revised by the Gramm-Leach-Bliley Act of 1999, Bancorp's primary regulatory authority is the Board
of Governors of the Federal Reserve System (or the Federal Reserve Board). The Bank Holding Company
Act requires Bancorp to Ñle annual reports of its operations with the Federal Reserve Board. Bancorp is also
subject to examination by the Federal Reserve Board.
Cathay Bank, as a California state-chartered commercial bank, is regulated by the Federal Deposit
Insurance Corporation (or FDIC) and by the State of California Department of Financial Institutions. The
Bank's deposits are insured, up to the legal maximum, by the FDIC. Although not a member of the Federal
Reserve System, the Bank is subject to Federal and State rules and regulations.
Regulatory authorities review key operational areas of Bancorp and the Bank, including asset quality,
capital adequacy, liquidity, management and administrative ability, compliance with consumer protection laws
and security of conÑdential customer information. Applicable law and regulations also limit the business
activities in which Bancorp, the Bank, and its subsidiaries may be engaged. See also, ""Other Banking
Regulations Ì Interstate Banking'' and ""Federal Limits on the Activities and Investments of State-Chartered
Banks'' below.
Bancorp also Ñles periodic reports, proxy statements, and other information with the Securities and
Exchange Commission.
The following summary describes some of the more signiÑcant laws, regulations, and policies that aÅect
our operations. It is not a complete listing of all laws that apply to Bancorp and the Bank. To the extent that
the information in this Section, ""Regulation of Bancorp, and the Bank,'' describes statutory or regulatory
provisions, it is qualiÑed in its entirety by reference to such provisions.
Regulatory Environment
The banking and Ñnancial services industry is heavily regulated. Regulations, statutes and policies
aÅecting the industry are frequently under review by Congress, state legislatures and the federal and state
agencies charged with supervisory and examination authority over banking institutions. This regulatory
framework is intended primarily to protect the Bank's depositors, the federal deposit insurance fund, and the
safety and soundness of the regulated Ñnancial institutions. Generally, the regulatory framework is not
intended to protect our stockholders.
We expect that changes in the banking and Ñnancial services industry will continue to occur in the future.
Some of the changes may create opportunities for us to compete in Ñnancial markets with less regulation.
However, these changes also may create new competitors in geographic and product markets which have
historically been limited by law to banking institutions, such as Cathay Bank. We cannot predict how changes
in regulations, statutes, or policies will impact us. These changes may have a material adverse eÅect on our
business and earnings.
10
Fiscal and Monetary Policies
The operations of bank holding companies and their subsidiaries are aÅected by the Ñscal and monetary
policies of the Federal Reserve Bank. An important function of the Federal Reserve Bank is to regulate the
national supply of bank credit.
The Federal Reserve Bank uses the following instruments of monetary policy, among others, as a means
to implement its objectives:
‚ open market purchases and sales of U.S. government securities
‚ changes in the discount rate on bank borrowings
‚ changes in reserve requirements on bank deposits and borrowings by banks and their aÇliates.
The Federal Reserve Bank uses these instruments of monetary policy in varying combinations to seek to
inÖuence the overall level of bank loans, investments and deposits; the interest rates charged on loans and paid
for deposits; the price of the dollar in foreign exchange markets; and the level of inÖation. The Federal Reserve
Bank's Ñscal and monetary policies will continue to have a signiÑcant eÅect on Bancorp and the Bank.
Bank Holding Company Regulation
As a bank holding company, Bancorp is subject to regulation, supervision, and examination by the
Federal Reserve Board. It is required to Ñle reports with the Federal Reserve Board and furnish such other
information as may be required by the Federal Reserve Board under the Bank Holding Company Act.
The Federal Reserve Board has a policy that bank holding companies must serve as a source of Ñnancial
and managerial strength to their subsidiary banks and may not conduct their operations in an unsafe or
unsound manner. It is the Federal Reserve Bank's position that bank holding companies should stand ready to
use their available resources to provide adequate capital to their subsidiary banks during periods of Ñnancial
stress or adversity. Bank holding companies should also maintain the Ñnancial Öexibility and capital-raising
capacity to obtain additional resources for assisting their subsidiary banks. If a bank holding company fails in
these requirements, the Federal Reserve Board will generally consider such failure to be an unsafe and
unsound banking practice or a violation of the Federal Reserve Board's regulations or both.
The Federal Reserve Board also has the authority to regulate bank holding company debt, including the
authority to impose interest rate ceilings and reserve requirements on such debt. Under certain circumstances,
the Federal Reserve Board may require Bancorp to Ñle written notice and obtain its approval prior to
purchasing or redeeming Bancorp's equity securities.
Bancorp must also obtain the prior approval of the Federal Reserve Board if it acquires more than 5% of
the outstanding shares of any class of voting securities or substantially all of the assets of a bank or bank
holding company. The Federal Reserve Board must also give prior approval to any merger or consolidation
with another bank holding company.
In addition, under the Bank Holding Company Act, Bancorp cannot acquire direct or indirect ownership
or control of more than 5% of the outstanding voting shares of any company that is not a bank or bank holding
company. It cannot engage directly or indirectly in activities other than banking, managing or controlling
banks or furnishing services to its subsidiaries. However, there are some statutory exceptions. Subject to prior
approval of the Federal Reserve Board, Bancorp can acquire shares of companies engaged in activities that the
Federal Reserve Board deems to be closely related to banking or managing or controlling banks. In addition, as
discussed below under ""Financial Services Modernization Legislation,'' if Bancorp becomes a ""Financial
Holding Company,'' certain restrictions on acquiring ownership or control of certain non-banking companies
will no longer apply.
Financial Services Modernization Legislation
On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley Act of 1999
(referred to in this report as the Modernization Act), which among other things revised the Bank Holding
11
Company Act. EÅective March 12, 2000, the Modernization Act repealed the two aÇliation provisions of the
Glass-Steagall Act that restricted banks and securities Ñrms from aÇliating.
The Modernization Act repealed:
‚ Section 20 of the Glass-Steagall Act, which restricted the aÇliation of Federal Reserve member banks
with Ñrms ""engaged principally'' in speciÑed securities activities, and
‚ Section 33 of the Glass-Steagall Act, which restricted oÇcer, director, or employee interlocks between
a member bank and any company or person ""primarily engaged'' in speciÑed securities activities.
In addition, the Modernization Act expressly preempted any state law restricting the establishment of
Ñnancial aÇliations, primarily related to insurance. The law established a comprehensive framework to permit
aÇliations among commercial banks, insurance companies, securities Ñrms, and other Ñnancial service
providers. The Modernization Act revised and expanded the Bank Holding Company Act framework and
permitted a bank holding company to engage in additional types of Ñnancial activities provided that it became
a ""Financial Holding Company'' under the Modernization Act.
Such Ñnancial activities include banking, insurance, and securities activities; merchant banking; and
additional activities incidental to such Ñnancial activities, or complementary activities that do not pose a
substantial risk to the safety and soundness of depository institutions or the Ñnancial system generally.
To aÇliate with other Ñnancial service providers, we would have to become a ""Financial Holding
Company.'' We would have to Ñle a declaration with the Federal Reserve Board, electing to engage in
activities permissible for Financial Holding Companies and certify that we are eligible to do so because the
Bank is ""well-capitalized'' and ""well-managed.'' The Federal Reserve Board must also determine that the
Bank, as the insured depository institution subsidiary, has at least a ""satisfactory'' rating under the Community
Reinvestment Act. We have not sought to become a Financial Holding Company. We will continue to monitor
our strategic business plan, market conditions, and other factors to determine whether we will elect to become
a Financial Holding Company and take advantage of the expanded powers provided in the Modernization Act.
Under the Modernization Act, securities Ñrms and insurance companies that become Financial Holding
Companies may acquire banks and other Ñnancial institutions. No regulatory approval will be required for a
Financial Holding Company to acquire a company (other than a bank holding company, bank or savings
association) engaged in activities that are Ñnancial in nature or incidental to activities that are Ñnancial in
nature, as determined by the Federal Reserve Board. Prior Federal Reserve Board approval is required before
a Financial Holding Company acquires the beneÑcial ownership or control of more than 5% of the voting
shares of a bank holding company, bank or savings association. To the extent that the Modernization Act
permits banks, securities Ñrms, and insurance companies to aÇliate, the Ñnancial services industry may
experience further consolidation.
The Modernization Act also added a new section to the Federal Deposit Insurance Act. The new section
allows subsidiaries of state banks to engage in ""activities as principal that would only be permissible'' for a
national bank to conduct in a Ñnancial subsidiary. It expressly preserved a state bank's right to retain all
existing subsidiaries. California permits state chartered commercial banks to engage in any activity permissible
for national banks. Under the Modernization Act, a national bank subsidiary may engage in any Ñnancial
activity which may be conducted through a Financial Holding Company subsidiary, except for insurance
underwriting, insurance investments, real estate investment or development or merchant banking. Therefore,
Cathay Bank can form subsidiaries to engage in the activities authorized by the Modernization Act to the
same extent as a national bank. To form a Ñnancial subsidiary, the Bank must be ""well-capitalized'' and meet
other regulatory requirements. See ""Other Banking Regulations Ì Federal Limits on the Activities and
Investments of State-Chartered Banks'' below.
The Modernization Act may have the result of increasing the amount of competition that Bancorp and
the Bank face from larger institutions and other types of companies oÅering Ñnancial products, many of which
may have substantially more Ñnancial resources than Bancorp and the Bank.
Privacy. The Modernization Act provides consumers with new protections against the transfer and use
of their nonpublic personal information by Ñnancial institutions. The OÇce of the Comptroller of the
12
Currency, the Federal Reserve System, the Federal Deposit Insurance Corporation and the OÇce of Thrift
Supervision issued Ñnal rules on June 1, 2000.
Under the new rules, Ñnancial institutions must provide among other things:
‚ initial notices to customers about their privacy policies (including a description of the conditions under
which they may disclose nonpublic personal information to nonaÇliated third parties and aÇliates)
‚ annual notices of such privacy policies to current customers
‚ subject to certain exceptions, a reasonable method for customers to ""opt out'' of disclosure to
nonaÇliated third parties.
The rules became eÅective November 13, 2000, with compliance being optional until July 1, 2001. These
federal privacy protections do not prohibit state governments from imposing more protective rules, and a
variety of such bills are currently pending in the California state legislature.
Consumer Protection Rules Ì Sale of Insurance Products. On December 4, 2000, the federal bank and
thrift regulatory agencies adopted consumer protection rules for the sale of insurance products by depository
institutions as required by the Modernization Act. The eÅective date was originally April 1, 2001, but on
March 19, 2001, the federal agencies postponed the eÅective date until October 1, 2001. The rules apply to
any depository institution or any person selling, soliciting, advertising, or oÅering insurance products or
annuities to a customer at an oÇce of the institution or on behalf of the institution.
The rule requires oral and written disclosure, before the completion of the sale of an insurance product or
annuity, that such product:
‚ is not a deposit or other obligation of, or guaranteed by, the depository institution or its aÇliate
‚ is not insured by the FDIC or any other agency of the United States, the depository institution or its
aÇliates
‚ has certain risks of investment, including possible loss of value.
Finally, the depository institution may not condition an extension of credit on the consumer's purchase of
an insurance product or annuity from the depository institution or from any of its aÇliates; on the consumer's
agreement not to obtain an insurance product or annuity from an unaÇliated entity; or by prohibiting a
consumer from obtaining an insurance product or annuity from an unaÇliated entity. The disclosure must be
understandable and the customer must acknowledge receipt of such disclosure.
In addition, to the extent practicable, a depository institution must keep insurance and annuity activities
physically segregated from the areas where retail deposits are routinely accepted from the general public.
Safeguarding ConÑdential Customer Information.
In February 2001, the federal bank and thrift
regulatory agencies published guidelines requiring Ñnancial institutions to establish an information security
program to:
‚ identify and assess the risks that may threaten customer information
‚ develop a written plan containing policies and procedures to manage and control these risks
‚ implement and test the plan
‚ adjust the plan on a continuing basis to account for changes in technology, the sensitivity of customer
information, and internal or external threats to information security.
Each institution may implement a security program appropriate to its size and complexity and the nature
and scope of its operations.
The guidelines outline speciÑc security measures that institutions should consider in implementing a
security program. A Ñnancial institution must adopt those security measures determined to be appropriate.
The guidelines require the Board of Directors to oversee an institution's eÅorts to develop, implement and
13
maintain an eÅective information security program and approve written information security policies and
programs. The guidelines became eÅective July 1, 2001.
The precise impact of the Modernization Act on Bancorp and the Bank will not be fully known until the
last of the Modernization Act's phased eÅective dates occurs on November 12, 2004, and until regulatory
agencies promulgate all the administrative regulations implementing many portions of the Act. It can be
expected that state regulatory authorities and/or legislatures may act in response to the Modernization Act.
USA Patriot Act
On October 26, 2001, in response to the tragic events of September 11, 2001, President Bush signed into
law the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001 (the ""Patriot Act''). The Patriot Act is directed at the prevention, detection,
and prosecution of international money laundering and Ñnancing of terrorism and, among other things,
requires or will require Ñnancial institutions to do the following (i) establish an anti-money laundering
program; (ii) establish due diligence policies, procedures, and controls with respect to private banking
accounts and correspondent banking accounts involving foreign individuals and certain foreign banks; and (iii)
avoid establishing, maintaining, administering, or managing correspondent accounts in the United States for,
or on behalf of, foreign banks that do not have a physical presence in any country. Regulations interpreting the
Patriot Act have not been Ñnalized and the Company is not yet able to determine the impact of the Patriot Act
on its Ñnancial condition or results of operations.
Other Banking Regulations
Cathay Bank, as a California state-chartered commercial bank, the Bank is subject to primary
supervision, periodic examination, and regulation by the FDIC and by the State of California Department of
Financial Institutions. The Bank's deposits are insured by the FDIC up to the legal maximum and the Bank is
subject to FDIC rules applicable to insured banks. Although not a member of the Federal Reserve System,
the Bank is subject to Federal and State rules and regulations.
Capital Requirements. The Federal Reserve Board and the FDIC have established risk-based minimum
capital guidelines that seek to ensure that banking organizations are appropriately capitalized. The guidelines
are intended to provide a measure of capital that reÖects the degree of risk associated with a banking
organization's operations for transactions reported on the balance sheet as assets, and transactions which are
recorded as oÅ-balance sheet items, such as letters of credit or recourse arrangements. Under these guidelines,
the nominal dollar amounts of assets and the credit equivalent amounts of oÅ-balance sheet items are
multiplied by one of several risk-adjusted percentages. The risk-adjusted percentages range from 0% for assets
with low credit risk, such as U.S. Treasury Securities, to 100% for assets with high credit risk, such as
commercial loans.
The federal regulators require a minimum ratio of qualifying total capital to risk-adjusted assets of 8%
(10% to be well capitalized) and a minimum ratio of Tier 1 capital to risk-adjusted assets of 4% (6% to be well
capitalized). In addition, the federal regulators require a minimum Tier 1 leverage ratio of 4% (5% to be well
capitalized). The Company was well capitalized as of December 31, 2001 with a total risk-based capital ratio
of 12.30%, a Tier 1 risk-based capital ratio of 11.15% and Tier 1 leverage ratio of 9.48%.
The tables presenting our risk-based capital and leverage ratios as of December 31, 2001 are included in
Note 11 to the Consolidated Financial Statements of Cathay Bancorp, which are included in this Annual
Report on Form 10-K.
Prompt Corrective Action.
In December 1991, the Federal Deposit Insurance Corporation Improve-
ment Act of 1991 (or FDICIA) was enacted into law. FDICIA provided for the recapitalization of the Bank
Insurance Fund and improved examinations of insured depository institutions. It required each federal banking
regulatory agency to revise its risk-based capital standards and to specify levels at which regulated institutions
are considered ""well capitalized,'' ""adequately capitalized,'' ""undercapitalized,'' ""signiÑcantly undercapital-
ized'' or ""critically undercapitalized.'' It prescribes standards for safety and soundness of all insured depository
14
institutions. FDICIA requires each federal banking agency and the FDIC to take ""prompt corrective action''
against those institutions that fail to satisfy their minimum capital requirements. As of December 31, 2001,
the Bank was well capitalized for these regulatory purposes.
An institution that, based on its capital levels, is classiÑed as well capitalized, adequately capitalized or
undercapitalized may be treated as though it were in the next lower capital category, if the appropriate federal
banking agency determines that an unsafe or unsound condition or an unsafe or unsound practice warrants
such treatment. The aÅected institution must receive proper notice and have an opportunity for a hearing. At
each successive lower capital category, an insured bank is subject to more restrictions, including restrictions on
the bank's activities, operational practices, and ability to pay dividends.
In addition to measures taken under the prompt corrective action provision, commercial banking
organizations may be subject to potential enforcement actions by federal regulators for, among other things,
unsafe or unsound practices in conducting their businesses, or violations of any law, rule, regulation, or any
condition imposed in writing by the relevant regulatory agency or any written agreement with a regulatory
agency.
Premiums for Deposit Insurance. The Bank's deposit accounts are insured by the Bank Insurance Fund,
as administered by the FDIC, up to the maximum permitted by law. The amount of FDIC assessments paid
by each Bank Insurance Fund member institution is based on its capitalization risk level and its supervisory
subgroup category. The supervisory subgroup category is based on the FDIC's assessment of the Ñnancial
condition of the institution and the probability that FDIC intervention or other corrective action will be
required.
The Bank Insurance Fund assessment rate as of December 31, 2001, ranged from zero to 27 basis points
per $100 of insured deposits. At December 31, 2001, the Bank's assessment rate was zero. The FDIC may
increase or decrease the assessment rate schedule on a semiannual basis. An increase in the Bank Insurance
Fund assessment rate could have a material adverse eÅect on our earnings.
The FDIC is authorized to terminate a depository institution's deposit insurance if it Ñnds among other
things that:
‚ the institution's condition is unsafe or unsound
‚ the institution has engaged in unsafe or unsound practices
‚ the institution has violated any applicable law, rule, regulation, order or condition imposed in writing by
the relevant regulating agency or any written agreement with a regulating agency.
Under the Economic Growth and Regulatory Paperwork Reduction Act of 1996, on January 1, 1997,
banks began paying an annual assessment towards the retirement of U.S. government issued Financing
Corporation bonds. The bonds were issued in the 1980s to capitalize the Federal Savings and Loan Insurance
Corporation to assist in the recovery of the savings and loan industry. FDIC insured institutions paid
approximately 1.90 cents per $100 of Bank Insurance Fund-assessable deposits in 2001.
Dividends. As a California corporation and a state-chartered bank, the Bank may not pay dividends to
Bancorp in excess of certain statutory and regulatory limits. As of December 31, 2001, the maximum dividend
that the Bank could have declared, subject to regulatory approval, was $87,228,000.
The California Commissioner of Financial Institutions and the Federal Reserve Board may also prohibit a
bank from paying dividends to its bank holding company if they determine that such payment would constitute
an unsafe or unsound banking practice. In addition, if Cathay Bank fails to comply with its minimum capital
requirements, its regulators may restrict its ability to pay dividends using prompt corrective action or other
enforcement powers.
Community Reinvestment Act and Fair Lending. The Bank is subject to certain fair lending require-
ments and reporting obligations involving its home mortgage lending operations and Community Reinvest-
ment Act activities. Under the Community Reinvestment Act, a bank is obligated to help meet the credit
needs of its entire community, including low and moderate income neighborhoods, consistent with safe and
15
sound operation. The Community Reinvestment Act does not establish speciÑc lending requirements or
programs, nor does it limit a bank's discretion to develop the types of products and services that it believes are
best suited to its community. However, the Community Reinvestment Act does require that federal regulators,
when examining an institution, assess the institution's record of meeting the credit needs of its community and
take such record into account in evaluating certain applications, including an application to become a
Financial Holding Company under the Modernization Act.
Federal regulators are required to provide a written examination of an institution's Community
Reinvestment Act performance. The regulators rate an institution's performance using a four tiered rating
system. The ratings are: outstanding record of meeting community credit needs; satisfactory record of meeting
community credit needs; needs to improve record of meeting community credit needs; and substantial
noncompliance of meeting community credit needs. The ratings are available to the public. Based upon an
examination by the FDIC in January 2001, the Bank's Community Reinvestment Act rating was ""satisfac-
tory'' in meeting community credit needs.
The Bank is also subject to other fair lending requirements and reporting obligations related to its home
mortgage lending operations. The Equal Credit Opportunity Act and Fair Housing Act prohibit discrimination
on the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the
capacity to contract). A bank can become subject to substantial penalties and corrective measures for
violations of fair lending laws.
Federal Limits on the Activities and Investments of State-Chartered Banks. Federal restrictions on the
direct and indirect activities and investments of state-chartered or licensed depository institutions exist if the
institution either carries federal deposit insurance or is involved in activities with foreign banks. The FDIC is
the regulatory agency with the authority to determine federal restrictions on all direct and indirect activities
and investments.
Prior to 1999, subject to a number of grandfathering provisions and a few exceptions, there were three
rules, which limited the activities and investments of state-chartered banks.
1. A state-chartered bank could not engage as principal in any type of activity that was prohibited
for a national bank, unless the FDIC determined the activity posed no signiÑcant risk to the aÅected
deposit insurance fund and the institution met its fully phased in capital requirements.
2. A state-chartered bank could not make or retain an equity investment of a type or in an amount
that was prohibited for a national bank; and, divestiture of such an investment was required by 1996.
3. A state-chartered bank could retain an equity investment in the form of a majority-owned
subsidiary engaged as principal in activities prohibited for a national bank subsidiary, but only if the
FDIC had made the same determinations respecting risk to the insurance fund and capital compliance by
the bank.
The Modernization Act added a new section to the Federal Deposit Insurance Act to provide that an
insured state bank may control or hold an interest in a subsidiary engaged as principal in activities that would
be permissible for a national bank to conduct through a Ñnancial subsidiary, subject to certain conditions.
Under the Modernization Act, in January 2001, the FDIC adopted Ñnal rules to streamline the certiÑcation
process. State nonmember banks may self certify that they meet the requirements necessary to qualify for
conducting non-agency activities. The insured state bank must certify that: it is ""well managed;'' it is ""well
capitalized;'' it will deduct the aggregate amount of its outstanding equity investment in all Ñnancial
subsidiaries that engage in activities as principal from the bank's total assets and tangible equity; and it will
deduct such equity investment in such Ñnancial subsidiaries from its total risk-based capital. In addition, the
bank must have received a Community Reinvestment Act rating of ""satisfactory'' in meeting community
credit needs in its most recent examination.
Additional requirements must be satisÑed in order for a Ñnancial subsidiary of a state nonmember insured
bank to conduct securities underwriting. Securities activities are subject to a variety of general and speciÑc
safety and soundness restrictions. Further, state banks wishing to engage in activities prohibited to national
16
banks, such as real estate development or investment, must continue to seek FDIC consent by Ñling a notice
or application, as was the procedure before the Modernization Act.
Interstate Banking. The Federal Riegle-Neal Interstate Banking and Branching EÇciency Act of 1994
were signed into law on September 29, 1994. The Riegle-Neal Act signiÑcantly relaxed or eliminated many
restrictions on interstate banking. EÅective September 29, 1995, the Riegle-Neal Act permitted a bank
holding company to acquire banks in states other than its ""home state,'' even if applicable state law would not
permit that acquisition. Such acquisitions continue to require Federal Reserve Board approval and remain
subject to certain state laws.
EÅective June 1, 1997, the Riegle-Neal Act permitted interstate mergers of banks, thereby allowing a
single merged bank to operate branches in multiple states. The Riegle-Neal Act allowed each state to adopt
legislation to ""opt-out'' of these interstate merger provisions. Conversely, the Riegle-Neal Act permitted states
to ""opt in'' to the merger provisions of the Act prior to their stated eÅective date, to permit interstate mergers
in that state prior to June 1, 1997. The enactment of the California Interstate Banking and Branching Act of
1995 provided for interstate banking and branching in California. This early opt-in legislation became eÅective
on October 2, 1995. It required out-of-state institutions, which did not own a California bank to acquire an
existing whole Ñve-year old bank before establishing a California branch. De novo interstate branching was not
permitted. This act revised much of the original California interstate banking law Ñrst enacted in 1986 that
permitted interstate banking with other states on a reciprocal basis.
Banks and bank holding companies contemplating acquisitions must comply with the following Acts, as
applicable:
‚ the competitive standards of the Bank Holding Company Act
‚ the Change in Bank Control Act
‚ the Bank Merger Act.
The crucial test under each Act is whether the proposed acquisition will ""result in a monopoly'' or will
""substantially'' lessen competition in the relevant geographic market. Both the Bank Holding Company Act
and the Bank Merger Act preclude granting regulatory approval for any transaction that will ""result in'' a
monopoly or is in furtherance of a plan to create a monopoly. However, where a proposed transaction is likely
to cause a substantial reduction in competition, or tends to create a monopoly or otherwise restrain trade, these
Acts permit the granting of regulatory approval under certain circumstances. The applicable regulator may
approve the transaction if it concludes that the perceived anti-competitive eÅects are clearly outweighed by
the probable beneÑcial eÅects of the transaction in meeting the convenience and needs of the community to be
served.
We seek to expand our market areas by acquiring other Ñnancial institutions or establishing de novo
branches in or outside of California as permitted by applicable laws, whenever suitable opportunities present
themselves. The Riegle-Neal Act may have the eÅect of increasing competition by facilitating entry into the
California banking market by out of state banks and bank holding companies.
Federal Home Loan Bank. The Federal Home Loan Bank System consists of twelve district banks and
is supervised by the Federal Housing Finance Board. Commercial banks, credit unions, savings associations,
and certain other insured depository institutions making long-term home mortgage loans are eligible to
become members of the Federal Home Loan Bank System.
In January 1993, the Bank became a member and stockholder of the Federal Home Loan Bank in San
Francisco. As a member and stockholder, the Bank has access to a source of low-cost liquidity. The level of
stock ownership is currently governed by the Federal Home Loan Bank Act, and the amount of borrowing is
deÑned by the amount of stock purchased. Stock is purchased and redeemed at par. The Bank's investment in
Federal Home Loan Bank stock totaled 56,417 shares or $5,641,700 as of December 31, 2001.
17
All credit extended by the district bank requires full collateralization. Eligible collateral includes the
following:
‚ residential Ñrst mortgage loans on single and multi-family projects
‚ U.S. government and agency securities
‚ deposits in district banks
‚ certain other real estate related assets permitted by law.
Item 2. Properties
Cathay Bancorp. Cathay Bancorp currently neither owns nor leases any real or personal property. We
use the premises, equipment, and furniture of the Bank without the payment of any rental fees to the Bank.
Cathay Bank. The Bank's main corporate oÇce and headquarters branch is located in the Chinatown
district of Los Angeles. The oÇces are in a spacious three-story structure containing 26,527 square feet and
constructed of glass and concrete. The Bank owns both the building and the land upon which the building is
situated.
‚ The main Öoor currently accommodates:
‚ a platform area for consumer loans and certain commercial and commercial mortgage loans
‚ a platform area for Cathay Global Investments Services
‚ a new accounts area
‚ 24 teller stations (including 16 regular tellers, seven commercial tellers, and one ATM)
‚ four pneumatic drive-up teller stations
‚ one walk-up teller station
‚ an operations area
‚ a vault area
‚ The second Öoor contains executive oÇces and the Bank's Board Room
‚ The third Öoor houses the Bank's corporate lending department
Parking for approximately 126 automobiles is provided on three lots adjacent to the Bank's building, two
of which are owned by the Bank. The third lot is leased under a 55-year term with a 30-year option
commencing in January 1987 at a current monthly rent of approximately $14,700.
Furthermore, the Bank owns properties in the following cities where certain of its branch oÇces are
located:
‚ Monterey Park
‚ Alhambra
‚ Westminster
‚ San Gabriel
‚ Torrance
‚ Cerritos
‚ City of Industry
‚ Cupertino
‚ Flushing, New York
18
In addition to the bank-owned properties, the parking lot lease and the lease for the Cathay Investment
Company's Taipei oÇce described below, the Bank leases certain other premises. The following table lists the
location, square footage, purpose, lease term, and monthly payment of each lease.
Location
Sq. ft.
