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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 2001
Commission File No.: 0-24947
UCBH HOLDINGS, INC.
(exact name of registrant as specified in its charter)
DELAWARE 94-3072450
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
711 VAN NESS AVENUE, SAN FRANCISCO, CALIFORNIA 94102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 928-0700
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive 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-affiliates of
the registrant, i.e., persons other than directors and executive officers of the
registrant is $592,055,263 and is based upon the last sales price as quoted on
The Nasdaq Stock Market for January 30, 2002.
As of January 30, 2002, the Registrant had 19,436,678 shares of common
stock, par value $0.01 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE REGISTRANT'S PROXY STATEMENT FOR THE 2002 ANNUAL
MEETING OF STOCKHOLDERS ARE INCORPORATED BY REFERENCE INTO
PART III OF THIS FORM 10-K.
FORM 10-K
PART I ITEM 1. BUSINESS................................................................ 1
MARKET AREA............................................................. 1
CURRENT BANKING SERVICES................................................ 1
LENDING ACTIVITIES...................................................... 2
DEPOSITS................................................................ 4
COMPETITION............................................................. 5
HISTORICAL OPERATIONS................................................... 5
SUPERVISION AND REGULATION.............................................. 6
EMPLOYEES............................................................... 9
ITEM 2. PROPERTIES.............................................................. 10
ITEM 3. LEGAL PROCEEDINGS....................................................... 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................... 10
PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS............................................. 10
ITEM 6. SELECTED FINANCIAL DATA................................................. 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................... 13
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.............. 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............................. 29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.................................. 54
PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...................... 55
ITEM 11. EXECUTIVE COMPENSATION.................................................. 55
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......... 55
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................... 55
PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K......... 56
SIGNATURES...................................................................................... 57
This annual report on the Form 10-K contains certain statements about the
future that may or may not materialize. When we use words like "anticipate,"
"believe," "estimate," "may," "intend," "plan," or "expect," we are speculating
about what will happen in the future. The outcome may be materially different
from our speculations. We believe that certain factors identified elsewhere in
this Form 10-K could cause a different outcome. There may also be other factors
that could cause a different outcome.
ITEM 1. BUSINESS
UCBH Holdings, Inc. (the "Company," "we," "us," or "our") is a Delaware
corporation that is registered with the Board of Governors of the Federal
Reserve System as a bank holding company. We conduct our principal business
through our wholly-owned banking subsidiary, United Commercial Bank ("UCB" or
the "Bank"), which makes up almost all of our consolidated assets and revenues.
UCB is a California state-chartered commercial bank.
MARKET AREA
We concentrate on marketing our services in the San Francisco Bay area,
which includes the City of San Francisco, the South Bay, and the East Bay, the
Sacramento/Stockton metropolitan area, and the Los Angeles metropolitan area,
focusing on the areas with a high concentration of ethnic Chinese. The ethnic
Chinese markets within our primary market area have grown rapidly. Based on
Census 2000, there were 3.7 million Asians living in California, and there were
also approximately 240,000 Asians and Pacific Islanders living in San Francisco
County, which is approximately 31% of the total population of the county.
We currently have 30 offices in the State of California and one
representative office in Hong Kong, SAR, China. Our Northern California
locations include 21 offices and we have 9 offices in Southern California. Our
new business is approximately equally divided between Northern and Southern
California. We have tailored our products and services to meet the financial
needs of these growing Asian and ethnic Chinese communities. We believe that
this approach, together with the relationships of our management and Board of
Directors with the Asian and ethnic Chinese communities, provides us with an
advantage in competing for customers in our market area. We are the leading
financial institution focused on serving the ethnic Chinese community within the
United States.
CURRENT BANKING SERVICES
Through our branch network, we provide a wide range of personal and
commercial banking services to small- and medium-sized businesses, business
executives, professionals and other individuals. We offer multilingual services
to all of our customers in English, Cantonese and Mandarin.
We offer the following deposit products:
- Business checking, savings accounts and money market accounts
- Personal checking, savings accounts and money market accounts
- Time deposits (certificates of deposit)
- Individual Retirement Accounts (IRAs)
We offer a full complement of loans, including the following types of
loans:
- Commercial real estate loans (residential and nonresidential)
- Construction loans to small and medium-sized developers for
construction of single family homes, multifamily and commercial
properties
- Commercial, accounts receivable and inventory loans to small
and medium-sized businesses with annual revenues generally
ranging from $500,000 to $20.0 million
- Short-term trade finance facilities for terms of less than one
year to U.S. importers, exporters and manufacturers
- Loans guaranteed by the Small Business Administration ("SBA")
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- Residential real estate loans
- Home equity lines of credit
We provide a wide range of specialized services, including international
trade services for business clients, MasterCard and Visa merchant deposit
services, cash management services and e-business services. We also provide
trade finance facilities for customers involved in the import and/or export of
goods between the Pacific Rim and California.
We maintain an Internet portal, www.ibankUNITED.com. This interactive
site, available in both English and Chinese versions, provides easy access to
business and personal online banking services, a trade finance management system
and a number of other features. Visitors to the site can track a stock
portfolio, make travel arrangements, shop, and get up-to-the-minute information
about events in their local community. We believe the portal serves as a strong
platform to promote the Bank, delivers advanced products and e-business
services, and provides new sources of fee income.
LENDING ACTIVITIES
UNDERWRITING AND CREDIT ADMINISTRATION. Our Board of Directors has
established basic lending policies. Our policies require that loans meet minimum
underwriting criteria. The Board has granted limited loan approval authority to
certain officers of the Bank. The Board requires that the collateral for all
real estate loans be valued by an independent outside real estate appraiser. Any
loan requests over individual officer limits must be approved by the President.
All loan growth results from internal originations. The Company does not buy
loans from third parties or brokers.
Our Credit Review Committee, which includes Thomas S. Wu (Chairman,
President and Chief Executive Officer or "CEO"), Jonathan H. Downing (Executive
Vice President, Chief Financial Officer and Treasurer or "CFO"), William T.
Goldrick (Senior Vice President and Chief Credit Officer or "CCO"), Sylvia Loh
(Senior Vice President and Director of Commercial Banking) and Peter C. Sim
(First Vice President and Risk Manager), among others, reviews and ratifies all
loans over $750,000. Individual loans over $4.0 million and all loans bringing a
borrower's aggregate loan over $4.0 million are reviewed and ratified by the
Board of Directors.
As part of our credit administration process, we conduct an internal asset
credit quality review. Additionally, an outside credit review agency, composed
of former bankers and former bank regulators, reviews all commercial loans over
$100,000. Our CEO, CFO, CCO, and lending division heads meet every two weeks to
review delinquencies, nonperforming assets, classified assets and other relevant
information to evaluate credit risk within our loan portfolio. The results are
reviewed by the Board of Directors quarterly.
LOAN PORTFOLIO. At December 31, 2001, our loan portfolio was composed of
the following loans:
(Dollars Percentage
in Millions) of Gross Loans
------------ --------------
Commercial real estate loans $ 798.9 35%
Multifamily mortgage loans 677.3 30
Construction loans 182.6 8
Commercial business loans 163.6 7
Residential mortgage (one to four family) loans 430.0 19
Other consumer loans 16.0 1
-------- ---
Total $2,268.4 100%
======== ===
COMMERCIAL LENDING - GENERAL. Our Commercial Banking Division is staffed
with experienced commercial lending officers. Below is a description of the
types of commercial loans that we offer.
Commercial Real Estate (Nonresidential) Mortgages. We originate
medium-term commercial real estate loans that are secured by commercial or
industrial buildings. These properties are either used by their owners for
business purposes (known as owner-user properties) or have income derived from
tenants (known as investment properties).
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We solicit borrowers in the following ways:
- Through referrals from our branch offices
- Through direct solicitation of borrowers and real estate brokers
by our commercial lending officers
- Through referrals from existing customers
At December 31, 2001, we had approximately 790 commercial real estate
loans with a total aggregate balance of $798.9 million. The average balance of
these loans was $1.01 million.
During the year ended December 31, 2001, new commercial real estate loan
commitments were $310.1 million, as compared to $248.4 million for 2000, and
$267.1 million for 1999. At December 31, 2001, we had $152.6 million of
commercial real estate loans in our pipeline. However, we cannot guarantee that
all the loans in the pipeline will close.
Commercial real estate loans are generally larger and involve more risk
than residential mortgages. Payments on commercial real estate loans are
generally dependent on the successful operation or management of the properties.
Therefore, repayment is more closely tied to the state of the real estate market
and the general economy. We attempt to reduce these risks through our
conservative underwriting standards and credit review processes.
Multifamily Mortgages. We originate multifamily mortgage loans which are
generally secured by five to 50-unit residential buildings. Substantially all of
our multifamily mortgage loans are secured by properties located in our primary
market area. We obtain full credit information on multifamily mortgage borrowers
and independently verify their income and assets. We also consider their ability
to manage the multifamily property and to assume responsibility for the debt if
there are unforeseen expenses or vacancies. We offer both fixed-rate and
adjustable-rate multifamily mortgage loans. Our adjustable-rate multifamily
loans are generally fixed for either one or six months and then adjust every six
months based upon the LIBOR index. Multifamily loans are generally amortized
over 30 years with balloon payments in 10 or 15 years.
At December 31, 2001, we had approximately 1,595 multifamily mortgage
loans with an aggregate outstanding principal balance of $677.3 million. The
average balance of such a loan was $425,000. At December 31, 2001, multifamily
loans were 30% of our total loans. We originated $256.8 million of multifamily
loans during 2001, as compared to $128.6 million in 2000, and $135.4 million in
1999.
Construction Loans. We originate construction loans primarily for the
construction of entry-level and first-time move-up housing within California
and also for multifamily and commercial properties. We make these loans to
experienced builders and developers with whom we have relationships in our
primary market area. As of December 31, 2001, we had approximately 154
outstanding construction loans, with an aggregate principal balance of $182.6
million. The average balance of such loans was $1.2 million. New construction
commitments were $251.7 million in 2001, $202.5 million in 2000, and $179.5
million in 1999.
We generally originate construction loans in amounts up to 70% of either
the appraised value of the property, as improved, or the sales price, whichever
is lower. The funds are disbursed on a percentage of completion basis or as
construction thresholds are met. We normally require the guarantee of principals
of corporate or partnership borrowers. Construction loans have adjustable
interest rates tied to the prime rate. Construction loans are generally prime
based and are written for a one-year term and may have up to a one-year renewal
option.
Construction financing generally has a higher degree of credit risk than
long-term loans on improved, owner-occupied real estate. The risk is dependent
largely on the value of the property when completed as compared to the estimated
cost, including interest, of building it. If the estimated value is inaccurate,
the completed project may have a value too low to assure full repayment of the
loan.
Commercial Business Loans. We provide commercial business loans to
customers for working capital purposes and loans to finance equipment, accounts
receivable and inventory. Working capital loans are subject to annual review,
and generally the Bank obtains security interests in inventory and accounts
receivable. Equipment loans have terms of up to five years, and are secured by
the underlying equipment. Interest rates are normally based on the prime rate.
During 2001, new commercial business loan commitments were $205.9 million, as
compared to $96.1 million in 2000, and $79.7 million in 1999.
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Unlike mortgage loans, which are secured by real estate, for which a value
can be determined more easily, commercial business loans involve more risk
because repayment is substantially dependent on the cash flow of the borrowers'
business. Also, any collateral securing the loan may depreciate, may be
difficult to value, or may fluctuate in value depending on the success of the
business.
Commercial Lines of Credit. We provide commercial lines of credit to
small- and medium-sized companies to finance their accounts receivable and
inventory on a short-term basis (less than one year) and/or to finance their
equipment and working capital on a long-term basis (over one year).
Generally, we structure our short-term financing to allow the borrower to
complete its trade cycle from the purchase of inventory to collection of
receivables. The line of credit may also include an option for the issuance of
letters of credit to overseas suppliers/sellers to permit the borrower to obtain
inventory.
Small Business Administration ("SBA") Loans. We also originate and fund
loans that qualify for guaranty issued by the Small Business Administration.
Currently, the SBA normally guarantees from 75% to 80% of the principal and
accrued interest of such loans. We make these loans to eligible small businesses
to finance working capital, the purchase of equipment or the purchase of real
estate. Depending on the purpose of the loan, terms generally range from seven
to 25 years. We typically require that SBA loans be secured by inventories and
receivables or by real property if commercial real estate is being financed. SBA
loans originated during 2001, 2000, and 1999 have been included in commercial
real estate and commercial business loans. During 2001, we originated $35.1
million of SBA loans as compared to $20.5 million in 2000 and $18.1 million in
1999.
CONSUMER LENDING - GENERAL. We make consumer loans, primarily residential
mortgage (one to four family) loans for our customers. We also provide home
equity loans.
Residential Mortgages (One to Four Family). Although we have placed our
primary emphasis on the origination of commercial loans, we also originate
consumer loans to meet the needs of our retail customer base. The majority of
our consumer loan originations are residential mortgage (one to four family)
loans. We originated $126.3 million of residential mortgage (one to four family)
loans in 2001, $34.7 million in 2000, and $59.6 million in 1999. The increase in
loan originations in 2001 reflects the refinance activity resulting from the low
market interest rates.
We offer fixed-rate and adjustable-rate loans, including intermediate
fixed-rate mortgages. Our fixed-rate loans have terms of 15 or 30 years.
Intermediate fixed-rate mortgages have fixed interest rates for three or five
years and then adjust annually afterwards. We also offer ARM loans, with
interest rates that are fixed for six months and then adjust every six months.
At December 31, 2001, we had approximately 2,293 residential mortgage (one
to four family) loans, totaling $430.0 million. At that date, the balance of an
average residential mortgage (one to four family) loan in our portfolio was
approximately $188,000.
Home Equity Lines of Credit ("HELOC") and Other Consumer Loans. We also
make consumer loans, almost all of which are home equity lines of credit secured
by residential real estate. These lines generally consist of floating rate loans
tied to the prime rate. At December 31, 2001, we had approximately 349
residential mortgage HELOCs and other consumer loans totaling $16.0 million. At
that date, the balance of an average residential mortgage HELOC and other
consumer loans in our portfolio was approximately $46,000.
DEPOSITS
Our depositors are primarily ethnic Chinese households, small- and
medium-sized businesses owned by ethnic Chinese, and ethnic Chinese business
executives, professionals and other individuals. We offer a range of deposit
products that are traditionally provided by commercial banks. For
interest-bearing deposits, the interest rates that we pay vary depending on the
size, term and type of deposit. We set our interest rates based on our need for
funds and market competition. As of December 31, 2001, less than 2% of our
deposits were held by customers located outside of the United States.
Additionally, the 100 depositors with the largest aggregate account balances
held less than 15% of our total deposits. At December 31, 2001, our weighted
average cost of deposits was 2.85%.
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COMPETITION
Generally, the banking and financial services industry in California, and
in our market areas specifically, is highly competitive. The industry has become
increasingly competitive recently due in part to changes in regulation, changes
in technology and product delivery systems, and the consolidation of the
industry. We compete for loans, deposits and customers with the following types
of institutions:
- Commercial banks
- Savings and loan associations
- Securities and brokerage companies
- Mortgage companies
- Insurance companies
- Finance companies
- Money market funds
- Credit unions
- Other nonbank financial service providers
Many of these competitors are much larger in total assets and
capitalization, have greater access to capital markets and offer a broader array
of financial services than we do. To compete with these other financial services
providers, we rely on local promotional activities, personal relationships
established by our officers, directors and bilingual employees with customers,
and specialized services tailored to meet our customers' needs.