Purpose
Lease term
767 N. Hill Street ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
8,912 Administrative oÇces
2/01-1/04
Los Angeles, CA
(Rm 305-306, 308-309, 313-315, 320)*
767 N. Hill Street ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,800 Administrative oÇces
2/01-1/04
Los Angeles, CA
(Rm 301-302)
16025 E. Gale Ave. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
4,483 Hacienda Heights
Ste. B-1
City of Industry, CA
branch oÇce
2010 Tully Road ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
4,800
San Jose branch oÇce
San Jose, CA
710 Webster Street ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
5,000 Oakland branch oÇce
Oakland, CA
1759 N. Milpitas Blvd. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
3,121 Milpitas branch oÇce
Milpitas, CA
15323 Culver Drive ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
4,450
Irvine branch oÇce
Irvine, CA
1095 El Camino Real ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
3,441 Millbrae branch oÇce
Millbrae, CA
800 N. Hill Street ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
8,707 Administrative oÇces
7/99-6/04 with one
more 5-year option
3/96-4/06 with two
5-year options**
9/01-9/06 with one
5-year option
10/00-10/05 with
two 5-year options
10/94-4/09 with two
5-year options
1/00-12/04 with one
more 5-year option
2/99-2/04
Los Angeles, CA
43 E. Valley Blvd. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,976
Alhambra, CA
3288 Pierce Street ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,535
Suite D-101
Richmond, CA
Valley/Stoneman
branch oÇce
Berkeley/Richmond
branch oÇce
11/01-11/06 with
three 5-year options
10/97-10/03 with
two 5-year options
1195 S. Diamond Bar Blvd. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,500 Diamond Bar branch
9/99-9/07
Diamond Bar, CA
oÇce
1701 Decoto RoadÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,100 Union City branch
04/01-04/06
Union City, CA
oÇce
45 E. Broadway ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
New York, NY
10375 Richmond Avenue ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Suite 1600, Houston, TX***
6,450 New York Chinatown
branch oÇce
1,797 Houston branch oÇce
1/97-12/06 with two
Ñve year option
5/99-4/02
5402 Eight Avenue ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,700
Brooklyn branch oÇce
Brooklyn, NY
Room 902-3, 9/F ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
700 Hong Kong
Printing House
6 Duddell Street, Central
Hong Kong
representative oÇce
09/01-08/11 with
Ñve year option
1/00-1/03 with one
2-year option
* The lease is between the Bank and T.C. Realty, Inc., a California corporation owned by the spouse of
Mr. Patrick Lee. Mr. Lee is a director of Bancorp and the Bank. Management believes that the lease is
on terms at least as favorable to the Bank as would have existed in a transaction with an unrelated third
party.
** Cathay Bank has a one-time right to cancel the lease after the Ñfth year upon the payment of $55,500 in
consideration.
*** The Houston branch oÇce lease is being renegotiated for a term ranging between one to three years.
19
The Bank currently operates 22 domestic branch oÇces, one branch oÇce of Cathay Investment
Company in Taiwan, and one representative oÇce in Hong Kong. Each branch oÇce has loan approval rights
subject to the branch manager's authorized lending limits. Activities of Cathay Investment Company's
Taiwan oÇce and Hong Kong representative oÇce are limited to coordinating the transportation of documents
to the Bank's main oÇce and performing liaison services.
As of December 31, 2001, the Bank's investment in premises and equipment totaled $29,403,000. See
also Note 8 to the Consolidated Financial Statements of Cathay Bancorp, which is included in this Annual
Report on Form 10-K.
Cathay Investment Company. The oÇce in Taipei is located at Sixth Floor, Suite 3, 146 Sung Chiang
Road, Taipei, Taiwan, and consists of 1,812 square feet. The lease was renewed for three years from
October 5, 1999 to October 4, 2002. The lease contains an option to renew the lease for an additional period
ranging from one to three years, after October 4, 2002. As of December 31, 2001, Cathay Investment
Company did not own any properties.
Cathay Securities Fund, Inc.
Its oÇce is located at 777 North Broadway, Los Angeles, California
90012. The long-term plan for the registered investment company is currently under review.
Item 3. Legal Proceedings
Management is not currently aware of any litigation that is expected to have material adverse impact on
our consolidated Ñnancial condition or the results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth quarter of 2001.
PART II
Item 5. Market for Cathay Bancorp's Common Equity and Related Stockholder Matters
(a) Market Information
Cathay Bancorp trades on the Nasdaq National Market under the symbol ""CATY.'' The closing price of
the Company's common stock on February 26, 2002 was $65.50 per share, as reported by the Nasdaq National
Market. The Company does not represent that the outstanding shares may be either bought or sold at a certain
price.
The high and low common stock prices by quarter were as follows:
Years Ended December 31,
2000
2001
High
Low
High
Low
First quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Second quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Third quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fourth quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$64.50
59.72
58.00
66.94
$45.13
43.63
45.65
52.80
$80.00
49.00
50.00
59.38
$38.50
40.75
43.00
47.00
(b) Holders
As of February 26, 2002, there were approximately 1,700 holders of record of our Common Stock.
20
(c) Dividends
The cash dividends declared by quarter were as follows:
First quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Second quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Third quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fourth quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$0.25
0.25
0.25
0.25
$0.25
0.21
0.21
0.21
Year Ended
December 31,
2000
2001
21
Item 6. Selected Financial Data
The following table presents selected historical consolidated Ñnancial data for Cathay Bancorp, and is
derived in part from the audited Consolidated Financial Statements of the Company. The selected historical
consolidated Ñnancial data should be read in conjunction with the Consolidated Financial Statements of
Cathay Bancorp and the Notes thereto, which are included in this Annual report on Form 10-K.
2001
Year Ended December 31,
1999
(Dollars in thousands, except share and per share data)
1998
2000
1997
Selected Consolidated Financial Data
Income Statement(1)
Interest income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 159,352
$ 164,553
$ 133,046
$ 123,309
$ 111,978
Interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net interest income before provision for loan losses ÏÏÏÏÏÏÏÏÏÏÏ
Provision for loan losses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Securities gains (losses) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other non-interest income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-interest expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income before income tax expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income tax expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
66,153
93,199
6,373
2,157
12,622
40,165
61,440
18,820
74,156
90,397
4,200
1,085
11,671
38,504
60,449
21,862
57,408
75,638
4,200
(3)
8,858
30,282
50,011
19,720
57,225
66,084
3,600
43
8,093
30,065
40,555
15,976
50,874
61,104
3,600
41
6,734
30,928
33,351
13,243
Net incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
42,620
$
38,587
$
30,291
$
24,579
$
20,108
Net income per common share
Basic ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash dividends paid per common share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
$
$
4.71
4.69
1.00
$
$
$
4.26
4.25
0.88
$
$
$
3.36
3.36
0.81
$
$
$
2.74
2.74
0.70
$
$
$
2.26
2.26
0.63
Weighted-average common shares
Basic ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
9,053,895
Diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
9,082,630
9,056,751
9,073,885
9,013,428
9,017,760
8,967,188
8,968,230
8,915,936
8,915,936
Statement of Condition
Securities available-for-sale ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 248,958
$ 177,796
$ 160,991
$ 239,928
$ 216,158
Securities held-to-maturity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
374,356
387,200
Net loans(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,640,032
Total assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,453,114
Deposits ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,122,348
Securities sold under agreements to repurchaseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Advances from Federal Home Loan Bank ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
22,114
30,000
1,437,307
2,206,834
1,876,447
68,173
10,000
426,332
1,245,585
1,995,924
1,721,736
46,990
30,000
418,156
961,876
1,780,898
1,560,402
16,436
30,000
350,336
846,151
1,622,462
1,449,121
23,419
Ì
Stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
246,011
214,787
179,109
156,652
135,877
Common Stock Data
Shares of common stock outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
8,978,869
9,074,365
9,033,583
8,988,760
8,941,743
Book value per shareÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
27.40
$
23.67
$
19.83
$
17.43
$
15.20
ProÑtability Ratios
Return on average assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1.82%
1.81%
1.63%
1.44%
1.29%
Return on average stockholders' equityÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Dividend payout ratio ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Average equity to average assets ratioÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
EÇciency ratio ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
18.36
21.23
9.03
37.20
20.09
20.66
9.03
37.33
18.31
23.95
8.89
35.84
17.00
25.55
8.47
40.51
15.63
27.65
8.25
45.20
(1) Includes the operating results and the selected assets and assumed deposits and liabilities of Golden City
Commercial Bank subsequent to the December 10, 1999, their acquisition date.
(2) Net loans represents gross loans net of loan participations sold, allowance for loan losses and unamortized
deferred loan fees.
22
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
General
The following discussion is intended to provide information to facilitate the understanding and assessment
of the consolidated Ñnancial condition of Cathay Bancorp, Inc. (""Bancorp'') and its subsidiary Cathay Bank
(the ""Bank'' and together the ""Company,'' ""we,'' ""us,'' or ""our'') and their consolidated results of operations.
It should be read in conjunction with the audited consolidated Ñnancial statements and footnotes appearing
elsewhere in this report. Cathay Bank oÅers a wide range of Ñnancial services. Cathay Bank now operates
twelve branches in Southern California, seven branches in Northern California, two branches in New York
State, one branch in Houston, Texas, and two overseas oÇces (one in Taiwan and one in Hong Kong). The
Bank is a commercial bank, servicing primarily the individuals, professionals, and small to medium-sized
businesses in the local markets in which its branches are located. The Bank has obtained regulatory approval
to open a new branch in Brooklyn, New York, and has applied for regulatory approval to open a new branch in
Sacramento, California. We expect to open both branches for business in the early part of the second quarter
2002. In addition, with China's accession into the World Trade Organization and its increasing importance in
the world economy, we decided to open our third overseas oÇce, in Shanghai, China. The People's Bank of
China has approved our application, and we expect this oÇce to be open in the second quarter 2002.
The following discussion and other sections of this report, include forward-looking statements regarding
management's beliefs, projections, and assumptions concerning future results and events. These forward-
looking statements may, but do not necessarily, also include words such as ""believes,'' ""expects'', ""antici-
pates'', ""intends'', ""plans'', ""estimates'' or similar expressions. Forward-looking statements are not guarantees.
They involve known and unknown risks, uncertainties and other factors that may cause the actual results,
performance or achievements to be materially diÅerent from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include, among other things, adverse
developments, or conditions related to or arising from:
‚ Our expansion into new market areas.
‚ Fluctuations in interest rates.
‚ Demographic changes.
‚ Increases in competition.
‚ Deterioration in asset or credit quality.
‚ Changes in the availability of capital.
‚ Adverse regulatory developments.
‚ Changes in business strategy or development plans, including plans regarding the registered investment
company.
‚ General economic or business conditions.
‚ Other factors discussed in the section entitled ""Factors that May AÅect Future Results'' later in this
report.
Actual results in any future period may also vary from the past results discussed in this report. Given
these risks and uncertainties, we caution readers not to place undue reliance on any forward-looking
statements, which speak as of the date hereof. We have no intention and undertake no obligation to update any
forward-looking statement or to publicly announce the results of any revision of any forward-looking statement
to reÖect future developments or events.
The Ñnancial information presented herein includes the accounts of the Corporation, the Bank, and the
Bank's wholly owned subsidiaries. All material transactions between these entities are eliminated.
23
Results of Operations
Consolidated net income for the year 2001 was $42.62 million or $4.69 per diluted share, a 10.45%
increase in net income compared to net income of $38.59 million or $4.25 per diluted share for 2000, and an
increase of 40.70% in net income, when compared to net income of $30.29 million or $3.36 per diluted share
for 1999.
The return on average assets and return on average stockholders' equity are presented below for the three
years indicated:
2001
2000
1999
Return on average assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Return on average stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1.82% 1.81% 1.63%
18.36% 20.09% 18.31%
Year 2001
Interest Income
Interest income decreased $5.20 million or 3.16% to $159.35 million in 2001, largely as a result of actions
taken by the Federal Open Market Committee (""FOMC''), which lowered the target Federal funds rate by
475 basis points during the year. The $5.20 million decrease in interest income was due to a combination of
the following:
‚ Increase in volume: Average interest-earning assets increased $239.83 million, to $2.17 billion at
December 31, 2001, an increase of 12.45% over interest-earning assets of $1.93 billion at December 31,
2000. The increase in volume was primarily attributable to the increase in average net loans of
$206.37 million, which contributed an additional $18.12 million to interest income.
‚ Decrease in rate: The non-taxable-equivalent yield on interest-earning assets decreased 118 basis
points from 8.54% in 2000 to 7.36% in 2001. As a result of this lower interest rate environment, the
interest yield earned on average net loans decreased 168 basis points from 9.62% to 7.94%, decreasing
interest income on net loans by $23.86 million. The decrease in yield of average interest-earning assets
was primarily due to eleven consecutive drops in interest rates by the FOMC.
‚ A change in the mix of interest earning assets: Average net loans of $1.52 billion, which yield higher
than other types of investments, increased by $206.37 million in 2001 and comprised 70.14% of total
average interest-bearing assets compared to 68.16% in 2000. Conversely, total average securities
declined by $9.97 million and comprised 28.21% of total average interest-earning assets in 2001
compared to 31.21% in 2000.
‚ The taxable-equivalent yield on earning assets was 7.45% in 2001 compared to 8.63% in 2000.
Interest Expense
Interest expense decreased by $8.00 million to $66.15 million in 2001 compared to $74.16 million in
2000, primarily due to a combination of the following:
‚ Increase in volume: Average interest-bearing liabilities increased $149.05 million in 2001, and added
$6.76 million of additional interest expense in 2001.
‚ Decrease in rate: As a result of the lower interest rate environment during 2001, the average cost of
interest-bearing liabilities decreased 79 basis points to 3.60% in 2001 compared to 4.39% in 2000,
decreasing interest expense by $14.76 million. The average cost of funds on deposits and borrowings,
which includes non-interest-bearing demand deposits, decreased by 70 basis points to 3.20% in 2001
compared to 3.90% in 2000.
‚ A change in the mix of deposits and borrowings: Average time deposits of $1.29 billion increased by
$169.62 million and comprised 62.21% of total deposits and borrowings in 2001 compared to 58.74% of
total deposits and borrowings in 2000. Other borrowed funds decreased by $41.22 million to
24
$3.08 million in 2001. Average savings deposits, which include savings accounts, NOW accounts and
money market accounts increased by $33.25 million to $496.94 million in 2001, average non-interest-
bearing demand deposits increased by $17.62 million to $229.59 million in 2001 compared to
$211.98 million in 2000, and securities sold under agreements to repurchase decreased by $7.49 million
to $32.34 million in 2001.
Taxable-equivalent Net Interest Margin
‚ As a result of the eleven consecutive drops in interest rates during 2001, the taxable-equivalent net
interest margin, deÑned as taxable-equivalent net interest income to average interest-earning assets,
decreased 38 basis points from 4.78% in 2000 to 4.40% in 2001. The Company was asset sensitive in the
short-term scenario, which resulted in lower yielding assets and lagging time deposits in 2001.
Year 2000
Interest Income
Interest income increased $31.51 million or 23.68% to $164.55 million in 2000 primarily due to an
increase of $32.56 million from interest income on loans to $126.34 million. The $31.51 million increase in
interest income was attributable to the following:
‚ Increase in volume: the increase of $224.60 million or 20.63% in average net loans from $1.09 billion in
1999 to $1.31 billion in 2000 contributed an additional $20.76 million to interest income. The increase
in average loans were funded primarily by growth in deposits, and secondarily by Federal funds
purchased and securities sold under agreements to repurchase, and proceeds from matured securities.
‚ Increase in rate: the increase of 101 basis points in average loan yield from 8.61% to 9.62% contributed
$11.80 million to interest income. The increase in average loan yield was mainly a result of six
consecutive interest rate increases by the Federal Reserve Board from the third quarter of 1999 to the
second quarter of 2000, which led to a 124 basis point increase in our average reference rate from
8.24% to 9.48%. A majority of the Bank's loans reprice immediately.
‚ A change in the mix of interest-earning assets: as loan demand remained strong in 2000, average net
loans, which yield higher than other types of investments, rose from 62.10% to 68.16% as a percentage
of total interest-earning assets. Conversely, total average securities declined from 35.71% to 31.21%
and average Federal funds sold and securities purchased under agreements to resell decreased from
2.17% to 0.57%.
‚ Consequently, the average taxable-equivalent yield on interest-earning assets increased 95 basis points
from 7.68% to 8.63%.
Interest Expense
Interest expense increased $16.75 million or 29.17% to $74.16 million, which was primarily attributable to
an increase of $13.23 million in interest expense on time deposits.
‚ Increase in volume: Average time deposits grew $115.47 million or 11.53% to $1.12 billion, of which,
$78.3 million were from time deposits over $100,000. The increase in average time deposits added
$5.77 million to interest expense.
‚ Increase in rate: The increase of 70 basis points in average rate on time deposits from 4.69% to 5.39%
added $7.47 million to interest expense. This was primarily due to the repricing of time deposits in
response to the market rate changes. Interest expense on Federal funds purchased and securities sold
under agreements to repurchase decreased $651,000 in 2000 as the average volume decreased
$15.66 million and the average rate climbed 32 basis points from 4.99% to 5.31%.
‚ Accordingly, the average cost of funds, which includes non-interest-bearing demand deposits, in-
creased 49 basis points from 3.41% in 1999 to 3.90% in 2000.
25
Taxable-equivalent Net Interest Income
‚ As a result of the factors noted above, the taxable-equivalent net interest margin increased 37 basis
points from 4.41% in 1999 to 4.78% in 2000.
Net interest income before provision for loan losses for 2001, 2000, and 1999 are summarized below:
Net interest income before provision for loan lossesÏÏÏÏÏÏÏÏÏÏÏÏ
Taxable-equivalent net interest income before provision for loan
2001
$93,199
2000
(In thousands)
$90,397
1999
$75,638
losses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$95,250
$92,132
$77,301
Taxable-Equivalent Net Interest Income Ì Changes Due to Rate and Volume(1)
2001-2000
Increase Decrease in
Net Interest Income Due to:
Changes in
Rate
Changes in
Volume
Total
Change
2000-1999
Increase Decrease in
Net Interest Income Due to:
Changes in
Rate
Changes in
Volume
Total
Change
Interest-Earning Assets
Federal funds sold and securities
purchased under agreements to
resell ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Securities available-for-sale
(In thousands)
$
938
$
(308)
$
630
$(1,584)
$
389
$(1,195)
(Taxable) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(12)
(487)
(499)
Securities available-for-sale
(Nontaxable)(2) ÏÏÏÏÏÏÏÏÏÏÏ
14
Securities held-to-maturity
(Taxable) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(371)
(3)
34
598
14
2,085
2,683
1
15
11
(337)
(2,985)
150
(2,835)
Securities held-to-maturity
(Nontaxable)(2) ÏÏÏÏÏÏÏÏÏÏÏ
Agency preferred stock(2)ÏÏÏÏÏÏ
Deposits with other banks ÏÏÏÏÏÏ
Loans(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total increase (decrease) in
(29)
1,169
45
18,119
(7)
(93)
(29)
(23,865)
(36)
1,076
16
(5,746)
60
314
23
20,756
(47)
Ì
4
11,801
13
314
27
32,557
interest income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
19,873
(24,758)
(4,885)
17,196
14,383
31,579
Interest-Bearing Liabilities
Savings deposits, NOW
accounts, and others ÏÏÏÏÏÏÏÏÏ
Time deposits ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Securities sold under agreements
to repurchase ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other borrowed fundsÏÏÏÏÏÏÏÏÏÏ
Advances from Federal Home
Loan Bank ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Mortgage indebtedness ÏÏÏÏÏÏÏÏÏ
Total increase (decrease) in
524
8,441
(2,700)
(10,346)
(2,176)
(1,905)
(564)
(1,379)
(423)
(1,361)
(987)
(2,740)
(251)
(14)
70
Ì
(181)
(14)
606
5,766
(820)
2,874
(251)
(3)
943
7,468
169
Ì
3
(7)
1,549
13,234
(651)
2,874
(248)
(10)
interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
6,757
(14,760)
(8,003)
8,172
8,576
16,748
Changes in net interest income ÏÏÏÏ
$13,116
$ (9,998)
$ 3,118
$ 9,024
$ 5,807
$14,831
26
(1) Changes in interest income and interest expense attributable to changes in both volume and rate have
been allocated proportionately to changes due to volume and changes due to rate.
(2) The amount of interest earned on certain securities of states and political subdivisions and other securities
held have been adjusted to a fully taxable-equivalent basis, using eÅective federal income tax rate of 35%.
(3) Amounts are net of allowance for loan losses of $23,973,000 in 2001, $21,967,000 in 2000, and
$19,502,000 in 1999, and net of unamortized deferred loan fees of $3,900,000 in 2001, $4,139,000 in 2000,
and $3,593,000 in 1999.
Interest-Earning Asset Mix
As of December 31, 2001
As of December 31, 2000
Percentage of
Total Interest-
Earning
Assets
Amount
Percentage of
Total Interest-
Earning
Assets
Amount
(Dollars in thousands)
Amount
Changed
From
2000 to 2001
Percentage
Changed
From
2000 to 2001
Types of Interest-
Earning Assets
Federal funds sold
and securities
purchased under
agreements to
resell ÏÏÏÏÏÏÏÏÏÏÏ
Securities available-
$
13,000
0.57%
$
19,000
0.94%
$ (6,000)
(31.58%)
for-saleÏÏÏÏÏÏÏÏÏÏ
248,958
10.93
177,796
8.79
71,162
40.02
Securities held-to-
maturityÏÏÏÏÏÏÏÏÏ
374,356
16.44
387,200
19.15
(12,844)
(3.32)
Deposits with other
banks ÏÏÏÏÏÏÏÏÏÏÏ
Loans (net of
allowance for loans
losses and
unamortized
deferred loan fees)
Total interest-earning
assets ÏÏÏÏÏÏÏÏÏÏÏ
1,399
0.06
899
0.04
500
55.62
1,640,032
72.00
1,437,307
71.08
202,725
14.10
$2,277,745
100.00%
$2,022,202
100.00%
$255,543
12.64%
27
The following table sets forth information concerning average interest-earning assets, average interest-
bearing liabilities, and the yields and rates paid on those assets and liabilities. Average outstanding amounts
included in the table are daily averages.
Interest-Earning Assets and Interest-Bearing Liabilities
2001
Years Ended December 31,
2000
(Dollars in thousands)
1999
Interest-Earnings Assets
Federal Funds Sold and Securities Purchased Under Agreements
to Resell
Average outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Average yield ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amount of interest earned ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
$
32,397
4.06%
1,316
$
$
11,053
6.21%
686
$
$
38,013
4.95%
1,881
Securities Available-for-Sale, Taxable
Average outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Average yield ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amount of interest earned ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Securities Available-for-Sale, Nontaxable
Average outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Average yield(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amount of interest earned ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Securities Held-to-Maturity, Taxable
Average outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Average yield ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amount of interest earned ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Securities Held-to-Maturity, Nontaxable
Average outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Average yield(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amount of interest earned ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Agency Preferred Stock
Average outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Average yield(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amount of interest earned ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deposits with Other Banks
Average outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Average yield ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amount of interest earned ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Loans(1)
Average outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Average yield(5) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amount of interest earned(5) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total Interest-Earning Assets
Average outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Average yield(5) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amount of interest earned(5) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 196,934
$ 197,004
$ 178,188
6.46%
12,717
693
7.65%
53
$
$
$
6.71%
13,216
510
8.24%
42
$
$
$
5.91%
10,533
345
7.83%
27
$
$
$
$ 324,760
$ 330,841
$ 378,753
6.21%
20,167
69,096
7.40%
5,113
19,722
7.05%
1,390
3,264
1.72%
56
$
$
$
$
$
$
$
6.20%
20,504
69,478
7.41%
5,149
3,398
9.24%
314
1,124
3.56%
40
$
$
$
$
$
$
$
6.16%
23,339
68,702
7.48%
5,136
Ì
Ì
Ì
459
2.83%
13
$
$
$
$
$
$
$
$1,519,548
$1,313,177
$1,088,578
7.94%
9.62%
8.61%
$ 120,591
$ 126,337
$
93,780
$2,166,414
$1,926,585
$1,753,038
7.45%
8.63%
7.68%
$ 161,403
$ 166,288
$ 134,709
28
Interest-Bearing Liabilities
Savings Deposits(3)
Average outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Average rate paidÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amount of interest paid or accrued ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Time Deposits
Average outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Average rate paidÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amount of interest paid or accrued ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Securities Sold Under Agreements to Repurchase
Average outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Average rate paidÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amount of interest paid or accrued ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Borrowed Funds
Average outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Average rate paidÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amount of interest paid or accrued ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Advances from Federal Home Loan Bank
Average outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Average rate paidÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amount of interest paid or accrued ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Mortgage Indebtedness
Average outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Average rate paid(6)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amount of interest paid or accrued(6) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total Interest-Bearing Liabilities
Average outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Average rate paidÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amount of interest paid or accrued ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-Interest-Bearing Demand Deposits
Average outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total deposits and borrowed fundsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Average rate paid on deposits and borrowed funds ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net Interest Income(7)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest rate spread(7) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net interest margin on interest-earning assets(4)(7) ÏÏÏÏÏÏÏÏÏÏÏ
2001
Years Ended December 31,
2000
(Dollars in thousands)
1999
$ 496,942
$ 463,695
$ 424,500
1.12%
5,585
$
1.67%
7,761
$
1.46%
6,212
$
$1,286,973
$1,117,350
$1,001,878
4.53%
58,279
32,342
3.49%
1,128
3,075
4.42%
136
19,863
5.16%
1,025
$
$
$
$
$
$
$
5.39%
60,184
39,831
5.31%
2,115
44,297
6.49%
2,876
24,809
4.86%
1,206
Ì $
Ì
Ì $
160
8.75%
14
$
$
$
$
$
$
$
$
$
4.69%
46,950
55,486
4.99%
2,766
33
6.06%
2
30,000
4.85%
1,454
183
13.11%
24
$
$
$
$
$
$
$
$
$
$1,839,195
$1,690,142
$1,512,080
3.60%
4.39%
3.80%
$
66,153
$
74,156
$
57,408
$ 229,592
$2,068,787
$ 211,975
$1,902,117
$ 169,013
$1,681,093
3.20%
3.90%
3.41%
$
95,250
$
92,132
$
77,301
4.25%
4.40%
4.73%
4.78%
4.27%
4.41%
(1) Nonaccrual loans are included in the average balance.
(2) The average yield has been adjusted to a fully taxable-equivalent basis for certain securities of states and
political subdivisions and other securities held using an eÅective Federal income tax rate of 35%.
(3) Savings deposits include NOW accounts and money market accounts.
(4) Calculated by dividing net interest income by average outstanding interest-earning assets.
(5) Yields and amounts of interest earned include loan fees.
29
(6) Yield and amount of interest paid or accrued include interest paid on senior debts of other real estate
owned, either to bring the loans current or to pay oÅ the loans when the Company obtained title to the
properties and thereafter.
(7) Net interest income, interest rate spread and net interest margin on interest-earning assets have been
adjusted to a fully taxable-equivalent basis using an eÅective Federal income tax rate of 35%.
Provision for Loan Losses
The provision for loan losses was $6.37 million in 2001 compared to $4.20 million in 2000 and in 1999.
Due to the current recessionary environment, management believes the increase is prudent to cover additional
inherent risk resulting from the overall increase of our loan portfolio, and the impact of a weaker economy.
Management continues to recognize these pressures and is committed to maintaining an adequate allowance
for loan losses. Net charge-oÅs for 2001 were $4.37 million or 0.29% of average net loans compared to charge-
oÅs of $1.74 million or 0.13% of average net loans during 2000, and charge-oÅs of $668,000 or 0.06% of
average net loans during 1999. Also see ""Allowance for Loan Losses'' on this 2001 Annual Report on
Form 10-K.
Non-interest Income
Non-interest income totaled $14.78 million in 2001, $12.76 million in 2000, and $8.86 million in 1999.
The increase of $2.02 million or 15.86% from 2000 to 2001, was primarily due to the following items:
‚ An increase of $539,000 in depository service fee income, up 11.83%, to $5.10 million compared to
$4.56 million in 2000.
‚ An increase of $1.07 million in securities gains. The increase was the result of a gain of $1.06 million
on investment securities sold during the third quarter 2001. These securities were sold during the third
quarter 2001 and were either callable or scheduled to mature within the 21 months following the end of
the third quarter 2001. In addition, we had a gain of $851,000 on a forward rate agreement
(""FRA'').The FRA settled on March 5, 2001.
‚ Letters of credit commissions decreased by $287,000 or 11.77%, to $2.15 million in 2001, as a result of
a slowdown of overseas purchases from some of our importing customers.
‚ Other operating income, which includes primarily loan fees, wire transfer fees, safe deposit fees, and
foreign exchange fees were $5.37 million, up $699,000, compared to $4.67 million in 2000.
The increase of $3.90 million or 44.05% from 1999 to 2000, was the result of the following items:
‚ Recognition of $1.10 million premium on a FRA contract as of December 31, 2000 under securities
gains. The FRA contract was entered into on August 31, 2000 and settled on March 5, 2001, at which
time the Company recognized an additional premium in 2001.
‚ Fee income from wire transfers increased $1.08 million due to increased transaction volume, primarily
from our New York branches.
‚ Other notable increases in non-interest income items included, among others, safe deposit box income,
fees income related to loans, letters of credit commissions and fee income from Cathay Global
Investment Services' alternative investment program.
Non-interest Expense
Non-interest expense totaled $40.17 million in 2001, compared to $38.50 million in 2000, and
$30.28 million in 1999. The increase of $1.66 million or 4.31% in non-interest expense in 2001, was primarily a
combination of the following:
‚ an increase of $954,000 in salaries and employee beneÑts. Primarily due to annual salary adjustments
for the Bank's employees.
30
‚ an increase of $277,000 in marketing expenses. Primarily due to a $250,000 donation towards the
establishment of the 911 Healing Hands non-proÑt organization and fund to help with relief eÅorts in
response to the terrible events of September 11, 2001.
‚ an increase of $1.77 million in professional services. Primarily due to legal fees in connection with
litigation and corporate matters.
‚ an increase of $1.57 million in investments in real estate. Primarily due to operational losses from low
income housing investments that qualify for investments tax credits.
‚ a decrease of $3.40 million in real estate operations. Primarily due to a $3.38 million gain on the sale of
other real estate owned (""OREO'').