We compete for deposits in the ethnic Chinese markets with other banks
that serve the Asian community in California. We believe that we have three
major competitors targeting the ethnic Chinese market in California. These
competitors have branch locations in many of the same neighborhoods as we do,
provide similar loan, savings and financial services, and market their services
in similar Asian publications and media in California. Additionally, there are
numerous competitors who do not target the ethnic Chinese market in California
with whom we compete. These competitors also have branches in the same
neighborhoods as we do and provide similar loan, savings and financial services
as we do.
HISTORICAL OPERATIONS
We are a full-service commercial bank serving the ethnic Chinese and Asian
communities in our market area, offering an array of commercial bank services
and products to our customers. However, until 1996, our operations consisted of
traditional thrift activities of originating residential mortgage (one to four
family) loans which we pooled or sold in the secondary market and retained the
servicing. We also originated residential (one to four family), multifamily and
commercial mortgages for our portfolio. As a result of increased competition in
the mortgage banking business, profit margins contracted and loan servicing
rights declined in value, due in part to higher levels of prepayments. Our Board
of Directors decided to shift our business focus from that of a traditional
thrift to a full-service commercial bank. The Board saw opportunities to further
improve our long-term prospects, in part by taking advantage of our significant
market share and our cross selling opportunities to the ethnic Chinese and Asian
communities in our market area.
We realigned responsibilities among senior management, and hired new
officers who had experience in commercial banking and in Small Business
Administration lending within our market area. In January 1998, Thomas S. Wu was
appointed the President and Chief Executive Officer of the Bank and assumed the
responsibility of successfully shifting our business focus to commercial banking
services and products. Mr. Wu has over 20 years of diversified domestic and
international commercial banking experience. On October 10, 2001, Mr. Wu was
appointed Chairman, in addition to being President and Chief Executive Officer
of the Company and the Bank. Sylvia Loh was appointed head of the newly
established Commercial Banking Division in January 1996. She also has over 20
years of commercial banking and trade finance experience with major financial
institutions. In January 1997, William T. Goldrick was recruited and appointed
Senior Vice President and Chief Credit Officer to establish commercial lending
policies and procedures and to strengthen our credit evaluation. He has over 40
years of commercial banking experience. He is also responsible for our
regulatory compliance.
In 1996, we established the Commercial Banking Division to offer an array
of commercial bank services and products mainly to our customers in the ethnic
Chinese communities. Since its establishment, we recorded approximately $1.47
billion in new commercial loan commitments. To support our commercial banking
activities, we implemented a commercial banking data processing system that
5
replaced our previous system that was designed for thrift institutions. The
installation was completed in February 1998. We also opened a commercial,
construction and Small Business Administration lending office in Pasadena,
California, in the second quarter of 1998. We hired a team of commercial loan
officers with extensive commercial lending experience and a group of three SBA
banking officers, all previously affiliated with one of the leading lenders
focusing on SBA lending to Asians, to staff the new office. Additionally, we
transferred the lead manager of construction lending to the Pasadena office to
cultivate new construction lending relationships in Southern California.
In January 1998, the Bank changed its name to United Commercial Bank from
United Savings Bank, F.S.B., to reflect our new focus on commercial banking. On
July 31, 1998, the Bank converted from a savings bank to a California-chartered
commercial bank, and UCBH Holdings, Inc. became a bank holding company.
In April 1998, in a private offering the Company issued common stock to
various purchasers raising $128.6 million, net of issue costs. In conjunction
with the private offering pursuant to the terms of an Exchange and Redemption
Agreement with selling stockholders, $120.0 million of the proceeds was
exchanged for all of the shares of Common Stock then owned by the selling
stockholders. Following the Company's offering, the Company's stock began
trading on Nasdaq under the UCBH ticker on November 5, 1998.
In 2000, we established two new divisions to further our commercial
banking presence. In June 2000, we established the Asia Banking Division to
build new and strengthen existing relationships with clients doing business in
Asia, primarily in Hong Kong, China and Taiwan. Joseph Kwok was appointed head
of the newly established Division. He has over 35 years of commercial banking
experience. The International Banking Division was established in December 2000
to enhance UCB's presence in the international trade finance community and to
promote the Bank as a full service provider in that arena. Unlike larger
financial institutions, we can provide a greater degree of personalized service,
responding and adapting more quickly to customer needs.
We are working to expand our presence in the Asian and ethnic Chinese
markets through our multilingual ATMs, and through our multilingual telephone
banking system, customer service, loan officers, and multilingual Internet
portal. We have established mini-branches in or adjacent to Asian supermarkets
in selected areas as another means of increasing our market share and deposit
base.
We believe that these measures position us to take advantage of the
opportunities that are presented in our market area, and help us to better serve
the growing ethnic Chinese market in California.
SUPERVISION AND REGULATION
INTRODUCTION
Both UCBH Holdings, Inc., as a bank holding company, and United Commercial
Bank, as a commercial bank, are extensively regulated under both federal and
state law. The following is a summary of certain laws and regulations that
govern the activities of the Company and the Bank. This summary is not a
complete description of the regulations that pertain to the Company and the
Bank, and is qualified in its entirety by reference to the actual laws and
regulations.
REGULATION OF THE COMPANY
The Company is a bank holding company registered with the Board of
Governors of the Federal Reserve System and is subject to the Bank Holding
Company Act of 1956, as amended, and the regulations of the Federal Reserve. The
Company files quarterly and annual reports with the Federal Reserve, as well as
any other information that the Federal Reserve may require under the Bank
Holding Company Act. The Federal Reserve examines the Company, and its non-bank
subsidiary (a Delaware Statutory Business Trust). The Company is also a bank
holding company under California law, and is subject to examination by the
California Department of Financial Institutions (the "DFI").
The Federal Reserve has the authority to require that the Company stop an
activity, whether conducted itself or through a subsidiary or affiliate, if the
Federal Reserve believes that the activity poses a significant risk to the
financial safety, soundness or stability of the Bank. The Federal Reserve can
also regulate provisions of certain debt of bank holding companies, including
imposing ceilings on interest rates and requiring reserves on such debt. In
certain cases, the Company will have to file written notice and obtain approval
from the Federal Reserve before repurchasing or redeeming its equity securities.
Additionally, the Federal Reserve imposes capital requirements on the Company as
a bank holding company.
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As a registered bank holding company, the Company is required to obtain
the approval of the Federal Reserve before it may acquire all or substantially
all of the assets of any bank, or ownership or control of the voting shares of
any bank if, after giving effect to such acquisition of shares, the Company
would own or control more than 5% of the voting shares of such bank. The Bank
Holding Company Act prohibits the Company from acquiring any voting shares of,
or interest in, all or substantially all of the assets of, a bank located
outside the State of California, unless such an acquisition is specifically
authorized by the laws of the state in which such bank is located. Any such
interstate acquisition is also subject to the provisions of the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994.
The Company and any subsidiaries which it may acquire or organize are
deemed to be "affiliates" of the Bank within the meaning of that term as defined
in the Federal Reserve Act. This means, for example, that there are limitations
on loans by the Bank to affiliates and on investments by the Bank in affiliates'
stock.
The Company and any subsidiaries are also subject to certain restrictions
with respect to engaging in the underwriting, public sale and distribution of
securities. Under the recently enacted Gramm-Leach-Bliley Act (discussed below),
qualifying bank holding companies making an appropriate election to the Federal
Reserve may engage in a full range of financial activities, including insurance,
securities and merchant banking.
REGULATION OF THE BANK
Bank Regulators. The Bank is a California state-chartered commercial bank
and its deposits are insured by the Federal Deposit Insurance Corporation
("FDIC") up to the applicable legal limits. The Bank is supervised, examined and
regulated by the Commissioner of the DFI, as well as by the FDIC. Either of
these regulators may take remedial action if it determines that the financial
condition, capital resources, asset quality, earnings prospects, management, or
liquidity aspects of the Bank's operations are unsatisfactory. Either of these
agencies may also take action if the Bank or its management is violating or has
violated any law or regulation. No regulator has taken any such actions against
the Bank in the past.
Safety and Soundness Standards. The FDIC and the Federal Reserve have
adopted guidelines that establish standards for safety and soundness of banks.
They are designed to identify potential safety and soundness problems and ensure
that banks address those concerns before they pose a risk to the deposit
insurance fund. If the FDIC or the Federal Reserve determines that an
institution fails to meet any of these standards, the agency can require the
institution to prepare and submit a plan to come into compliance. If the agency
determines that the plan is unacceptable or is not implemented, the agency must,
by order, require the institution to correct the deficiency.
The FDIC and the Federal Reserve also have safety and soundness
regulations and accompanying guidelines on asset quality and earnings standards.
The guidelines provide six standards for establishing and maintaining a system
to identify problem assets and prevent those assets from deteriorating. The
guidelines also provide standards for evaluating and monitoring earnings and for
ensuring that earnings are sufficient to maintain adequate capital and reserves.
If an institution fails to comply with a safety and soundness standard, the
agency may require the institution to submit and implement an acceptable
compliance plan or face enforcement action.
DEPOSIT INSURANCE ASSESSMENTS
The FDIC charges an annual assessment for the insurance of deposits based
on the risk that a particular institution poses to its deposit insurance fund.
An institution's premium assessment is based on the probability that the deposit
insurance fund will incur a loss with respect to the institution, the likely
amount of any such loss, and the revenue needs of the deposit insurance fund.
The FDIC sets semi-annual assessments in an amount necessary to maintain or
increase the reserve ratio of the insurance fund to at least 1.25% of insured
deposits or a higher percentage as determined to be justified by the FDIC. The
Bank, being considered well capitalized, was charged no assessment by the FDIC
insurance premium for the year ended December 31, 2001.
The Deposit Insurance Fund Act of 1996 included provisions to strengthen
the Savings Association Insurance Fund ("SAIF") and to repay outstanding bonds
that were issued to recapitalize the SAIF's predecessor as a result of payments
made due to the insolvency of savings and loan associations and other federally
insured savings institutions. After January 1, 2001, banks must contribute
towards paying off the financing bonds, including interest. In 2001, the cost to
the Bank was $0.02 per $100 of deposits.
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Capital Requirements. The Bank is subject to the risk-based capital
guidelines of the FDIC. These guidelines provide a framework that is sensitive
to differences in risk between banking institutions. The amount of regulatory
capital that the Bank is required to have is dependent on the risk-weighting of
its assets. The ratio of its regulatory capital to its risk-weighted assets is
called its "risk-based capital ratio." Assets and certain off-balance-sheet
items are allocated into four categories based on the risk inherent in the
asset, and are weighted from 0% to 100%. The higher the category, the more risk
the Bank is subject to and thus more capital that is required.
The guidelines divide a bank's capital into two tiers. Tier I includes
common equity, retained earnings, certain non-cumulative perpetual preferred
stock, and minority interests in equity accounts of consolidated subsidiaries.
Goodwill and other intangible assets (except for mortgage servicing rights and
purchased credit card relationships, subject to certain limitations) are
subtracted from Tier I capital.
Tier II capital includes, among other items, cumulative perpetual and
long-term, limited-life preferred stock, mandatory convertible securities,
certain hybrid capital instruments, term subordinated debt and the allowance for
loan losses (subject to certain limitations). Certain items are required to be
deducted from Tier II capital. Banks must maintain a total risk-based capital
ratio of 8%, of which at least 4% must be Tier I capital.
In addition, the FDIC has regulations prescribing a minimum Tier I
leverage ratio (Tier I capital to total adjusted assets, as specified in the
regulations). These regulations require that banks which meet certain criteria
(including having the highest examination rating and not experiencing or
expecting significant growth) maintain a minimum Tier I leverage ratio of 3%.
All other banks must have a Tier I leverage ratio of 4%. The FDIC may impose
higher limits on individual institutions when particular circumstances exist. If
a bank is experiencing or anticipating significant growth, the FDIC may expect
it to have capital ratios well above the minimum. At December 31, 2001, the
Bank's tangible and core capital ratios were 7.26%, and its risk-based capital
ratio was 10.91%.
The Bank was in compliance with the risk-weighted capital and leverage
ratios at December 31, 2001. For further discussion of the Bank's capital, see
Liquidity and Capital Resources on page 26 under "Management's Discussion and
Analysis."
Prompt Corrective Action. The Federal Deposit Insurance Corporation
Improvement Act of 1991 requires the federal banking regulators to take "prompt
corrective action" against undercapitalized institutions. The FDIC and the other
bank regulatory agencies have established the following capital categories to
implement these provisions:
- Well capitalized has total risk-based capital ratio of 10% or greater,
Tier I risk-based capital ratio of 6% or greater, a leverage ratio of
5% or greater, and is not subject to any written agreement, order,
capital directive, or prompt corrective action directive.
- Adequately capitalized has total risk-based capital ratio of 8% or
greater, Tier I risk-based capital ratio of 4% or greater, and a
leverage ratio of 4% or greater (3% or greater if rated Composite 1
under the CAMELS rating system).
- Undercapitalized has total risk-based capital ratio of less than 8%,
Tier I risk-based capital ratio of less than 4%, or a leverage ratio
of less than 4% (3% if rated Composite 1 under the CAMELS rating
system).
- Significantly undercapitalized has a total risk-based capital ratio of
less than 6%, Tier I risk-based capital ratio of less than 3%, or a
leverage capital ratio of less than 3%.
- Critically undercapitalized has a ratio of tangible equity to total
assets that is equal to less than 2%.
Federal regulators are required to take prompt corrective action to solve
the problems of those institutions that fail to satisfy their minimum capital
requirements. As an institution's capital level falls, the level of restrictions
becomes increasingly severe and the institution is allowed less flexibility in
its activities.
As of December 31, 2001, the Bank was classified as a well capitalized
institution under the definitions.
8
Community Reinvestment Act. Under the Community Reinvestment Act ("CRA"),
as implemented by FDIC regulations, a bank has an obligation, consistent with
safe and sound operation, to help meet the credit needs of its entire community,
including low and moderate income neighborhoods. The CRA does not establish
specific 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. It does require that federal banking regulators, when
examining an institution, assess the institution's record of meeting the credit
needs of its community and to take such record into account in evaluating
certain applications. As a state-chartered bank, the Bank is subject to the fair
lending requirements and reporting obligations involving home mortgage lending
operations of the CRA. Federal regulators are required to provide a written
examination of an institution's CRA performance using a four-tiered descriptive
rating system. These ratings are available to the public. Based upon
examinations by the Office of Thrift Supervision ("OTS") in 1996 and 1998 and
the FDIC (the Bank's federal regulator at the time of examination) in 2000, the
Bank's CRA ratings were "Outstanding."
GRAMM-LEACH-BLILEY FINANCIAL MODERNIZATION ACT OF 1999
Effective March 12, 2000, the Gramm-Leach-Bliley Act (the "Act")
eliminated most of the remaining depression-era "firewalls" between banks,
securities firms and insurance companies which were established by The Banking
Act of 1933, also known as the Glass-Steagall Act ("Glass-Steagall").
Glass-Steagall sought to insulate banks as depository institutions from the
perceived risks of securities dealing and underwriting, and related activities.
Bank holding companies that can qualify as "financial holding companies"
can now, among other matters, acquire securities firms or create them as
subsidiaries, and securities firms can now acquire banks or start banking
activities through a financial holding company. This liberalization of United
States banking and financial services regulation applies both to domestic
institutions and foreign institutions conducting business in the United States.
Consequently, the common ownership of banks, securities firms and insurance
firms is now possible, as is the conduct of commercial banking, merchant
banking, investment management, securities underwriting and insurance within a
single financial institution using a "financial holding company" structure
authorized by the Act.