The eÇciency ratio, deÑned as non-interest expense divided by net interest income before provision for
loan losses plus non-interest income, decreased to 37.20% in 2001 compared with 37.33% in 2000. The
decrease in the eÇciency ratio for 2001 was primarily the result of the increase in our net interest income
before provision for loan losses, coupled with the increase in non-interest income.
Non-interest expense amounted to $38.50 million in 2000, compared to $30.28 million in 1999. The
$8.22 million or 27.15% increase in 2000 non-interest expense was substantially attributable to the operations
of the two new New York branches acquired in December 1999, and the new Diamond Bar branch, which
opened for business in January 2000. Other signiÑcant items are discussed below:
‚ an increase of $3.59 million in salaries and employee beneÑts. In addition to the payroll expense for the
three new branches mentioned above and annual salary adjustments for employees, the Bank incurred
higher year-end bonus expense of $670,000 in 2000.
‚ an increase of $1.23 million in net other real estate owned (""OREO'') expense. The Bank recorded
$1.55 million in net gains on sales of OREO properties in 1999 versus $263,000 in net gains on sales of
OREO in 2000.
‚ an increase of $1.08 million in other operating expense. Other operating expense includes primarily
operating supplies, communications, postage, travel, administrative, amortization of goodwill and
general insurance expenses. The increase in these expenses was partially related to the operations of the
three new branches mentioned above.
‚ an increase of $757,000 in operations of investments in real estate. This was due to higher expense in
operations of investments in real estate arising from passive operation losses on low income housing.
‚ an increase of $460,000 in professional services expense. Professional services expense consists of,
among other things, bank paid appraisal fees, delivery service, armored service, legal fees, accounting
and tax fees, consulting fees, computer related expense and facility management expense.
Due to the foregoing, the eÇciency ratio, deÑned as non-interest expense divided by net interest income
before provision for loan losses plus non-interest income, increased to 37.33% in 2000 compared with 35.84%
in 1999.
Income Tax Expense
The eÅective tax rate in 2001 was 30.63% compared to 36.17% in 2000, and 39.43% in 1999. The decline
in the eÅective tax rate in 2001 was the result of a registered investment company subsidiary of the Bank,
which provides Öexibility to raise additional capital in a tax eÇcient manner, and additional tax credits earned
from qualiÑed low income housing investments. The long-term plan for the registered investment company is
currently under review. Depending on the results of the review and other factors, the eÅective tax rate for 2002
may change. There can be no assurance that the subsidiary will continue as a registered investment company,
or that any past tax beneÑts will continue, or as to our ability to raise capital through this subsidiary. In
addition, a proposed change to California's tax law introduced on February 21, 2002, related to registered
investment companies could negatively impact the Company's eÅective tax rates in future periods. See
discussion below under the heading ""Adverse EÅects of Changes in California Tax Law Could Cause Us to
31
Incur Losses'' in the section entitled ""Factors That May AÅect Future Results'' of this Annual Report on
Form 10-K.
Review of Financial Condition
The Company's total assets increased by $246.28 million, up 11.16%, to $2.45 billion at December 31,
2001, compared to $2.21 billion at December 31, 2000. During 2001, we continued our growth. The major
changes in the Statement of Financial Condition during 2001 are listed below:
‚ Total net loans grew 14.10% to $1.64 billion.
‚ Securities available-for-sale increased 40.02% to $248.96 million.
‚ Securities held-to-maturity decreased 3.32% to $374.36 million.
‚ Total deposits increased 13.10% to $2.12 billion.
‚ Federal funds purchased & securities sold under agreements to repurchase decreased 67.56% to
$22.11 million.
‚ Stockholders' equity rose 14.54% to $246.01 million.
Securities
Under our investment policy, we classify the Company's investment securities portfolio as follows:
‚ Those securities, which we have the positive intent and ability to hold until maturity, are classiÑed as
securities held-to-maturity, and carried at amortized cost.
‚ Those securities which could be sold in response to changes in interest rates, changes in prepayment
risk, increases in loan demand, the need to increase regulatory capital, general liquidity needs, or other
similar factors are classiÑed as securities available-for-sale, and carried at estimated fair value, with
unrealized gains or losses, net of deferred taxes, reÖected in stockholders' equity.
‚ Securities held-to-maturity are transferred to the available-for-sale category when those securities are
within 90 days to maturity, to further enhance the Company's liquidity.
Securities available-for-sale increased $71.16 million or 40.02% to $248.96 million at year-end 2001 from
$177.77 million at year-end 2000. The portfolio is comprised primarily of US Government Agency securities,
corporate bonds, and trust preferred equity securities. Securities available-for-sale are carried at fair value and
had a net unrealized gain of $7.17 million at December 31, 2001 compared to $3.96 million at December 31,
2000. The increase in unrealized holding gains at year-end 2001 resulted from the decreasing interest rate
environment during 2001. See Note 4 to the Consolidated Statements of Financial Condition. These
unrealized gains do not impact net income and are recorded as adjustments to stockholders' equity, net of
related deferred income taxes.
Securities held-to-maturity decreased $12.84 million or 3.32% to $374.36 million at year-end 2001 from
$387.20 million at year-end 2000. The portfolio is comprised primarily of US agencies mortgage-backed-
securities, corporate bonds, state and municipal securities, US Government Agency securities, and collater-
ized mortgage obligations. Securities held-to-maturity is carried at cost and at December 31, 2001 had a fair
value of $382.81 million.
The average taxable-equivalent yield on our total investment securities dropped 7 basis points to 6.45% in
2001, compared to 6.52% in 2000 as some matured securities were replaced at lower prevailing interest rates.
32
The following table summarizes the carrying value of our portfolio of securities for each of the past three
years:
2001
As of December 31,
2000
(In thousands)
1999
Securities Available-for-Sale:
U.S. Treasury securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
U.S. government agencies ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State and municipal securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Mortgage-backed securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Collateralized mortgage obligations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Asset-backed securitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Money market fund ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Commercial paperÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Corporate bonds ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Equity stockÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
Ì $
Ì $
118,324
Ì
8,543
2,705
10,395
20,000
Ì
60,334
28,657
78,317
1,277
13,207
5,804
10,370
Ì
Ì
60,370
8,451
25
40,218
540
14,634
7,823
16,448
Ì
40,076
34,376
Ì
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$248,958
$177,796
$154,140
Securities Held-to-Maturity
U.S. Treasury securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
U.S. government agencies ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State and municipal securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Mortgage-backed securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Collateralized mortgage obligations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Asset-backed securitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Corporate bonds ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
Ì $
50,017
69,906
110,342
50,282
920
73,031
19,858
Ì $ 24,998
64,373
68,834
133,282
63,397
19,999
51,449
Ì
64,689
68,820
135,494
48,694
13,156
56,347
Ì
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$374,356
$387,200
$426,332
33
The scheduled maturities and taxable-equivalent yields by security type are presented in the following
tables:
Securities Available-for-Sale Portfolio Maturity Distribution and Yield Analysis:
One Year
or Less
After One
Year to
Five Years
As of December 31, 2001
After Five
Years to
Ten Years
(Dollars in thousands)
Over Ten
Years
Total
Maturity Distribution:
U.S. government agencies ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Mortgage-backed securities(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Collateralized mortgage obligations(1) ÏÏÏÏÏÏÏ
Asset-backed securities(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Money market fund ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Corporate bonds ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Equity securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ Ì $45,762
270
Ì
10,395
Ì
37,551
Ì
Ì
Ì
Ì
20,000
12,067
28,657
$72,562
1,293
1,498
Ì
Ì
10,716
Ì
$ Ì $118,324
8,543
2,705
10,395
20,000
60,334
28,657
6,980
1,207
Ì
Ì
Ì
Ì
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$60,724
$93,978
$86,069
$8,187
$248,958
Weighted-Average Yield:
U.S. government agencies ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Mortgage-backed securities(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Collateralized mortgage obligations(1) ÏÏÏÏÏÏÏ
Asset-backed securities(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Money market fund ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Corporate bonds ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Equity securities(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ì%
Ì
Ì
Ì
2.02
6.18
5.10
4.25%
4.94%
5.94
Ì
5.70
Ì
6.83
Ì
5.77%
6.96%
6.57
5.92
Ì
Ì
7.17
Ì
6.96%
Ì%
7.14
6.01
Ì
Ì
Ì
Ì
6.97%
6.16%
7.02
5.96
5.70
2.02
6.75
5.10
5.85%
(1) Securities reÖect stated maturities and not anticipated prepayments.
(2) Average yield has been adjusted to a fully-taxable equivalent basis.
34
Securities Held-to-Maturity Portfolio Maturity Distribution and Yield Analysis
One Year
or Less
After One
Year to
Five Years
As of December 31, 2001
After Five
Years to
Ten Years
(Dollars in thousands)
Over Ten
Years
Total
Maturity Distribution:
U.S. government agencies ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State and municipal securities(2)ÏÏÏÏÏÏÏÏÏÏÏ
Mortgage-backed securities(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Collateralized mortgage obligations(1) ÏÏÏÏÏÏ
Asset-backed securities(1)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Corporate bonds ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$10,020
850
5
Ì
Ì
Ì
Ì
$ 39,997
10,514
13,235
Ì
920
51,946
9,974
$
Ì $ Ì $ 50,017
69,906
110,342
50,282
920
73,031
19,858
37,114
38,540
18,369
Ì
Ì
Ì
21,428
58,562
31,913
Ì
21,085
9,884
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$10,875
$126,586
$142,872
$94,023
$374,356
Weighted-Average Yield:
U.S. government agencies ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State and municipal securities(2)ÏÏÏÏÏÏÏÏÏÏÏ
Mortgage-backed securities(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Collateralized mortgage obligations(1) ÏÏÏÏÏÏ
Asset-backed securities(1)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Corporate bonds ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
5.31%
7.28
5.76
Ì
Ì
Ì
Ì
5.47%
5.88%
8.48
5.55
Ì
5.63
5.91
4.86
5.99%
Ì%
Ì%
7.87
6.10
6.33
Ì
6.71
5.71
6.77
7.08
5.34
Ì
Ì
Ì
6.48%
6.62%
5.77%
7.37
6.38
5.97
5.63
6.13
5.29
6.32%
(1) Securities reÖect stated maturities and not anticipated prepayments.
(2) Average yield has been adjusted to a fully-taxable equivalent basis.
Loans
Our Board of Directors establishes the basic lending policy for the Bank. Each loan is generally
considered in terms of, among other things, character, repayment ability, Ñnancial condition of the borrower,
secondary repayment source, collateral, capital, leverage capacity of the borrower, market conditions for the
borrower's business or project, and prevailing economic trends and conditions. In case of real estate loans, our
lending policy requires an independent appraisal on real estate property in accordance with Regulatory
guidelines.
Gross loans increased by $204.49 million, up 13.97%, to $1.67 billion at year-end 2001 compared to
$1.46 billion at year-end 2000.
The growth was primarily attributable to the following:
‚ Commercial mortgage loans increased $107.72 million or 17.08% to $738.38 million at year-end 2001,
compared to $630.66 million at year-end 2000. Total commercial mortgage loans accounted for 44.27%
of gross loans at year-end 2001 compared to 43.10% at year-end 2000. These loans are typically secured
by Ñrst deeds of trust of the respective commercial properties, including primarily commercial retail
properties, shopping center and owner-occupied industrial facilities, and secondarily oÇce buildings,
multiple-unit apartments, hotels, and motels. The Company's underwriting policy for commercial
mortgage loans generally requires that the loan-to-value ratio at the time of origination not exceed
70 percent of the appraised value of the property, and that there be an adequate debt service coverage
ratio, typically exceeding 1.25:1. In view of the recent general economic slowdown, management has
35
tightened the lending standards for commercial mortgage loans as well as construction loans to be more
conservative.
‚ Commercial loans were up $63.95 million or 14.46% to $506.13 million at December 31, 2001,
compared to $442.18 at December 31, 2000. The Company is continuing to focus primarily on
commercial lending to small-to-medium size businesses, within the Company's geographic market
area. The purpose of these loans is for general business purposes, or to provide working capital to
business in the form of lines of credit to Ñnance trade-Ñnance loans. General business loans are made
based on the Ñnancial strength of the borrowers. Trade-Ñnance loans are typically secured by the
borrower's accounts receivables and inventories.
‚ Real estate construction loans increased $24.37 million or 17.16% to $166.42 million at year-end 2001
compared to $142.05 million at year-end 2000. Our construction loan projects are located primarily in
California, Texas, Nevada, and New York. The construction loan projects in California totaled
$192.87 million, of which $145.27 had been disbursed at December 31, 2001. The construction loan
projects in Texas, Nevada, and New York totaled approximately $32.08 million, of which $21.15 had
been disbursed at December 31, 2001. Despite the recessionary economy, projects requiring construc-
tion-Ñnancing still exhibit a strong demand, and we expect this trend to continue into 2002.
‚ Residential mortgage loans grew by $15.19 million or 6.88% to $235.91 million at year-end 2001,
compared to $220.72 million at year-end 2000. Included with our residential mortgage loans are our
home equity lines. At December 31, 2001, the portfolio of home equity lines was $40.35 million, up
19.41%, from $33.79 million at year-end 2000. The growth in residential mortgage loans in 2001 was
largely due to reÑnances, which accounted for 70.97% of residential mortgage loan fundings.
‚ Installment loans decreased $7.01 million, down 25.64% to $20.32 million at December 31, 2001,
compared to $27.33 million at December 31, 2000. These consumer-oriented loans are funded
primarily for the purpose of Ñnancing the purchase of automobiles, recreational vehicles, boats, and
other personal use of the borrower.
The classiÑcation of loans by type as of December 31 for each of the past Ñve years, as well as the
changes in loan portfolio composition for the past two years and the contractual maturity of the loan portfolio
as of December 31, 2001 are presented below:
Loan Type and Mix
2001
Amount Outstanding as of December 31,
1998
1999
2000
1997
(In thousands)
Type of Loans:
Commercial loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Residential mortgage loans ÏÏÏÏÏÏÏÏÏÏÏÏ
Commercial mortgage loans ÏÏÏÏÏÏÏÏÏÏÏ
Real estate construction loans ÏÏÏÏÏÏÏÏÏ
Installment loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 506,128
235,914
738,379
166,417
20,322
745
$ 442,181
220,720
630,662
142,048
27,329
473
$ 395,138
207,725
577,384
62,516
25,498
419
$370,539
184,158
356,608
40,738
29,165
269
$338,285
154,692
303,725
41,736
26,611
267
Gross loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,667,905
1,463,413
1,268,680
981,477
865,316
Less:
Allowance for loan losses ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unamortized deferred loan fees ÏÏÏÏÏÏÏÏ
(23,973)
(3,900)
(21,967)
(4,139)
(19,502)
(3,593)
(15,970)
(3,631)
(15,379)
(3,786)
Net loansÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1,640,032
$1,437,307
$1,245,585
$961,876
$846,151
36
Changes in Loan Portfolio Composition
As of December 31, 2001
As of December 31, 2000
Amount
Percentage
of Total
Loans
Amount
(Dollars in thousands)
Percentage
of Total
Loans
Percentage
Increase
(Decrease)
Type of Loans:
Commercial loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Residential mortgage loansÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Commercial mortgage loansÏÏÏÏÏÏÏÏÏÏÏÏÏ
Real estate construction loans ÏÏÏÏÏÏÏÏÏÏÏ
Installment loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other loansÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Allowance for loan losses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unamortized deferred loan fees ÏÏÏÏÏÏÏÏÏÏ
$ 506,128
235,914
738,379
166,417
20,322
745
(23,973)
(3,900)
30.86% $ 442,181
220,720
14.38
630,662
45.02
142,048
10.15
27,329
1.24
473
0.05
(21,967)
(1.46)
(4,139)
(0.24)
30.77%
15.36
43.88
9.88
1.90
0.03
(1.53)
(0.29)
14.46%
6.88
17.08
17.16
(25.64)
57.51
9.13
(5.77)
Net loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1,640,032
100.00% $1,437,307
100.00%
14.10%
Contractual Maturity of Loan Portfolio(1)(2)
Within One Year
One to Five Years
Over Five Years
Total
(In thousands)
$314,326
84,210
$ 58,309
19,851
$ 25,154
3,714
$ 397,789
107,775
Commercial Loans
Floating rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fixed rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Residential Mortgage Loans
Floating rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fixed rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Commercial Mortgage Loans
Floating rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fixed rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Real Estate Construction Loans
Floating rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fixed rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Installment Loans
Floating rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fixed rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Loans
Floating rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fixed rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
902
74,906
5,874
30,067
95,624
39
6,725
Ì
743
Total loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$613,416
Floating rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fixed rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$419,338
194,078
Total loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
613,416
Allowance for loan losses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
37
451
10,747
170,965
78,346
2,631
37,660
Ì
13,545
Ì
Ì
$392,505
$232,356
160,149
392,505
51,793
171,249
296,182
109,977
Ì
Ì
Ì
13
Ì
2
52,244
182,898
542,053
194,197
32,698
133,284
39
20,283
Ì
745
$658,084
$1,664,005
$373,129
284,955
$1,024,823
639,182
658,084
1,664,005
(23,973)
$1,640,032
(1) In the normal course of business, loans are renewed, extended, or prepaid from time to time; therefore,
the above should not be viewed as an indication of future cash Öows.
(2) Loans are net of unamortized deferred loan fees.
Risk Elements of the Loan Portfolio
Non-performing Assets
Non-performing assets include loans past due 90 days or more and still accruing interest, non-accrual
loans, and OREO. The Company's policy is to place loans on a non-accrual status if interest and principal or
either interest or principal is past due 90 days or more, or in cases where management deems the full collection
of principal and interest unlikely. After a loan is placed on non-accrual status, any interest accrued in the
previous three months, is generally reversed against current income. Thereafter, any payment is generally Ñrst
applied towards the principal balance. Depending on the circumstances management may elect to continue
the accrual of interest on certain past due loans if partial payment is received and/or the loan is well
collateralized and in the process of collection. The loan is generally returned to accrual status when the
borrower has brought the past due principal and interest payments current and, in the opinion of management,
the borrower has demonstrated the ability to make future payments of principal and interest as scheduled.
Management reviews the loan portfolio regularly for problem loans. During the ordinary course of
business, management becomes aware of borrowers that may not be able to meet the contractual requirements
of the loan agreements. Such loans are placed under closer supervision with consideration given to placing the
loan on non-accrual status, the need for an additional allowance for loan losses, and (if appropriate) partial or
full charge-oÅ.
Our non-performing assets decreased $10.98 million or 53.65% to $9.48 million at year-end 2001
compared to $20.46 million at year-end 2000. The decrease was due to a combination of the following:
‚ A increase of $100,000 in loans past due 90 days or more and still accruing interest
‚ An decrease of $7.46 million in non-accrual loans
‚ An decrease of $3.62 million in OREO.
As a percentage of gross loans plus OREO, our non-performing assets decreased to 0.57% at year-end
2001 from 1.39% at year-end 2000. The non-performing loan coverage ratio, deÑned as the allowance for loan
losses to non-performing loans, increased to 302.42% at year-end 2001, which was considerably higher than
that of 143.72% at year-end 2000. The increase was primarily due to the reduction of $7.46 million in the
non-accrual loans from $14.70 million in 2000 to $7.24 million in 2001.
38
The following table presents the breakdown of total non-accrual, past due, and restructured loans for the
past Ñve years:
Non-accrual, Past Due and Restructured Loans
Accruing loans past due 90 days or more ÏÏÏÏÏÏÏÏÏÏ
Non-accrual loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 689
7,238
$
589
14,696
2001
2000
1998
December 31,
1999
(Dollars in thousands)
$ 3,724
13,696
$ 4,683
13,090
Total non-performing loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
7,927
15,285
17,420
Real estate acquired in foreclosure ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,555
5,174
4,337
17,773
10,454
1997
$ 2,373
16,886
19,259
13,269
Total non-performing assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$9,482
$20,459
$21,757
$28,227
$32,528
Troubled debt restructurings(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-performing assets as a percentage of gross loans
and other real estate owned at year-endÏÏÏÏÏÏÏÏÏÏ
Allowance for loan losses as a percentage of
$4,474
$ 4,531
$ 4,581
$ 4,642
$ 4,874
0.57%
1.39%
1.71%
2.85%
3.70%
non-performing loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
302.42% 143.72% 111.95%
89.86%
79.85%
(1) Troubled debt restructurings are accruing interest at their restructured terms.
The eÅect of non-accrual loans and troubled debt restructurings on interest income for the years 2001,
2000, 1999, 1998, and 1997 is presented below:
2001
2000
1999
(In thousands)
1998
1997
Non-accrual Loans
Contractual interest due ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest recognizedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$823
96
$1,408
627
$1,396
234
$1,395
112
$1,845
471
Net interest foregone ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$727
$ 781
$1,162
$1,283
$1,374
Troubled Debt Restructurings
Contractual interest due ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest recognizedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$409
370
$ 422
407
$ 429
414
$ 421
412
$ 406
387
Net interest foregone ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 39
$
15
$
15
$
9
$
19
Non-accrual loans
Non-accrual loans were $7.24 million at year-end 2001 and $14.70 million at year-end 2000. They
consisted mainly of $4.85 million in commercial loans and $2.20 million in commercial mortgage loans at
year-end 2001, and $9.52 million in commercial loans and $4.85 million in commercial mortgage loans at
year-end 2000.
39
The following tables present the type of properties securing the loans and the type of businesses the
borrowers engaged in under commercial mortgage and commercial non-accrual loan categories as of the dates
indicated:
December 31, 2001
Commercial
Mortgage
Commercial
December 31, 2000
Commercial
Mortgage
Other
(In thousands)
Commercial
Other
Type of Collateral
Single/multi-family residenceÏÏÏÏÏÏ
Commercial real estate ÏÏÏÏÏÏÏÏÏÏÏ
Land ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
UCC ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unsecured ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 252
122
1,821
Ì
Ì
Ì
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$2,195
Type of Business
Real estate development ÏÏÏÏÏÏÏÏÏÏ
Wholesale/Retail ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Food/Restaurant ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Import ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
InvestmentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1,821
122
Ì
Ì
Ì
252
$ 266
839
Ì
3,647
Ì
102
$4,854
$
27
3,421
701
400
Ì
305
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$2,195
$4,854
Commercial mortgage non-accrual loans
$189
Ì
Ì
Ì
Ì
Ì
$189
$ Ì
Ì
Ì
Ì
Ì
189
$189
$ 174
2,277
2,403
Ì
Ì
Ì
$4,854
$2,648
174
Ì
Ì
2,032
Ì
$4,854
$ 531
1,139
Ì
7,083
540
231
$9,524
$ 166
4,798
2,005
2,092
Ì
463
$9,524
$252
Ì
Ì
Ì
59
7
$318
$ Ì
Ì
Ì
Ì
Ì
318
$318
‚ The balance of $1.82 million represented one credit secured by Ñrst trust deed on land.
‚ The remaining balance of $374,000 consisted of two credits secured by Ñrst trust deeds on a single-
family-residence and on one commercial property.
Commercial non-accrual loans
‚ The balance of $3.65 million comprised six credits secured by company assets, mainly accounts
receivables and inventories, through UCC-1 Ñlings.
‚ The balance of $1.20 million consisted of eight credits secured primarily by Ñrst trust deeds on single-
family-residences or commercial buildings and warehouses, and one unsecured credit.
Troubled debt restructurings
A troubled debt restructuring is a formal restructure of a loan when the lender, for economic or legal
reasons related to the borrower's Ñnancial diÇculties, grants a concession to the borrower. The concessions
may be granted in various forms, including reduction in the stated interest rate, reduction in the loan balance
or accrued interest, and extension of the maturity date.
Troubled debt restructurings decreased slightly to $4.47 million at December 31, 2001 compared to
$4.53 million at December 31, 2000. With the exception of one borrower with loans totaling $2.63 million,
which were 41 days past due, all other accruing troubled debt restructurings were performing under their
revised terms as of December 31, 2001.
40
Impaired loans
A loan is considered impaired when it is probable that a creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement based on current circumstances and events.
We consider all loans classiÑed and restructured in our evaluation of loan impairment. The classiÑed
loans are stratiÑed by size, and loans less than our deÑned selection criteria are treated as a homogeneous
portfolio. If loans meeting the deÑned criteria are not collateral dependent, we measure the impairment based
on the present value of the expected future cash Öows discounted at the loan's eÅective interest rate. If loans
meeting the deÑned criteria are collateral dependent, we measure the impairment by using the loan's
observable market price or the fair value of the collateral. If the measurement of the impaired loan is less than
the recorded amount of the loan, we then recognize impairment by creating or adjusting an existing valuation
allowance with a corresponding charge to the provision for loan losses.
We identiÑed impaired loans with a recorded investment of $19.35 million at year-end 2001, compared to
$27.82 million at year-end 2000. The average balance of impaired loans was $23.46 million in 2001 and $29.52
in 2000. Interest collected on impaired loans totaled $959,000 in 2001, and $2.12 million in 2000.
The following tables present a breakdown of impaired loans and the related allowances as of the dates
indicated:
At December 31, 2001
At December 31, 2000
Recorded
Investment
Allowance
Commercial ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Commercial mortgage ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 6,924
12,426
Ì
$2,143
1,764
Ì
Net
Balance
Recorded
Investment
(In thousands)
$ 4,781
10,662
Ì
$13,868
13,208
742
Allowance
Net
Balance
$3,682
1,881
133
$10,186
11,327
609
TotalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$19,350
$3,907
$15,443
$27,818
$5,696
$22,122
Loan Concentration
We experienced no loan concentrations to multiple borrowers in similar activities, which exceeded 10% of
total loans as of December 31, 2001.
See ""Factors That May AÅect Future Results'' below for a discussion of some of the factors that may
aÅect the matters discussed in this Section.
Allowance for Loan Losses
We have established a monitoring system for our loans in order to identify impaired loans, and potential
problem loans and to permit periodic evaluation of impairment and the adequacy of the allowance for loan
losses in a timely manner.
In addition, our Board of Directors has established a written loan policy that includes an eÅective loan
review and control system to ensure that the Bank maintains an adequate allowance for loan losses. The Board
of Directors provides oversight for the allowance evaluation process, including quarterly evaluations, and judge
that it is adequate to absorb estimated losses in the loan portfolio. The determination of the amounts of the
allowance for loan losses and the provision for loan losses is based on management's current judgment about
the credit quality of the loan portfolio and takes into consideration known relevant internal and external factors
that aÅect collectibility when determining the appropriate level for the allowance for loan losses. A sustained
weakness or further weakening of the economy or other factors that adversely aÅect asset quality could result
in an increase in the number of delinquencies, bankruptcies, or defaults, and a higher level of non-performing
assets, net charge-oÅs, and provision for loan losses in future periods. See ""Factors That May AÅect Future
Results,'' in this Annual Report on Form 10-K, for additional factors that could cause actual results to diÅer
41
materially from forward-looking statements, or historical performance. Our allowance for loan losses consists
of the following:
‚ SpeciÑc allowances: For impaired loans, we provide speciÑc allowances based on an evaluation of
impairment, and for each classiÑed loan, we allocate a portion of the general allowance to each loan
based on a loss percentage assigned. The percentage assigned depends on a number of factors including
loan classiÑcation, the current Ñnancial condition of the borrowers and guarantors, the prevailing value
of the underlying collateral, charge-oÅ history, management's knowledge of the portfolio and general
economic conditions.
‚ General allowance: The unclassiÑed portfolio is segmented on a group basis. Segmentation is
determined by loan type and by identifying risk characteristics that are common to the groups of loans.
The allowance is provided to each segmented group based on the group's historical loan loss
experience, the trends in delinquency, and non-accrual, and other signiÑcant factors, such as national
and local economy, trends and conditions, strength of management and loan staÅ, underwriting
standards and the concentration of credit.
The allowance for loan losses amounted to $23.97 million and represented 1.44% of year-end gross loans
and 302.42% of non-performing loans at December 31, 2001. The comparable ratios were 1.50% of year-end
gross loans and 143.72%, of non-performing loans at December 31, 2000.
The increase in the allowance for loan losses ratio to non-performing loans at year-end 2001 was due
primarily to the decrease in non-performing loans. During the year, $6.37 million was added to the allowance
for loan losses. The net charge-oÅ ratio was 0.29% of average net loans for the twelve months ended
December 31, 2001, and 0.13% for the like period in 2000.