In order for a commercial bank to affiliate with a securities firm or an
insurance company pursuant to the Act, its bank holding company must qualify as
a financial holding company. A bank holding company will qualify if (i) its
banking subsidiaries are "well capitalized" and "well managed" and (ii) it files
with the Board of Governors a certification to such effect and a declaration
that it elects to become a financial holding company. The Bank Holding Company
Act now permits financial holding companies to engage in activities, and acquire
companies engaged in activities, that are financial in nature or incidental to
such financial activities. Financial holding companies are also permitted to
engage in activities that are complementary to financial activities if the Board
of Governors determines that the activity does not pose a substantial risk to
the safety or soundness of depository institutions or the financial system in
general.
The Act also requires that federal financial institutions and securities
regulatory agencies prescribe regulations to implement the policy that financial
institutions must respect the privacy of their customers and protect the
security and confidentiality of customers' non-public personal information.
These new regulations require, in general, that financial institutions (1) may
not disclose non-public personal information of customers to non-affiliated
third parties without notice to their customers, who must have an opportunity to
direct that such information not be disclosed; (2) may not disclose customer
account numbers except to consumer reporting agencies; and (3) must give prior
disclosure of their privacy policies before establishing new customer
relationships.
USA PATRIOT ACT
Under the USA Patriot Act of 2001, adopted by the U.S. Congress on October
26, 2001 to combat terrorism, FDIC insured banks and commercial banks will be
required to increase their due diligence efforts for correspondent accounts and
private banking customers. The USA Patriot Act requires the Bank to engage in
additional record keeping or reporting, requiring identification of owners of
accounts, or of the customers of foreign banks with accounts, and restricting or
prohibiting certain correspondent accounts.
EMPLOYEES
At December 31, 2001, we had 420 full-time equivalent employees. None of
the employees is covered by a collective bargaining agreement. We consider our
relationship with our employees to be satisfactory.
9
ITEM 2. PROPERTIES
The Company's principal offices are located at 711 Van Ness Avenue in San
Francisco, California, which serves as the Company's and the Bank's
headquarters. The Bank leases substantially all of its remaining branch
facilities under noncancellable operating leases, many of which contain renewal
options and some of which have escalation clauses.
At December 31, 2001, premises and equipment owned by the Company, both
individually and in aggregate, were not material in relation to the Company's
total assets.
ITEM 3. LEGAL PROCEEDINGS
Because of the nature of the Company's business, it is subject to various
threatened or filed legal actions. Although the amount of the ultimate exposure,
if any, cannot be determined at this time, the Company, based upon the advice of
counsel, does not anticipate the final outcome of threatened or filed suits to
have a material adverse effect on its financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders or otherwise
during the fourth quarter of the year ended December 31, 2001.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On November 5, 1998, the Company's stock began trading on The Nasdaq Stock
Market under the ticker symbol "UCBH." On January 30, 2002, the stock closed at
$30.92. The common stock's high and low bid price for each of the four quarters
ended December 31, 2001 and December 31, 2000 were as follows:
2001 2001 2001 2001 2000 2000 2000 2000
FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
High bid price during quarter(1).... $31.75 $32.50 $30.35 $28.38 $23.97 $17.91 $10.00 $ 9.19
Low bid price during quarter(1)..... $25.70 $26.64 $20.94 $20.63 $16.44 $13.25 $14.50 $10.75
(1) Adjusted for two-for-one stock split for shareholders of record as of March
31, 2001 and completed on April 11, 2001.
As of December 31, 2001, there were 3,485 shareholders of the Company's
common stock. The Company and the Bank are prohibited by federal regulations
from paying dividends if the payment would reduce their regulatory capital below
certain minimum requirements. The Company declared dividends totaling $0.10 per
share in 2000 and $0.16 per share in 2001.
10
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the Company's Consolidated Financial Statements and the accompanying notes
presented in Item 8.
AT DECEMBER 31,
--------------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
FINANCIAL CONDITION AND OTHER DATA:
Total assets .......................................... $2,932,043 $2,502,119 $2,284,800 $2,147,332 $1,561,650
Net loans ............................................. 2,229,753 1,902,921 1,667,192 1,477,226 1,202,095
Securities(1) ......................................... 593,393 487,240 512,361 587,557 270,103
Deposits .............................................. 2,466,152 2,064,019 1,676,148 1,633,895 1,468,987
Guaranteed preferred beneficial interests in junior
subordinated debentures ............................. 36,000 30,000 30,000 30,000 --
Borrowings ............................................ 238,000 260,558 449,612 368,000 --
Long-term debt to affiliates .......................... -- -- -- -- 20,060
Stockholders' equity .................................. 174,124 133,645 110,107 103,638 62,552
Nonperforming assets .................................. 991 2,631 5,354 6,880 10,266
Ratio of equity to assets ............................. 5.94% 5.34% 4.82% 4.83% 4.01%
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
OPERATING DATA:
Interest income ....................................... $ 202,787 $ 186,688 $ 158,683 $ 130,831 $ 107,591
Interest expense ...................................... 104,330 103,704 87,969 78,393 64,252
---------- ---------- ---------- ---------- ----------
Net interest income ................................... 98,457 82,984 70,714 52,438 43,339
Provision for loan losses ............................. 5,620 9,765 5,645 3,412 1,154
---------- ---------- ---------- ---------- ----------
Net interest income after provision for loan losses ... 92,837 73,219 65,069 49,026 42,185
Noninterest income .................................... 6,905 4,751 4,075 3,402 3,094
Noninterest expense ................................... 49,296 40,099 37,198 33,685 32,190
---------- ---------- ---------- ---------- ----------
Income before taxes ................................... 50,446 37,871 31,946 18,743 13,089
Income tax expense .................................... 19,958 13,743 12,878 7,855 5,790
---------- ---------- ---------- ---------- ----------
Net income ............................................ $ 30,488 $ 24,128 $ 19,068 $ 10,888 $ 7,299
========== ========== ========== ========== ==========
OPERATING RATIOS AND OTHER DATA:
Return on average assets .............................. 1.12% 1.02% 0.87% 0.60% 0.47%
Return on average equity .............................. 19.58 20.12 18.00 12.52 12.33
Interest rate spread(2)................................ 3.30 3.24 3.04 2.72 2.71
Net interest margin(2)................................. 3.69 3.59 3.29 2.95 2.89
Efficiency ratio(3).................................... 46.79 45.70 49.74 60.32 69.33
Noninterest expense to average assets ................. 1.82 1.70 1.69 1.84 2.08
ASSET QUALITY DATA:
Nonperforming assets to total assets .................. 0.03% 0.11% 0.23% 0.32% 0.66%
Nonperforming loans to total loans .................... 0.04 0.13 0.27 0.41 0.81
Allowance for loan losses to total loans .............. 1.53 1.50 1.16 1.00 1.00
Net charge-offs to average gross loans ................ 0.00 0.02 0.07 0.05 0.06
BANK REGULATORY CAPITAL RATIOS:
Tier I risk-based capital ............................. 9.65% 9.71% 10.04% 10.42% 9.90%
Total risk-based capital .............................. 10.91 10.97 11.29 11.61 11.15
Leverage ratio (Tier I capital to total average assets) 7.26 6.95 6.58 6.25 5.37
PER SHARE DATA:
Basic earnings per share .............................. $ 1.60 $ 1.29 $ 1.02 $ 0.65 $ 0.61
Diluted earnings per share ............................ 1.53 1.24 1.01 0.63 0.53
Dividends per share ................................... 0.16 0.10 -- -- --
- ----------
(1) Includes available for sale securities and held to maturity securities.
(2) Calculated on a nontax equivalent basis.
(3) Represents noninterest expense divided by the total of our net interest
income before provision for loan losses and our noninterest income.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis is intended to assist in an
understanding of the significant factors that influence our financial condition
at December 31, 2001 as compared to December 31, 2000. It also analyzes our
results of operations for the year ended December 31, 2001 as compared to the
year ended December 31, 2000, and for the year ended December 31, 2000 as
compared to December 31, 1999. You should read the discussion and analysis
together with our financial statements and corresponding notes included in this
Annual Report.
RESULTS OF OPERATIONS
General. Our main source of income is net interest income, which is the
difference between our interest income (generally interest paid to us by
borrowers and paid on our investments) and our interest expense (generally the
interest we paid depositors as well as interest we paid on other borrowings,
such as loans from the Federal Home Loan Bank). Changes in the average amount of
interest-earning assets (generally loans and investments) we hold as well as in
interest-bearing liabilities (generally deposits and other borrowings) we incur
during a period affect the amount of net interest income we earn. Changes in the
interest rates earned on loans and securities and paid on deposits and other
borrowings also affect our net interest income.
We also earn noninterest income, which is generally made up of commercial
banking fees and other fees paid by our customers and gains on sales of loans.
In addition to interest expense, our income is impacted by noninterest expenses
(primarily our compensation, occupancy and furniture and equipment expenses) and
our provision for loan losses. Other factors beyond our control, such as general
economic conditions, competition from other financial services companies,
changes in interest rates, government and regulatory action and policies, may
also significantly affect our results of operations.
The Bank operates commercial and consumer lending business segments.
Through its Commercial Banking Division, the Bank offers commercial deposit
facilities and commercial loans. Included in the loans offered are
nonresidential real estate loans, commercial business loans, multifamily real
estate loans, construction loans, and Small Business Administration ("SBA")
loans. Through the consumer business segment, the Bank offers consumer deposit
products including savings accounts, checking accounts and time deposits. The
consumer segment also originates residential mortgage (one to four family) loans
and home equity lines of credit.
Through the Commercial Banking Division, the Bank originates commercial
real estate loans for primary users as well as investors. The Bank also
originates multifamily mortgages which are typically secured by five to 50 unit
residential buildings within its primary market areas. Loans secured by
residential buildings in excess of 50 units are underwritten pursuant to the
Bank's underwriting standards for commercial nonresidential real estate loans.
Both types of commercial real estate loans are generally fixed rate for an
initial period of time and then become adjustable-rate loans. They are generally
amortized over 25 to 30 years or less and have balloon payments in fifteen years
or less.
Construction loans are originated primarily for the construction of
entry-level and first-time move-up housing within California and mixed-use
properties. The Bank focuses on mid-tier builders. Construction loans are
generally prime based and are written for a one-year term and may have up to a
one-year renewal option.
The Bank provides commercial business loans to customers for working
capital purposes for accounts receivable and inventory and loans to finance
equipment, accounts receivable and inventory. In addition, the Bank offers SBA
loans for which 75% to 80% of the principal balance is generally guaranteed by
the SBA.
The Bank originates fixed-rate and adjustable-rate residential mortgage
(one to four family) loans within its primary market area. These loans are
originated through its retail branches. Such mortgage loans are originated
primarily for owner-occupants. In addition to these residential mortgage loans,
the Bank offers home equity loans.
13
Net Income. We earned $30.5 million in net income in 2001 as compared to
$24.1 million in net income in 2000, an increase of $6.4 million, or 26.4%. Our
annualized return on average assets was 1.12% in 2001 as compared to 1.02% in
2000, and our return on average equity was 19.58% in 2001 as compared to 20.12%
in 2000.
We earned $24.1 million for 2000 as compared to $19.1 million in net
income for 1999. Our annualized return on average assets was 1.02% for 2000 as
compared to 0.87% for 1999, and our annualized return on average equity was
20.12% in 2000 as compared to 18.00% for 1999.
We have experienced steady growth in net income during the periods
presented. The increase in our net income in 2001 as compared to 2000 was
primarily the result of an increase in net interest income from $83.0 million to
$98.5 million for the year, before provision for loan losses. The reasons for
the change in the net interest income are discussed below.
The provision for loan losses decreased from $9.8 million in 2000 to $5.6
million in 2001. The Bank uses a systematic methodology to calculate the
allowance for loan losses. Through applying this methodology, which takes into
account our loan portfolio mix, credit quality and loan growth, we determined
the appropriateness of our allowance for loan losses. We adjust the allowance
for loan losses by quarterly provisions charged to earnings.
Partially offsetting the increase in net interest income was the increase
in noninterest expenses from $40.1 million in 2000 to $49.3 million in 2001. The
increase in our noninterest expenses, as discussed below, resulted primarily
from increases in personnel expenses incurred as a result of the continued
expansion of our commercial banking activities.
The increase in our net income in 2000 as compared to 1999 was mainly the
result of an increase in net interest income from $70.7 million to $83.0
million, as discussed below.
Net Interest Income and Net Interest Margin. Our net interest margin,
calculated on a fully tax equivalent basis, (representing net interest income as
a percentage of average interest-earning assets), improved to 3.73% for 2001
from 3.62% for 2000. Our net interest income for 2001 was $98.5 million, an
increase of $15.5 million, or 18.6%, from our net interest income of $83.0
million for 2000, primarily as a result of the following factors:
- We increased the average balance of loans in our portfolio from $1.80
billion in 2000 to $2.06 billion in 2001.
- We increased our average balance of securities from $512.1 million in
2000 to $580.9 million in 2001.
- We reduced our average cost of deposits from 4.31% in 2000 to 3.88% in
2001.
- Partially offsetting the reduction in the deposit cost was a decrease
in the average yield on securities from 6.67% in 2000 to 6.43% in 2001
and decrease in the average yield on loans from 8.48% in 2000 to 7.97%
in 2001.
Our net interest margin, calculated on a fully tax equivalent basis,
improved to 3.62% for 2000 from 3.34% for 1999. Net interest income for 2000 was
$83.0 million, an increase of $12.3 million, or 17.4% from our net interest
income of $70.7 million for 1999. Net interest income increased in 2000
primarily as a result of the following factors:
- We increased the average balance of loans in our portfolio from $1.57
billion in 1999 to $1.80 billion in 2000.
- We increased the average yield on loans from 7.86% in 1999 to 8.48% in
2000 as a result of originating more higher-yielding commercial loans
than residential mortgage (one to four family) loans.
- We increased our average yield on securities from 6.09% in 1999 to
6.67% in 2000.
14
The following table presents, for the periods indicated, the distribution
of our average assets, liabilities and stockholders' equity, as well as the
total dollar amounts of interest income from average interest-earning assets and
the resultant yields and the dollar amounts of interest expense of average
interest-bearing liabilities, expressed both in dollars and rates:
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
AT 2001 2000
DECEMBER 31, ------------------------------ ---------------------------------
2001 INTEREST AVERAGE INTEREST AVERAGE
----------- AVERAGE INCOME OR YIELD/ AVERAGE INCOME OR YIELD/
YIELD/COST BALANCE EXPENSE COST BALANCE EXPENSE COST
----------- ---------- --------- ------ ---------- --------- -------
(DOLLARS IN THOUSANDS)
Interest-earning assets:
Loans(1).................. 6.92% $2,062,419 $ 164,328 7.97% $1,799,019 $ 152,494 8.48%
Securities................ 6.06 580,869 37,358 6.43 512,065 34,142 6.67
Other..................... -- 26,243 1,101 4.20 853 52 6.10
---------- --------- ---------- ---------
Total interest-earning assets 6.73 2,669,531 202,787 7.60 2,311,937 186,688 8.07
Noninterest-earning assets.. -- 42,547 -- -- 48,877 -- --
---------- --------- ---------- ---------
Total assets................ 6.62 $2,712,078 $ 202,787 7.48 $2,360,814 $ 186,688 7.91
---- ========== --------- ---- ========== --------- -----
Interest-bearing liabilities:
Deposits:
NOW, checking and money
market accounts....... 1.70 $ 236,002 $ 5,080 2.15 $ 153,192 $ 3,144 2.05
Savings accounts........ 1.41 405,271 8,229 2.03 304,601 6,954 2.28
Time deposits........... 3.70 1,501,202 74,126 4.94 1,254,088 66,905 5.33
---------- --------- ---------- ---------
Total deposits............ 3.00 2,142,475 87,435 4.08 1,711,881 77,003 4.50
---------- --------- ---------- ---------
Borrowings................ 5.44 256,650 14,051 5.47 403,661 23,889 5.92
Guaranteed preferred
beneficial interests in
junior subordinated
debentures.............. 8.81 30,554 2,844 9.31 30,000 2,812 9.38
---------- --------- ---------- ---------
Total interest-bearing
liabilities............... 3.31 2,429,679 104,330 4.29 2,145,542 103,704 4.83
---- ---------- --------- ---- ---------- --------- -----
Noninterest-bearing deposits 109,160 76,002
Other noninterest-bearing
liabilities............... 17,514 19,347
Stockholders' equity........ 155,725 119,923
---------- ----------
Total liabilities and
stockholders' equity...... $2,712,078 $2,360,814
========== ==-=======
Net interest income/net
interest rate spread(2)... 3.43% $ 98,457 3.30% $ 82,984 3.24%
==== ========= ==== ======== ====
Net interest-earning
assets/net interest
margin(3)................. 3.74% $ 239,851 3.69% $ 166,395 3.59%
==== ========== ==== ========== ====
Ratio of interest-earning
assets to interest-bearing
liabilities................ 1.10x 1.10x 1.08x
==== ========== ==========
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1999
----------------------------------
INTEREST AVERAGE
AVERAGE INCOME OR YIELD/
BALANCE EXPENSE COST
---------- --------- -------
(DOLLARS IN THOUSANDS)
Interest-earning assets:
Loans(1).................. $1,573,071 $ 123,705 7.86%
Securities................ 573,737 34,955 6.09
Other..................... 472 23 4.82
---------- ---------
Total interest-earning assets 2,147,280 158,683 7.39
Noninterest-earning assets.. 55,607 -- --
---------- ---------
Total assets................ $2,202,887 $ 158,683 7.20
========== --------- ------
Interest-bearing liabilities:
Deposits:
NOW, checking and money
market accounts....... $ 136,832 $ 2,498 1.83
Savings accounts........ 247,585 5,047 2.04
Time deposits........... 1,189,798 54,410 4.57
---------- ---------
Total deposits............ 1,574,215 61,955 3.94
---------- ---------
Borrowings................ 420,119 23,201 5.52
Guaranteed preferred
beneficial interests in
junior subordinated
debentures.............. 30,000 2,812 9.38
---------- --------- ------
Total interest-bearing
liabilities............... 2,024,334 87,968 4.35
---------- --------- ------
Noninterest-bearing deposits 54,639
Other noninterest-bearing
liabilities............... 17,999
Stockholders' equity........ 105,915
----------
Total liabilities and
stockholders' equity...... $2,202,887
==========
Net interest income/net
interest rate spread(2)... $ 70,714 3.04%
========= ======
Net interest-earning
assets/net interest
margin(3)................. $ 122,947 3.29%
========== ======
Ratio of interest-earning
assets to interest-bearing
liabilities................ 1.06x
==========
- ----------
(1)Nonaccrual loans are included in the table for computation purposes, but the
foregone interest on such loans is excluded.
(2)Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest- bearing
liabilities.
(3)Net interest margin represents net interest income divided by average
interest-earning assets.
Our net interest income is affected by changes in the amount and mix of
our interest-earning assets and interest-bearing liabilities, referred to as
"volume changes." It is also affected by changes in the yields we earn on
interest-earning assets and rates we pay on interest-bearing deposits and other
borrowed funds, referred to as "rate changes."
15
The following table sets forth the changes in interest income and interest
expense for the major categories of our interest-earning assets and
interest-bearing liabilities, and the amount of change that is attributable to
volume changes and rate changes for the years indicated. Changes not solely
attributable to rate or volume have been allocated to volume and rate changes in
proportion to the relationship of the absolute dollar amounts of the changes in
each.
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 2001 COMPARED TO DECEMBER 31, 2000 COMPARED TO
THE YEAR ENDED DECEMBER 31, 2000 THE YEAR ENDED DECEMBER 31, 1999
-------------------------------- --------------------------------
VOLUME RATE NET VOLUME RATE NET
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
Interest income:
Loans ............................................. $ 20,056 $ (8,222) $ 11,834 $ 18,666 $ 10,123 $ 28,789
Securities ........................................ 4,367 (1,151) 3,216 (6,661) 5,848 (813)
Other ............................................. 1,060 (11) 1,049 22 7 29
-------- -------- -------- -------- -------- --------
Total interest income on interest-earning
assets .................................. 25,483 (9,384) 16,099 12,027 15,978 28,005
-------- -------- -------- -------- -------- --------
Interest expense:
Deposits:
NOW, checking, and money market accounts ....... 1,775 161 1,936 316 330 646
Savings accounts ............................... 1,916 (641) 1,275 1,254 653 1,907
Time deposits .................................. 11,606 (4,385) 7,221 3,060 9,435 12,495
Borrowings ........................................ (8,160) (1,678) (9,838) (830) 1,517 687
Guaranteed preferred beneficial interests in junior
subordinated debentures ......................... 51 (19) 32 -- -- --
-------- -------- -------- -------- -------- --------
Total interest expense on interest-bearing
liabilities ............................. 7,188 (6,562) 626 3,800 11,935 15,735
-------- -------- -------- -------- -------- --------
Increase (decrease) in net interest income .......... $ 18,295 $ (2,822) $ 15,473 $ 8,227 $ 4,043 $ 12,270
======== ======== ======== ======== ======== ========
Provision for Loan Losses. For the year ended December 31, 2001, our
provision for loan losses was $5.6 million, a decrease of $4.1 million from our
provision of $9.8 million for the previous year. For the year ended December 31,
2000, our provision for loan losses was $9.8 million, an increase of $4.1
million from our provision of $5.6 million for the previous year. The Bank uses
a systematic methodology to calculate the allowance for loan losses. Through
applying this methodology, which takes into account our loan portfolio mix,
credit quality, loan growth, the amount and trends relating to our delinquent
and nonperforming loans, regulatory policies, general economic conditions and
other factors relating to the collectibility of loans in our portfolio, we
determine the appropriateness of our allowance for loan losses which is adjusted
by quarterly provisions charged against earnings.
Noninterest Income. Below we set forth the composition of our noninterest
income for the periods indicated:
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------------
2001 2000 1999
------ ------ ------
(DOLLARS IN THOUSANDS)
Commercial banking fees ........................ $3,324 $2,515 $2,071
Service charges on deposit accounts ............ 1,342 1,000 840
Gain on sale of loans and securities ........... 2,047 993 784
Loan servicing and miscellaneous income......... 192 243 380
------ ------ ------
Total noninterest income ....................... $6,905 $4,751 $4,075
====== ====== ======
Our noninterest income increased by $2.2 million, or 45.3%, to $6.9
million for the year ended December 31, 2001, from $4.8 million for the
preceding year. The increase is primarily due to increased SBA loan sales in
2001 resulting from a higher origination volume and also due to collecting more
commercial banking fees during 2001 as a result of the continued growth of our
Commercial Banking Division.
Our noninterest income increased by $676,000, or 16.6%, to $4.8 million
for the year ended December 31, 2000, from $4.1 million for the preceding year.
The increase is primarily the result of collecting more commercial banking fees
during 2000 due to the continued growth of our Commercial Banking Division. Also
contributing to the increase was a $135,000 gain on sale of securities.
16
Noninterest Expense. Below is a table outlining the components of our
noninterest expense for the periods indicated:
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------------------
2001 2000 1999
------- ------- -------
(DOLLARS IN THOUSANDS)
Personnel ........................................ $24,959 $19,847 $18,427
Occupancy ........................................ 5,303 4,939 4,885
Data processing .................................. 2,878 2,284 2,084
Furniture and equipment .......................... 2,723 2,350 2,119
Professional fees and contracted services ........ 3,848 2,297 2,240
Deposit insurance ................................ 393 344 938
Communication .................................... 593 491 425
Foreclosed assets expense ........................ 11 80 80
Miscellaneous expense ............................ 8,588 7,467 6,000
------- ------- -------
Total noninterest expense ........................ $49,296 $40,099 $37,198
======= ======= =======
Efficiency ratio ................................. 46.79% 45.70% 49.74%
Noninterest expenses to average assets ........... 1.82 1.70 1.69
Our noninterest expense increased to $49.3 million for 2001 from $40.1
million for 2000, an increase of $9.2 million, or 22.9%. The higher expenses in
2001 primarily resulted from a $5.1 million increase in personnel expenses due
to the additional staffing required to support the growth of the Bank's
commercial banking business. Professional fees for 2001 of $3.8 million
represents an increase of $1.5 million over $2.3 million in 2000, reflecting
increased legal expenses. Miscellaneous expenses increased from $7.5 million in
2000 to $8.6 million in 2001, primarily as a result of increases in insurance,
travel, office supplies, and contribution expenses. Expense increases relate to
the increased commercial banking activities. Our noninterest expense increased
to $40.1 million for 2000 from $37.2 million for 1999, an increase of 7.8%. The
higher expenses in 2000 primarily resulted from a $1.4 million increase in
personnel expenses as a result of hiring more employees to further the Bank's
commercial banking activities. Miscellaneous expenses increased from $6.0
million for 1999 to $7.5 million for 2000, primarily as a result of increased
advertising expenses.
Provision for Income Taxes. During 2001, we recorded a $20.0 million
provision for income taxes which resulted in an effective tax rate of 39.6%,
compared with 36.3% for the year ended December 31, 2000. The increase in the
effective tax rate results primarily from the realization of retroactive tax
benefits generated through the Bank's lending activities in Enterprise Zones in
2000. During 2000, we recorded a $13.7 million provision for income taxes, which
resulted in an effective tax rate of 36.3%. The effective tax rate in both years
is lower than the expected combined federal and state statutory rates of 42.1%
due to the effect of the Enterprise Zone Tax Credits in both years, including
the retroactive credits in 2000, and the effect of the municipal securities
which are not fully taxable.
FINANCIAL CONDITION
The size of the balance sheet increased from $2.50 billion at December 31,
2000 to $2.93 billion at December 31, 2001. This increase of $429.9 million, or
17.2%, resulted primarily from the increase in the size of our loan portfolio.
Our loan portfolio increased from $1.93 billion at December 31, 2000 to $2.26
billion at December 31, 2001. This increase of $332.5 million, or 17.2%,
resulted from the growth in commercial loans. The loan originations and year-end
balances are discussed in detail below. Our securities portfolio increased from
$487.2 million at December 31, 2000, to $593.4 million at December 31, 2001, an
increase of $106.2 million, or 21.8%, primarily as a result of the securities
from an internal securitization. In an internal securitization, the Bank
securitizes with Fannie Mae loans which are held in the residential mortgage
(one to four family) loan portfolio and retains the resulting securities in the
available for sale securities portfolio. Accordingly, no gain or loss is
recognized since no assets are sold. The Bank performs internal securitizations
for risk-based capital management purposes. The Bank's risk-based capital ratio
is improved following a securitization since the securities have a lower
risk-based capital requirement than do the whole loans which were securitized.
In 2001, the Bank securitized $109.6 million of residential mortgage (one to
four family) loans. In addition, securities which were purchased during the
year largely offset the runoff of the existing portfolio.
17
During 2001, we funded the $429.9 million of new assets primarily with an
increase in our deposits. Our deposits grew by $402.1 million, or 19.5%, to
$2.47 billion at December 31, 2001. This deposit growth is discussed in more
detail below. We reduced our borrowings by $22.6 million, or 8.7%, to $238.0
million at December 31, 2001.
The size of the balance sheet increased from $2.28 billion at December 31,
1999 to $2.50 billion at December 31, 2000. This increase of $217.3 million, or
9.5%, resulted from the increase in the size of our loan portfolio. Our loan
portfolio increased from $1.69 billion at December 31, 1999 to $1.93 billion at
December 31, 2000. This increase of $245.1 million, or 14.5%, resulted from the
growth in commercial loans. Our securities portfolio decreased from $512.4
million at December 31, 1999, to $487.2 million at December 31, 2000, a decrease
of $25.1 million, or 4.9%, due primarily to the runoff of existing securities,
partially offset by the addition of securities from an internal loan
securitization. In the quarter ended December 31, 2000, the Bank securitized
$24.9 million of residential loans in conjunction with its ongoing balance sheet
restructuring strategy. These securities are included in the available for sale
portfolio as of December 31, 2000.
During 2000, we funded the $217.3 million of new assets with an increase
in our deposits, partially offset by a decrease in our borrowings. Our deposits
grew by $387.9 million, or 23.1%, to $2.06 billion at December 31, 2000. We
reduced our borrowings by $189.1 million, or 42.0%, to $260.6 million at
December 31, 2000.
Loan Portfolio. We originated commercial real estate loans of $310.1
million in 2001, as compared to $248.4 million in 2000 and multifamily
originations increased to $256.8 million in 2001 as compared with $128.6 million
in 2000. Additionally, we made commitments for commercial loans of $205.9
million in 2001, as compared to $96.1 million in 2000. As a result of the lower
market interest rate environment and resulting customer demand, we originated
$126.3 million of residential mortgage (one to four family) loans during 2001 as
compared with $34.7 million during 2000.
The table below shows the composition of our loan portfolio by amount and
percentage of total gross loans in each major loan category at the dates
indicated:
AT DECEMBER 31,
---------------------------------------------------------------------
2001 2000 1999
-------------------- -------------------- ---------------------
AMOUNT % AMOUNT % AMOUNT %
----------- ------ ----------- ------ ----------- ------
(DOLLARS IN THOUSANDS)
Commercial:
Secured by real
estate--nonresidential...... $ 798,882 35.22% $ 597,981 30.91% $ 435,061 25.77%
Secured by real
estate--multifamily......... 677,271 29.86 514,697 26.61 423,838 25.11
Construction................... 182,558 8.05 131,878 6.82 89,710 5.31
Business....................... 163,628 7.21 99,401 5.14 59,332 3.52
----------- ------ ---------- ------ ----------- ------
Total commercial............. 1,822,339 80.34 1,343,957 69.48 1,007,941 59.71
----------- ------ ---------- ------ ----------- ------
Consumer:
Residential mortgage (one to
four family)................. 430,057 18.96 574,219 29.68 665,923 39.45
Other.......................... 16,003 0.70 16,288 0.84 14,248 0.84
----------- ------ ---------- ------ ----------- ------
Total consumer............... 446,060 19.66 590,507 30.52 680,171 40.29
----------- ------ ---------- ------ ----------- ------
Total gross loans............ 2,268,399 100.00% 1,934,464 100.00% 1,688,112 100.00%
====== ====== ======
Net deferred loan origination
(fees) costs.................... (4,096) (2,642) (1,417)
----------- ---------- -----------
Loans........................... 2,264,303 1,931,822 1,686,695
Allowance for loan losses....... (34,550) (28,901) (19,503)
----------- ---------- -----------
Total net loans.............. $ 2,229,753 $1,902,921 $ 1,667,192
=========== ========== ===========
AT DECEMBER 31,
-----------------------------------------------
1998 1997
--------------------- ----------------------
AMOUNT % AMOUNT %
----------- ------ ------------ ------
(DOLLARS IN THOUSANDS)
Commercial:
Secured by real
estate--nonresidential...... $ 229,693 15.39% $ 115,366 9.51%
Secured by real
estate--multifamily......... 346,967 23.26 339,257 27.97
Construction................... 61,486 4.12 26,603 2.19
Business....................... 46,240 3.10 21,146 1.74
----------- ------ ----------- ------
Total commercial............. 684,386 45.87 502,372 41.41
----------- ------ ----------- ------
Consumer:
Residential mortgage (one to
four family)................. 790,789 53.01 691,167 56.98
Other.......................... 16,711 1.12 19,475 1.61
----------- ------ ----------- ------
Total consumer............... 807,500 54.13 710,642 58.59
----------- ------ ----------- ------
Total gross loans............ 1,491,886 100.00% 1,213,014 100.00%
====== ======
Net deferred loan origination
(fees) costs.................... 262 1,223
----------- -----------
Loans........................... 1,492,148 1,214,237
Allowance for loan losses....... (14,922) (12,142)
----------- -----------
Total net loans.............. $ 1,477,226 $ 1,202,095
=========== ===========
18
The table below shows new loan commitments during the years indicated:
2001 2000 1999
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Commercial:
Secured by real estate -- nonresidential(1) .............. $ 310,087 $ 248,396 $ 267,138
Secured by real estate -- multifamily(1) ................. 256,797 128,581 135,375
Construction ............................................. 251,740 202,482 179,489
Business ................................................. 205,916 96,053 79,692
---------- ---------- ----------
Total commercial loans ........................... 1,024,540 675,512 661,694
Consumer:
Residential mortgage (one to four family)(1) ............. 126,277 34,682 59,553
Home equity and other .................................... 18,464 14,989 9,943
---------- ---------- ----------
Total consumer loans ............................. 144,741 49,671 69,496
---------- ---------- ----------
Total commitments .......................................... $1,169,281 $ 725,183 $ 731,190
========== ========== ==========
- ----------
(1)For nonresidential, multifamily, and residential mortgage (one to four
family) loans, substantially all commitments have been funded.