The tables below present information relating to the allowance for loan losses, charge-oÅs, and recoveries
by loan type for the past Ñve years:
Allowance for Loan Losses
2001
Amount Outstanding as of December 31,
1998
1999
2000
1997
(Dollars in thousands)
Balance at beginning of yearÏÏÏÏÏÏÏÏÏÏÏ
Provision for loan losses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Loans charged-oÅ ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Recoveries of charged-oÅ loans ÏÏÏÏÏÏÏÏ
$
$
$
21,967
6,373
(4,663)
296
19,502
4,200
(1,905)
170
15,970
4,200
(1,731)
1,063
$ 15,379
3,600
(3,519)
510
$ 13,528
3,600
(2,139)
390
Balance at end of yearÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
23,973
$
21,967
$
19,502
$ 15,970
$ 15,379
Average net loans outstanding during
year endedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1,519,548
$1,313,177
$1,088,578
$907,639
$792,176
Ratio of net charge-oÅs to average net
loans outstanding during the yearÏÏÏÏÏ
0.29%
0.13%
0.06%
0.33%
0.22%
Provision for loan losses to average net
loans outstanding during the yearÏÏÏÏÏ
0.42%
0.32%
0.39%
0.40%
0.45%
Allowance to non-performing loans at
year-end ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Allowance to gross loans at year-endÏÏÏÏ
302.42%
1.44%
143.72%
1.50%
111.95%
1.54%
89.86%
1.63%
79.85%
1.78%
42
Loan Charged-oÅ by Loan Type
Commercial loanÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Percentage of total commercial loans(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2001
$3,465
2000
Year Ended December 31,
1999
(Dollars in thousands)
$1,116
1998
$2,394
$ 537
1997
$1,387
0.68%
0.12%
0.28%
0.65%
0.41%
Real estate loanÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Percentage of total real estate loans(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1,080
$1,066
$ 388
$ 873
$ 574
0.09%
0.11%
0.05%
0.15%
0.11%
Installment and other loan ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Percentage of total installment and other loans(1)ÏÏÏÏÏÏÏ
$ 118
$ 302
$ 227
$ 252
$ 178
0.56%
1.09%
0.88%
0.86%
0.66%
Total loans charged-oÅÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$4,663
$1,905
$1,731
$3,519
$2,139
(1) Percentages were calculated based on year-end balances.
Recoveries by Loan Type
Commercial loanÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Real estate loanÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Installment and other loan ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2001
$196
11
89
Year Ended December 31,
1999
1998
2000
(In thousands)
$ 761
181
121
$ 74
3
93
$188
280
42
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$296
$170
$1,063
$510
1997
$219
111
60
$390
We allocate the allowance for loan losses to the major loan categories as set forth in the following table.
These allocations are estimates based on historical loss experience and management's judgment. The
allocation of the allowance for loan losses is not necessarily an indication that the charge-oÅs will occur, or if
they do occur, that they will be in the proportion indicated in the following table:
Allocation of Allowance for Loan Losses
2001
Percentage of
loans in each
category
to average
gross loans Amount
2000
Percentage of
loans in each
category
to average
gross loans Amount
As of December 31,
1999
Percentage of
loans in each
category
to average
gross loans Amount
1998
Percentage of
loans in each
category
to average
gross loans Amount
1997
Percentage of
loans in each
category
to average
gross loans
Amount
(Dollars in thousands)
Type of Loans:
Commercial loans ÏÏÏÏÏÏÏÏÏÏ $11,504
2,181
Residential mortgage loansÏÏÏ
7,702
Commercial mortgage loansÏÏ
2,386
Real estate construction loans
197
Installment loans ÏÏÏÏÏÏÏÏÏÏÏ
3
Other loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
29.61% $10,231
808
14.86
8,564
42.19
1,855
11.73
380
1.57
129
0.04
30.00% $ 8,546
1,743
15.61
7,781
45.25
843
7.11
464
1.99
125
0.04
35.06% $ 7,468
1,901
18.15
5,815
39.95
365
4.30
414
2.46
7
0.08
38.58% $ 7,480
1,549
18.46
5,439
35.16
401
4.77
356
2.98
154
0.05
39.20%
17.81
35.07
4.80
3.09
0.03
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $23,973
100.00% $21,967
100.00% $19,502
100.00% $15,970
100.00% $15,379
100.00%
Based on our evaluation process and the methodology to determine the level of the allowance for loan
losses mentioned previously, management believes the allowance for loan losses to be adequate as of
December 31, 2001 to absorb estimated probable losses identiÑed through its analysis. See ""Factors That May
AÅect Future Results'' below for a discussion of some of the factors that may aÅect the matters discussed in
this Section.
43
Other Real Estate Owned
Other Real Estate Owned (""OREO''), net of a valuation allowance of $131,000, decreased to
$1.56 million at December 31, 2001, compared to $5.17 million at year-end 2000.
As of December 31, 2001, there were Ñve outstanding OREO properties, which included one parcel of
land, one commercial building, and three single-family-residences (""SFR''). All Ñve properties are located in
California. During 2001, we acquired Ñve SFR properties, and sold four SFR properties, and one commercial
real estate property. The carrying value of the Ñve properties sold was approximately $5.19 million and the
OREO sales resulted in gains on sale of OREO of $3.38 million.
To reduce the carrying value of OREO to the estimated fair value of the properties, we maintain a
valuation allowance for OREO properties. We perform periodic evaluations on each property and make
corresponding adjustments to the valuation allowance, if necessary. Any decline in value is recognized by a
corresponding increase to the valuation allowance in the current period. Management did not make any
provision for OREO losses in 2001.
We recognized net income of $3.59 million from operating OREO properties in 2001 compared to
$185,000 in 2000 and $1.42 million in 1999. In addition to the $3.38 million net gains on sales of OREO
properties, we received $325,000 in rental income. These amounts were partially oÅset by operating expenses
of $135,000.
Although the California real estate market continued to show strength in 2001, the future performance of
the market is unpredictable. See ""Factors That May AÅect Future Results'' below for a discussion of some of
the factors that may aÅect the matters discussed in this Section.
The following table shows the components of OREO expense (income) for the years ended:
OREO (Income) Expense by Type
2001
2000
(In thousands)
1999
Operating expense (income) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Provision for lossesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net gains on disposalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ (213)
Ì
(3,376)
$
7
71
(263)
$ (206)
339
(1,549)
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(3,589)
$(185)
$(1,416)
Investments in Real Estate
As of December 31, 2001, our investments comprised of four limited partnerships formed for the purpose
of investing in low income housing projects, which qualify for federal low income housing tax credits and/or
California tax credit.
As of December 31, 2001, investments in real estate increased $379,000 to $17.72 million from
$17.35 million at year-end 2000. During 2001, we recognized $2.26 million in net losses from the limited
partnerships operations. In addition, we contributed $2.64 million to the Wilshire Courtyard investment.
44
The following table summarizes the composition of our investments in real estate as of the dates
indicated:
Percentage of
Ownership
Acquisition Date
December 31,
2001
(Dollars in thousands)
December 31,
2000
Carrying Amount
Las Brisas ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Los Robles ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
California Corporate Tax Credit
Fund III ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Wilshire CourtyardÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
49.50%
99.00%
32.50%
99.90%
December 1993
August 1995
March 1999
May 1999
$ Ì
386
12,426
4,915
$17,727
$
189
393
14,127
2,639
$17,348
Deposits
The Company uses primarily customer deposits to fund its operations, and to a lesser extent borrowings in
the form of securities sold under agreements to repurchase, and advances from the Federal Home Loan Bank.
The Bank's deposits are generally obtained from residents within the Company's geographic market area. The
Bank utilizes traditional marketing methods to attract new customers and deposits, by oÅering a wide variety
of products and services and utilizing various forms of advertising media. The Company's vast majority of its
deposits are retail in nature, however the Company does engage in certain wholesale activities, primarily
accepting time deposits from political subdivisions and public agencies. The Company considers wholesale
deposits to be an alternative borrowing source rather than a customer relationship, and as such, their levels are
determined by management's decisions as to the most economic funding sources. At December 31, 2001, the
Company had no brokered-deposits and public deposits totaled $73.30 million or 3.45% of total deposits.
The Company's total deposits increased $245.90 million or 13.10% from $1.88 billion at year-end 2000 to
$2.12 billion at December 31, 2001.
‚ Core deposits increased $120.87 million or 11.20%. The increase in core deposits, deÑned as total
deposits less time deposits of $100,000 or more, was attributable to increases of $38.62 million in non-
interest-bearing demand deposits, up 17.41%, to $260.43 million at year-end 2001 compared to $221.81
at year-end 2000, and time deposits under $100,000, which increased by 9.13% or $34.68 million to
$414.49 million at December 31, 2001 compared to $379.81 million at year-end 2000. Other core
deposit accounts increased by $47.57 million.
‚ Time deposits of $100,000 or more (""Jumbo CDs'') increased $125.03 million or 15.68% to
$922.65 million in 2001 compared to $797.62 million in 2000.
45
The following table displays the deposit mix for the past three years and average deposits and rates for the
past Ñve years:
Deposit Mix
2001
Amount
Percentage
Year Ended December 31,
2000
Amount
(Dollars in thousands)
Percentage
1999
Amount
Percentage
$ 260,427
135,650
136,806
252,322
414,490
12.27% $ 221,805
125,647
6.39
119,805
6.45
231,761
11.89
379,809
19.53
11.82% $ 195,140
121,394
97,821
236,764
362,553
6.70
6.38
12.35
20.24
11.33%
7.05
5.68
13.75
21.06
922,653
43.47
797,620
42.51
708,064
41.13
Demand ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
NOW accounts ÏÏÏÏÏÏÏÏÏÏÏ
Money market accounts ÏÏÏÏ
Savings depositsÏÏÏÏÏÏÏÏÏÏÏ
Time deposits under $100 ÏÏ
Time deposits of $100 or
more ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$2,122,348
100.00% $1,876,447
100.00% $1,721,736
100.00%
Average deposits grew $220.49 million or 12.30% from $1.79 billion in 2000 to $2.01 billion in 2001.
‚ Average core deposits increased $86.45 million or 8.23%.
‚ Average Jumbo CDs increased $133.82 million or 18.01%.
The following table displays average deposits and rates for the past Ñve years:
Average Deposits and Rates
2001
2000
1999
1998
1997
Amount
%
Amount
%
Amount
%
Amount
%
Amount
%
(Dollars in thousands)
Demand ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
NOW accounts ÏÏÏÏÏÏÏÏÏ
Money market accountsÏÏ
Savings deposits ÏÏÏÏÏÏÏÏ
Time deposits ÏÏÏÏÏÏÏÏÏÏ
$ 229,592
128,973
129,629
238,340
1,286,973
Ì% $ 211,975
122,851
112,817
228,027
1,117,350
2.10
0.40
0.99
1.42
Ì% $ 169,013
117,374
99,628
207,498
1,001,878
1.20
2.32
1.61
5.39
Ì% $ 166,657
111,900
99,833
205,372
900,441
1.22
1.59
1.54
4.69
Ì% $ 148,907
114,453
97,470
216,840
820,310
1.42
2.11
2.10
5.11
Ì%
1.47
2.26
2.19
5.09
TotalÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$2,013,507
1.18% $1,793,020
3.79% $1,595,391
3.33% $1,484,203
3.58% $1,397,980
3.60%
As interest rate spreads broadened between Jumbo CDs and other types of interest-bearing deposits
under the prevailing interest rate environment, our Jumbo CD portfolio maintained its faster growth than
other types of deposits. Nevertheless, management considers our Jumbo CDs generally less volatile primarily
due to the following reasons:
(1) approximately 60.95% of the Bank's Jumbo CDs have stayed with the Bank for more than two years;
(2) the Jumbo CD portfolio continued to be diversiÑed with 4.593 individual accounts averaging
approximately $187,000 per account owned by 3,163 individual depositors as of January 9, 2002;
(3) this phenomenon of having a relatively higher percentage of Jumbo CDs to total deposits exists in
most of the Asian American banks in our California market due to the fact that the customers in this
market tend to have a higher savings rate.
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. To discourage the concentration in Jumbo
CDs, management has continued to make eÅorts in the following areas:
(1) to oÅer only retail interest rates on Jumbo CDs;
(2) to oÅer new transaction-based products, such as the tiered money market accounts;
46
(3) to promote transaction-based products from time to time, such as demand deposits;
(4) to seek to diversify the customer base by branch expansion and/or acquisition as opportunities arise.
Almost 97.69% of our Jumbo CDs mature within one year as of year-end 2001. The following tables
display time deposits of $100,000 or more by maturity and time deposits with remaining term of more than one
year at December 31, 2001:
Time Deposits of $100,000 or More by Maturity
Less than three months ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Three to six months ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Six to twelve months ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Over one year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
At December 31,
2001
(In thousands)
$482,248
264,620
154,454
21,331
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$922,653
Maturities of Time Deposits with a Remaining Term of More Than One Year for Each of the Five Years
Following December 31, 2001
2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(In thousands)
$28,443
10,023
202
117
6
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$38,791
Borrowings
Borrowings include securities sold under agreements to repurchase (""reverse repurchase agreements''),
the purchase of federal funds, and funds obtained as advances from the Federal Home Loan Bank (""FHLB'')
of San Francisco.
Securities Sold under Agreements to Repurchase at December 31, 2001 equaled $22.11 million a
decrease of $46.06 million or 67.56% from $68.17 million at December 31, 2000. The weighted average
interest rate during 2001 was 3.51% compared to 6.25% during 2000. The decrease in yield of average interest-
earning assets was primarily due to eleven consecutive drops in interest rates by the FOMC. The underlying
collateral pledged for the repurchase agreements consists of U.S. government agency and mortgage-backed
securities with a carrying value of $37,894,000, and a fair value of $38,295,000 as of December 31, 2001, and
are held by a custodian and maintained under the Company's control. These borrowings generally mature in
less than 30 days. The table below provides comparative data for securities sold under agreements to
repurchase:
Average amount outstanding during the year(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Maximum amount outstanding at month-end(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Balances, December ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Rate at year-end ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Weighted average interest rate for the year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
47
2001
$34,799
55,412
22,114
December 31,
2000
(In thousands)
$ 70,701
110,145
68,173
1999
$55,519
79,185
46,990
1.01%
3.51%
6.09%
6.25%
5.80%
5.73%
(1) Average balances were computed using daily averages.
(2) Highest month-end balances were at February in 2001, October in 2000 and February in 1999.
Advances from the Federal Home Loan Bank (""FHLB'') amounted to $30 million at December 31,
2001, and $10 million at December 31, 2000. Of the Bank's $30 million in FHLB advances outstanding at
December 31, 2001, $10 million at 4.90% was obtained in 1998, and matures on October 28, 2003, and
$20 million at 5.45% was obtained in 2001, and matures on March 21, 2005. These advances are non-callable
with Ñxed interest rates.
Capital Resources
Stockholders' Equity
We obtain capital primarily from retained earnings and to a lesser extent, the issuance of additional
common stock through our Dividend Reinvestment Plan, and options exercised. Stockholders' equity of
$246.01 million was up $31.22 million or 14.54% compared to $214.79 at December 31, 2000. Our
stockholders' equity equaled 10.03% of total assets, compared to 9.73% of total assets at year-end 2000. The
increase of $31.22 million or 14.54% in stockholders' equity was due to the following:
‚ an addition of $42.62 million from net income less payments of dividends on common stock of
$9.06 million;
‚ an increase of $2.24 million from issuance of additional common shares through the Dividend
Reinvestment Plan and proceeds from exercise of stock options less the purchase of 138,900 shares of
treasury stock during 2001, at an average price of $52.86, totaling $7.34 million;
‚ an increase of $2.76 million in accumulated other comprehensive income, including:
‚ a favorable diÅerence of $1.89 million in the net unrealized holding gains on securities available-
for-sale, net of tax;
‚ an increase in unrealized gains totaling $566,000, net of tax, in cumulative adjustment upon
adoption of SFAS No. 133;
‚ an increase of $302,600 from unrealized gains on cash Öow hedging derivatives, net of tax;
We declared cash dividends of $0.25 per common share in January 2001 on 9,074,365 shares outstanding,
in April 2001 on 9,086,323 shares outstanding, in July 2001 on 9,093,576 shares outstanding, and in
October 2001 on 8,970,131 shares outstanding. Total cash dividends paid in 2001 amounted to $9.06 million.
On April 6, 2001, the Board of Directors approved a stock repurchase program of up to $15 million of our
common stock. The Company intends to repurchase shares under the program, from time to time, in the open
market or through negotiated purchases, under conditions which allow such repurchases to be accretive to
earnings, while maintaining capital ratios that exceed the guidelines for a ""well capitalized'' Ñnancial
institution. During 2001, the Company repurchased 138,900 shares at an average price of $52.86 per share.
On February 19, 1998 our Board of Directors adopted an ""Equity Incentive Plan'' (""the Plan'') which
was approved by stockholders at the April 20, 1998 Annual Meeting of Stockholders. The Plan will expire on
February 18, 2008.
‚ On September 17, 1998, we granted 45,000 shares of common stock options with an exercise price of
$33.00 per share to eligible senior oÇcers and directors.
‚ On January 20, 2000, we granted 55,000 shares of common stock options with an exercise price of
$42.50 per share to eligible oÇcers and directors.
‚ On January 18, 2001, we granted 55,500 shares, and on March 15, 2001, we granted 900 shares of
common stock options with an exercise price of $60.19 per share to eligible oÇcers and directors.
48
Management seeks to retain the Company's capital at a level suÇcient to support future growth, to
protect depositors and stockholders, to absorb any unanticipated losses and to comply with various regulatory
requirements.
Capital Adequacy
Management seeks to retain the Company's capital at a level suÇcient to support future growth, protect
depositors and stockholders, and comply with various regulatory requirements.
The primary measure of capital adequacy is based on the ratio of risk-based capital to risk-weighted
assets. At year-end 2001, Tier 1 risk-based capital ratio of 11.15%, total risk-based capital ratio of 12.30%, and
Tier 1 leverage capital ratio of 9.48%, continued to place Cathay Bancorp in the ""well capitalized'' category,
which is deÑned as institutions with Tier 1 risk-based capital ratio equal to or greater than six percent, Tier 1
leverage capital ratio equal to or greater than Ñve percent, and total risk-based capital ratio equal to or greater
than ten percent. The comparable ratios for 2000 were Tier 1 risk-based capital ratio of 11.05%, total risk-
based capital ratio of 12.25%, and Tier 1 leverage capital ratio of 9.28%.
A table displaying the Company and the Bank's capital and leverage ratios at year-end 2001 and 2000 is
included in Note 11 to consolidated Ñnancial statements.
Liquidity
Liquidity
Liquidity is our ability to maintain suÇcient cash Öow to meet maturing Ñnancial obligations and
customer credit needs, and to take advantage of investment opportunities as they are presented in the
marketplace. Our principal sources of liquidity are growth in deposits, proceeds from the maturity or sale of
securities and other Ñnancial instruments, repayments from securities and loans, Federal funds purchased and
securities sold under agreements to repurchase and advances from Federal Home Loan Bank (""FHLB''). At
year-end 2001, our liquidity ratio (deÑned as net cash, short-term and marketable securities to net deposits
and short-term liabilities) remained relatively Öat at 30.40%, compared to 30.76% at year-end 2000.
To supplement its liquidity needs, the Bank maintains a total credit line of $52.50 million for federal
funds with three correspondent banks, and master agreements with Ñve brokerage Ñrms whereby up to
$230.00 million would be available through the sale of securities subject to repurchase. The Bank is also a
shareholder of the FHLB, which enables the Bank to have access to lower cost FHLB Ñnancing when
necessary. At December 31, 2001, the Bank had a total approved credit with the FHLB of San Francisco
totaling $600.88 million. The total credit outstanding with the FHLB of San Francisco at December 31, 2001
was $30.00 million. These advances are non-callable, bear Ñxed interest rates with $10.00 million maturing in
2003 and $20.00 million maturing in 2005. These borrowings are generally secured by securities available-for-
sale or by residential mortgages. ""See Note 9 to the Consolidated Financial Statements.''
Liquidity can also be provided through the sale of liquid assets, which consists of short-term investments,
and securities available-for-sale. At December 31, 2001, such assets at fair value totaled $261.96 million, with
$64.21 million pledged as collateral for borrowings and other commitments. The remaining $197.75 million
was available to be pledged as collateral for additional borrowings.
We had a signiÑcant portion of our time deposits maturing within one year or less as of December 31,
2001. Management anticipates that there may be some outÖow of these deposits upon maturity due to the
keen competition in the Company's marketplace. However, based on our historical runoÅ experience, we
expect the outÖow will be minimal and can be replenished through our normal growth in deposits.
Management believes all the above-mentioned sources will provide adequate liquidity to the Company to meet
its daily operating needs.
Bancorp, on the other hand, obtains funding for its activities primarily through dividend income
contributed by the Bank and proceeds from investments in the Dividend Reinvestment Plan and exercise of
stock options. Dividends paid to Bancorp by the Bank are subject to regulatory limitations. The business
49
activities of Bancorp consist primarily of the operation of the Bank with limited activities in other investments.
Management believes Bancorp's liquidity generated from its prevailing sources are suÇcient to meet its
operational needs.
Also, see Note 12 Commitments and Contingencies of the Notes to Consolidated Financial Statements,
on this Annual Report on Form 10-K.
Critical Accounting Policies
The discussion and analysis of our Ñnancial condition and results of operations are based upon our
consolidated Ñnancial statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these Ñnancial statements require
management to make estimates and judgments that aÅect the reported amounts of assets and liabilities,
revenues and expenses, and related disclosures of contingent assets and liabilities at the date of our Ñnancial
statements. Actual results may diÅer from these estimates under diÅerence assumptions or conditions.
Accounting for the allowance for loan losses involves signiÑcant judgments and assumptions by
management, which has a material impact on the carrying value of net loans; management considers this
accounting policy to be a critical accounting policy. The judgments and assumptions used by management are
based on historical experience and other factors, which are believed to be reasonable under the circumstances
as described under the heading ""Allowance for Loan Losses.''
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued Statement No. 141, ""Business
Combinations'' (""SFAS No. 141'') and Statement No. 142, ""Goodwill and Other Intangible Assets''
(""SFAS No. 142''). SFAS No. 141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 as well as all purchase method business combinations completed
after June 30, 2001.
SFAS No. 142 requires that goodwill no longer be amortized to earnings, but instead be reviewed for
impairment. The amortization of goodwill ceases upon adoption of SFAS No. 142, which for the Company
was January 1, 2002. Upon adoption of SFAS No. 142, the Company will be required to reassess the useful
lives and residual values of all intangible assets acquired in purchase business combinations, and make any
necessary amortization period adjustments by the end of the Ñrst interim period. In addition, to the extent an
intangible asset is identiÑed as having an indeÑnite useful life, the Company will be required to test the
intangible asset for impairment in accordance with the provisions of SFAS No. 142. Any impairment loss will
be measured as of the date of adoption and recognized as the cumulative eÅect of a change in accounting
principle in the Ñrst interim period. The Company adopted SFAS No. 142 eÅective January 1, 2002.
Assuming no impairment adjustments are necessary, the Company expects non-interest expense to decrease
by approximately $661,000 in 2002, resulting from the cessation of goodwill amortization.
In June 2001, the FASB issued SFAS No. 143, ""Accounting for Asset Retirement Obligations,'' which
requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which
it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs would be
capitalized as part of the carrying amount of the long-lived asset and depreciated over the life of the asset. The
liability is accrued at the end of each period through charges to operating expense. If the obligation is settled
for other than the carrying amount of the liability, the Company will recognize a gain or loss on settlement.
The provisions of SFAS No. 143 are eÅective for Ñscal years beginning after June 15, 2002. Management does
not expect that adoption of SFAS No. 143 will have a material impact on the results of operations or Ñnancial
condition of the Company.
In August 2001, the FASB issued SFAS No. 144, ""Accounting for the Impairment or Disposal of Long-
Lived Assets.'' For long-lived assets to be held and used, SFAS No. 144 retains the requirements of SFAS
No. 121 to (a) recognize an impairment loss only if the carrying amount of a long-lived asset is not
recoverable from its undiscounted cash Öows and (b) measure an impairment loss as the diÅerence between
50
the carrying amount and fair value. Further, SFAS No. 144 eliminates the requirement to allocate goodwill to
long-lived assets to be tested for impairment, describes a probability-weighted cash Öow estimation approach
to deal with situations in which alternative courses of action to recover the carrying amount of a long-lived
asset are under consideration or a range is estimated for the amount of possible future cash Öows, and
establishes a ""primary-asset'' approach to determine the cash Öow estimation period. For long-lived asset to be
disposed of by sale, SFAS No. 144 retains the requirements of SFAS No. 121 to measure a long-lived asset
classiÑed as held-for-sale at the lower of its carrying amount or fair value less cost to sell and to cease
depreciation. Discontinued operations would no longer be measured on a net realizable value basis, and future
operating losses would be no longer recognized before they occur. SFAS No. 144 broadens the presentation of
discontinued operations to include a component of an entity, establishes criteria to determine when a long-
lived asset is held-for-sale, prohibits retroactive reclassiÑcation of the asset as held-for-sale at the balance
sheet date if the criteria are met after the balance sheet date but before issuance of the Ñnancial statements,
and provides accounting guidance for the reclassiÑcation of an asset from ""held-for-sale'' to ""held-and-used.''
The provisions of SFAS No. 144 are eÅective for Ñscal years beginning after December 15, 2001.
Management does not expect that adoption of SFAS No. 144 will have a material impact on the results of
operations or Ñnancial condition of the Company.
Factors That May AÅect Future Results
The Allowance for Loan Losses is an Estimate of Estimable and Probable Loan Losses. Actual Loan
Losses in Excess of the Estimate Could Adversely AÅect Our Net Income and Capital.
The allowance for loan losses is based on management's estimate of the estimable and probable losses
from our loan portfolio. If actual losses exceed the estimate, the excess losses could adversely aÅect our net
income and capital. Such excess could also lead to larger allowances for loan losses in future periods, which
could in turn adversely aÅect net income and capital. Management believes that the allowance for loan losses
at December 31, 2001 is adequate to cover estimable and probable losses from its loan portfolio as of that date.
If economic conditions diÅer substantially from the assumptions used in the estimate or adverse developments
arise with respect to our loans, future losses may occur, and increases in the allowance may be necessary. In
addition, various regulatory agencies, as an integral part of their examination process, periodically review the
adequacy of our allowance. These agencies may require us to establish additional allowances based on their
judgment of the information available at the time of their examinations. No assurance can be given that we
will not sustain loan losses in excess of present or future levels of the allowance for loan losses.
Fluctuations in Interest Rates Could Adversely AÅect Our Business.
The interest rate risk inherent in our lending, investing, and deposit taking activities is a signiÑcant
market risk to us and our business. Income associated with interest-earning assets and cost associated with
interest-bearing liabilities may not be aÅected uniformly by Öuctuations in interest rates. The magnitude and
duration of changes in interest rates, events over which we have no control, may have an adverse eÅect on net
interest income. Prepayment and early withdrawal levels, which are also impacted by changes in interest rates,
can signiÑcantly aÅect our assets and liabilities. Increases in interest rates may adversely aÅect the ability of
our Öoating rate borrowers to meet their higher payment obligations, which could in turn lead to an increase in
non-performing assets and net charge-oÅs.
Generally, the interest rates on interest-earning assets and interest-bearing liabilities of the Company do
not change at the same rate, to the same extent, or on the same basis. Even assets and liabilities with similar
maturities or periods of repricing may react in diÅerent degrees to changes in market interest rates. Interest
rates on certain types of assets and liabilities may Öuctuate in advance of changes in general market interest
rates, while interest rates on other types of assets and liabilities may lag behind changes in general market
rates. Certain assets, such as Ñxed and adjustable rate mortgage loans, have features that limit change in
interest rates on a short-term basis and over the life of the asset.
We seek to minimize the adverse eÅects of changes in interest rates by structuring our asset-liability
composition to obtain the maximum spread. We use interest rate sensitivity analysis and a simulation model to
51
assist us in estimating the optimal asset-liability composition. However, such management tools have inherent
limitations that impair their eÅectiveness. There can be no assurance that we will be successful in minimizing
the adverse eÅects of changes in interest rates. See also, ""Loan Portfolio Risk Elements'' and ""Market Risk''
below.
InÖation May Adversely AÅect Our Financial Performance.
The consolidated Ñnancial statements and related Ñnancial data presented in this report have been
prepared in accordance with accounting principles generally accepted in the United States. These principles
require the measurement of Ñnancial position and operating results in terms of historical dollars, without
considering changes in the relative purchasing power of money over time due to inÖation. The primary impact
of inÖation on the operation of the Company is reÖected in increased operating cost. Virtually all of our assets
and liabilities are monetary in nature. As a result, interest rates have a more signiÑcant impact on our
performance than the general levels of inÖation. Interest rates do not necessarily move in the same direction or
in the same magnitude as the price of goods and services.
As We Expand Our Business Outside of California Markets, We Will Encounter Risks That Could
Adversely AÅect Us.
We primarily operate in California markets with a concentration of Chinese American individuals and
businesses; however, one of our strategies is to expand beyond California into other domestic markets that
have concentrations of Chinese American individuals and businesses. We began this expansion with the
acquisition of certain assets and assumptions of certain liabilities from Golden City Commercial Bank in New
York in 1999 and the opening of the Houston loan production oÇce, which was subsequently converted into a
full-service branch in 2000. In addition, on October 5, 2001, we opened a new branch in Union City, Northern
California. We have obtained regulatory approval to open a new branch in Brooklyn, New York City, and we
have applied for regulatory approval to open a new branch in Sacramento, California. We expect both
branches will be ready to open in the early part of the second quarter 2002. In addition, with China's accession
into the World Trade Organization and its increasing importance in the world economy, we decided to open a
new representative oÇce in Shanghai, China. We expect this oÇce to be open in the second quarter 2002. In
the course of this expansion, we will encounter signiÑcant risks and uncertainties that could have a material
adverse eÅect on our operations. These risks and uncertainties include increased operational diÇculties arising
from, among other things, our ability to attract suÇcient business in new markets, to manage operations in
noncontiguous market areas and to anticipate events or diÅerences in markets in which we have no current
experience.
To the extent that we expand through acquisitions, such acquisitions may also adversely harm our
business, if we fail to adequately address the Ñnancial and operational risks associated with such acquisitions.