As a result of our continued focus on commercial lending activities, loan
growth remained concentrated in our commercial loan portfolio, which totaled
$1.82 billion at December 31, 2001, a 35.6% increase from $1.34 billion at
December 31, 2000. Our commercial loan portfolio increased 33.3% during 2000
from $1.01 billion at December 31, 1999 to $1.34 billion at December 31, 2000.
As a result of changing the loan origination focus to commercial loans, we
are originating more loans which reprice in shorter time periods than the
traditional repricing terms of residential mortgage (one to four family) loans.
Construction, commercial business loans and SBA loans generally have monthly
repricing terms. Commercial real estate loans generally reprice each month or
are intermediate fixed, meaning that the loans have interest rates which are
fixed for a period, typically five years, and then generally reprice monthly or
become due and payable.
As a result of the change in the type of loan originations, the loans
which reprice or mature within the next year increased to $1.49 billion at
December 31, 2001 from $1.05 billion at December 31, 2000.
The loans which reprice or mature within the next year increased to $1.05
million at December 31, 2000 from $765.4 million at December 31, 1999.
19
The table below sets forth the estimated repricing or maturity of our loan
portfolio at December 31, 2001. Adjustable-rate mortgages are shown in the
period in which they reprice rather than when they become due. The table does
not include the effects of possible prepayments. The rate of loan prepayment
varies from time to time, depending upon various factors, including market
interest rates.
AT DECEMBER 31, 2001
--------------------------------------------------------------------------------------------------
AFTER AFTER AFTER AFTER
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
WITHIN THROUGH THROUGH THROUGH THROUGH AFTER
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS TWENTY YEARS TWENTY YEARS TOTAL
----------- ---------- ---------- ----------- ------------ ------------ -----------
(DOLLARS IN THOUSANDS)
Commercial:
Secured by real estate --
nonresidential ........... $ 588,152 $ 77,651 $ 47,063 $ 66,407 $ 19,563 $ 46 $ 798,882
Secured by real estate --
multifamily .............. 456,031 7,506 15,458 119,910 78,366 -- 677,271
Construction ............... 181,652 906 -- -- -- -- 182,558
Business ................... 162,681 -- -- 536 -- 411 163,628
----------- ---------- --------- ---------- ----------- ----------- -----------
Total commercial ......... 1,388,516 86,063 62,521 186,853 97,929 457 1,822,339
----------- ---------- --------- ---------- ----------- ----------- -----------
Consumer:
Residential mortgage (one to
four family) .............. 85,196 46,070 32,538 20,500 109,733 136,020 430,057
Other ...................... 16,003 -- -- -- -- -- 16,003
----------- ---------- --------- ---------- ----------- ----------- -----------
Total consumer ........... 101,199 46,070 32,538 20,500 109,733 136,020 446,060
----------- ---------- --------- ---------- ----------- ----------- -----------
Total gross loans ........ $ 1,489,715 $ 132,133 $ 95,059 $ 207,353 $ 207,662 $ 136,477 $ 2,268,399
=========== ========== ========= ========== =========== =========== ===========
Net deferred origination fees (4,096)
-----------
Loans ........................ 2,264,303
Allowance for loan losses .... (34,550)
-----------
Net loans .................... $ 2,229,753
===========
The following table sets forth the dollar amount of all loans and
mortgage-backed securities for which final payment is not due or repricing will
not occur until after December 31, 2002.
DUE OR REPRICING AFTER
DECEMBER 31, 2002
------------------------------------------
FIXED ADJUSTABLE TOTAL
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Commercial:
Secured by real estate-- nonresidential .................. $ 91,566 $ 119,164 $ 210,730
Secured by real estate-- multifamily ..................... 200,444 20,796 221,240
Construction ............................................. 906 -- 906
Business ................................................. 947 -- 947
---------- ---------- ----------
Total commercial ................................. 293,863 139,960 433,823
---------- ---------- ----------
Consumer:
Residential mortgage (one to four family) ................ 263,260 81,601 344,861
Other .................................................... -- -- --
---------- ---------- ----------
Total consumer ................................... 263,260 81,601 344,861
---------- ---------- ----------
Total loans ................................................ 557,123 221,561 778,684
Mortgage-backed securities ................................. 250,822 -- 250,822
---------- ---------- ----------
Total loans and mortgage-backed securities ................. $ 807,945 $ 221,561 $1,029,506
========== ========== ==========
Nonperforming Assets and Other Real Estate Owned. We generally place loans
on nonaccrual status when they become 90 days past due, unless the loan is both
well secured and in the process of collection. Loans may be placed on nonaccrual
status earlier if, in management's opinion, the full and timely collection of
principal or interest becomes uncertain. When a loan is placed on nonaccrual
status, unpaid accrued interest is charged against interest income. We charge
off loans when we determine that collection has become unlikely. Other real
estate owned ("OREO") consists of real estate acquired by us through
foreclosure.
20
The following table sets forth information regarding our nonperforming
assets at the dates indicated.
AT DECEMBER 31,
----------------------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Nonaccrual loans:
Commercial:
Secured by real estate-- nonresidential .......... $ -- $ 740 $ 3,806 $ 2,663 $ 2,804
Secured by real estate-- multifamily ............. 210 -- -- -- 904
Construction ..................................... -- 104 104 104 --
Business ......................................... -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total commercial ............................ 210 844 3,910 2,767 3,708
---------- ---------- ---------- ---------- ----------
Consumer:
Residential mortgage (one to four
family) ........................................ 781 1,672 722 3,341 6,131
Other ............................................ -- -- -- -- 15
---------- ---------- ---------- ---------- ----------
Total consumer .............................. 781 1,672 722 3,341 6,146
---------- ---------- ---------- ---------- ----------
Total nonaccrual loans ...................... 991 2,516 4,632 6,108 9,854
Other real estate owned (OREO) ........................ -- 115 722 772 412
---------- ---------- ---------- ---------- ----------
Total nonperforming assets .................. $ 991 $ 2,631 $ 5,354 $ 6,880 $ 10,266
========== ========== ========== ========== ==========
Nonperforming assets to total assets .................. 0.03% 0.11% 0.23% 0.32% 0.66%
Nonaccrual loans to total loans ....................... 0.04 0.13 0.27 0.41 0.81
Nonperforming assets to total loans and
OREO ................................................ 0.04 0.14 0.32 0.46 0.85
Total loans ................................. $2,264,303 $1,931,822 $1,686,695 $1,492,148 $1,214,237
========== ========== ========== ========== ==========
Gross income not recognized on
nonaccrual loans .................................... $ 24 $ 116 $ 201 $ 135 $ 64
Accruing loans contractually past due
90 days or more ..................................... 1,269 -- -- -- --
Loans classified as troubled debt
restructurings but not included above ............... -- -- -- 1,251 1,251
In addition to the nonaccrual loans described above, the Company had $6.3
million of classified loans at December 31, 2001. Classified loans ("classified
loans") are defined as those we classify substandard, doubtful or loss, as
defined on the following page. With the exception of the loans described above
and the classified loans, we are not aware of any other loans as of December 31,
2001 where the known credit problems of the borrower lead us to believe they
will not comply with their repayment schedule, or that would result in the loan
being included in the nonperforming loan table at a future date. Despite our
efforts, it is impossible for us to accurately predict the extent to which
economic conditions in our market area may worsen or estimate the full impact
that such changes may have on our loan portfolio. We cannot assure you that no
other loans will become 90 days or more past due, be placed on nonaccrual
status, or become impaired, restructured or OREO in the future. Since 1998, we
have engaged an independent loan review firm to examine the classification of
our commercial loan portfolio. The firm reviews new commercial loan originations
in excess of $100,000 and also conducts annual reviews on a scope basis. This
firm is comprised of former bank regulators and former bankers. They made no
material recommendation for changes to our classifications as a result of their
review.
We reduced the total nonperforming assets to $991,000 at December 31, 2001
from $2.6 million at December 31, 2000. This reduction of $1.6 million, or
62.3%, resulted primarily from the payoff of loans that were classified as
nonperforming as of December 31, 2000 and from returning loans that had
previously been nonperforming to accrual status after a period of sustained
performance. During 2000, we reduced the total nonperforming assets to $2.6
million at December 31, 2000 from $5.4 million at December 31, 1999. This
reduction of $2.7 million, or 50.9%, resulted from returning loans that had
previously been nonperforming to accrual status after a period of sustained
performance.
When we acquire OREO, we record it at the lower of its carrying value or
its fair value less estimated disposal costs. Any write-down of OREO is charged
to earnings. There were no OREOs at December 31, 2001. There was one OREO at
December 31, 2000 and December 31, 1999. The carrying value of OREO was $115,000
at December 31, 2000 and $722,000 at December 31, 1999.
21
We have a risk rating process to which all loans in the portfolio are
subjected. Criticized loans are classified in the following categories:
- "Special Mention": loans that should not yet be adversely classified,
but have credit deficiencies or potential weaknesses that warrant our
attention
- "Substandard": loans with one or more well-defined weaknesses which
have the distinct possibility that we will sustain some loss if the
weaknesses are not corrected
- "Doubtful": loans with the weaknesses of a substandard loan plus such
weaknesses which make collection or liquidation in full questionable,
based on current information, and have a high probability of loss
- "Loss": loans considered uncollectible
Allowance for Loan Losses. We have established a formal process for
establishing an adequate allowance for loan losses. This process results in an
allowance that has two components: allocated and unallocated. To determine the
allocated component, we arrive at estimates by analyzing certain individual
loans (including impaired loans) and analyzing loans in groups. For the loans we
analyze individually, we may use third-party information, such as appraisals, to
help supplement our internal analysis. For loans we analyze in groups, such as
residential mortgage (one to four family) loans, we review delinquency trends,
charge-off experience, the makeup of our loan portfolio, current economic
conditions, regional trends in collateral values, as well as other factors.
We use the unallocated portion of the allowance to compensate for the
subjective nature of estimating an adequate allowance for loan losses, economic
uncertainties, and other factors. Our loan portfolio also undergoes an internal
asset review, and is examined by our government regulators. We incorporate the
results of these examinations into our assessments.
Our allowance for loan losses is increased by provisions for loan losses,
which are charged against earnings, and is reduced by charge-offs, net of any
recoveries. Loans are charged off when they are classified as "loss". For any
loan which is past due more than 90 days, we will generally charge off the
amount by which the recorded loan amount exceeds the value of the property
securing the loan, unless the loan is both well secured and in the process of
collection. We generally record recoveries of amounts that have been previously
charged off only to the extent that we receive cash.
While we use all available evidence in determining whether we believe our
allowance for loan losses is adequate, future additions to the allowance will be
subject to our continuing evaluation of the inherent risks in our portfolio. We
may need to make additional provisions for loan losses if the economy declines
or asset quality deteriorates. Also, our regulators review our allowance as part
of their examinations. Although they can require us to adjust our allowance as a
result of such examinations, they have not done so in any of the years
presented. We believe, however, that our allowance for loan losses is adequate
to provide for estimated losses inherent in our loan portfolio.
22
The following table sets forth information concerning our allowance for
loan losses for the dates indicated:
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------
2001 2000 1999 1998 1997
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
Allowance for loan losses:
Balance beginning of period ............................ $28,901 $19,503 $14,922 $12,142 $11,682
------- ------- ------- ------- -------
Provision for loan losses .............................. 5,620 9,765 5,645 3,412 1,154
Charge-offs:
Commercial:
Secured by real estate -- nonresidential .......... -- 551 380 359 246
Secured by real estate -- multifamily ............. -- -- -- -- 13
Construction ...................................... -- -- -- -- --
Business .......................................... 121 165 689 -- --
------- ------- ------- ------- -------
Total commercial ............................. 121 716 1,069 359 259
------- ------- ------- ------- -------
Consumer:
Residential mortgage (one to four family) ......... -- 37 9 135 616
Other ............................................. -- 164 120 187 194
------- ------- ------- ------- -------
Total consumer ............................... -- 201 129 322 810
------- ------- ------- ------- -------
Total charge-offs ............................ 121 917 1,198 681 1,069
------- ------- ------- ------- -------
Recoveries:
Commercial:
Secured by real estate -- nonresidential .......... -- 535 -- -- 279
Secured by real estate -- multifamily ............. -- -- 114 -- 10
Construction ...................................... -- -- -- -- --
Business .......................................... 68 -- -- -- --
------- ------- ------- ------- -------
Total commercial ............................. 68 535 114 -- 289
------- ------- ------- ------- -------
Consumer:
Residential mortgage (one to four family) ......... -- -- -- 25 52
Other ............................................. 82 15 20 24 34
------- ------- ------- ------- -------
Total consumer ............................... 82 15 20 49 86
------- ------- ------- ------- -------
Total recoveries ............................. 150 550 134 49 375
------- ------- ------- ------- -------
Balance at end of period ............................... $34,550 $28,901 $19,503 $14,922 $12,142
======= ======= ======= ======= =======
Allowance for loan losses to ending loans .............. 1.53% 1.50% 1.16% 1.00% 1.00%
Net charge-offs to average loans outstanding ........... 0.00 0.02 0.07 0.05 0.06
During 2001, we increased the allowance for loan losses to $34.6 million
from $28.9 million at December 31, 2000, an increase of $5.6 million, or 19.5%.
This increase was due primarily to the continued growth of the commercial loan
portfolio and the resulting increase in the risk profile inherent in the loan
portfolio. This increased allowance resulted from a loan loss provision of $5.6
million and net recoveries of $29,000 during the year.
During 2000, we increased the allowance for loan losses to $28.9 million
from $19.5 million at December 31, 1999, an increase of $9.4 million, or 48.2%.
This increase was due primarily to the continued growth of the commercial loan
portfolio and the resulting increase in the risk profile inherent in the loan
portfolio. This increased allowance resulted from a loan loss provision of $9.8
million and net charge-offs of $367,000 during the year.
23
The following table presents an analysis of the allocation of our allowance
for loan losses at the dates indicated. The allocation of the allowance to each
category is not necessarily indicative of future loss in any particular category
and does not restrict our use of the allowance to absorb losses in other
categories.