For example, risks can include diÇculties in assimilating the operations, technology and personnel of the
acquired company; diversion of management's attention from other business concerns; inability to maintain
uniform standards, controls, procedures and policies; potentially dilutive issuances of equity securities;
incurrence of additional debt and contingent liabilities; use of cash resources; large write-oÅs; and amortiza-
tion expenses related to goodwill and other intangible assets.
Adverse Economic Conditions in California and Other Regions Where the Bank Has Operations, Could
Cause Us to Incur Losses.
Our banking operations are concentrated primarily in Southern and Northern California, and secondarily
in Houston, Texas, and New York City. Adverse economic conditions in these regions could impair borrowers'
ability to service their loans, decrease the level and duration of deposits by customers, and erode the value of
loan collateral. These events could increase the amount of our non-performing assets and have an adverse
eÅect on our eÅorts to collect our non-performing loans or otherwise liquidate our non-performing assets
(including other real estate owned) on terms favorable to us.
52
Real estate securing our lending activity is also principally located in Southern and Northern California,
and to a lesser extent, in Houston, Texas and New York City. The value of such collateral depends upon
conditions in the relevant real estate markets. These include general or local economic conditions and
neighborhood characteristics, real estate tax rates, the cost of operating the properties, governmental
regulations and Ñscal policies, acts of nature including earthquakes, Öood and hurricanes (which may result in
uninsured losses), and other factors beyond our control.
The Risks Inherent in Construction Lending May Adversely AÅect Our Net Income.
The risks inherent in construction lending may adversely aÅect our net income. Such risks include,
among other things, the possibility that contractors may fail to complete, or complete on a timely basis,
construction of the relevant properties; substantial cost overruns in excess of original estimates and Ñnancing;
market deterioration during construction; and lack of permanent take-out Ñnancing. Loans secured by such
properties also involve additional risk because such properties have no operating history. In these loans, loan
funds are advanced upon the security of the project under construction, which is of uncertain value prior to
completion of construction, and the estimated operating cash Öow to be generated by the completed project.
There is no assurance that such properties will be sold or leased so as to generate the cash Öow anticipated by
the borrower. Such consideration can aÅect the borrowers' ability to repay their obligations to us and the value
of our security interest in collateral.
Our Use of Appraisals in Deciding Whether to Make a Loan on or Secured by Real Property Does Not
Insure the Value of the Real Property Collateral.
In considering whether to make a loan on or secured by real property, we generally require an appraisal of
such property. However, the appraisal is only an estimate of the value of the property at the time the appraisal
is made. If the appraisal does not reÖect the amount that may be obtained upon any sale or foreclosure of the
property, we may not realize an amount equal to the indebtedness secured by the property.
We Face Substantial Competition From Larger Competitors.
We face substantial competition for deposits and loans, as well as other banking services throughout our
market area from the major banks and Ñnancial institutions that dominate the commercial banking industry.
This may cause our cost of funds to exceed that of our competitors. Such banks and Ñnancial institutions have
greater resources than us, including the ability to Ñnance advertising campaigns and allocate their investment
assets to regions of higher yield and demand. By virtue of their larger capital bases, such institutions have
substantially greater lending limits than us and perform certain functions, including trust services, which are
not presently oÅered by us. We also compete for loans and deposits, as well as other banking services with
savings and loan associations, Ñnance companies, money market funds, brokerage houses, credit unions and
non-Ñnancial institutions.
Adverse EÅects of Banking Regulations or Changes in Banking Regulations Could Adversely AÅect Our
Business.
We are governed by signiÑcant federal and state regulation and supervision, which is primarily for the
beneÑt and protection of our customers and not for the beneÑt of our stockholders. In the past, our business
has been materially aÅected by such regulation and supervision. This trend is likely to continue in the future.
Laws, regulations, or policies currently aÅecting us may change at any time. Regulatory authorities may also
change their interpretation of existing laws and regulations. Such changes may, among other things, increase
the cost of doing business, limit permissible activities, or aÅect the competitive balance between banks and
other Ñnancial institutions. It is impossible to predict the competitive impact that any such changes would
have on commercial banking in general or on our business in particular.
53
Adverse EÅects of Changes in California Tax Law Could Cause Us to Incur Losses.
A proposed change to California's tax law introduced on February 21, 2002, related to registered
investment companies could negatively impact the Company's eÅective tax rates in future periods. As
currently drafted, the change would have retroactive application to earlier years. The Company, relying on
existing tax laws and an outside tax opinion, reÖected California tax beneÑts relating to its registered
investment company subsidiary in 2000 and 2001, respectively. Management cannot predict the ultimate
outcome of this proposed legislation, including whether this proposed bill will be enacted in its present form,
whether the Ñnal eÅective date of the proposed tax law will be prior to 2000 or after 2001 or whether the
proposed bill will be enacted at all. If enacted in its present form, and if enacted with its current eÅective date
of application, the Company could be required to pay additional California taxes related to earlier years, which
would increase the Company's tax expense in a future period. Further, absent a replacement tax eÇcient
capital raising vehicle, the Company's eÅective tax rate applied to current period earnings in future periods
would increase.
Management continues to evaluate long-term plans for its registered investment company subsidiary. If
eÅorts to raise capital through this wholly owned subsidiary were discontinued, management believes the
Company currently has adequate alternative sources of capital available to it and has the ability to raise
suÇcient funds to fund its operations in future periods and does not believe that the impact of the de-
discontinuance of the registered investment company will have a material impact on the Company's Ñnancial
condition or liquidity.
Adverse Economic Conditions in Asia Could Cause Us to Incur Losses.
While Asian economic conditions, at least outside of Japan, were reasonably satisfactory in 2001, it is
diÇcult to predict the behavior of the Asian economy in the future. The U.S. Ñscal policy and an unfavorable
global economic condition may adversely impact the Asian economy. If the Asian economic conditions should
deteriorate, we could be exposed to economic and transfer risk, and could experience an outÖow of deposits by
our Asian-American customers. Transfer risk may result when an entity is unable to obtain the foreign
exchange needed to meet its obligations or to provide liquidity. This may adversely impact the recoverability of
investments with or loans made to such entities. Adverse economic conditions may also negatively impact
asset values and the proÑtability and liquidity of companies operating in this region.
Statutory Restrictions on Dividends and Other Distributions From the Bank May Adversely Impact Us.
A substantial portion of our cash Öow comes from dividends that the Bank pays to us. Various statutory
provisions restrict the amount of dividends that the Bank can pay without regulatory approval. In addition, if
the Bank were to liquidate, the Bank's creditors would be entitled to receive distributions from the assets of
the Bank to satisfy their claims against the Bank before we, as a holder of an equity interest in the Bank, would
be entitled to receive any of the assets of the Bank.
Our Need to Continue to Adapt to Our Information Technology Systems to Allow Us to Provide New
and Expanded Services Could Present Operational Issues and Require SigniÑcant Capital Spending.
As we begin to oÅer internet banking and other on-line services to our customers, and continue to expand
our existing conventional banking services, we will need to adapt our information technology systems to handle
these changes in a way that meets constantly changing industry standards. This can be very expensive and may
require signiÑcant capital expenditures. In addition, our success will depend, among other things, on our ability
to provide secure and reliable services, anticipate changes in technology and eÇciently develop and introduce
services that are accepted by our customers and cost eÅective for us to provide. Systems failures, delays,
breaches of conÑdentiality and other problems could harm our reputation and business.
54
Certain Provisions of Our Charter, Bylaws and Rights Agreement Could Make the Acquisition of Our
Company More DiÇcult.
Certain provisions of our Charter, Bylaws, and Rights Agreement between us and American Stock
Transfer and Trust Company, as Rights Agent, could make the acquisition of our company more diÇcult.
These provisions include authorized but unissued shares of preferred and common stock that may be issued
without stockholder approval; three classes of directors serving staggered terms; preferred share purchase
rights that generally become exercisable if a person or group acquires 15% or more of our common stock or
announces a tender oÅer for 15% or more of our common stock; special requirements for stockholder proposals
and nominations for director; and super-majority voting requirements in certain situations including certain
types of business combinations.
Terrorist Attacks.
The impact of the September 11th terrorist attacks or any future terrorist attacks and responses to such
activities cannot be predicted at this time with respect to severity or duration. The impact could adversely
aÅect the Company in a number of ways, including, among others, an increase in delinquencies, bankruptcies
or defaults that could result in a higher level of non-performing assets, net charge-oÅs, and provision for loan
losses.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Market Risk
Market risk is the risk of loss from adverse changes in market prices and rates. The principal market risk
to the Company is the interest rate risk inherent in our lending, investing, and deposit taking activities, due to
the fact that interest-earning assets and interest-bearing liabilities do not change at the same rate, to the same
extent, or on the same basis.
We actively monitor and manage our interest rate risk through analyzing the repricing characteristics of
our loans, securities, and deposits on an on-going basis. The primary objective is to minimize the adverse
eÅects of changes in interest rates on our earnings, and ultimately the underlying market value of equity, while
structuring our 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. Due to the
limitation inherent in any individual risk management tool, we use both an interest rate sensitivity analysis and
a simulation model to measure and quantify the impact to our proÑtability or the market value of our assets
and liabilities.
The interest rate sensitivity analysis details the expected maturity and repricing opportunities mismatch
or sensitivity gap between interest-earning assets and interest-bearing liabilities over a speciÑed 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, net interest margin may be enhanced with a positive gap.
A negative gap exists when rate sensitive liabilities which reprice over a given time period exceed rate sensitive
assets. During periods of increasing interest rates, net interest margin may be impaired with a negative gap.
The following table indicates the maturity or repricing and rate sensitivity of our interest-earning assets
and interest-bearing liabilities as of December 31, 2001. Our exposure as reÖected in the table, represents the
estimated diÅerence between the amount of interest-earning assets and interest-bearing liabilities repricing
during future periods based on certain assumptions. The interest rate sensitivity of our assets and liabilities
presented in the table may vary if diÅerent assumptions were used or if actual experience diÅers from the
assumptions used. As reÖected in the table below, we were asset sensitive with a cumulative gap ratio of a
positive 18.67% within three months, and liability sensitive with a cumulative gap ratio of a negative 5.18%
55
within one year at year-end 2001 compared with a positive 18.13 % within three months, and a negative 9.78%
within one year at year-end 2000.
Interest Rate Sensitivity
December 31, 2001
Interest Rate Sensitivity Period
Within
3 Months
Over
Over 3 Months Over 1 Year
to 5 Years
5 Years
(Dollars in thousands)
to 1 Year
Non-interest
Sensitive
Total
Interest-Earning Assets:
Cash and due from banks ÏÏÏÏÏÏÏ
Federal funds Sold ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Securities available-for-sale ÏÏÏÏÏÏ
Securities held-to-maturity ÏÏÏÏÏÏ
Loans receivable
Commercial loans ÏÏÏÏÏÏÏÏÏÏÏÏ
Real estate loans ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Commercial mortgage loans ÏÏÏ
Real estate construction loans ÏÏ
Installment loansÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total loans, gross(1) ÏÏÏÏÏÏÏÏÏÏÏ
Non-interest-earning assets, net ÏÏ
Total assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
1,158
13,000
60,725
50
427,531
52,365
543,751
138,259
2,826
743
1,165,475
Ì
$1,240,408
$
$
166
Ì
Ì
10,875
50,114
886
5,282
23,677
3,938
Ì
83,897
Ì
94,938
$
Ì $
Ì
93,979
126,585
Ì $
Ì
94,254
236,846
72,190
Ì
Ì
Ì
$
73,514
13,000
248,958
374,356
19,878
10,771
78,605
2,660
13,545
Ì
125,459
Ì
$346,023
3,751
171,703
110,367
Ì
13
2
285,836
Ì
$616,936
Ì
501,274
Ì
235,725
Ì
738,005
Ì
164,596
Ì
20,322
745
Ì
Ì 1,660,667
82,619
$2,453,114
82,619
$ 154,809
Interest-bearing Liabilities
Deposits:
Demand ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Money market and NOW(2) ÏÏ
Savings(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
TCDs under $100 ÏÏÏÏÏÏÏÏÏÏÏÏ
TCDs $100 and over ÏÏÏÏÏÏÏÏÏ
Total deposits ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Securities sold under agreements
to repurchase ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Advances from Federal Home
Loan Bank ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-interest-bearing other
liabilitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏ
Total liabilities and stockholders'
equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
Ì $
17,129
15,348
243,719
484,002
760,198
22,114
Ì
Ì
Ì
Ì
42,163
52,162
167,405
418,264
679,994
Ì
Ì
Ì
Ì
$
Ì $
109,076
122,646
3,246
20,387
255,355
Ì
30,000
Ì
Ì
Ì $ 260,427
Ì
Ì
Ì
Ì
260,427
104,088
62,166
120
Ì
166,374
Ì
Ì
Ì
Ì
Ì
Ì
32,641
246,011
$ 260,427
272,456
252,322
414,490
922,653
2,122,348
22,114
30,000
32,641
246,011
$ 782,312
$ 679,994
$285,355
$166,374
$ 539,079
$2,453,114
Interest sensitivity gap ÏÏÏÏÏÏÏÏÏÏÏÏ
Cumulative interest sensitivity gap ÏÏ
Gap ratio (% of total assets)ÏÏÏÏÏÏÏ
Cumulative gap ratio ÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 458,096
$ 458,096
18.67%
18.67%
$(585,056)
$(126,960)
(23.85)%
(5.18)%
$ 60,668
$(66,292)
2.47%
(2.71)%
$450,562
$384,270
18.37%
15.66%
$(384,270)
$
Ì
(15.66)%
Ì
Ì
Ì
Ì
Ì
(1) Loans are gross of the allowance for loan losses and unamortized deferred loan fees. Non-accrual loans
are included in non-earning assets. Adjustable loans are included in the ""within three months'' category,
as they are subject to an interest adjustment depending upon terms on the loan.
(2) The Company's own historical experience and decay factor are used to estimate the money market and
NOW, and savings deposit runoÅ.
Since interest rate sensitivity analysis does not measure the timing diÅerences in the repricing of assets
and liabilities, we use a net interest income simulation model to measure the extent of the diÅerences in the
behavior of the lending and funding rates to changing interest rates, so as to project future earnings or market
values under alternative interest rate scenarios. Interest rate risk arises primarily through the Company's
traditional business activities of extending loans and accepting deposits. Many factors, including economic and
Ñnancial conditions, movements in interest rates and consumer preferences aÅect the spread between interest
earned on assets and interest paid on liabilities. The net interest income simulation model is designed to
56
measure the volatility of net interest income and net portfolio value, deÑned as net present value of assets and
liabilities, under immediate rising or falling interest rate scenarios in 100 basis points increments.
Although the modeling is very helpful in managing interest rate risk, it does require signiÑcant
assumptions for the projection of loan prepayment rates on mortgage related assets, loan volumes and pricing,
and deposit and borrowing volume and pricing, that might prove inaccurate. Because these assumptions are
inherently uncertain, the model cannot precisely estimate net interest income, or precisely predict the eÅect of
higher or lower interest rates on net interest income. Actual results will diÅer from simulated results due to the
timing, magnitude, and frequency of interest rates changes, the diÅerences between actual experience and the
assumed volume, changes in market conditions, and management strategies among other factors. The
Company monitors its interest rate sensitivity and attempts to reduce the risk of a signiÑcant decrease in net
interest income caused by a change in interest rates
We establish a tolerance level in our policy to deÑne 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 net interest
rate simulation projects that our tolerance level will be met or exceeded, we seek corrective action after
considering, among other things, market conditions, customer reaction, and the estimated impact on
proÑtability. At December 31, 2001, if interest rates were to increase instantaneously by 100 basis points, the
simulation indicated that our net interest income over the next twelve months would increase by 0.69%, and if
interest rates were to increase instantaneously by 200 basis points, the simulation indicated that our net
interest income over the next twelve months would decrease by 0.13%. Conversely, if interest rates were to
decrease instantaneously by 100 basis points, the simulation indicated that our net interest income over the
next twelve months would decrease by 1.52%, and if interest rates were to decrease instantaneously by
200 basis points, the simulation indicated that our net interest income over the next twelve months would
decrease by 8.43%.
The Company's net interest income simulation model also projects the net economic value of our
portfolio of assets and liabilities. We have established a tolerance level to value the net economic value of our
portfolio of assets and liabilities in our policy to a change of plus or minus 30% when the hypothetical rate
change is plus or minus 200 basis points. At December 31, 2001, if interest rates were to increase
instantaneously by 200 basis points, the simulation indicated that the net economic value of our portfolio of
assets and liabilities would decrease by 24.92%, and conversely, if interest rates were to decrease instantane-
ously by 200 basis points, the simulation indicated that the net economic value of our assets and liabilities
would increase by 24.54%.
Quantitative Information About Interest Rate Risk
The following table shows our Ñnancial instruments that are sensitive to changes in interest rates,
categorized by expected maturity, and the instruments' fair values at December 31, 2001, and 2000. For assets,
expected maturities are based on contractual maturity. For liabilities, we use our historical experience and
decay factors to estimate the deposit runoÅs of interest-bearing transactional deposits. We use certain
assumptions to estimate fair values and expected maturities. OÅ-balance sheet commitments to extend credit,
letters of credit, and bill of lading guarantees represent the contractual unfunded amounts. OÅ-balance sheet
57
Ñnancial instruments represent fair values. The results presented may vary if diÅerent assumptions are used or
if actual experience diÅers from the assumptions used.
Average
Interest
Rate
Expected Maturity Date at December 31,
2002
2003
2004
2005
2006
Thereafter
(Dollars in thousands)
As of December 31,
2001
2000
Total
Fair
Value
Total
Fair
Value
Interest-Sensitive Assets:
Federal funds sold and securities
purchased under agreements
to resell ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Mortgage-backed securities and
collateralized mortgage
obligations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Investment securitiesÏÏÏÏÏÏÏÏÏÏ
Loans
Commercial ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Real estate residential
mortgageÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Real estate commercial
mortgageÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Real estate construction ÏÏÏÏÏ
Installment & others ÏÏÏÏÏÏÏÏ
Interest rate swap ÏÏÏÏÏÏÏÏÏÏÏÏ
Interest-Sensitive Liabilities:
Other interest-bearing deposits
Time depositsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Securities sold under agreements
to Repurchase ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Advances from Federal Home
6.47
5.95
5.42
6.98
6.65
5.34
7.83
Ì
0.67
2.99
1.23
1.00% $
13,000 $ Ì $ Ì $ Ì $ Ì $ Ì $ 13,000 $ 13,000 $ 19,000 $ 19,000
5
9,491
71,594 31,496 38,786 37,237 99,540
Ì 3,744
270
158,362
172,789
171,872
451,442
175,184
456,588
203,199
361,797
204,007
362,445
392,795 26,935 22,434
9,906 17,758
28,452
498,280
498,486
435,064
434,854
890
1,343
839
3,171
5,683
219,829
231,755
234,002
216,679
215,994
79,616 46,190 83,474 51,185 64,870
Ì
123,880 39,711
1,369
3,008
Ì
Ì
Ì
4,156
Ì 1,928
Ì
4,817
7,398
Ì
126,802 83,565 65,977 44,475 37,705
117
1,298,279 28,443 10,023
202
22,114
Ì
Ì
Ì
400,308
Ì
15
Ì
166,254
79
Ì
Ì
45,530
Ì
Ì
Ì
Ì
725,643
163,591
20,763
1,928
726,234
163,906
20,831
1,928
619,077
139,102
27,385
Ì
612,651
139,949
27,508
977
524,778
477,292
1,337,143 1,343,618 1,177,429 1,181,975
524,805
477,213
22,114
22,114
68,173
68,201
30,000
30,937
10,000
9,951
676,513
17,595
26,923
12,729
Ì
(349)
(64)
(91)
(72)
619,872
15,435
44,371
20,729
Ì 100,000
(509)
(63)
(238)
(125)
1,104
Ì
Ì
200
Ì
Ì
Ì
Ì
Loan Bank ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
5.27
Ì 10,000
Ì 20,000
OÅ-Balance Sheet Financial
Instruments:
Commitments to extend credit
Standby letters of credit ÏÏÏÏÏÏÏ
Others letters of credit ÏÏÏÏÏÏÏÏ
Bill of lading guaranteeÏÏÏÏÏÏÏÏ
Forward rate agreement ÏÏÏÏÏÏÏ
Financial Derivatives
594,719 30,411
41
17,554
Ì
26,923
Ì
12,729
Ì
Ì
5,010
Ì
Ì
Ì
Ì
644
Ì
Ì
Ì
Ì
It is the policy of the Bank not to speculate on the future direction of interest rates. However, the
Company enters into Ñnancial derivatives in order to seek mitigation of exposure to interest rate risks related
to our interest-earning assets and interest-bearing liabilities. We believe that these transactions, when properly
structured and managed, may provide a hedge against inherent interest rate risk in the assets or liabilities and
against risk in speciÑc transactions. In such instances, the Bank may protect its position through the purchase
or sale of interest rate futures contracts for a speciÑc cash or interest rate risk position. Other hedge
transactions may be implemented using interest rate swaps, interest rate caps, Öoors, Ñnancial futures, forward
rate agreements, and options on futures or bonds. Prior to considering any hedging activities, we seek to
analyze the costs and beneÑts of the hedge in comparison to other viable alternative strategies. All hedges will
require an assessment of basis risk and must be approved by the Bank's Investment Committee. For periods
prior to January 1, 2001, for those qualifying Ñnancial derivatives that altered the interest rate characteristics
of assets or liabilities, the net diÅerential to be paid or received on the Ñnancial derivative was treated as an
adjustment to the yield on the underlying assets or liabilities. Interest rate Ñnancial derivatives that did not
qualify for the accrual method, were recorded at fair value, with gains and losses recorded in earnings.
EÅective January 1, 2001, the Company adopted SFAS No. 133, ""Accounting for Derivative Instruments
and Hedging Activities'' (""SFAS No. 133''), as amended by SFAS No. 137 and No. 138. SFAS No. 133
establishes accounting and reporting standards for Ñnancial derivatives, including certain Ñnancial derivatives
embedded in other contracts, and hedging activities. It requires the recognition of all Ñnancial derivatives as
assets or liabilities in the Company's statement of Ñnancial condition and measurement of those Ñnancial
58
derivatives at fair value. The accounting treatment of changes in fair value is dependent upon whether or not a
Ñnancial derivative is designated as a hedge and if so, the type of hedge.
Upon adoption of SFAS No. 133, the Company recognized all derivatives on the balance sheet at fair
value. Fair value is based on dealer quotes, or quoted prices from instruments with similar characteristics. The
Company uses Ñnancial derivatives designated for hedging activities as cash Öow hedges. For derivatives
designated as cash Öow hedges, changes in fair value are recognized in other comprehensive income until the
hedged item is recognized in earnings.
The Company entered into a forward rate agreement with a notional amount of $100 million that was
recorded at fair value, with gains recorded as securities gains in the accompanying consolidated statements of
income and comprehensive income. The agreement expired in March 2001.
On March 21, 2000, we entered into an interest rate swap agreement with a major Ñnancial institution in
the notional amount of $20 million for a period of Ñve years. The interest rate swap was for the purpose of
hedging the cash Öows from a portion of our Öoating rate loans against declining interest rates. The purpose of
the hedge is to provide a measure of stability in the future cash receipts from such loans over the term of the
swap agreement, which at December 31, 2001, was approximately three years. At December 31, 2001 the fair
value of the interest rate swap was $1.93 million ($869,000, net of tax) compared to $977,000 ($566,000, net
of tax) at December 31, 2000. For the twelve months ended December 31, 2001, amounts totaling $557,000
were reclassiÑed into earnings. The estimated net amount of the existing gains within accumulated other
comprehensive income that are expected to reclassify into earnings within the next 12 months is approximately
$1.06 million.
Item 8. Financial Statements and Supplementary Data
For Ñnancial statements, see ""Index to Consolidated Financial Statements on page 64.
Item 9. Changes in and disagreements with Accountants on Accounting and Financial Disclosure
Not Applicable.
Item 10. Directors and Executive OÇcers of the Registrant
PART III
The information under the caption ""Election of Directors'' on our deÑnitive Proxy Statement relating to
our 2002 Annual Meeting of Stockholders (the ""Proxy Statement'') is incorporated herein by reference.
The term of oÇce of each oÇcer is from the time of appointment until the next annual organizational
meeting of the Board of Directors of Bancorp or Cathay Bank (or action in lieu of a meeting) and until the
appointment of his or her successor unless, before that time, the oÇcer resigns or is removed or is otherwise
disqualiÑed from serving as an oÇcer of Bancorp or Cathay Bank.
The information under the caption ""Section 16(a) BeneÑcial Ownership Reporting Compliance'' on our
Proxy Statement is incorporated herein by reference.
Item 11. Executive Compensation
The information under the captions ""Compensation of Directors'', ""Information Concerning Manage-
ment Compensation'', ""Compensation Committee Interlocks and Insider Participation'' and ""Compensation
Committee Report on Executive Compensation'' in our Proxy Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain BeneÑcial Owners and Management
The information under the captions ""Principal Holders of Securities'' and ""Election of Directors'' of our
Proxy Statement is incorporated herein by reference.
59
Item 13. Certain Relationships and Related Transactions
The information under the captions ""Election of Directors'' and ""Certain Transactions'' of our Proxy
Statement is incorporated herein by reference.
60
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Documents Filed as Part of this Report
(a)(1) Financial Statements
See Index to Consolidated Financial Statements on page 64.
(a)(2) Financial Statement Schedules
Schedules have been omitted since they are not applicable, they are not required, or the information
required to be set forth in the schedules is included in the Consolidated Financial Statements or
Notes thereto.
(a)(3) Exhibits
3.1
3.2
3.3
4.1
10.1
Restated Articles of Incorporation. Previously Ñled with the Securities and Exchange
Commission as an exhibit to Registration Statement No. 33-33767 and incorporated herein by
reference.
Restated Bylaws. Previously Ñled with the Securities and Exchange Commission as an exhibit to
Bancorp's Annual Report on Form 10-K for the year ended December 31, 1990 and reÑled
herewith.
CertiÑcate of Designation of Series A Junior Participating Preferred Stock.
Shareholders Rights Plan. Previously Ñled with the Securities and Exchange Commission as an
exhibit to Bancorp's Registration Statement on Form 8-A on December 20, 2000 and
incorporated herein by reference.
Form of Indemnity Agreements between Bancorp and its directors and certain oÇcers. Previously
Ñled with the Securities and Exchange Commission as an exhibit to Registration Statement
No. 33-33767 and incorporated herein by reference.
10.2 Amended and Restated Cathay Bank Employee Stock Ownership Plan eÅective January 1, 1997.
10.3 Dividend Reinvestment Plan of Bancorp. Previously Ñled with the Securities and Exchange
Commission as an exhibit to Registration Statement No. 33-33767 and incorporated herein by
reference.
Equity Incentive Plan of Bancorp. Previously Ñled with the Securities and Exchange Commission
as an exhibit to Bancorp's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998
and incorporated herein by reference.*
Subsidiaries of Bancorp
Consent of Independent Auditors
22.1
23.1
10.4
* Management compensatory plan
(b) Reports on Form 8-K
The Company did not Ñle any reports on Form 8-K during the last quarter of 2001.
61
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
CATHAY BANCORP, INC.
Date: February 26, 2002
By:
/s/ DUNSON K. CHENG
Dunson K. Cheng
Chairman and President
POWERS OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Dunson K. Cheng and Anthony M. Tang, jointly and severally, his attorneys-in-fact,
each with the power of substitution, for him in any and all capacities, to sign any amendments to this Annual
Report on Form 10-K and to Ñle the same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and conÑrming all that each of said attorneys-
in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ DUNSON K. CHENG
Dunson K. Cheng
/s/ ANTHONY M. TANG
Anthony M. Tang
/s/ RALPH ROY BUON-CRISTIANI
Ralph Roy Buon-Cristiani
/s/ KELLY L. CHAN
Kelly L. Chan
President, Chairman of the Board
and Director (principal executive
oÇcer)
Executive Vice President, Chief
Financial OÇcer/Treasurer and
Director (principal Ñnancial oÇcer)
(principal accounting oÇcer)
February 26, 2002
February 26, 2002
Director
February 26, 2002
Director
February 26, 2002
/s/ MICHAEL M.Y. CHANG
Secretary of the Board and Director
February 26, 2002
Michael M.Y. Chang
/s/ GEORGE T.M. CHING
George T.M. Ching
/s/ WING K. FAT
Wing K. Fat
Co-Vice Chairman of the Board
and Director
February 26, 2002
Director
February 26, 2002
62
Signature
/s/ PATRICK S.D. LEE
Patrick S.D. Lee
/s/
JOSEPH C.H. POON
Joseph C.H. Poon
/s/ THOMAS G. TARTAGLIA
Thomas G. Tartaglia
/s/ WILBUR K. WOO
Wilbur K. Woo
Title
Director
Date
February 26, 2002
Director
February 26, 2002
Director
February 26, 2002
Co-Vice Chairman of the Board
and Director
February 26, 2002
63
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Consolidated Statements of Condition at December 31, 2001 and 2000 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Consolidated Statements of Income and Comprehensive Income for each of the years ended
December 31, 2001, 2000 and 1999 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Consolidated Statements of Changes in Stockholders' Equity for each of the years ended
December 31, 2001, 2000 and 1999 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999 ÏÏÏ
Notes to Consolidated Financial Statements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Parent-only condensed Ñnancial information of Cathay Bancorp, Inc. as of December 31, 2001,
2000 and 1999 is included in Note 16 to the Consolidated Financial Statements in this Annual
Report on Form 10-KÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Page
65
66
67
68
69
71
94
64
INDEPENDENT AUDITORS' REPORT
The Stockholders and the Board of Directors of Cathay Bancorp, Inc.:
We have audited the accompanying consolidated statements of condition of Cathay Bancorp, Inc. and
subsidiary (the Company) as of December 31, 2001 and 2000, and the related consolidated statements of
income and comprehensive income, changes in stockholders' equity and cash Öows for each of the years in the
three-year period ended December 31, 2001. These consolidated Ñnancial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these consolidated Ñnancial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States
of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the Ñnancial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the Ñnancial statements. An audit also includes
assessing the accounting principles used and signiÑcant estimates made by management, as well as evaluating
the overall Ñnancial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated Ñnancial statements referred to above present fairly, in all material
respects, the Ñnancial position of Cathay Bancorp, Inc. and subsidiary as of December 31, 2001 and 2000, and
the results of their operations and their cash Öows for each of the years in the three-year period ended
December 31, 2001, in conformity with accounting principles generally accepted in the United States of
America.