AT DECEMBER 31,
----------------------------------------------------------
2001 2000 1999
------------------ ---------------- ----------------
AMOUNT % AMOUNT % AMOUNT %
--------- ------- ------- ------- ------- ------
(DOLLARS IN THOUSANDS)
Allocated:
Commercial:
Secured by real estate --
nonresidential............... $ 11,435 35.22% $10,321 30.91% $ 5,823 25.77%
Secured by real estate --
multifamily.................. 6,087 29.86 4,572 26.61 2,919 25.11
Construction................... 4,654 8.05 3,646 6.82 2,903 5.31
Business....................... 4,401 7.21 2,788 5.14 1,259 3.52
--------- ------- ------- ------- ------- ------
Total commercial......... 26,577 80.34 21,327 69.48 12,904 59.71
--------- ------- ------- ------- ------- ------
Consumer:
Residential mortgage (one to
four family).................. 2,187 18.96 2,930 29.68 1,709 39.45
Other.......................... 183 0.70 173 0.84 192 0.84
--------- ------- ------- ------- ------- ------
Total consumer........... 2,370 19.66 3,103 30.52 1,901 40.29
--------- ------- ------- ------- ------- ------
Total allocated.................. 28,947 100.00% 24,430 100.00% 14,805 100.00%
======= ======= ======
Unallocated...................... 5,603 4,471 4,698
--------- ------- -------
Total allowance for loan losses.. $ 34,550 $28,901 $19,503
========= ======= =======
AT DECEMBER 31,
----------------------------------------
1998 1997
------------------ ------------------
AMOUNT % AMOUNT %
-------- ------- -------- -------
(DOLLARS IN THOUSANDS)
Allocated:
Commercial:
Secured by real estate --
nonresidential............... $ 2,847 15.39% $ 1,919 9.51%
Secured by real estate --
multifamily.................. 2,237 23.26 2,130 27.97
Construction................... 1,547 4.12 508 2.19
Business....................... 837 3.10 572 1.74
-------- ------- -------- -------
Total commercial......... 7,468 45.87 5,129 41.41
-------- ------- -------- -------
Consumer:
Residential mortgage (one to
four family).................. 2,184 53.01 1,982 56.98
Other.......................... 276 1.12 493 1.61
-------- ------- -------- -------
Total consumer........... 2,460 54.13 2,475 58.59
-------- ------- -------- -------
Total allocated.................. 9,928 100.00% 7,604 100.00%
======= =======
Unallocated...................... 4,994 4,538
-------- --------
Total allowance for loan losses.. $ 14,922 $ 12,142
======== ========
Securities. The following table presents our securities portfolio at the
dates indicated:
AT DECEMBER 31,
-------------------------------------------------------------------------------
2001 2000 1999
----------------------- ----------------------- -----------------------
AMORTIZED MARKET AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE COST VALUE
--------- -------- --------- -------- --------- --------
(DOLLARS IN THOUSANDS)
Investment securities available for sale:
Trust Preferred Securities ................. $100,327 $ 89,929 $101,149 $ 82,670 $103,182 $ 91,270
Federal Agency Notes ....................... 36,507 36,378 -- -- -- --
Asset-backed Securities .................... 12,018 12,012 -- -- -- --
-------- -------- -------- -------- -------- --------
Total .............................. $148,852 $138,319 $101,149 $ 82,670 $103,182 $ 91,270
======== ======== ======== ======== ======== ========
Mortgage-backed securities available for sale:
GNMA ....................................... $145,091 $145,395 $ 92,353 $ 91,737 $102,417 $ 97,399
FNMA ....................................... 206,902 206,777 91,426 89,210 72,698 69,067
FHLMC ...................................... 47,747 46,928 -- -- -- --
Other ...................................... 4,504 4,502 63,672 62,537 73,295 70,719
-------- -------- -------- -------- -------- --------
Total .............................. $404,244 $403,602 $247,451 $243,484 $248,410 $237,185
======== ======== ======== ======== ======== ========
Investment securities held to
maturity:
Municipals ................................. $ 50,444 $ 49,667 $ 43,648 $ 43,097 $ 43,633 $ 39,250
======== ======== ======== ======== ======== ========
Mortgage-backed securities held to
maturity:
FNMA ....................................... $ -- $ -- $ 80,662 $ 77,576 $ 91,307 $ 86,395
FHLMC ...................................... -- -- 35,725 34,257 41,848 39,560
Other ...................................... 1,028 1,028 1,051 1,051 7,118 6,790
-------- -------- -------- -------- -------- --------
Total .............................. $ 1,028 $ 1,028 $117,438 $112,884 $140,273 $132,745
======== ======== ======== ======== ======== ========
Total securities ................... $604,568 $592,616 $509,686 $482,135 $535,498 $500,450
======== ======== ======== ======== ======== ========
At December 31, 2001, the carrying value of the securities was $604.6
million and the market value was $592.6 million. At December 31, 2000, the
carrying value of the securities was $509.7 million and the market value was
$482.1 million. At December 31, 2001, the total unrealized loss on securities
was $12.0 million. Of this total, $11.2 million relates to securities which are
available for sale. The unrealized $11.2 million loss, net of tax of $4.7
million is included as a reduction of stockholders' equity. The $777,000
difference between the carrying value and market value of securities which are
held to maturity has not been recognized in the financial statements as of
December 31, 2001. The unrealized losses are the result of movements in market
interest rates.
24
The following table presents the carrying value, weighted average yields
and contractual maturities of our securities at December 31, 2001:
AT DECEMBER 31, 2001
--------------------------------------------------------------------------
AFTER ONE YEAR AFTER FIVE YEARS
THROUGH THROUGH
WITHIN ONE YEAR FIVE YEARS TEN YEARS
--------------------- ----------------------- ----------------------
BOOK WEIGHTED BOOK WEIGHTED BOOK WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD
--------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Investment securities available
for sale:
Trust Preferred Securities ........ $ -- --% $ -- --% $ -- --%
Federal Agency Notes ............. -- -- 19,906 4.35 16,472 5.78
Asset-backed Securities .......... -- -- -- -- 11,012 2.51
Other ............................ -- -- -- -- -- --
----- -------- --------
Total ...................... -- -- 19,906 4.35 27,484 4.47
----- -------- --------
Mortgage-backed securities
available for sale:
GNMA .............................. -- -- -- -- -- --
FNMA .............................. -- -- 638 4.81% -- --
FHLMC ............................. -- -- -- -- -- --
Other ............................. -- -- -- -- -- --
----- -------- --------
Total ....................... -- -- 638 4.81% -- --
----- -------- --------
Investment securities held to
maturity:
Municipals ........................ -- -- -- -- -- --
----- -------- --------
Mortgage-backed securities held
to maturity:
Other mortgage-backed securities .. 44 7.79 23 7.38 -- --
----- -------- --------
Total ....................... 44 7.79 23 7.38 -- --
----- -------- --------
Total securities ............ $ 44 7.79 $ 20,567 4.37 $ 27,484 4.47
===== ======== ========
AT DECEMBER 31, 2001
------------------------------------------------
AFTER TEN YEARS TOTAL
--------------------- ---------------------
BOOK WEIGHTED BOOK WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD
--------- -------- ---------- --------
(DOLLARS IN THOUSANDS)
Investment securities available
for sale:
Trust Preferred Securities ........ $ 89,929 8.84% $ 89,929 8.84%
Federal Agency Notes ............. -- -- 36,378 5.00
Asset-backed Securities .......... 1,000 2.59 12,012 2.52
Other ............................ -- -- -- --
-------- --------
Total ...................... 90,929 8.77 138,319 7.28
-------- --------
Mortgage-backed securities
available for sale:
GNMA .............................. 145,395 6.57 145,395 6.57
FNMA .............................. 206,139 5.68 206,777 5.67
FHLMC ............................. 46,928 3.72 46,928 3.72
Other ............................. 4,502 6.15 4,502 6.15
-------- --------
Total ....................... 402,964 5.77 403,602 5.77
-------- --------
Investment securities held to
maturity:
Municipals ........................ 50,444 5.03 50,444 5.03
-------- --------
Mortgage-backed securities held
to maturity:
Other mortgage-backed securities .. 961 7.66 1,028 7.66
-------- --------
Total ....................... 961 7.66 1,028 7.66
-------- --------
Total securities ............ $545,298 6.21 $593,393 6.06
======== ========
Deposits. Deposits have traditionally been our primary source of funds to
use in lending and investment activities. At December 31, 2001, 64.4% of our
deposits were time deposits, 18.3% were savings accounts and 17.3% were NOW,
demand deposit and money market accounts. By comparison, at December 31, 2000,
69.4% of our deposits were time deposits, 16.9% were savings accounts and 13.7%
were NOW, demand deposit and money market accounts.
Core deposits increased 38.7% to $877.1 million at the end of 2001 compared
to $632.3 million for the year ended December 31, 2000. This growth in core
deposits resulted primarily from the Bank's continued focus on developing new
and expanding existing commercial and consumer relationships in the ethnic
Chinese community, its retail niche market. Time deposits increased 11.0% to
$1.59 billion at December 31, 2001 from $1.43 billion at December 31, 2000, also
as a result of expansion into the Bank's retail niche market. Total deposits
increased 19.5% to $2.47 billion at December 31, 2001 from $2.06 billion at
December 31, 2000.
We obtain our deposits primarily from the communities we serve. No material
portion of our deposits are from or are dependent upon any one person or
industry. At December 31, 2001, less than 2% of our deposits were held by
customers located outside of the United States. Additionally, at that date the
100 depositors with the largest aggregate average deposit balances made up less
than 15% of our total deposits. Our business is not seasonal in nature. We
accept deposits over $100,000 from customers. Included in the figure for time
deposits at December 31, 2001 is $717.3 million of deposits of $100,000 or
greater, compared to $579.8 million at December 31, 2000. Such deposits make up
29.1% of total deposits at December 31, 2001, compared to 28.1% at December 31,
2000. At December 31, 2001 and 2000, we did not have any brokered deposits.
Our average cost of deposits during 2001 was 3.88% as compared to 4.31% for
2000 and 3.80% for 1999. At December 31, 2000, our average interest rate paid on
deposits was 4.75%.
Core deposits increased 38.0% to $632.3 million at the end of 2000 compared
to $458.1 million for the year ended December 31, 1999. This growth in core
deposits resulted primarily from the Bank's continued focus on developing new
commercial relationships and further expansion into the Bank's retail niche
market, the ethnic Chinese community. Time deposits increased 17.5% to $1.43
billion at December 31, 2000 from $1.22 billion at December 31, 1999, also as a
result of expansion into the Bank's retail niche market. Total deposits
increased 23.1% to $2.06 billion at December 31, 2000 from $1.68 billion at
December 31, 1999.
25
The following table presents the time to maturity of the time deposit
accounts at December 31, 2001:
MATURITY PERIOD AMOUNT
- --------------- ----------------------
(DOLLARS IN THOUSANDS)
Within one year .................................. $1,494,069
One through three years .......................... 94,383
Thereafter ....................................... 627
----------
$1,589,079
==========
At December 31, 2001, the Bank had $717.3 million in certificate accounts
in amounts of $100,000 or more maturing as follows:
MATURITY PERIOD AMOUNT
- --------------- ----------------------
(DOLLARS IN THOUSANDS)
Three months or less ............................. $265,085
Over 3 through 6 months .......................... 169,757
Over 6 through 12 months ......................... 225,417
Over 12 months ................................... 57,066
--------
Total .................................. $717,325
========
Other Borrowings. The Bank maintains borrowing lines with numerous
correspondent banks and brokers and with the Federal Home Loan Bank ("FHLB") of
San Francisco to supplement our supply of lendable funds. Such borrowings are
generally secured with mortgage loans and/or securities with a market value at
least equal to outstanding balances. In addition to loans and securities,
advances from the FHLB of San Francisco are typically secured by a pledge of our
stock in the FHLB of San Francisco. At December 31, 2001, we had $238.0 million
of advances outstanding and $258.0 million outstanding at December 31, 2000. At
December 31, 2001, we had $695.7 million of additional FHLB borrowings we could
utilize.
Included in the $238.0 million of FHLB advances as of December 31, 2001
were $5.0 million of fixed-rate advances for two years and $17.0 million of
fixed-rate advances for ten years. An additional $216.0 million of the advances
had ten-year terms but contained provisions that the FHLB could, at their
option, terminate the advances at quarterly intervals at specified periods
ranging from three to five years beyond the original advance dates.
In December of 1998, the Bank entered into the Treasury Investment Program
with the Federal Reserve Bank of San Francisco ("FRB"). This borrowing line
allowed the Bank to utilize deposits made to the U.S. Treasury for federal tax
payments until the Treasury needed the funds. This borrowing line had to be
fully collateralized at all times. In March of 2001, the Bank discontinued its
participation in the Treasury Investment Program.
Liquidity and Capital Resources. As a financial institution, we must
maintain sufficient levels of liquid assets at all times to meet our cash flow
needs. These liquid assets ensure that we have the cash available to pay out
deposit withdrawals, meet the credit needs of our customers and be able to take
advantage of investment opportunities as they arise. In addition to liquid
assets, certain liabilities can provide liquidity as well. Liquid assets can
include cash and deposits we have with other banks, federal funds sold and other
short-term investments, maturing loans and investments, payments by borrowers of
principal and interest on loans, payments of principal and interest on
investments and loans sales. Additional sources of liquidity can include
increased deposits, lines of credit and other borrowings.
At December 31, 2001, we had $1.49 billion of certificates of deposit
scheduled to mature within one year. We believe that our liquidity resources
will provide us with sufficient amounts of cash necessary to meet these
commitments.
Our liquidity may be adversely affected by unexpected withdrawals of
deposits, excessive interest rates paid by competitors and other factors. We
review our liquidity position regularly in light of our expected growth in loans
and deposits. We believe that we maintain adequate sources of liquidity to meet
our needs.
At December 31, 2001, both the Company and the Bank met all of their
regulatory capital requirements with risk-based capital ratios of 11.24% and
10.91%, respectively.
26
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss of income from adverse changes in prices
and rates that are set by the market. We are at risk of changes in interest
rates that affect the income we receive on lending and investment activities, as
well as the costs associated with our deposits and borrowings. A sudden and
substantial change in interest rates may affect our earnings if the rates of
interest we earn on our loans and investments do not change at the same speed,
to the same extent or on the same basis as the interest rates we pay on our
deposits and borrowings. We make it a high priority to actively monitor and
manage our exposure to interest rate risk.
We accomplish this by first evaluating the interest rate risk that is
inherent in the makeup of our assets and liabilities. Then we consider our
business strategy, current operating environment, capital and liquidity
requirements, as well as our current performance objectives, and determine an
appropriate level of risk. Our Board of Directors has adopted guidelines within
which we manage our interest rate risk, trying to minimize to the extent
practical our vulnerability to changes in interest rates.
Our Board of Directors reviews our interest rate risk exposure quarterly.
Our Board of Directors has appointed an Asset/Liability Committee which includes
certain senior management that is responsible for working with the Board of
Directors to establish strategies to manage interest rate risk and to evaluate
the effectiveness of these strategies. The Committee also projects the effect
that changes in interest rates will have on our net portfolio value ("NPV") and
whether such effects are within the limits set by the Board.
We also monitor our interest rate sensitivity through the use of a model
which estimates the change in our NPV in the event of a range of assumed changes
in market interest rates. Net portfolio value is defined as the current market
value of our assets, less the current market value of our liabilities, plus or
minus the current value of off-balance-sheet items. We estimate current market
values through analysis of cash flows. The change in NPV measures our
vulnerability to changes in interest rates by estimating the change in the
market value of our assets, liabilities and off-balance-sheet items as a result
of an instantaneous change in the general level of interest rates.
As market interest rates decrease, the average maturities of our loans and
investment securities shorten due to quicker prepayments, causing a relatively
moderate increase in their value. Our deposit accounts have only relatively
minor movements in a declining interest rate environment, since they are
primarily short term in nature, resulting in the value of deposits decreasing
more quickly than the value of assets increase.
As market interest rates rise, the average maturities of our loans and
securities lengthen as prepayments decrease. As market interest rates fall,
conversely, the average maturities of our loans and securities shorten as
prepayments increase. The value of our deposits increases slowly in a rising
rate environment due to the concentration of time deposits in our deposit base
which have terms of one year or less.
We use certain derivative financial instruments, such as interest rate
swaps, caps, and floors as part of our hedging program, to help mitigate our
interest rate risk. Such instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount that is presented on our
balance sheet.
The following table lists the percentage change in our net portfolio value
assuming an immediate change in interest rates of plus or minus up to 200 basis
points from the level at December 31, 2001. All loans and investments presented
in this table are classified as held to maturity or available for sale. We had
no trading securities at that date.
NET PORTFOLIO VALUE
--------------------------------------
CHANGE IN INTEREST RATES IN BASIS POINTS (RATE SHOCK) AMOUNT $ CHANGE % CHANGE
- ----------------------------------------------------- ------ -------- --------
(DOLLARS IN THOUSANDS)
200 ........................................................ $310,107 $(67,573) -17.89%
100 ........................................................ 351,964 (25,716) -6.81
0 .......................................................... 377,679 -- --
(100) ...................................................... 405,250 27,570 7.30
(200) ...................................................... 393,271 15,592 4.13
27
The NPV model we use has some shortcomings. We have to make certain
assumptions that may or may not actually reflect how actual yields and costs
will react to market interest rates. For example, the NPV model assumes that the
makeup of our interest rate sensitive assets and liabilities will remain
constant over the period being measured. Thus, although using such a model can
be instructive in providing an indication of the Bank's exposure to interest
rate risk, we cannot precisely forecast the effects of a change in market
interest rates, and the results indicated by the model are likely to differ from
actual results.
28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
[PRICEWATERHOUSECOOPERS LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of UCBH Holdings, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
UCBH Holdings, Inc. and its subsidiaries at December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
San Francisco, California
January 29, 2002
29
UCBH HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
DECEMBER 31,
--------------------------
2001 2000
----------- -----------
ASSETS
Cash and due from banks .................................................................. $ 32,606 $ 37,743
Federal funds sold ....................................................................... -- 470
Investment and mortgage-backed securities available for sale, at fair value .............. 541,921 326,154
Investment and mortgage-backed securities at cost (fair value $50,695 at December 31,
2001 and $155,981 at December 31, 2000) ................................................ 51,472 161,086
Federal Home Loan Bank stock ............................................................. 22,989 20,517
Loans .................................................................................... 2,264,303 1,931,822
Allowance for loan losses ................................................................ (34,550) (28,901)
----------- -----------
Net loans ................................................................................ 2,229,753 1,902,921
----------- -----------
Accrued interest receivable .............................................................. 16,593 16,913
Premises and equipment, net .............................................................. 19,669 20,175
Other assets ............................................................................. 17,040 16,140
----------- -----------
Total assets ................................................................... $ 2,932,043 $ 2,502,119
=========== ===========
LIABILITIES
Deposits ................................................................................. $ 2,466,152 $ 2,064,019
Borrowings ............................................................................... 238,000 260,558
Guaranteed preferred beneficial interests in junior subordinated debentures .............. 36,000 30,000
Accrued interest payable ................................................................. 4,080 5,148
Other liabilities ........................................................................ 13,687 8,749
----------- -----------
Total liabilities .............................................................. 2,757,919 2,368,474
----------- -----------
Commitments and contingencies ............................................................ -- --
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, authorized 10,000,000 shares, none issued and outstanding -- --
Common stock, $.01 par value, authorized 90,000,000 shares at December 31, 2001
and 25,000,000 shares at December 31, 2000, shares issued and outstanding 19,359,282
at December 31, 2001 and 18,749,608 at December 31, 2000 ............................... 194 94
Additional paid-in capital ............................................................... 66,685 60,366
Accumulated other comprehensive income (loss) ............................................ (6,481) (13,019)
Retained earnings -- substantially restricted ............................................ 113,726 86,204
----------- -----------
Total stockholders' equity ..................................................... 174,124 133,645
=========== ===========
Total liabilities and stockholders' equity ..................................... $ 2,932,043 $ 2,502,119
=========== ===========
The accompanying notes are an integral part of these financial statements.
30
UCBH HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2001 2000 1999
-------- -------- --------
Interest income:
Loans .......................................................................... $164,328 $152,494 $123,705
Funds sold and securities purchased under agreements to resell ................. 1,101 52 23
Investment and mortgage-backed securities ...................................... 37,358 34,142 34,955
-------- -------- --------
Total interest income .................................................. 202,787 186,688 158,683
-------- -------- --------
Interest expense:
Deposits .................................................................... 87,435 77,003 61,955
Short-term borrowings ....................................................... 972 10,947 10,390
Guaranteed preferred beneficial interests in junior subordinated debentures . 2,844 2,812 2,812
Long-term borrowings ........................................................ 13,079 12,942 12,812
-------- -------- --------
Total interest expense ................................................. 104,330 103,704 87,969
-------- -------- --------
Net interest income .................................................... 98,457 82,984 70,714
Provision for loan losses ........................................................ 5,620 9,765 5,645
-------- -------- --------
Net interest income after provision for loan losses .................... 92,837 73,219 65,069
-------- -------- --------
Noninterest income:
Commercial banking fees ........................................................ 3,324 2,515 2,071
Service charges on deposits .................................................... 1,342 1,000 840
Gain on sale of loans, securities and servicing rights ......................... 2,047 993 784
Miscellaneous income ........................................................... 192 243 380
-------- -------- --------
Total noninterest income ............................................... 6,905 4,751 4,075
-------- -------- --------
Noninterest expense:
Personnel ................................................................... 24,959 19,847 18,427
Occupancy ................................................................... 5,303 4,939 4,885
Data processing ............................................................. 2,878 2,284 2,084
Furniture and equipment ..................................................... 2,723 2,350 2,119
Professional fees and contracted services ................................... 3,848 2,297 2,240
Deposit insurance ........................................................... 393 344 938
Communication ............................................................... 593 491 425
Foreclosed assets ........................................................... 11 80 80
Miscellaneous expense ....................................................... 8,588 7,467 6,000
-------- -------- --------
Total noninterest expense .............................................. 49,296 40,099 37,198
-------- -------- --------
Income before taxes .............................................................. 50,446 37,871 31,946
Income tax expense ............................................................... 19,958 13,743 12,878
-------- -------- --------
Net income ............................................................. $ 30,488 $ 24,128 $ 19,068
======== ======== ========
Basic earnings per share ......................................................... $ 1.60 $ 1.29 $ 1.02
======== ======== ========
Diluted earnings per share ....................................................... $ 1.53 $ 1.24 $ 1.01
======== ======== ========
Dividends declared per share ..................................................... $ 0.16 $ 0.10 $ --
======== ======== ========
The accompanying notes are an integral part of these financial statements.
31
UCBH HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
(DOLLARS IN THOUSANDS)
ACCUMULATED
OTHER
COMMON STOCK ADDITIONAL COMPREHENSIVE TOTAL
--------------------- PAID-IN INCOME RETAINED STOCKHOLDERS' COMPREHENSIVE
SHARES AMOUNT CAPITAL (LOSS)(1) EARNINGS EQUITY INCOME
----------- ------- ---------- ------------- --------- ------------- -------------
Balance at December 31, 1998 ....... 18,666,666 93 59,443 (778) 44,880 103,638
Net income ....................... -- -- -- -- 19,068 19,068 $ 19,068
Other comprehensive income (loss)
net of tax(1) .................. -- -- -- (12,641) -- (12,641) (12,641)
--------
Comprehensive income ............. -- -- -- -- -- -- $ 6,427
========
Other contributed capital ........ -- -- 42 -- -- 42
----------- ------- -------- -------- --------- ---------
Balance at December 31, 1999 ....... 18,666,666 93 59,485 (13,419) 63,948 110,107
----------- ------- -------- -------- --------- ---------
Net income ....................... 24,128 24,128 $ 24,128
Other comprehensive income,
net of tax(1) .................. -- -- -- 400 -- 400 400
--------
Comprehensive income ............. -- -- -- -- -- -- $ 24,528
========
Stock options exercised, including
related tax benefit ............ 82,942 1 881 -- -- 882
Cash dividend $0.10 per share .... -- -- -- -- (1,872) (1,872)
----------- ------- -------- -------- --------- ---------
Balance at December 31, 2000 ....... $18,749,608 $ 94 $ 60,366 $(13,019) $ 86,204 $ 133,645
----------- ------- -------- -------- --------- ---------
Net income ....................... 30,488 30,488 $ 30,488
Other comprehensive income,
net of tax(1) .................. -- -- -- 6,538 -- 6,538 6,538
--------
Comprehensive income ............. -- -- -- -- -- -- $ 37,026
========
Stock options exercised, including
related tax benefit ............ 609,674 6 6,413 -- -- 6,419
Cash dividend $0.16 per share .... -- -- -- -- (2,966) (2,966)
Stock split ...................... -- 94 (94) -- -- --
----------- ------- -------- -------- --------- ---------
Balance at December 31, 2001 ....... $19,359,282 $ 194 $ 66,685 $ (6,481) $ 113,726 $ 174,124
=========== ======= ======== ======== ========= =========
- ----------
(1) Accumulated Other Comprehensive Income includes after tax net unrealized
gains (losses) on securities available for sale.
The accompanying notes are an integral part of these financial statements.
32
UCBH HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
2001 2000 1999
--------- --------- ---------
Operating activities:
Net income ........................................................... $ 30,488 $ 24,128 $ 19,068
Adjustments to reconcile net income to net cash provided
by (used for) operating activities:
Provision for loan losses ......................................... 5,620 9,765 5,645
Increase (decrease) in accrued interest receivable ................ 320 (2,285) (1,086)
Depreciation and amortization of premises and equipment ........... 2,579 2,575 2,607
(Increase) decrease in other assets ............................... (6118) 1,209 1,663
Increase (decrease) in other liabilities .......................... 6,378 (7,022) 5,943
(Decrease) increase in accrued interest payable ................... (1,068) 1,517 1,191
Gain on sale of loans, securities and other assets ................ (2,047) (993) (784)
Other, net ........................................................ 1,772 940 2,731
--------- --------- ---------
Net cash provided by operating activities .................... 37,924 29,834 36,978
--------- --------- ---------
Investing activities:
Investments and mortgage-backed securities, available for sale:
Principal payments and maturities ................................. 174,489 29,771 40,035
Purchases ......................................................... (309,879) (4,872) (6,012)
Sales ............................................................. 156,229 2,387 --
Investments and mortgage-backed securities, held to maturity:
Principal payments and maturities ................................. 1,789 32,233 17,936
Purchases ......................................................... (10,062) (1,834) (6,165)
Loans originated and purchased, net of principal collections ......... (487,024) (288,179) (207,871)
Proceeds from the sale of loans ...................................... 44,880 16,991 11,258
Purchases of premises and other equipment ............................ (1,731) (1,440) (1,031)
Proceeds from the sale of other assets ............................... 190 996 187
--------- --------- ---------
Net cash used in investment activities ....................... (431,119) (213,947) (151,663)
--------- --------- ---------
Financing activities:
Net increase in demand deposits, NOW, money market and savings
accounts ........................................................... 244,783 174,157 61,544
Net increase (decrease) in time deposits ............................. 157,350 213,714 (19,291)
(Decrease) increase in long-term borrowings .......................... (5,000) 5,000 --
(Decrease) increase in short-term borrowings ......................... (17,558) (194,054) 81,612
Proceeds from issuance of common stock ............................... 4,674 623 --
Payment of cash dividend on common stock ............................. (2,661) (1,403) --
Proceeds from issuance of guaranteed preferred beneficial interests in
junior subordinated debentures ..................................... 6,000 -- --
--------- --------- ---------
Net cash provided by financing activities .................... 387,588 198,037 123,865
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents ................... (5,607) 13,924 9,180
Cash and cash equivalents at the beginning of the year ................. 38,213 24,289 15,109
--------- --------- ---------
Cash and cash equivalents at the end of the year ....................... $ 32,606 $ 38,213 $ 24,289
========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest ............................... $ 105,398 $ 102,187 $ 86,778
Cash paid during the year for income taxes ........................... 22,300 18,629 6,956
Supplemental schedule of noncash investing and financing activities:
Loans transferred to foreclosed property ............................. 48 382 115
Securities transferred to held to maturity ........................... -- -- 43,624
Loans securitized .................................................... 109,635 24,944 --
Securities transferred to available for sale securities(1) ........... 116,387 -- --
- ----------------
(1) Such securities were transferred from held to maturity securities when SFAS
No. 133 was adopted in 2001.
The accompanying notes are an integral part of these financial statements.
33
UCBH HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING
POLICIES
Organization
UCBH Holdings, Inc. (the "Company") is a bank holding company that conducts
its business through its principal subsidiary, United Commercial Bank ("United"
or the "Bank"), a California state-chartered commercial bank. United offers a
full range of commercial and consumer banking products through its retail
branches and other banking offices in California.
Principles of Consolidation and Presentation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. Substantially all loans are originated for
portfolio and held for investment. All significant intercompany balances and
transactions have been eliminated in consolidation. Certain reclassifications
have been made to prior years' consolidated financial statements to conform to
the December 31, 2001 presentation.
On April 11, 2001, the Company completed a 2-for-1 stock split.
Accordingly, the financial statements for all years presented have been restated
to reflect the impact of this stock split.
Risks and Uncertainties
In the normal course of its business, the Company encounters two
significant types of risk: economic and regulatory. There are three main
components of economic risk: interest rate risk, credit risk and market risk.
The Company is subject to interest rate risk to the degree that its
interest-bearing liabilities mature or reprice at different speeds, or on a
different basis, than its interest-earning assets. Incorporated into interest
rate risk is prepayment risk. Prepayment risk is the risk associated with the
prepayment of assets, and the write-off of premiums associated with those
assets, if any, should interest rates fall significantly. Credit risk is the
risk of default, primarily in the Company's loan portfolio that results from the
borrowers' inability or unwillingness to make contractually required payments.
Market risk reflects changes in the value of securities, the value of collateral
underlying loans receivable and the valuation of real estate owned.
The Company is subject to the regulations of various governmental agencies.
These regulations may change significantly and can restrict the growth of the
Company and United as a result of capital requirements. The Company also
undergoes periodic examinations by the regulatory agencies which may subject it
to further changes with respect to asset valuations, amounts of required loss
allowances and operating restrictions. Such changes may result from the
regulators' judgments based on information available to them at the time of
their examination.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and noninterest-bearing deposits,
federal funds sold and securities purchased under agreements to resell. For
purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments with original maturities when purchased of three months
or less to be cash equivalents.
34
Securities Purchased Under Agreements to Resell
The Company periodically purchases securities under agreements to resell
(repurchase agreements). The amounts advanced under such agreements represent
short-term loans. During the agreement period, the securities are maintained by
the dealer under a written custodial agreement that explicitly recognizes the
Company's interest in the securities.