Los Angeles, California
January 16, 2002
KPMG LLP
65
CONSOLIDATED STATEMENTS OF CONDITION
As of December 31,
2001
2000
(In thousands, except share
and per share data)
ASSETS
Cash and due from banks ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Federal funds sold and securities purchased under agreements to resell ÏÏÏÏÏÏÏÏ
Cash and cash equivalents ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Securities available-for-sale (amortized cost of $241,788 in 2001 and $173,841
$
73,514
13,000
86,514
$
65,687
19,000
84,687
in 2000) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
248,958
177,796
Securities held-to-maturity (estimated fair value of $382,814 in 2001 and
$388,656 in 2000) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
LoansÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Less: Allowance for loan losses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unamortized deferred loan fees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Loans, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other real estate owned, netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Investments in real estate, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Premises and equipment, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Customers' liability on acceptances ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accrued interest receivable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Goodwill ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
374,356
1,667,905
(23,973)
(3,900)
1,640,032
1,555
17,727
29,403
12,729
14,545
8,880
18,415
$2,453,114
387,200
1,463,413
(21,967)
(4,139)
1,437,307
5,174
17,348
29,723
20,355
15,633
9,744
21,867
$2,206,834
Deposits
LIABILITIES AND STOCKHOLDERS' EQUITY
Non-interest-bearing demand depositsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest-bearing accounts:
NOW accountsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Money market accounts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Savings accounts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Time deposits under $100 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Time deposits of $100 or moreÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total deposits ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Securities sold under agreements to repurchase ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Advances from the Federal Home Loan Bank ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Acceptances outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other liabilitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Stockholders' equity
Preferred stock, $0.01 par value; 10,000,000 shares authorized, none issued ÏÏ
Common stock, $0.01 par value; 25,000,000 shares authorized, 9,117,769
issued and 8,978,869 outstanding in 2001, and 9,074,365 issued and
outstanding in 2000 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Treasury stock, at cost (138,900 shares in 2001 and none in 2000) ÏÏÏÏÏÏÏÏÏ
Additional paid-in-capital ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accumulated other comprehensive income, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Retained earningsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total liabilities and stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 260,427
$ 221,805
135,650
136,806
252,322
414,490
922,653
2,122,348
22,114
30,000
12,729
19,912
2,207,103
125,647
119,805
231,761
379,809
797,620
1,876,447
68,173
10,000
20,355
17,072
1,992,047
Ì
Ì
90
(7,341)
68,518
5,063
179,681
246,011
$2,453,114
91
Ì
66,275
2,303
146,118
214,787
$2,206,834
See accompanying notes to consolidated Ñnancial statements.
66
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Year Ended December 31,
2000
(In thousands, except share and per share data)
1999
2001
$ 120,591
13,762
23,627
$ 126,337
13,473
24,017
$
93,780
10,551
26,821
INTEREST INCOME
Interest on loansÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest on securities available-for-sale ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest on securities held-to-maturityÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest on federal funds sold and securities purchased under
agreements to resell ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest on deposits with banks ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total interest incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
INTEREST EXPENSE
Time deposits of $100 or moreÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other deposits ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other borrowed funds ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net interest income before provision for loan losses ÏÏÏÏÏÏÏÏÏÏ
Provision for loan losses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net interest income after provision for loan losses ÏÏÏÏÏÏÏÏÏÏÏ
NON-INTEREST INCOME
Securities gains (losses) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Letters of credit commissions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Depository service fees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other operating incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total non-interest income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
NON-INTEREST EXPENSE
Salaries and employee beneÑts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Occupancy expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Computer and equipment expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Professional services expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
FDIC and State assessments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Marketing expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other real estate owned (income) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Operations of investments in real estate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other operating expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total non-interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income before income tax expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income tax expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net Income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) arising during the yearÏÏÏÏÏÏ
Cumulative adjustment upon adoption of SFAS No. 133ÏÏÏÏÏÏ
Unrealized gains on cash Öow hedge derivatives ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Less: reclassiÑcation adjustment included in net income ÏÏÏÏÏÏ
Total other comprehensive income (loss), net of tax ÏÏÏÏÏÏÏÏÏ
Total comprehensive income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,316
56
159,352
686
40
164,553
40,005
23,859
2,289
66,153
93,199
6,373
86,826
2,157
2,152
5,097
5,373
14,779
23,689
3,422
2,928
5,395
475
1,449
(3,589)
2,257
4,139
40,165
61,440
18,820
42,620
2,408
566
303
517
2,760
45,380
$
41,431
26,514
6,211
74,156
90,397
4,200
86,197
1,085
2,439
4,558
4,674
12,756
22,735
3,242
2,773
3,625
462
1,172
(185)
683
3,997
38,504
60,449
21,862
38,587
3,084
Ì
Ì
(225)
3,309
41,896
$
Net income per common share
Basic ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Basic average common shares outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted average common shares outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
$
4.71
4.69
9,053,895
9,082,630
$
$
4.26
4.25
9,056,751
9,073,885
See accompanying notes to consolidated Ñnancial statements.
67
1,881
13
133,046
32,724
20,438
4,246
57,408
75,638
4,200
71,438
(3)
2,179
3,635
3,044
8,855
19,150
2,521
2,573
3,165
409
1,036
(1,416)
(74)
2,918
30,282
50,011
19,720
30,291
(2,229)
Ì
Ì
(34)
(2,195)
28,096
3.36
3.36
9,013,428
9,017,760
$
$
$
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended December 31, 2001, 2000 and 1999
Common Stock
Number
of Shares
Amount
Additional
Paid-in-
Capital
Accumulated
Other
Comprehensive
Income
(Loss)
Retained
Earnings
Treasury
Stock
Total
Stockholders'
Equity
(In thousands, except share and per share amounts)
8,988,760
$90
$62,920
$ 1,189
$ 92,453
$ Ì $156,652
Balance at December 31, 1998ÏÏ
Issuances of common stock Ì
Dividend Reinvestment Plan
Stock options exercised ÏÏÏÏÏÏÏÏ
Cash dividends of $0.805 per
share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Change in other comprehensive
income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
44,523
300
Ì
Ì
Ì
Balance at December 31, 1999ÏÏ 9,033,583
Issuances of common stock Ì
Dividend Reinvestment Plan
Stock options exercised ÏÏÏÏÏÏÏÏ
Cash dividends of $0.88 per
share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Change in other comprehensive
income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
39,330
1,452
Ì
Ì
Ì
Balance at December 31, 2000ÏÏ 9,074,365
Issuances of common stock Ì
Dividend Reinvestment Plan
Stock options exercised ÏÏÏÏÏÏÏÏ
Purchases of treasury stockÏÏÏÏÏ
Cash dividends of $1.00 per
share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Change in other comprehensive
income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
34,657
8,747
(138,900)
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
90
1
Ì
Ì
Ì
Ì
91
Ì
Ì
(1)
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
1,600
9
Ì
Ì
Ì
Ì
Ì
Ì
(2,195)
Ì
Ì
Ì
(7,248)
Ì
30,291
64,529
(1,006)
115,496
1,690
56
Ì
Ì
Ì
66,275
1,811
432
Ì
Ì
Ì
Ì
Ì
Ì
Ì
3,309
Ì
2,303
Ì
Ì
Ì
Ì
2,760
Ì
Ì
Ì
(7,965)
Ì
38,587
146,118
Ì
Ì
Ì
Ì
Ì (7,341)
(9,057)
Ì
42,620
Ì
Ì
Ì
1,600
9
(7,248)
(2,195)
30,291
179,109
1,691
56
(7,965)
3,309
38,587
214,787
1,811
432
(7,342)
(9,057)
2,760
42,620
Balance at December 31, 2001ÏÏ
8,978,869
$90
$68,518
$ 5,063
$179,681
$(7,341)
$246,011
See accompanying notes to consolidated Ñnancial statements.
68
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash Flows from Operating Activities
Net Income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Provision for losses on other real estate owned ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred tax beneÑt (liability) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Depreciation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net gain on sale of other real estate owned ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Gain on sale of investments in real estateÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(Gain) Loss on sales and calls of securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Write-downs on Venture Capital Investment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortization of investment security premiums, netÏÏÏÏÏÏÏÏÏÏÏ
Amortization of goodwillÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(Decrease) increase in deferred loan fees, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Decrease (increase) in accrued interest receivable ÏÏÏÏÏÏÏÏÏÏÏ
Decrease (increase) in other assets, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Increase (decrease) in other liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total adjustmentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net cash provided by operating activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash Flows from Investing Activities
Purchase of investment securities available-for-saleÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from maturity and call of investment securities
available-for-sale ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from sale of investment securities available-for-sale ÏÏÏÏ
Purchase of mortgage-backed securities available-for-sale ÏÏÏÏÏÏÏ
Proceeds from repayment and sale of mortgage-backed securities
available-for-sale ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchase of investment securities held-to-maturity ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from maturity and call of investment securities held-to-
maturityÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchase of mortgage-backed securities held-to-maturity ÏÏÏÏÏÏÏÏ
Proceeds from repayment of mortgage-backed securities held-to-
maturityÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net increase in loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchase of premises and equipmentÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from sale of other real estate owned ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from sale of investments in real estate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net increase in investments in real estateÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash paid for the acquisition of Golden City ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2001
Year Ended December 31,
2000
(In thousands)
1999
$
42,620
$
38,587
$
30,291
6,373
Ì
(2,361)
1,472
(3,376)
Ì
(2,222)
65
575
864
(239)
1,088
2,200
2,840
7,279
49,899
4,200
71
637
1,500
(263)
Ì
(1,085)
Ì
(926)
815
544
(2,483)
(1,372)
9,666
11,304
49,891
4,200
339
(1,472)
1,331
(1,549)
(394)
3
Ì
557
681
(38)
(1,154)
(2,480)
(3,012)
(2,988)
27,303
(952,258)
(660,275)
(1,090,732)
865,867
22,179
Ì
678,368
21,443
(949)
1,160,919
Ì
(911)
8,421
(82,313)
6,955
(47,824)
60,295
(40,052)
17,519
(29,604)
63,155
(204,516)
(1,152)
6,995
Ì
(379)
Ì
38,802
(200,298)
(5,924)
3,187
Ì
(361)
Ì
9,906
(45,255)
1,385
(38,157)
70,851
(282,413)
(803)
4,730
1,026
(16,162)
(5,511)
Net cash used in investing activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(253,758)
(178,961)
(231,127)
69
2001
Year Ended December 31,
2000
(In thousands)
1999
Cash Flows from Financing Activities
Net increase in demand deposits, NOW accounts, money market
and savings deposits ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net increase in time deposits ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net (decrease) increase in federal funds purchased and securities
sold under agreements to repurchase ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Increase (decrease) in borrowing from Federal Home Loan Bank
Cash dividends ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from shares issued to Dividend Reinvestment Plan ÏÏÏÏÏ
Proceeds from exercise of stock options ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchase of treasury stock ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
86,187
159,714
47,899
106,812
(46,059)
20,000
(9,057)
1,811
432
(7,342)
21,183
(20,000)
(7,965)
1,691
56
Ì
Net cash provided by Ñnancing activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
205,686
149,676
Increase (decrease) in cash and cash equivalents ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash and cash equivalents, beginning of the year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,827
84,687
20,606
64,081
36,835
124,499
30,554
Ì
(7,248)
1,600
9
Ì
186,249
(17,575)
81,656
Cash and cash equivalents, end of the year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
86,514
$
84,687
$
64,081
Supplemental disclosure of cash Öow information
Cash paid during the year for:
Interest ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-cash investing activities:
Transfer to investment securities available-for-sale within
90 days of maturity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net change in unrealized holding gain (loss) on securities
available-for-sale, net of tax ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cumulative adjustment upon adoption of SFAS No. 133, net
of tax ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net change in unrealized gains on cash Öow hedge
derivatives, net of taxÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Transfers to other real estate owned ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Loans to facilitate the sale of other real estate owned ÏÏÏÏÏÏ
Acquisition:
The Company purchased certain assets and assumed certain
liabilities of Golden City Commercial Bank for $5,511 in
1999. In conjunction with the acquisition, liabilities were
assumed as follows. See Note 2.
Fair value of assets acquired
Cash paid
$86,779
(5,511)
Liabilities assumed
$81,268
$
$
$
$
$
$
$
$
68,020
5,561
11,722
1,891
566
303
1,057
5,400
$
$
$
$
$
$
$
$
72,644
17,411
59,858
3,309
$
$
$
$
56,857
20,350
2,515
(2,195)
Ì $
Ì
Ì $
$
$
5,347
1,515
Ì
886
3,483
See accompanying notes to consolidated Ñnancial statements.
70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of SigniÑcant Accounting Policies
The accompanying consolidated Ñnancial statements include the accounts of Cathay Bancorp, Inc.
(""Bancorp''), a Delaware corporation and its wholly-owned subsidiary, Cathay Bank (""Bank''), a California
state-chartered bank (together, the ""Company''). All signiÑcant inter-company transactions and balances
have been eliminated in consolidation. The consolidated Ñnancial statements of the Company are prepared in
conformity with accounting principles generally accepted in the United States of America (""GAAP'') and
general practices within the banking industry. Management of the Company has made a number of estimates
and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and
liabilities to prepare these consolidated Ñnancial statements in conformity with GAAP. Actual results could
diÅer from these estimates. The most signiÑcant estimate subject to change relates to the allowance for loan
losses. Certain reclassiÑcations have been made to the prior years' Ñnancial statements to conform to the 2001
presentation. The following are descriptions of the more signiÑcant of these policies.
Organization and Background. The business activities of Bancorp consist primarily of the operations of
the Bank and its wholly owned subsidiaries, Cathay Investment Company (""CIC'') and Cathay Securities
Fund, Inc. There are no operating business activities currently at Bancorp. Bancorp may, from time to time,
explore various acquisition possibilities. Bancorp currently does not employ any persons other than its
management, which includes the President, the Chief Financial OÇcer and the General Counsel, and does not
own or lease any real or personal property. Bancorp uses the employees, premises, equipment and furniture of
the Bank without the payment of any service or rental fees to the Bank. It is expected that for the near future
the primary business of the Bancorp will be the ongoing business of the Bank.
The Bank is a commercial bank, servicing primarily the individuals, professionals and small to medium-
sized businesses in the local markets in which its branches are located. Its operations include the acceptance of
checking, savings, and time deposits, and the making of commercial, real estate and consumer loans. The
Bank also oÅers trade Ñnancing, letter of credit, wire transfer, spot and forward contracts, internet banking,
investment services, and other customary banking services to its customers.
Securities. Securities are classiÑed as held-to-maturity when management has the ability and intent to
hold these securities until maturity. Securities are classiÑed as available-for-sale when management intends to
hold the securities for an indeÑnite period of time, or when the securities may be utilized for tactical
asset/liability purposes, and may be sold from time to time to manage interest rate exposure and resultant
prepayment risk and liquidity needs. Securities purchased are designated as held-to-maturity or available-for-
sale at the time of acquisition.
Securities held-to-maturity are stated at cost, adjusted for the amortization of premiums and the
accretion of discounts on a level-yield basis. The carrying value of these assets is not adjusted for temporary
declines in fair value since the Company has the positive intent and ability to hold them to maturity. Securities
available-for-sale are carried at fair value, and any unrealized holding gains or losses are excluded from
earnings and reported as a separate component of stockholders' equity, net of tax, in accumulated other
comprehensive income until realized. Realized gains or losses are determined on the speciÑc identiÑcation
method. Premium and discounts are amortized or accreted as adjustment of yield on a level-yield basis.
The cost basis of an individual security is written down, if the decline in its fair value below the amortized
cost basis is other than temporary. The write-down is accounted for as a realized loss, and is included in net
income. The new cost basis is not changed for subsequent recoveries in fair value.
Loans. Loans are carried at amounts advanced, less principal payments collected and net deferred loan
fees. Interest is accrued and earned daily on an actual or 360-day basis. Interest accruals on business loans and
non-residential real estate loans are generally discontinued whenever the payment of interest or principal is
90 days or more past due. Such loans are placed on non-accrual status, unless the loan is well secured, and
there is a high probability of recovery in full, as determined by management. When loans are placed on a
non-accrual status, previously accrued but unpaid interest is reversed and charged against current period
71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
income, and interest is subsequently recognized only to the extent cash is received. Interest collected on non-
accrual loans is applied to the outstanding principal balance unless the loan is returned to accrual status. In
order to be returned to accrual status, all past due payments must be received and the loan must be paying in
accordance with its payment terms. Loan origination fees and commitment fees, oÅset by certain direct loan
origination costs, are deferred and recognized over the contractual life of the loan as a yield adjustment. If a
loan is placed on non-accrual status, the amortization of the loan fees and the accretion of discounts
discontinue until such time when the loan is reverted back to accruing status.
Allowance for Loan Losses. Management believes the allowance for loan losses is being maintained at a
level considered adequate to provide for estimable and probable losses. Additions to the allowance for loan
losses are made monthly by charges to operating expense in the form of a provision for loan losses. All loans
judged to be un-collectible are charged against the allowance while any recoveries are credited to the
allowance.
Management monitors changing economic conditions, the loan mix by category, the industry segregation
and geographic distribution of the portfolio and the type of borrowers in determining the adequacy of the
allowance for loan losses. Management also closely reviews its past, present and expected overall net loan
losses in comparison to the existing level of the allowance. In addition, the Bank's regulators, as an integral
part of their examination process, periodically review the Bank's allowance for loan losses. Such agencies may
require the Bank to make additions to its allowance for loan losses based on the judgments of the information
available to them at the time of their examination.
Impaired Loans. A loan is considered impaired when it is ""probable'' that a creditor will be unable to
collect all amounts due (i.e. both principal and interest) according to the contractual terms of the loan
agreement. The measurement of impairment may be based on (1) the present value of the expected future
cash Öows of the impaired loan discounted at the loan's original eÅective interest rate, (2) the observable
market price of the impaired loan or (3) the fair value of the collateral of a collateral-dependent loan. The
amount by which the recorded investment in the loan exceeds the measure of the impaired loan is recognized
by recording a valuation allowance with a corresponding charge to the provision for loan losses. The Company
stratiÑes its loan portfolio by size and treats smaller performing loans with an outstanding balance less than the
Company's deÑned criteria as a homogenous portfolio. For loans with a balance in excess of $750,000, the
Company conducts a periodic review of each loan in order to test for impairment. The Company recognizes
interest income on impaired loans based on its existing method of recognizing interest income on non-accrual
loans.
Letter of Credit Fees.
Issuance and commitment fees received for the issuance of commercial or
standby letters of credit are recognized over the term of the instruments.
Premises and Equipment. Premises and equipment are carried at cost, less accumulated depreciation.
Depreciation is computed on the straight-line method based on the following estimated useful lives of the
assets:
Type
Estimated Useful Life
Buildings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Building improvements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Furniture, Ñxtures and equipment ÏÏÏÏÏÏÏÏÏÏ
Leasehold improvements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
15 to 45 years
5 to 20 years
3 to 25 years
Shorter of useful lives or the terms of the lease
Improvements are capitalized and amortized to occupancy expense over the shorter of the estimated
useful life of the improvement or the term of the lease.
Other Real Estate Owned. Real estate acquired in the settlement of loans is initially recorded and,
subsequently is carried at fair value, less estimated costs to sell. SpeciÑc valuation allowances on other real
estate owned are recorded through charges to operations to recognize declines in fair value subsequent to
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
foreclosure. Gains on sales are recognized when certain criteria relating to the buyer's initial and continuing
investment in the property are met.
Investments in Real Estate. At December 31, 2001, the Company is a limited partner in four diÅerent
partnerships that invest in low income housing projects that qualify for Federal and/or State income tax
credits. As further discussed in Note 7, the partnership interests are accounted for utilizing the equity method
of accounting. The costs related directly to the development or the improvement of real estate are capitalized.
Gains on sales are recognized when certain criteria relating to the buyer's initial and continuing investment in
the property are met.
Goodwill. During 2001, Goodwill, which represents the excess of purchase price over fair value of net
assets acquired and the related acquisition costs, was amortized on a straight-line basis over the expected
periods to be beneÑted (generally 15 years). The amortization of goodwill ceases upon adoption of SFAS
No. 142, which for the Company was January 1, 2002. Upon adoption of SFAS No. 142, the Company will be
required to reassess the useful lives and residual values of all intangible assets acquired in purchase business
combinations, and make any necessary amortization period adjustments by the end of the Ñrst interim period.
In addition, to the extent an intangible asset is identiÑed as having an indeÑnite useful life, the Company will
be required to test the intangible asset for impairment in accordance with the provisions of SFAS No. 142.
Any impairment loss will be measured as of the date of adoption and recognized as the cumulative eÅect of a
change in accounting principle in the Ñrst interim period. The Company adopted SFAS No. 142 eÅective
January 1, 2002. Assuming no impairment adjustments are necessary, the Company expects non-interest
expense to decrease by approximately $661,000 in 2002, resulting from the cessation of goodwill amortization.
Core Deposit Premium. Core deposit premium, which represents the purchase price over the fair value
of the deposits acquired from other Ñnancial institutions are amortized on a straight-line basis over the
expected periods to be beneÑted (generally 15 years). The Company assesses the recoverability of this
intangible asset by determining whether the amortization of the premium balance over its remaining life can
be recovered through the remaining deposit portfolio.
Stock-Based Compensation. The Company applies the intrinsic value method to account for stock-
based compensation whereby expense is recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. Pro forma net income and pro forma net income per share
disclosures for employee stock option grants are based on the recognition as expense, over the vesting period,
of the fair value on the date of grant of all stock-based awards.
Derivative Financial Instruments.
It is the policy of the Bank not to speculate on the future direction of
interest rates. However, the Company enters into Ñnancial derivatives in order to seek mitigation of exposure
to interest rate risks related to our interest-earning assets and interest-bearing liabilities. We believe that these
transactions, when properly structured and managed, may provide a hedge against inherent interest rate risk in
the assets or liabilities and against risk in speciÑc transactions. In such instances, the Bank may protect its
position through the purchase or sale of interest rate futures contracts for a speciÑc cash or interest rate risk
position. Other hedge transactions may be implemented using interest rate swaps, interest rate caps, Öoors,
Ñnancial futures, forward rate agreements, and options on futures or bonds. Prior to considering any hedging
activities, we seek to analyze the costs and beneÑts of the hedge in comparison to other viable alternative
strategies. All hedges require an assessment of basis risk and must be approved by the Bank's Investment
Committee. For periods prior to January 1, 2001, for those qualifying Ñnancial derivatives that altered the
interest rate characteristics of assets or liabilities, the net diÅerential to be paid or received on the Ñnancial
derivative was treated as an adjustment to the yield on the underlying assets or liabilities. Interest rate
Ñnancial derivatives that did not qualify for the accrual method, were recorded at fair value, with gains and
losses recorded in earnings.
EÅective January 1, 2001, the Company adopted SFAS No. 133, ""Accounting for Derivative Instruments
and Hedging Activities'' (""SFAS No. 133''), as amended by SFAS No. 137 and No. 138. SFAS No. 133
establishes accounting and reporting standards for Ñnancial derivatives, including certain Ñnancial derivatives
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
embedded in other contracts, and hedging activities. It requires the recognition of all Ñnancial derivatives as
assets or liabilities in the Company's statement of Ñnancial condition and measurement of those Ñnancial
derivatives at fair value. The accounting treatment of changes in fair value is dependent upon whether or not a
Ñnancial derivative is designated as a hedge and if so, the type of hedge.
Upon adoption of SFAS No. 133, the Company recognized all derivatives on the balance sheet at fair
value. Fair value is based on dealer quotes, or quoted prices from instruments with similar characteristics. The
Company uses Ñnancial derivatives designated for hedging activities as cash Öow hedges. For derivatives
designated as cash Öow hedges, changes in fair value are recognized in other comprehensive income until the
hedged item is recognized in earnings.
Income Taxes. The provision for income taxes is based on income reported for Ñnancial statement
purposes and diÅers from the amount of taxes currently payable, since certain income and expense items are
reported for Ñnancial statement purposes in diÅerent periods than those for tax reporting purposes.
The Company accounts for income taxes using the asset and liability approach, the objective of which is
to establish deferred tax assets and liabilities for the temporary diÅerences between the Ñnancial reporting
basis and the tax basis of the Company's assets and liabilities at enacted tax rates expected to be in eÅect when
such amounts are realized or settled. A valuation allowance is established for deferred tax assets if, based on
the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets
will not be realized. A valuation allowance is established, when necessary, to reduce the deferred tax assets to
the amount that is more likely than not to be realized.
Foreign Exchange Operations. The Company engages in foreign exchange transactions on behalf of its
customers. Stated trading limits are maintained and monitored to ensure eÇcient operations. The majority of
all transactions are settled on the transaction date to minimize settlement risk to the Company. The Company
requires cash collateral or an approved line of credit on all forward transactions.
Comprehensive Income. Comprehensive income is deÑned 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 items, minimum pension liability adjustments, unrealized gains and losses on
investments in securities available-for-sale, and cash Öow hedges. Comprehensive income and its components
are reported and displayed in the Company's consolidated statements of income and comprehensive income.
Comprehensive income is a Ñnancial reporting concept and does not aÅect the Company's Ñnancial position or
results of operations.
Net Income per Common Share. Earnings per share (""EPS'') is computed on a basic and diluted basis.
Basic EPS excludes dilution and is computed by dividing net income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS reÖects 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 shares in the earnings of the
Company.
Statement of Cash Flows. Cash and cash equivalents include short-term, highly liquid investments that
generally have an original maturity of three months or less.
Segment Information and Disclosures. Generally accepted accounting principles in the United States of
America establish standards to report information about operating segments in annual Ñnancial statements
and requires reporting of selected information about operating segments in interim reports to stockholders. It
also establishes standards for related disclosures about products and services, geographic areas and major
customers. The Company has concluded it has one segment.
74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued Statement No. 141, ""Business
Combinations'' (""SFAS No. 141'') and Statement No. 142, ""Goodwill and Other Intangible Assets''
(""SFAS No. 142''). SFAS No. 141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 as well as all purchase method business combinations completed
after June 30, 2001.
SFAS No. 142 requires that goodwill no longer be amortized to earnings, but instead be reviewed for
impairment. The amortization of goodwill ceases upon adoption of SFAS No. 142, which for the Company
was January 1, 2002. Upon adoption of SFAS No. 142, the Company will be required to reassess the useful
lives and residual values of all intangible assets acquired in purchase business combinations, and make any
necessary amortization period adjustments by the end of the Ñrst interim period. In addition, to the extent an
intangible asset is identiÑed as having an indeÑnite useful life, the Company will be required to test the
intangible asset for impairment in accordance with the provisions of SFAS No. 142. Any impairment loss will
be measured as of the date of adoption and recognized as the cumulative eÅect of a change in accounting
principle in the Ñrst interim period. The Company adopted SFAS No. 142 eÅective January 1, 2002.
Assuming no impairment adjustments are necessary and no other changes to goodwill, the Company expects
non-interest expense to decrease by approximately $661,000 in 2002, resulting from the cessation of goodwill
amortization.
In June 2001, the FASB issued SFAS No. 143, ""Accounting for Asset Retirement Obligations,'' which
requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which
it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs would be
capitalized as part of the carrying amount of the long-lived asset and depreciated over the life of the asset. The
liability is accrued at the end of each period through charges to operating expense. If the obligation is settled
for other than the carrying amount of the liability, the Company will recognize a gain or loss on settlement.
The provisions of SFAS No. 143 are eÅective for Ñscal years beginning after June 15, 2002. Management does
not expect that adoption of SFAS No. 143 will have a material impact on the results of operations or Ñnancial
condition of the Company.
In August 2001, the FASB issued SFAS No. 144, ""Accounting for the Impairment or Disposal of Long-
Lived Assets.'' For long-lived assets to be held and used, SFAS No. 144 retains the requirements of SFAS
No. 121 to (a) recognize an impairment loss only if the carrying amount of a long-lived asset is not
recoverable from its undiscounted cash Öows and (b) measure an impairment loss as the diÅerence between
the carrying amount and fair value. Further, SFAS No. 144 eliminates the requirement to allocate goodwill to
long-lived assets to be tested for impairment, describes a probability-weighted cash Öow estimation approach
to deal with situations in which alternative courses of action to recover the carrying amount of a long-lived
asset are under consideration or a range is estimated for the amount of possible future cash Öows, and
establishes a ""primary-asset'' approach to determine the cash Öow estimation period. For long-lived asset to be
disposed of by sale, SFAS No. 144 retains the requirements of SFAS No. 121 to measure a long-lived asset
classiÑed as held-for-sale at the lower of its carrying amount or fair value less cost to sell and to cease
depreciation. Discontinued operations would no longer be measured on a net realizable value basis, and future
operating losses would be no longer recognized before they occur. SFAS No. 144 broadens the presentation of
discontinued operations to include a component of an entity, establishes criteria to determine when a long-
lived asset is held-for-sale, prohibits retroactive reclassiÑcation of the asset as held-for-sale at the balance
sheet date if the criteria are met after the balance sheet date but before issuance of the Ñnancial statements,
and provides accounting guidance for the reclassiÑcation of an asset from ""held-for-sale'' to ""held-and-used.''
The provisions of SFAS No. 144 are eÅective for Ñscal years beginning after December 15, 2001.
Management does not expect that adoption of SFAS No. 144 will have a material impact on the results of
operations or Ñnancial condition of the Company.
75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
2. Acquisition
On December 10, 1999, the Bank entered into a Purchase and Assumption Agreement (""P&A
Agreement'') with the Federal Deposit Insurance Corporation (""FDIC''), as the Receiver of Golden City
Commercial Bank to purchase certain assets and to assume certain deposits and other liabilities of Golden
City as of close of business on December 10, 1999 for $5.5 million in cash. The loans, securities, cash, Federal
funds sold and deposits assumed by the Bank as of the closing on December 10, 1999 were $31.2 million,
$22.1 million, $8.4 million, $22.0 million, and $80.6 million, respectively. Immediately upon acquisition, the
branch operations of Golden City were merged into the Bank, and the two branches of Golden City were made
branches of the Bank. The acquisition has been accounted for by the purchase method and, accordingly, the
results of operations of Golden City subsequent to the closing on December 10, 1999 have been included in
the Company's consolidated Ñnancial statements. The excess of the purchase price over the fair value of the
net identiÑable assets acquired totaled approximately $2.65 million has been recorded as core deposits
intangible to be amortized over 15 years.
3. Cash and Cash Equivalents
The Company is required to maintain reserves with the Federal Reserve Bank. Reserve requirements are
based on a percentage of deposit liabilities. The average reserve balances required were $3,288,000 for 2001
and $2,500,000 for 2000.
Securities purchased under agreements to resell are collateralized by U.S. government agency and
mortgaged-backed securities at December 31, 2001 and 2000. These agreements generally mature in one
business day. The counter-parties to these agreements are nationally recognized investment banking Ñrms that
meet credit requirements of the Company and with whom a master repurchase agreement has been duly
executed. The following table sets forth information with respect to securities purchased under resale
agreements.
Balance, December 31ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Weighted average interest rate, December 31 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Average amount outstanding during the year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Weighted-average interest rate for the year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Maximum amount outstanding at any month end ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2001
2000
(In thousands)
$ Ì $17,000
Ì
$27,897
6.55%
$ 8,945
4.21%
5.74%
$36,000
$19,500
For those securities obtained under the resale agreements, the collateral is either held by a third party
custodian or by the counter-party and segregated under written agreements that recognize the Company's
interest in the securities. Interest income associated with securities purchased under resale agreements totaled
$1,149,000 for 2001, $513,000 for 2000 and $1,860,000 for 1999.
76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
4. Securities
Securities Available-for-Sale. The following table reÖects the amortized cost, gross unrealized gains,
gross unrealized losses and fair values of securities available-for-sale as of December 31, 2001 and 2000:
Available-for-sale
2001
U.S. government agencies ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Mortgage-backed securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Collateralized mortgage obligations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Asset-backed securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Money market fund ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Corporate bonds ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Equity securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortized
Cost
$113,873
8,336
2,658
9,994
20,000
57,973
28,954
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$241,788
2000
U.S. government agencies ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State and municipal securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Mortgage-backed securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Collateralized mortgage obligations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Asset-backed securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Corporate bonds ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Equity securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortized
Cost
$ 75,187
1,275
13,152
5,849
10,452
59,466
8,460
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$173,841
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In thousands)
Fair
Value
$4,500
213
47
401
Ì
2,532
34
$7,727
$ 49
6
Ì
Ì
Ì
171
331
$557
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In thousands)
$3,130
2
70
Ì
Ì
1,119
10
$4,331
$ Ì
Ì
15
45
82
215
19
$376
$118,324
8,543
2,705
10,395
20,000
60,334
28,657
$248,958
Fair
Value
$ 78,317
1,277
13,207
5,804
10,370
60,370
8,451
$177,796
The amortized cost and fair value of securities available-for-sale, except for mortgage-backed securities
and collateralized mortgage obligations, at December 31, 2001, by contractual maturities are shown below.
Actual maturities may diÅer from contractual maturities because borrowers may have the right to call or repay
obligations with or without call or repayment penalties.
Due in one year or less(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Due after one year through Ñve years ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Due after Ñve years through ten yearsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Mortgage-backed securities and collateralized mortgage obligations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 60,971
91,144
78,679
10,994
$ 60,724
93,708
83,278
11,248
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$241,788
$248,958
Amortized
Cost
Fair
Value
(In thousands)
(1) Equity securities are reported in this category.
77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Proceeds from sales and repayments of securities available-for-sale were $30,600,000 during 2001 and
$28,398,000 during 2000. Proceeds from maturities and calls of securities available-for-sale were $865,867,000
during 2001 and $678,638,000 during 2000. Gains realized in securities available-for-sale were $1,057,000, and
losses realized were $65,000 in 2001 compared to no gains and losses realized of $18,000 in 2000. There were
no gains in 1999 and losses realized in 1999 were $34,000.
Securities Held-to-Maturity. The carrying value, gross unrealized gains, gross unrealized losses and
estimated fair values of securities held-to-maturity are as follows at December 31, 2001 and 2000:
Held-to-Maturity
Carrying
Value
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
(In thousands)
2001
U.S. government agencies ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State and municipal securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Mortgage-backed securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Collateralized mortgage obligations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Asset-backed securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Corporate bonds ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other securitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 50,017
69,906
110,342
50,282
920
73,031
19,858
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$374,356
$1,251
2,049
2,726
657
1
1,822
484
$8,990
$ Ì
380
14
57
Ì
81
Ì
$532
$ 51,268
71,575
113,054
50,882
921
74,772
20,342
$382,814
Carrying
Value
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
(In thousands)
2000
U.S. government agencies ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State and municipal securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Mortgage-backed securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Collateralized mortgage obligations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Asset-backed securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Corporate bonds ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 64,689
68,820
135,494
48,694
13,156
56,347
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$387,200
$ 586
1,567
1,382
182
Ì
159
$3,876
$ 262
422
631
125
80
900
$2,420
$ 65,013
69,965
136,245
48,751
13,076
55,606
$388,656
The carrying value and estimated fair value of securities held-to-maturity, except for mortgage-backed
securities and collateralized mortgage obligations, at December 31, 2001, by contractual maturities are shown
78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
below. Actual maturities may diÅer from contractual maturities because borrowers may have the right to call
or repay obligations with or without call or repayment penalties.
Amortized
Cost
Fair
Value
(In thousands)
Due in one year or less ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Due after one year through Ñve years ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Due after Ñve years through ten yearsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Due after ten years ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Mortgage-backed securities and collateralized mortgage obligations ÏÏÏÏÏÏ
$ 10,870
113,351
52,397
37,114
160,624
$ 11,086
116,094
54,629
37,069
163,936
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$374,356
$382,814
Proceeds from repayment of securities held-to-maturity were $63,155,000 during 2001 and $38,802,000
during 2000. Proceeds from the maturities and calls of securities held-to-maturity were $60,295,000 during
2001 and $17,519,000 during 2000. The Company realized gross realized gains of $314,000 for 2001, less than
$1,000 for 2000 and $31,000 for 1999. No losses were realized for 2001, 2000 and 1999.
Securities having a carrying value of $125,250,000 at December 31, 2001 and $209,537,000 at
December 31, 2000 were pledged to secure public deposits, treasury tax and loan, securities sold under
agreements to repurchase, and a line of credit with the Federal Home Loan Bank.
Federal Home Loan Bank (""FHLB'') stock is carried at cost, and included in other assets in the
Statements of Financial Condition. The carrying amount of the FHLB stock at December 31, 2001 was
$5.64 million compared to $5.61 million at December 31, 2000. The Federal Home Loan Bank Act currently
governs the level of stock ownership, and the stock is purchased and redeemed at par. The amount of Federal
Home Loan Bank stock required is based on the member's year-end outstanding mortgage-backed securities,
residential mortgages and advances from the FHLB.
5. Loans
Most of the Company's business activity is with customers located in the predominantly Asian areas of
Southern and Northern California, New York City and Houston, Texas. The Company has no speciÑc
industry concentration, and generally its loans are collateralized with real property or other pledged collateral
of the borrowers. Loans are generally expected to be paid-oÅ from the operating proÑts of the borrowers,
79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
reÑnancing by another lender or through sale by the borrowers of the secured collateral. The components of
loans in the consolidated statements of condition as of December 31, 2001 and 2000 were as follows:
Type of Loans:
Commercial loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Residential mortgage loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Commercial mortgage loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Equity linesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Real estate construction loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Installment loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2001
2000
(In thousands)
$ 506,128
195,562
738,379
40,352
166,417
20,322
745
$ 442,181
186,926
630,662
33,794
142,048
27,329
473
Gross loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,667,905
1,463,413
Less
Allowance for loan losses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unamortized deferred loan fees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(23,973)
(3,900)
(21,967)
(4,139)
Net loansÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1,640,032
$1,437,307
The Company previously sold participations in certain residential mortgage loans to buyers in the
secondary market. These participations covered substantially all of the loan balances and were sold without
recourse. No such sales have been made since 1998. As of December 31, 2001, the Company had $3,580,000
of these loans in its servicing portfolio. There were no loans held for sale as of December 31, 2001 and 2000.
The Company pledged approximately $96,413,000 of its residential mortgage loans as of December 31, 2001
and $76,463,000 as of December 31, 2000 to secure a line of credit with the Federal Home Loan Bank.
The allowance for loan losses is a signiÑcant estimate that can and does change based on management's
process in analyzing the loan portfolio and on management's assumptions about speciÑc borrowers and
applicable economic and environmental conditions, among other factors. An analysis of the activity in the
allowance for loan losses for the years ended December 31, 2001, 2000 and 1999 is as follows:
Balance at beginning of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Provision for loan losses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Loans charged-oÅ ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Recoveries of charged-oÅ loansÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$21,967
6,373
(4,663)
296
2001
2000
(In thousands)
$19,502
4,200
(1,905)
170
1999
$15,970
4,200
(1,731)
1,063
Balance at end of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$23,973
$21,967
$19,502
The Company had identiÑed impaired loans with a recorded investment to be approximately $19,350,000
as of December 31, 2001 and $27,818,000 as of December 31, 2000. The average balances of impaired loans
were $23,465,000 for 2001, $29,516,000 for 2000, and $26,707,000 for 1999. Interest collected on impaired
loans totaled $959,000 in 2001, $2,120,000 in 2000 and $2,047,000 in 1999. The Bank recognizes interest
80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
income on impaired loans based on its existing method of recognizing interest income on non-accrual loans.
The following table is a breakdown of impaired loans and the related speciÑc allowance:
Recorded
Investment
Allocated
Net Balance
Allowance
(In thousands)
2001
CommercialÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Commercial mortgage ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 6,924
12,426
TotalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$19,350
$2,143
1,764
$3,907
$ 4,781
10,662
$15,443
Recorded
Investment
Allocated
Net Balance
Allowance
(In thousands)
2000
CommercialÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Commercial mortgage ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$13,868
13,208
742
TotalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$27,818
$3,682
1,881
133
$5,696
$10,186
11,327
609
$22,122
The Company has entered into transactions with its directors, signiÑcant stockholders and their aÇliates
(""Related Parties''). Such transactions were made in the ordinary course of business on substantially the same
terms and conditions, including interest rates and collateral, as those prevailing at the same time for
comparable transactions with other customers. In management's opinion, these transactions did not involve
more than normal credit risk or present other unfavorable features. All loans to Related Parties were current as
of December 31, 2001. An analysis of the activity with respect to loans to Related Parties is as follows:
Balance at December 31, 1999 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Additional loans made ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Payments receivedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Balance at December 31, 2000 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Additional loans made ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Payments receivedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(In thousands)
$ 12,112
1,036
(249)
12,899
21,060
(15,147)
Balance at December 31, 2001 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 18,812
The following is a summary of non-accrual loans and troubled debt restructurings as of December 31,
2001, 2000 and 1999 and the related net interest foregone for the years then ended:
Non-accrual Loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$7,238
2001
2000
(In thousands)
$14,696
Contractual interest due ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest recognized ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 823
96
$ 1,408
627
1999
$13,696
$ 1,396
234
Net interest foregone ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 727
$
781
$ 1,162
81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Troubled Debt Restructurings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$4,726
Contractual interest due ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest recognized ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 409
370
Net interest foregone ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
39
2001
2000
(In thousands)
$ 4,531
$
$
422
407
15
1999
$ 4,581
$
$
429
414
15
As of December 31, 2001, there were no commitments to lend additional funds to those borrowers whose
loans have been restructured, impaired or in non-accrual status.
6. Other Real Estate Owned
The balance of other real estate owned at December 31, 2001 was $1,555,000 and at December 31, 2000
was $5,174,000. The valuation allowance was $131,000 at December 31, 2001 and December 31, 2000. The
following table presents the components of other real estate owned expense (income) for the year ended:
2001
2000
(In thousands)
1999
Operating expense (income) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Provision for lossesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net loss (gain) on disposalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ (213)
Ì
(3,376)
$
7
71
(263)
$ (206)
339
(1,549)
Total other real estate owned (income) expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(3,589)
$(185)
$(1,416)
An analysis of the activity in the allowance for other real estate losses for the years ended December 31,
2001, 2000, and 1999 is as follows:
Balance, beginning of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Provision for lossesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Charge-oÅs on disposal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
Balance, end of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
2001
2000
1999
131
Ì
Ì
131
$ 614
71
(554)
$
494
339
(219)
$ 131
$
614
7.
Investments in Real Estate
The Company's investments in real estate were $17,727,000 as of December 31, 2001 and $17,348,000 as
of December 31, 2000, consisting of four investments in limited partnerships formed for the purpose of
investing in low income housing projects, qualiÑed for Federal low income housing tax credits. The limited
partnerships are expected to generate tax credits over a weighted average remaining period of approximately
eight years. In addition to the Federal tax credits, the California Corporate Tax Credit Fund also qualiÑed for
State tax credits. See Note 10 of the notes to consolidated Ñnancial statements for income tax eÅects. In 2001,
the Company contributed approximately $2,637,000 to Wilshire Courtyard, the senior housing construction
82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
project, completed in 2001. The following table presents the details of the four projects as of December 31,
2001 and 2000:
Percentage of
Ownership
Acquisition
Date
December 31,
2001
2000
Las Brisas ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Los Robles ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
California Corporate Tax Credit Fund III ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Wilshire CourtyardÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
49.50%
99.00%
32.50%
99.90%
(Dollars in thousands)
Dec 1993
Aug 1995
Mar 1999
May 1999
$ Ì $
386
12,426
4,915
189
393
14,127
2,639
$17,727
$17,348
The Company's 99.0% and 99.90% interest in the Los Robles and Wilshire Courtyard limited partner-
ships were not consolidated as of December 31, 2001 and 2000 because the Company did not have ability to
exercise signiÑcant inÖuence over the operation of the partnerships. The Company's investments are
accounted for utilizing the equity method of accounting. The Company recognized a net loss of approximately
$2,257,000 in 2001, $683,000 in 2000 and $334,000 in 1999 from the partnerships' operations. The Company
recognized a gain of $394,000 from the sale of a strip mall in 1999 and a net gain of $409,000 for 1999 from
the operations.
8. Premises and Equipment
Premises and equipment consisted of the following at December 31, 2001 and 2000:
Land and land improvements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Building and building improvements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Furniture, Ñxtures and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Construction in process ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Less: Accumulated depreciationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2001
2000
(In thousands)
$11,800
17,685
14,414
2,512
291
46,702
17,299
$11,800
17,525
14,169
2,199
716
46,409
16,686
Premises and equipment, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$29,403
$29,723
The amount of depreciation included in operating expense was $1,472,000 in 2001, $1,500,000 in 2000,
and $1,331,000 in 1999.
9. Borrowings
Securities Sold under Agreements to Repurchase. The underlying collateral pledged for the repurchase
agreements consists of U.S. government agency and mortgage-backed securities with a carrying value of
$37,894,000, and a fair value of $38,295,000 as of December 31, 2001, and are held by a custodian and
83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
maintained under the Company's control. These borrowings generally mature in less than 30 days. The table
below provides comparative data for securities sold under agreements to repurchase:
Average amount outstanding during the year(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Maximum amount outstanding at month-end(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Balances, December ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Rate at year-end ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Weighted average interest rate for the year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2001
$34,799
55,412
22,114
December 31,
2000
(In thousands)
$ 70,701
110,145
68,173
1999
$55,519
79,185
46,990
1.01%
3.51%
6.09%
6.25%
5.80%
5.73%
(1) Average balances were computed using daily averages.
(2) Highest month-end balances were at February in 2001, October in 2000 and February in 1999.
Advances from the Federal Home Loan Bank. As of December 31, 2001, the Bank had obtained two
advances from the Federal Home Loan Bank of San Francisco totaling $30,000,000. These advances are
non-callable with Ñxed interest rates. The advance for $10,000,000 at 4.90% was obtained in 1998, and
matures on October 28, 2003. The advance for $20,000,000 at 5.45% was obtained in 2001, and matures on
March 21, 2005.
10.
Income Taxes
For the years ended December 31, 2001, 2000 and 1999, the current and deferred amounts of the income
tax expense are summarized as follows:
Current
Federal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$19,367
1,814
$19,321
1,904
$15,377
5,815
2001
2000
(In thousands)
1999
Deferred
Federal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
21,181
21,225
21,192
(1,350)
(1,011)
(2,361)
479
158
637
(1,159)
(313)
(1,472)
Total income tax expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$18,820
$21,862
$19,720
84
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Temporary diÅerences between the amounts reported in the Ñnancial statements and the tax basis of
assets and liabilities give rise to deferred taxes. Deferred tax assets and liabilities for the years ended
December 31, 2001 and 2000 are as follows:
Deferred Tax Assets
DiÅerence between provisions for loan losses for tax and Ñnancial reporting purposes
DiÅerence between provisions for other real estate owned losses for tax and Ñnancial
reporting purposes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State income tax ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2001
2000
(In thousands)
$ 9,275
$ 8,508
71
705
676
55
307
Ì
Gross deferred tax assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
10,727
8,870
Deferred Tax Liabilities
Use of accelerated depreciation for tax purposes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred loan fees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
FHLB stock dividend ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unrealized holding gain on securities available-for-sale, netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unrealized gain on cash Öow hedge derivatives ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(1,312)
Ì
(1,115)
(3,043)
(706)
(368)
(1,272)
(2)
(1,170)
(1,670)
Ì
(855)
Gross deferred tax liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(6,544)
(4,969)
Net deferred tax assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 4,183
$ 3,901
Amounts for the current year are based upon estimates and assumptions as of the date of this report and
could vary from amounts shown on the tax returns as Ñled. Accordingly, the variances from the amounts
previously reported for 2000 are primarily the result of adjustments to conform to the tax returns as Ñled.
In assessing the realization of deferred tax assets, management considers whether it is more likely than
not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent on the generation of future taxable income during the periods in which those temporary
diÅerences become deductible. Management considers the projected future taxable income and tax planning
strategies in making this assessment. Based upon the level of historical taxable income and projections for
future taxable income over the periods in which the deferred tax assets are deductible, management believes it
is more likely than not the Bank will realize all beneÑts related to these deductible temporary diÅerences.
Included in other assets in the statements of conditions, at December 31, 2001 and 2000 were net
deferred tax assets of $4,183,000 for 2001 and $3,901,000 for 2000. Other assets as of December 31, 2001 and
2000 included a current income tax receivable of $996,000 for 2001 and $1,675,000 for 2000. Other liabilities
as of December 31, 2001 and 2000 include a current income tax payable $19,370,000 for 2001 and $4,429,000
for 2000.
85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Income tax expense results in eÅective tax rates that diÅer from the statutory Federal income tax rate for
the years indicated as follows:
Tax provision at Federal statutory rate ÏÏÏÏÏÏÏÏ
State income taxes, net of Federal income tax
2001
2000
(In thousands)
1999
$21,504
35.00% $21,157
35.00% $17,504
35.00%
beneÑt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
522
0.85
1,340
2.22
3,576
7.15
Interest on obligations of state and political
subdivisions, which are exempt from Federal
taxation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Low income housing tax creditsÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-deductible expense-
(72)
(2,294)
(0.12)
(3.73)
(1,240)
(947)
(2.05)
(1.57)
(1,081)
(319)
(2.16)
(0.64)
Amortization of goodwillÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
236
(1,076)
0.38
(1.75)
231
1,321
0.38
2.19
240
0.48
(200) (0.40)
Total income tax expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$18,820
30.63% $21,862
36.17% $19,720
39.43%
11. Stockholders' Equity and Earnings per Share
As a bank holding company, Bancorp's ability to pay dividends will depend upon the dividends it receives
from the Bank and on the income it may generate from any other activities in which Bancorp may engage,
either directly or through other subsidiaries. Currently, since Bancorp does not have any other signiÑcant
business activities outside the Bank's operations, its ability to pay dividends will depend solely on dividends
received from the Bank.
Under California State banking law, the Bank may not pay a cash dividend, without regulatory approval,
which exceeds the lesser of the Bank's retained earnings or its net income for the last three Ñscal years, less
any cash distributions made during that period. The amount of retained earnings available for cash dividends
as of December 31, 2001 is restricted to approximately $87,228,000 under this regulation.
The Bank is subject to various regulatory capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can initiate certain mandatory Ì and possibly
additional discretionary Ì actions by regulators that, if undertaken, could have a direct material eÅect on the
Bank's Ñnancial statements. Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet speciÑc capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain oÅ-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classiÑcation are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
The Federal Deposit Insurance Corporation has established Ñve capital ratio categories: ""well capital-
ized'', ""adequately capitalized'', ""undercapitalized'', ""signiÑcantly undercapitalized'' and ""critically under-
capitalized.'' A well capitalized institution must have a Tier 1 capital ratio of at least 6%, a total risk-based
capital ratio of at least 10% and a leverage ratio of at least 5%. At December 31, 2001, the Bank was in
compliance with the minimum capital requirements and is considered well capitalized.
86
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
The Company's and the Bank's capital and leverage ratios as of December 31, 2001 and 2000 are
presented in the tables below:
Company
As of December 31, 2001
Bank
As of December 31, 2001
Company
As of December 31, 2000
Bank
As of December 31, 2000
Balance
Percentage
Balance
Percentage
Balance
Percentage
Balance
Percentage
(Dollars in thousands)
Tier I Capital (to risk-
weighted assets) ÏÏÏÏÏÏ
$ 231,916(1) 11.15%
$ 224,239(1) 10.80%
$ 202,741(2) 11.05%
$ 194,694(2) 10.64%
Tier I Capital minimum
requirement ÏÏÏÏÏÏÏÏÏÏ
83,231
4.00
83,064
4.00
73,370
4.00
73,184
Excess ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 148,685
7.15%
$ 141,175
6.80%
$ 129,371
7.05%
$ 121,510
4.00
6.64%
Total Capital (to risk-
weighted assets) ÏÏÏÏÏÏ
$ 255,904(1) 12.30%
$ 248,227(1) 11.95%
$ 224,708(2) 12.25%
$ 216,661(2) 11.84%
Total Capital minimum
requirement ÏÏÏÏÏÏÏÏÏÏ
166,462
8.00
166,129
8.00
146,740
8.00
146,369
Excess ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
89,442
4.30%
$
82,098
3.95%
$
77,968
4.25%
$
70,292
8.00
3.84%
Risk-weighted assets ÏÏÏÏ
Tier I Capital (to average
assets) -
Leverage ratio ÏÏÏÏÏÏÏÏ
Minimum leverage
$2,080,776
$2,076,608
$1,834,252
$1,829,609
$ 231,916(1)
9.48%
$ 224,239(1)
9.18%
$ 202,741(2)
9.28%
194,694(2)
8.93%
requirement ÏÏÏÏÏÏÏÏÏÏ
97,843
4.00
97,665
4.00
87,387
4.00
87,251
Excess ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 134,073
5.48%
$ 126,574
5.18%
$ 115,354
5.28%
$ 107,443
4.00
4.93%
Total average assets ÏÏÏÏÏ
$2,446,084(3)
$2,441,623(3)
$2,184,666(3)
$2,181,272(3)
(1) Excluding accumulated other comprehensive income of $5,063,000 and goodwill of $8,880,000.
(2) Excluding accumulated other comprehensive income of $2,303,000 and goodwill of $9,744,000.
(3) Average assets represent average balances for the fourth quarter of 2001 and the fourth quarter of 2000.
The Board of Directors of Bancorp is authorized to issue preferred stock in one or more series and to Ñx
the voting powers, designations, preferences or other rights of the shares of each such class or series and the
qualiÑcations, limitations and restrictions thereon. Any preferred stock issued by Bancorp may rank prior to
Bancorp common stock as to dividend rights, liquidation preferences, or both, may have full or limited voting
rights, and may be convertible into shares of Bancorp common stock. No preferred stock has been issued as of
December 31, 2001.
On November 16, 2000, Bancorp's Board of Directors adopted a Rights Agreement between Bancorp and
American Stock Transfer and Trust Company, as Rights Agent, and declared a dividend of one preferred
share purchase right for each outstanding share of Bancorp common stock. The dividend was payable on
January 19, 2001 to stockholders of record at the close of business on the record date, December 20, 2000.
Each preferred share purchase right entitles the registered holder to purchase from Bancorp one one-
thousandth of a share of Bancorp's series A junior participating preferred stock at a price of $200, subject to
adjustment. In general, the rights become exercisable if, after December 20, 2000, a person or group acquires
15% or more of Bancorp's common stock or announces a tender oÅer for 15% or more of the common stock.
The Board of Directors is entitled to redeem the rights at one cent per right at any time before any such person
acquires 15% or more of the outstanding common stock. The rights will expire in ten years. The complete
terms and conditions of the rights are contained in the Rights Agreement, between Bancorp and the Rights
Agent, which was Ñled as an exhibit to Bancorp's Form 8-A on December 20, 2000. The Rights Agreement is
a successor to Bancorp's prior rights agreement, which expired at the close of business on December 20, 2000.
87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
The following is the reconciliation of the numerators and denominators of the basic and diluted earnings
per share computations for the years indicated.
Year Ended
December 31, 2001
Year Ended
December 31, 2000
Year Ended
December 31, 1999
Income
(Numerator)
Per
Share
(Denominator) Amount
Shares
Income
(Numerator)
Per
Share
(Denominator) Amount
Shares
Income
(Numerator)
Per
Share
(Denominator) Amount
Shares
Net income ÏÏÏ
$42,620
$38,587
$30,291
(In thousands, except share and per share data)
Basic EPS
income
available to
common
stockholders
EÅect of
dilutive stock
options ÏÏÏÏÏ
Diluted EPS
income
available to
common
stockholders
$42,620
9,053,895
$4.71
$38,587
9,056,751
$4.26
$30,291
9,013,428
$3.36
28,735
17,134
4,332
$42,620
9,082,630
$4.69
$38,587
9,073,885
$4.25
$30,291
9,017,760
$3.36
12. Commitments and Contingencies
Litigation. The Company is involved in various litigation concerning transactions entered into during
the normal course of business. Management, after consultation with legal counsel, does not believe that the
resolution of such litigation will have a material eÅect upon its Ñnancial condition or results of operations.
Lending.
In the normal course of business, the Company becomes a party to Ñnancial instruments with
oÅ-balance sheet risk to meet the Ñnancing needs of its customers. These Ñnancial instruments included
commitments to extend credit in the form of loans or through commercial or standby letters of credit and
Ñnancial guarantees. Those instruments represent varying degrees of exposure to risk in excess of the amounts
included in the accompanying consolidated statements of condition. The contractual or notional amount of
these instruments indicates a level of activity associated with a particular class of Ñnancial instrument and is
not a reÖection of the level of expected losses, if any.
The Company's exposure to credit loss in the event of non-performance by the other party to the Ñnancial
instrument for commitments to extend credit is represented by the contractual amount of those instruments.
The Company uses the same credit policies in making commitments and conditional obligations as it does for
on-balance sheet instruments. Unless noted otherwise, the Company does not require collateral or other
security to support Ñnancial instruments with credit risk.
Financial instruments whose contract amounts represent the amount of credit risk include the following:
2001
2000
(In thousands)
Commitments to extend credit ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Standby letters of credit ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other letters of credit ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Bill of lading guarantee ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$676,513
17,595
26,923
12,729
$619,872
15,435
44,371
20,729
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$733,760
$700,407
Commitments to extend credit are agreements to lend to a customer provided there is no violation of any
condition established in the commitment agreement. These commitments generally have Ñxed expiration
88
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
dates and are expected to expire without being drawn upon. The total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-
case basis. The amount of collateral obtained if deemed necessary by the Company upon extension of credit is
based on management's credit evaluation of the borrowers.
As of December 31, 2001, the Company does not have Ñxed-rate or variable-rate commitments with
characteristics similar to options, which provide the holder, for a premium paid at inception to the Company,
the beneÑts of favorable movements in the price of an underlying asset or index with limited or no exposure to
losses from unfavorable price movements.
The Company's exposure to credit risk from this Ñnancial guarantee is essentially the same as if the
Company was the owner of the corporation debt. At December 31, 2001 the Company has no outstanding
Ñnancial guarantees.
Letters of credit and bill of lading guarantees are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is
essentially the same as that involved in making loans to customers.
As of December 31, 2001, the Company had available credit lines with other Ñnancial institutions in the
amount of $332,500,000.
Derivative Financial Instruments. The Company entered into a forward rate agreement with a notional
amount of $100 million that was recorded at fair value, with gains recorded as securities gains in the
accompanying consolidated statements of income and comprehensive income. The agreement expired in
March 2001.
On March 21, 2000, we entered into an interest rate swap agreement with a major Ñnancial institution in
the notional amount of $20 million for a period of Ñve years. The interest rate swap was for the purpose of
hedging the cash Öows from a portion of our Öoating rate loans against declining interest rates. The purpose of
the hedge is to provide a measure of stability in the future cash receipts from such loans over the term of the
swap agreement, which at December 31, 2001, was approximately three years. At December 31, 2001 the fair
value of the interest rate swap was $1.93 million ($869,000, net of tax) compared to $977,000 ($566,000, net
of tax) at January 1, 2001. For the twelve months ended December 31, 2001, amounts totaling $557,000 were
reclassiÑed into earnings. The estimated net amount of the existing gains within accumulated other
comprehensive income that are expected to reclassify into earnings within the next 12 months is approximately
$1.06 million.
Leases. The Company is obligated under a number of operating leases for premises and equipment with
terms ranging from 1 to 55 years, many of which provide for periodic adjustment of rentals based on changes
in various economic indicators. Rental expense was $2,269,000 for 2001, $2,200,000 for 2000 and $1,823,000
for 1999. The following table shows future minimum payments under operating leases with terms in excess of
one year as of December 31, 2001.
Commitments
(In thousands)
Year ended December 31,
2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Thereafter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 1,664
1,531
1,356
1,318
1,129
9,594
Total minimum lease paymentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$16,592
89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Rental income was $450,000 for 2001, $437,000 for 2000, and $443,000 for 1999. The following table
shows future rental payments to be received under operating leases with terms in excess of one year as of
December 31, 2001:
Commitments
(In thousands)
Year ended December 31,
2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Thereafter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total minimum lease payments to be received ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 429
343
208
40
16
Ì
$1,036
13. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of Ñnancial
instruments.
Cash and Short-term Instruments. For cash and short-term instruments, the carrying amount was
assumed to be a reasonable estimate of fair value.
Investment Securities. For securities (which include securities available-for-sale, and securities held-to-
maturity), fair values were based on quoted market prices at the reporting date. If a quoted market price was
not available, fair value was estimated using quoted market prices for similar securities.
Loans. Fair values were estimated for portfolios of loans with similar Ñnancial characteristics. Each loan
category was further segmented into Ñxed and adjustable rate interest terms and by performing and non-
performing categories.
The fair value of performing loans was calculated by discounting scheduled cash Öows through the
estimated maturity using estimated market discount rates that reÖect the credit and interest rate risk inherent
in the loan.
Fair value for non-performing real estate loans was based on recent external appraisals of the underlying
collateral of the loan. If appraisals were not available, estimated cash Öows are discounted using a rate
commensurate with the risk associated with the estimated cash Öows. Assumptions regarding credit risk, cash
Öows, and discount rates are determined judgmentally using available market information and speciÑc
borrower information.
Deposit Liabilities. The fair value of demand deposits, savings accounts, and certain money market
deposits was assumed to be the amount payable on demand at the reporting date. The fair value of Ñxed-
maturity certiÑcates of deposit was estimated using the rates currently oÅered for deposits with similar
remaining maturities.
Other Borrowings. This category includes Federal funds purchased and securities sold under repurchase
agreements, and other short-term borrowings. The carrying amount is a reasonable estimate of fair value
because of the relatively short period of time between the origination of the instrument and its expected
realization.
Advances from Federal Home Loan Bank. The fair value of the advances is estimated by discounting
the projected cash Öows using the U.S. Treasury curve adjusted to approximate current entry-value interest
rates applicable and similar obligations issued by the Bank.
90
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
OÅ-Balance-Sheet Financial Instruments. The fair value of commitments to extend credit, standby
letters of credit, and Ñnancial guarantees written were estimated using the fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreements and the present creditworthi-
ness of the counter-parties. The fair value of guarantees and letters of credit was based on fees currently
charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations
with the counter-parties at the reporting date.
The fair value of interest rate swap and forward rate agreements were based on quoted market prices at
the reporting date. If a quoted market price was not available, fair value was estimated using quoted market
prices for similar securities.
Fair value estimates were made at speciÑc points in time, based on relevant market information and
information about the Ñnancial instrument. These estimates do not reÖect any premium or discount that could
result from oÅering for sale at one time the Bank's entire holdings of a particular Ñnancial instrument. Because
no market exists for a signiÑcant portion of the Bank's Ñnancial instruments, fair value estimates were based
on judgments regarding future expected loss experience, current economic conditions, risk characteristics of
various Ñnancial instruments, and other factors. These estimates were subjective in nature and involved
uncertainties and matters of signiÑcant judgment and therefore cannot be determined with precision. Changes
in assumptions could signiÑcantly aÅect the estimates.
Fair Value of Financial Instruments
As of December 31, 2001
Carrying
Amount
Fair Value
As of December 31, 2000
Carrying
Amount
Fair Value
(In thousands)
$
73,514
$
73,514
$
65,687
$
65,687
Financial Assets
Cash and due from banks ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Federal funds sold and securities purchased
under agreements to resell ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Securities available-for-saleÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Securities held-to-maturity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Loans, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest rate swapÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Financial Liabilities
13,000
248,958
374,356
1,640,032
1,928
DepositsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Securities sold under agreements to repurchase ÏÏ
Advances from Federal Home Loan Bank ÏÏÏÏÏÏ
2,122,348
22,114
30,000
13,000
248,958
382,814
1,643,459
1,928
2,128,850
22,114
30,937
19,000
177,796
387,200
1,437,307
Ì
1,876,447
68,173
10,000
19,000
177,796
388,656
1,430,956
Ì
1,881,071
68,201
9,951
As of December 31, 2001
Notional
Amount
Fair Value
As of December 31, 2000
Notional
Amount
Fair Value
(In thousands)
OÅ-Balance Sheet Financial Instruments
Commitments to extend credit ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Standby letters of creditÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other letters of creditÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Bill of lading guarantee ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest rate swap ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Forward rate agreement ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$676,513
17,595
26,923
12,729
Ì
Ì
$(349)
(64)
(91)
(72)
Ì
Ì
$619,872
15,435
44,371
20,729
20,000
100,000
$(509)
(63)
(238)
(125)
977
1,104
91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
14. Employee BeneÑt Plans
Employee Stock Ownership Plan. Under the Company's Amended and Restated Cathay Bank Em-
ployee Stock Ownership Plan (""ESOP''), the Company makes annual contributions to a trust in the form of
either cash or common stock of the Company for the beneÑt of eligible employees. Employees are eligible to
participate in the ESOP after completing two years of service for salaried full-time employees or 1,000 hours
for each of two consecutive years for salaried part-time employees. The amount of the annual contribution is
discretionary except that it must be suÇcient to enable the trust to meet its current obligations. The Company
also pays for the administration of this plan and of the trust. The ESOP purchased 14,459 shares in 2001,
18,755 shares in 2000, and 33,163 shares in 1999 of the Bancorp's stock at an aggregate cost of $773,163 in
2001, $812,359 in 2000, and $1,162,829 in 1999. The shares purchased in 2001 included 4,200 shares bought
on the open market and 10,259 shares bought through the Dividend Reinvestment Plan. The shares purchased
in 2000 included 7,500 shares bought on the open market and 11,255 shares bought through the Dividend
Reinvestment Plan. The shares purchased in 1999 included 20,160 shares bought on the open market and
13,003 shares bought through the Dividend Reinvestment Plan. The Company contributed $598,500 in 2001,
$564,800 in 2000, and $537,200 in 1999 to the trust. The expense was charged to salaries and employee
beneÑts in the accompanying consolidated statements of income and comprehensive income. In 2001,
distribution of beneÑts to participants totaled 43,851 shares. As of December 31, 2001, the ESOP owned
552,244 shares or 6.15% of the Company's outstanding common stock.
Cathay Bancorp, Inc. 401(k) Plan.
In 1997, the Board approved the Cathay Bancorp, Inc. 401(k)
ProÑt Sharing Plan, which began on March 1, 1997. Salaried employees who have completed three months of
service and have attained the age of 21 are eligible to participate. Enrollment dates are on January 1st, April
1st, July 1st and October 1st of each year.
Participants may contribute up to 15% of their compensation for the year but not to exceed the dollar
limit set by the Internal Revenue Code. Participants may change their contribution election on the enrollment
dates. The Company matches 50% of the participants' contribution up to 4% of their compensation after one
year of service. The vesting schedule for the matching contribution is 0% for less than two years of service,
25% after two years of service and from then on, at an increment of 25% each year until 100% vested after Ñve
years of service. The Company's contribution amounted to $227,879 in 2001, $198,119 in 2000, and $186,736
in 1999.
The Plan allows participants to withdraw all or part of their vested amount in the Plan due to certain
Ñnancial hardship as set forth in the Internal Revenue Code and Treasury Regulations. Participants may also
borrow up to 50% of the vested amount, up to a maximum of $50,000. The minimum loan amount is $1,000.
15. Equity Incentive Plans
In 1998, the Board adopted the Cathay Bancorp, Inc. Equity Incentive Plan. Under the Equity Incentive
Plan, directors and eligible employees may be granted incentive or non-statutory stock options, or awarded
restricted stock, for up to 1,075,000 shares of the Company's common stock. The Equity Incentive Plan
currently expires on February 2008.
The Company granted non-statutory stock options to selected bank oÇcers and non-employee directors in
1998 to purchase a total of 45,000 shares, in 2000 to purchase a total of 55,000 shares, and in 2001 to purchase
a total of 56,400 shares of the Company's common stock. The exercise price per share of these non-statutory
stock options is equal to the fair market value of a share of the Company's common stock on the date of grant.
Such options have a maximum ten-year term and vest in 20% annual increments (subject to early termination
in certain events). If such options expire or terminate without having been exercised, any shares not purchased
will again be available for future grants or awards.
92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Balance, December 31, 1998 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Granted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
ExercisedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Forfeited ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expired ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cancelled ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Shares
45,000
Ì
(300)
Ì
Ì
Ì
Balance, December 31, 1999 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
44,700
Granted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
ExercisedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Forfeited ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expired ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cancelled ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
55,000
(1,452)
(420)
Ì
Ì
Weighted-Average
Exercise Price
$33.00
Ì
33.00
Ì
Ì
Ì
$33.00
42.50
33.00
42.50
Ì
Ì
Balance, December 31, 2000 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
97,828
$38.30
Granted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
ExercisedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Forfeited ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expired ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cancelled ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
56,400
(8,747)
(11,870)
Ì
Ì
60.19
35.10
49.87
Ì
Ì
Balance, December 31, 2001 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
133,611
$46.72
The following table shows stock options outstanding and exercisable as of December 31, 2001, the
corresponding exercise prices and the weighted-average contractual life remaining.
Exercise
Price
$33.00 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
42.50 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
60.19 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Outstanding
Weighted-Average
Remaining Contractual
Life (in Years)
6.8
8.1
9.0
8.1
Exercisable
Shares
17,092
3,789
Ì
20,881
Shares
35,092
47,789
50,730
133,611
No compensation cost has been recognized for its stock option plans in the consolidated Ñnancial
statements.
The Company estimated the fair value of options granted in 2001, 2000, and 1998 using the Black-
Scholes option-pricing model with following assumptions: (i) an expected life of the option of four years,
(ii) a stock price volatility of 35.80% in 2001, 33.88% in 2000 and 33.5% in 1998 based on daily market prices
for the preceding four-year period, (iii) an expected dividend yield of 1.66% per share per annum in 2001,
2.1% per share per annum in 2000, and 1.9% per share per annum in 1998, and (iv) a risk-free interest rate of
3.89% in 2001, 5.1% in 2000 and 4.5% in 1998. The fair value of the options was calculated to be $17.56 per
share for options granted in 2001 at the date of grant, $12.05 per share for options granted in 2000 at the date
of grant and $9.21 per share for options granted in 1998 at the date of grant.
If the compensation cost for the Company's stock option plan had been determined with the fair value at
the grant dates, computed using the assumptions above, for awards under the Plan consistent with the method
93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
of SFAS No. 123, ""Accounting for Stock-Based Compensation,'' the Company's net income and earnings per
share for 2001, 2000, and 1999 would have been reduced to the pro forma amounts indicated below.
2001
2000
(In thousands,
except per share data)
1999
Net income
As reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Pro formaÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$42,620
42,276
$38,587
38,457
$30,291
30,237
Basic net income per share
As reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Pro formaÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Diluted net income per share
As reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Pro formaÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
4.71
4.67
4.69
4.65
4.26
4.25
4.25
4.24
3.36
3.35
3.36
3.35
16. Condensed Financial Information of Cathay Bancorp, Inc. (Unaudited)
The condensed Ñnancial information of Cathay Bancorp, Inc. as of December 31, 2001 and 2000 and for
the years ended December 31, 2001, 2000, and 1999 were as follows:
Statements of Condition
Year Ended December 31,
2001
2000
(In thousands, except
share and per share data)
Assets
Cash ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Investment securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Investment in subsidiary Ì Cathay Bank ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
3,248
3,999
238,335
500
$
4,701
3,409
206,740
Ì
Total assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$246,082
$214,850
Liabilities
Accrued expensesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
Total liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Stockholders' equity
Preferred stock, $0.01 par value; 10,000,000 shares authorized, none issued ÏÏÏÏÏ
Common stock, $0.01 par value; 25,000,000 shares authorized, 9,117,769 issued
and 8,978,869 outstanding in 2001, and 9,074,365 issued and outstanding in
2000 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Treasury stock, at cost (138,900 shares in 2001 and none in 2000) ÏÏÏÏÏÏÏÏÏÏÏÏ
Additional paid-in-capital ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accumulated other comprehensive income, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Retained earningsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
71
71
Ì
63
63
Ì
90
(7,341)
68,518
5,063
179,681
91
Ì
66,275
2,303
146,118
Total stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
246,011
214,787
Total liabilities and stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$246,082
$214,850
94
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Statements of Income and Comprehensive Income
Cash dividends from Cathay Bank ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2001
Year Ended December 31,
2000
(In thousands)
$ 7,965
(280)
$14,058
(469)
1999
$ 7,248
(321)
Income before income tax expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income tax beneÑt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
13,589
196
Income before undistributed earnings of subsidiary ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
13,785
Equity in undistributed earnings of subsidiary ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
28,835
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
42,620
7,685
118
7,803
30,784
38,587
6,927
136
7,063
23,228
30,291
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) arising during the year ÏÏÏÏÏÏÏÏÏÏÏ
Cumulative adjustment upon adoption of SFAS No. 133 ÏÏÏÏÏÏÏÏÏÏÏ
Unrealized gains on cash Öow hedge derivatives ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Less: reclassiÑcation adjustments included in net income ÏÏÏÏÏÏÏÏÏÏÏ
Total other comprehensive income (loss), net of tax ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,408
566
303
517
2,760
3,084
Ì
Ì
(225)
(2,229)
Ì
Ì
(34)
3,309
(2,195)
Total comprehensive income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$45,380
$41,896
$28,096
95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Statements of Cash Flows
2001
Year Ended December 31,
2000
(In thousands)
1999
Cash Öows from Operating Activities
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Adjustments to reconcile net income to net cash provided by operating
activities:
$ 42,620
$ 38,587
$ 30,291
Equity in undistributed earnings of subsidiary ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Increase in accrued expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(28,835)
8
(500)
(30,784)
22
Ì
(23,228)
Ì
Ì
Net cash provided by operating activitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
13,293
7,825
7,063
Cash Flows from Investing Activities
Purchase of investment securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net cash used in investing activitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash Flows from Financing Activities
Cash dividends ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from shares issued under the Dividend Reinvestment Plan ÏÏÏ
Proceeds from exercise of stock options ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchase of treasury stock ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(590)
(590)
(3,409)
(3,409)
Ì
Ì
(9,057)
1,811
432
(7,342)
(7,965)
1,690
56
Ì
(7,248)
1,600
9
Ì
Net cash used in Ñnancing activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(14,156)
(6,219)
(5,639)
Increase in cash and cash equivalents ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash and cash equivalents, beginning of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(1,453)
4,701
(1,803)
6,504
1,424
5,080
Cash and cash equivalents, end of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
3,248
$
4,701
$
6,504
Supplemental disclosure of cash Öow information
Cash paid during the year for income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-cash investing activities:
Net change in unrealized holding gains (losses) on securities
$
150
$
150
$
150
available-for-sale, net of taxÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
2,760
$
3,309
$ (2,195)
17. Dividend Reinvestment Plan
The Company has a dividend reinvestment plan which allows for participants' reinvestment of cash
dividends and certain additional optional investments in the Company's common stock. Shares issued under
the plan and the consideration received were 34,657 for $1,811,507 in 2001, 39,330 for $1,690,664 in 2000 and
44,523 for $1,600,173 for 1999.
96
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
18. Quarterly Results of Operations (Unaudited)
The following table sets forth selected unaudited quarterly Ñnancial data:
Summary of Operations
2001
2000
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
(In thousands, except per share data)
Interest incomeÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expense ÏÏÏÏÏÏÏÏÏÏÏÏ
$36,608
13,121
$39,977
15,965
$40,721
17,660
$42,046
19,407
$43,834
20,644
$43,039
19,557
$40,292
17,861
$37,388
16,094
Net interest income ÏÏÏÏÏÏÏÏÏ
Provision for loan lossesÏÏÏÏÏÏ
23,487
2,773
24,012
1,200
23,061
1,200
22,639
1,200
23,190
1,050
23,482
1,050
22,431
1,050
21,294
1,050
Net interest income after
provision for loan losses ÏÏÏÏ
20,714
22,812
21,861
21,439
22,140
22,432
21,381
20,244
Non-interest income ÏÏÏÏÏÏÏÏ
Non-interest expense ÏÏÏÏÏÏÏÏ
3,721
8,461
4,154
10,253
3,052
10,340
3,852
11,111
4,466
10,463
2,746
9,493
2,795
9,296
2,749
9,252
Income before income tax
expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income tax expense ÏÏÏÏÏÏÏÏÏ
15,974
4,437
16,713
5,208
14,573
4,375
14,180
4,800
16,143
6,449
15,685
4,233
14,880
5,793
13,741
5,387
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
11,537
11,505
10,198
9,380
9,694
11,452
9,087
8,354
Other comprehensive income
(loss), net of tax:
Unrealized holding gains
(losses) arising during the
year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cumulative adjustment upon
adoption of SFAS No. 133
Unrealized gains (losses) on
cash Öow hedge derivatives
Less: reclassiÑcation
adjustments included in
net incomeÏÏÏÏÏÏÏÏÏÏÏÏ
Total other comprehensive
(811)
2,201
(730)
1,748
2,152
984
338
(390)
Ì
Ì
Ì
(316)
511
(148)
566
256
127
287
79
24
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
(2)
2
(225)
income (loss) net of tax ÏÏÏ
(1,254)
2,425
(957)
2,546
2,152
986
336
(165)
Total comprehensive incomeÏÏ
$10,283
$13,930
$ 9,241
$11,926
$11,846
$12,438
$ 9,423
$ 8,189
Basic net income per common
share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 1.29
Diluted net income per
common shareÏÏÏÏÏÏÏÏÏÏÏÏ
$ 1.28
$
$
1.27
1.27
$
$
1.12
1.12
$
$
1.03
1.03
$
$
1.07
1.07
$
$
1.26
1.26
$
$
1.00
1.00
$
$
0.92
0.92
97
Administrative
Information
Board of Directors
Front Row (left to right)
Dunson K. Cheng
Chairman of the Board and President
Cathay Bancorp, Inc.
George T. M. Ching
Vice Chairman of the Board
Cathay Bancorp, Inc.
Wilbur K. Woo
Vice Chairman of the Board
Cathay Bancorp, Inc.
Wing K. Fat
President
Frank Fat, Inc.
Ralph Roy Buon-Cristiani
Retired Veterinarian
Back Row (left to right)
Kelly L. Chan
CPA
Vice President
Phoenix Bakery
Joseph C. H. Poon
President
Edward Properties, Inc.
Michael M. Y. Chang
Secretary of the Board
Cathay Bancorp, Inc.
Patrick S. D. Lee
Retired Real Estate Developer
Anthony M. Tang
Executive Vice President
Cathay Bancorp, Inc.
Thomas Tartaglia
Director
Cathay Bancorp, Inc.
Officers
Executive Officers of
Cathay Bancorp, Inc.
Administration of
Cathay Bank
Dunson K. Cheng
Chairman of the Board and President
Dunson K. Cheng
Chairman of the Board and President
George T. M. Ching
Vice Chairman of the Board
George T. M. Ching
Vice Chairman of the Board
Wilbur K. Woo
Vice Chairman of the Board
Wilbur K. Woo
Vice Chairman of the Board
Michael M.Y. Chang
Secretary of the Board
Michael M.Y. Chang
Secretary of the Board
Anthony M. Tang
Executive Vice President
and Chief Financial Officer/
Treasurer/Assistant Secretary
Perry P. Oei
General Counsel
Anthony M. Tang
Senior Executive Vice President
and Chief Lending Officer
Irwin Wong
Executive Vice President
Branch Administration
Elena Chan
Senior Vice President
and Chief Financial Officer
James P. Lin
Senior Vice President
and Manager
Corporate Commercial
Loan and International Banking
Perry P. Oei
General Counsel
Tina Chao
First Vice President
and Team Manager,
Corporate Commercial Loan
Chingying Chu
First Vice President
and Manager
Small Business Loan
Pin Tai
General Manager
New York Region
Wilson Tang
Regional Vice President
Branch Administration
Jack Tweedy
First Vice President
and Manager
Commercial Real Estate Loan
Weston Barkwill
Chief Internal Auditor
Oliver Chen
Vice President
and Team Manager,
Corporate Commercial Loan
Jay Cheng
Vice President
and Corporate Commercial Loan
Officer
Mary Figlioli
Vice President
and Commercial Real Estate Loan
Officer
John M. Fox
Vice President
and Manager
Collateral Control
Angela Hui
Vice President
and Commercial Real Estate Loan
Officer
Scott Kleinert
Vice President
and Manager
Information Systems
Dennis Kwok
Vice President
Investments
Margaret Li
Vice President
and Manager
Mortgage Loan
Tony Moya
Vice President
Bank Operations Administration
Paul S. Ng
Vice President
and Manager
Mortgage Warehousing
Javier G. Otoya
Vice President
and Controller
Francine Paxson
Vice President
Loan Operations
Louisa Ting
Vice President
Branch Operations
New York Region
Offices
Corporate Office:
777 North Broadway
Los Angeles, CA 90012
Tel:
(213) 625-4700
Fax: (213) 625-1368
Branch Offices:
California
Los Angeles
777 North Broadway
Los Angeles, CA 90012
(213) 625-4700
Tel:
Fax: (213) 625-1368
Kenneth Chan
Assistant Vice President and
Manager
Monterey Park
250 South Atlantic Boulevard
Monterey Park, CA 91754
Tel:
(626) 281-8808
Fax: (626) 281-2956
Frank Chen
Regional Vice President and
Manager
Alhambra
601 North Atlantic Boulevard
Alhambra, CA 91801
Tel:
(626) 284-6556
Fax: (626) 282-3496
Frank Chen
Regional Vice President and
Manager
Hacienda Heights
16025 East Gale Avenue
City of Industry, CA 91745
(626) 333-8533
Tel:
Fax: (626) 336-4227
Shu Lee
Regional Vice President and
Manager
Westminster
9121 Bolsa Avenue
Westminster, CA 92683
Tel:
(714) 890-7118
Fax: (714) 898-9267
Allen Vi
Vice President and Manager
San Jose
2010 Tully Road
San Jose, CA 95122
Tel:
(408) 238-8880
Fax: (408) 238-2302
Edward Wong
Vice President and Manager
San Gabriel
825 East Valley Boulevard
San Gabriel, CA 91776
Tel:
(626) 573-1000
Fax: (626) 573-0983
Jack Sun
Vice President and Manager
Torrance
23228 Hawthorne Boulevard
Torrance, CA 90505
(310) 791-8700
Tel:
Fax: (310) 791-1862
Allen Lin
Assistant Vice President and
Manager
Oakland
710 Webster Street
Oakland, CA 94607
Tel:
(510) 208-3700
Fax: (510) 208-3727
Claudia Wong
Assistant Manager
Cerritos
11355 South Street
Cerritos, CA 90701
Tel:
(562) 860-7300
Fax: (562) 860-2296
Henry Yoh
Assistant Vice President and
Manager
City of Industry
1250 South Fullerton Road
City of Industry, CA 91748
Tel:
(626) 810-1088
Fax: (626) 810-2188
Shu Lee
Regional Vice President and
Manager
Cupertino
10480 South De Anza
Boulevard
Cupertino, CA 95014
Tel:
(408) 255-8300
Fax: (408) 255-8373
David Lin
Vice President and Manager
Milpitas
1759 North Milpitas Boulevard
Milpitas, CA 95035
(408) 262-0280
Tel:
Fax: (408) 262-0780
Tony Wen
Vice President and Manager
Irvine
15323 Culver Drive
Irvine, CA 92714
Tel:
(949) 559-7500
Fax: (949) 559-7508
Linda Kuo
Vice President and Manager
Millbrae
Millbrae Plaza
1095 El Camino Real
Millbrae, CA 94030
Tel:
(650) 652-0188
Fax: (650) 652-0180
Stanley Wong
Vice President and Manager
Valley-Stoneman
43 East Valley Boulevard
Alhambra, CA 91801
(626) 576-7600
Tel:
Fax: (626) 576-5831
Claudia My Lu
Vice President and Manager
Berkeley-Richmond
3288 Pierce Street
Richmond, CA 94804
Tel:
(510) 526-8898
Fax: (510) 526-0639
Sumiko Wu
Assistant Vice President and
Assistant Manager
Diamond Bar
1195 South Diamond Bar
Boulevard
Diamond Bar, CA 91765
Tel:
(909) 860-8299
Fax: (909) 861-0920
Shu Lee
Regional Vice President and
Manager
Union City
1701 Decoto Road
Union City, CA 94587
Tel:
(510) 675-9190
Fax: (510) 675-9312
Tony Wen
Vice President and Manager
Overseas Office:
Hong Kong
Room 902-3, 9/F
Printing House
6 Duddell Street
Central, Hong Kong
Tel:
(852) 2522-0071
Fax: (852) 2810-1652
Winnie Lau
Representative
Shanghai (to be opened)
Unit 1808, Shanghai Kerry Centre
1515 Nanjing Road West
Shanghai 200040
People’s Republic of China
Subsidiary:
Cathay Investment Company
777 North Broadway
Los Angeles, CA 90012
Tel:
(213) 625-4700
Fax: (213) 625-1368
Dunson K. Cheng
Chief Executive Officer
and President
Sacramento (to be opened)
5591 Sky Parkway, #411-415
Sacramento, CA 95823
Taiwan C.I.C.
Sixth Floor, Suite 3
146 Sung Chiang Road
Taipei, Taiwan, R.O.C.
New York
Flushing
40-14/16 Main Street
Flushing, NY 11354
Tel:
(718) 886-5225
Fax: (718) 886-0220
Ivy Mok
Assistant Manager
New York Chinatown
45 East Broadway
New York, NY 10002
Tel:
(212) 732-0200
Fax: (212) 732-7389
Amy Tran
Assistant Manager
Brooklyn (to be opened)
5402 Eighth Avenue
Brooklyn, NY 11220
Texas
Houston
10375 Richmond Avenue #1600
Houston, TX 77042
Tel:
(713) 278-9599
Fax: (713) 278-9699
Herbert Ng
Vice President and Manager
Tel:
(886) (2) 2537-5057
Fax: (886) (2) 2537-5059
Li Sung
Representative and Manager
Additional Information:
Market Makers
The following firms make a market
in Cathay Bancorp, Inc. stock:
Herzog, Heine, Geduld, Inc.
Wedbush Morgan Securities
Hoefer & Arnett, Inc.
Registrar and Transfer Agent
American Stock Transfer and Trust
Company
40 Wall Street
New York, NY 10005
(800) 937-5449
Tel:
Cathay Service Hotline
(800) 9 CATHAY / 922-8429
Cathay Bank Web Site
www.cathaybank.com
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Member of Federal Deposit Insurance Corporation
This annual report has not been reviewed, or confirmed for accuracy
or relevance, by the Federal Deposit Insurance Corporation.
777 North Broadway
Los Angeles, California 90012
T: (213) 625-4700
F: (213) 625-1368
www.cathaybank.com