Investment and Mortgage-backed Securities
In accordance with Statement of Financial Accounting Standards No. 115
(SFAS No. 115) "Accounting for Certain Investments in Debt and Equity
Securities," the Company has designated a portion of the investment and
mortgage-backed securities portfolio as "held to maturity" securities. As such,
this portion of the portfolio is carried at cost, adjusted for the amortization
of premiums and accretion of discounts. Cost is determined on a specific
identification basis. Inasmuch as the Company has the ability and intent to hold
the "held to maturity" securities in its portfolio until maturity, the carrying
value has not been adjusted to reflect decreases in market value from amortized
cost, if any. Also in accordance with SFAS No. 115, the Company has designated a
portion of the investment and mortgage-backed securities portfolio as "available
for sale." Such securities are carried at fair value. Fair value is the quoted
market price. Unrealized holding gains or losses for "available for sale"
securities are excluded from earnings and reported in a separate component of
stockholders' equity, net of tax. Premiums and discounts on investment and
mortgage-backed securities are amortized against interest income, using the
interest method, with the amortization period extending to the maturity date of
the securities. Gains or losses on the sale of securities are recognized when
sold. The Company does not maintain a trading account for securities.
Loans
Loans are carried at the principal balance outstanding adjusted for the
amortization of premiums and the accretion of discounts. Premiums and discounts
are recognized as an adjustment of loan yield by the interest method based on
the contractual term of the loans. Interest is accrued as earned.
Loans are generally placed on nonaccrual status when the payments become 90
days past due, or earlier if, in management's opinion, the full and timely
collection of principal or interest becomes uncertain. Any accrued and unpaid
interest on such loans is reversed and charged against current income.
The Company recognizes interest income on nonaccrual loans to the extent
received in cash. However, where there is doubt regarding the ultimate
collectibility of the loan principal, cash receipts, whether designated as
principal or interest, are applied to reduce the carrying value of the loan.
Loan origination fees, net of certain direct origination costs, are
deferred and recognized as an adjustment of the loan yield over the contractual
life of the loan. Amortization of deferred loan fees is discontinued on
nonperforming loans.
The Company considers a loan to be impaired when, based on current
information and events, it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the loan
agreement, including scheduled interest payments. For a loan that has been
restructured, the contractual terms of the loan agreement refer to the
contractual terms specified by the original loan agreement, not the contractual
terms specified by the restructuring agreement.
When evaluating loans for possible impairment, the Company makes an
individual assessment for impairment when and while such loans are on nonaccrual
status, or the loan has been restructured. When a loan has been identified as
being impaired, the amount of impairment will be measured by the Company using
discounted cash flows, except when it is determined that the primary remaining
source of repayment for the loan is the operation or liquidation of the
underlying collateral. In such cases, the current fair value of the collateral,
reduced by estimated costs to sell, will be used in place of discounted cash
flows. The Company does not apply the loan-by-loan evaluation process described
above to large groups of smaller balance homogeneous loans that are evaluated
collectively for impairment, such as residential mortgage (one to four family)
loans, home equity, and other consumer loans.
If the measurement of the impaired loan is less than the recorded
investment in the loan (including accrued interest, net deferred loan fees or
costs and unamortized premium or discount), an impairment is recognized by
creating or adjusting an existing allocation of the allowance for loan losses.
The Company's charge-off policy with respect to impaired loans is similar
35
to its charge-off policy for all loans. Specifically, loans are charged off in
the month in which they are considered uncollectible.
Allowance for Loan Losses
The allowance for loan losses is based on management's continuous
evaluation of various factors affecting collectibility of the loan portfolio.
These factors include, but are not limited to, changes in the composition of the
portfolio, current and forecasted economic conditions, overall portfolio
quality, review of specific problem loans, and historical loan loss experience.
The allowance for loan losses is based on estimates, and ultimate losses may
vary from the current estimates. These estimates are reviewed periodically and,
as adjustments become necessary, they are reported in earnings in the period in
which they become known. The allowance is increased by provisions charged to
expense and reduced by loan losses, net of recoveries.
The determination of the allowance for loan losses is based on estimates
that are susceptible to changes in the economic environment and market
conditions. Management believes that, as of December 31, 2001 and 2000, the
allowance for loan losses is adequate based on information currently available.
If the economy weakens in the Company's principal market areas, the Company's
loan portfolios could be adversely affected and higher charge-offs and increases
in nonperforming assets could result. Such an adverse impact could also require
a larger allowance for loan losses and increased charge-offs.
Loan Servicing Assets
Servicing assets consist of originated mortgage servicing rights and are
included in other assets. These rights are recorded based on the relative fair
values of the servicing rights and underlying loans and are amortized over the
period of the related loan servicing income stream. The Company assesses
servicing assets for impairment in accordance with the provisions of SFAS No.
140. For the years presented, servicing assets and the related amortization were
not material.
Premises and Equipment
Premises and equipment are carried at cost, less accumulated depreciation
and amortization. Provisions for depreciation and amortization are determined on
a straight-line basis over the lesser of the estimated useful lives or the terms
of the leases. Terms range from three to ten years for furniture, equipment, and
computer software, and from forty to fifty years for premises.
Other Real Estate Owned ("OREO")
Foreclosed assets (other real estate owned) consist of properties acquired
through, or in lieu of, foreclosure and are carried at the lower of cost or fair
value (less estimated selling costs), and are included in other assets. Cost
includes the unpaid loan balance adjusted for applicable accrued interest,
unamortized deferred loan fees and acquisition costs. In the event that the fair
value (less estimated selling costs) is less than cost at the time of
acquisition, the shortfall is charged to the allowance for loan losses.
Subsequent write-downs, if any, and disposition gains and losses are reflected
as charges to current operations.
Goodwill
Goodwill balances included in other assets are not significant and are
amortized over seven years.
Securities Sold Under Agreements to Repurchase
The Company periodically enters into sales of securities under agreements
to repurchase (reverse repurchase agreements). Fixed-coupon reverse repurchase
agreements are treated as financing. Accordingly, the securities underlying the
agreements remain in the asset accounts and the obligations to repurchase
securities sold are reflected as a liability in the consolidated balance sheets.
The securities underlying the agreements are delivered to the dealers who
arrange the transactions. Under some agreements, the dealers may sell, lend, or
otherwise dispose of the securities to other parties and agree to resell to the
Company substantially identical securities at the maturities of the agreements.
36
Interest Rate Cap and Swap Agreements
The Company periodically enters into interest rate cap and swap agreements
as a means of managing its interest rate exposure. The Company implemented SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended by SFAS No. 138, effective January 1, 2001. In accordance with
provisions of SFAS No. 133, interest rate cap and swap agreements are recognized
in the statement of financial position, measured at fair value. Changes in fair
value of the derivatives are included in current period results of operations or
in other comprehensive income.
Accounting for Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income
Taxes." SFAS No. 109 requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns. The Company
provides a valuation allowance against net deferred tax assets to the extent
that realization of the assets is not considered more likely than not. The
Company and United file a consolidated federal income tax return and a combined
California tax return.
Earnings Per Share
In accordance with SFAS No. 128, "Earnings per Share," which specifies the
computation, presentation and disclosure requirements for earnings per share
("EPS"), the Company computes basic EPS by dividing net income by the weighted
average number of shares outstanding during the period. Diluted EPS considers
the possible dilutive effect of instruments, such as convertible debt,
convertible preferred stock, and stock options.
Transfers of Financial Assets
The Company accounts for transfers of financial assets in accordance with
SFAS No. 140, "Accounting for Transfers and Servicing Financial Assets and
Extinguishment of Liabilities." SFAS No. 140 requires application of a financial
component's approach that focuses on control. Under this approach, after a
transfer of financial assets, an entity recognizes the financial and servicing
assets it controls and the liabilities it has incurred, derecognizes financial
assets when control has been surrendered, and derecognizes liabilities when
extinguished. The statement also distinguishes transfers of financial assets
that are sales from transfers of financial assets that are secured borrowings.
Segment Information
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," on January 1, 1998. The Company designates
the internal organization that is used by management for making operating
decision and assessing performance as the source of the Company's reportable
segments. SFAS No. 131 also requires disclosure about products and services,
geographic areas and major customers. The adoption of SFAS No. 131 did not
affect the consolidated results of operations or consolidated financial position
as previously reported.
2. RECENT ACCOUNTING PRONOUNCEMENTS
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
In September 2000, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS No. 140"). SFAS No. 140 replaces SFAS No.
125 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS No. 125"), issued in June 1996. It
revises the standards for accounting for securitizations and other transfers of
financial assets and collateral and requires certain disclosures, but it carries
over most of SFAS No. 125's provisions without reconsideration.
SFAS No. 140 is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after March 31, 2001. SFAS No. 140
is effective for recognition and reclassification of collateral and for
disclosures relating to securitization transactions and collateral for fiscal
years ending after December 15, 2000. Disclosures about securitizations and
collateral accepted need not be reported for periods ending on or before
December 15, 2000, for which financial statements are presented for comparative
purposes.
37
Implementation of SFAS No. 140 has not had a material effect on our
financial position or results of operations.
Business Combinations
In June 2001, the FASB issued SFAS No. 141 "Business Combinations"
("SFAS No. 141"). The standard concludes that all business combinations within
the scope of the statement will be accounted for using the purchase method.
Previously, the pooling-of-interests method was required whenever certain
criteria were met. Because those criteria did not distinguish economically
dissimilar transactions, similar business combinations were accounted for using
different methods that produced dramatically different financial statement
results. SFAS No. 141 requires separate recognition of intangible assets apart
from goodwill if they meet one of two criteria, the contractual-legal criterion
or the separability criterion. SFAS No. 141 also requires the disclosure of the
primary reasons for a business combination and the allocation of the purchase
price paid to the assets acquired and liabilities assumed by major balance sheet
caption. The provisions of SFAS No. 141 apply to all business combinations
initiated after June 30, 2001.
Goodwill and Other Intangible Assets
In June 2001, the FASB also issued SFAS No. 142 "Goodwill and Other
Intangible Assets" ("SFAS No. 142"). It addressed how intangible assets that are
acquired individually or within a group of assets (but not those acquired in a
business combination) should be accounted for in the financial statements upon
their acquisition. SFAS No. 142 adopts a more aggregate view of goodwill and
bases the accounting on the units of the combined entity into which an acquired
entity is aggregated. SFAS No. 142 also prescribes that goodwill and intangible
assets that have indefinite useful lives will not be amortized but rather tested
at least annually for impairment. Intangible assets that have definite lives
will continue to be amortized over their useful lives, but no longer with the
constraint of the 40-year ceiling. SFAS No. 142 provides specific guidance for
the testing of goodwill for impairment which may require re-measurement of the
fair value of the reporting unit. Additional ongoing financial statement
disclosures are also required.
The provisions of the statement are required to be applied starting with
fiscal years beginning after December 15, 2001. The statement is required to be
applied at the beginning of the fiscal year and applied to all goodwill and
other intangible assets recognized in the financials at that date. Impairment
losses are to be reported as resulting from a change in accounting principle.
Accounting for the Impairement of Disposal of Long-Lived Assets
SFAS 144 establishes a single accounting model for the impairment or
disposal of long-lived assets, including discontinued operations. SFAS 144
superseded Statement of Financial Accounting Standards No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
(SFAS 121), and APB Opinion No. 30, Reporting the Results of Operations --
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions. The provisions of
SFAS 144 are effective in fiscal years beginning after December 15, 2001, with
early adoption permitted, and in general are to be applied prospectively.
Implementation of SFAS No. 144 will not have a material impact on our
financial position or results of operations.
3. RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required to maintain a percentage of its deposits as reserves
either in cash or on deposit at the Federal Reserve Bank. As of December 31,
2001 and 2000, the reserve requirements were $0.6 million and $5.9 million,
respectively.
38
4. SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
Securities purchased under agreements to resell averaged $13.1 million
during 2001. The maximum amount outstanding at any month end during 2001 was
$42.0 million. There were no securities purchased under agreement to resell at
December 31, 2001 or at any time during 2000.
5. INVESTMENT AND MORTGAGE-BACKED SECURITIES
The amortized cost and approximate market value of investment securities
and mortgage-backed securities classified as available for sale and held to
maturity at December 31, 2001 and 2000 are shown below (dollars in thousands):
2001
--------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-------- ------ ------- --------
Investment securities available for sale:
Trust Preferred Securities .................................................. $100,327 $-- $10,398 $ 89,929
Federal Agency Notes ........................................................ 36,507 68 197 36,378
Asset-backed Securities ..................................................... 12,018 22 28 12,012
-------- ------ ------- --------
Total investment securities available for sale ...................... $148,852 $ 90 $10,623 $138,319
-------- ------ ------- --------
Mortgage-backed securities available for sale:
GNMA ........................................................................ 145,091 427 123 145,395
FNMA ........................................................................ 206,902 2,303 2,428 206,777
FHLMC ....................................................................... 47,747 38 857 46,928
Other ....................................................................... 4,504 -- 2 4,502
-------- ------ ------- --------
Total mortgage-backed securities available for sale ................. 404,244 2,768 3,410 403,602
-------- ------ ------- --------
Total investment and mortgage-backed securities available for sale .. $553,096 $2,858 $14,033 $541,921
======== ====== ======= ========
Investment securities held to maturity:
Municipal Securities ........................................................ $ 50,444 $ 35 $ 812 $ 49,667
-------- ------ ------- --------
Mortgage-backed securities held to maturity:
Other ....................................................................... 1,028 -- -- 1,028
-------- ------ ------- --------
Total investment and mortgage-backed securities held to maturity .... $ 51,472 $ 35 $ 812 $ 50,695
======== ====== ======= ========
2000
--------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-------- ------ ------- --------
Investment securities available for sale:
Trust Preferred Securities .................................................. $101,149 $-- $18,479 $ 82,670
-------- ------ ------- --------
Mortgage-backed securities available for sale:
GNMA ........................................................................ 92,353 -- 616 91,737
FNMA ........................................................................ 91,426 50 2,266 89,210
Other ....................................................................... 63,672 -- 1,135 62,537
-------- ------ ------- --------
Total mortgage-backed securities available for sale ................. 247,451 50 4,017 243,484
-------- ------ ------- --------
Total investment and mortgage-backed securities available for sale .. $348,600 $ 50 $22,496 $326,154
======== ====== ======= ========
Investment securities held to maturity:
Municipal Securities ........................................................ $ 43,648 $ 19 $ 570 $ 43,097
-------- ------ ------- --------
Mortgage-backed securities held to maturity:
FNMA ........................................................................ 80,662 -- 3,086 77,576
FHLMC ....................................................................... 35,725 -- 1,468 34,257
Other ....................................................................... 1,051 -- -- 1,051
-------- ------ ------- --------
Total mortgage-backed securities held to maturity ................... 117,438 -- 4,554 112,884
-------- ------ ------- --------
Total investment and mortgage-backed securities held to maturity .... $161,086 $ 19 $ 5,124 $155,981
======== ====== ======= ========
39
As of December 31, 2001, remaining maturities on investment and
mortgage-backed securities classified as held to maturity and available for sale
were as follows (dollars in thousands):
2001
---------------------
AMORTIZED MARKET
COST VALUE
-------- --------
Available for sale:
Investment securities available for sale:
After one year through five years ..................................... $ 20,000 $ 19,906
After five years through ten years .................................... 27,532 27,484
After ten years ....................................................... 101,320 90,929
-------- --------
Subtotal ......................................................... 148,852 138,319
-------- --------
Mortgage-backed securities available for sale:
After one year through five years ..................................... 640 638
After ten years ....................................................... 403,604 402,964
-------- --------
Subtotal ......................................................... 404,244 403,602
-------- --------
Total investment and mortgage-backed securities available for sale $553,096 $541,921
======== ========
Held to maturity:
Investment securities held to maturity:
After ten years ....................................................... $ 50,444 $ 49,667
-------- --------
Mortgage-backed securities held to maturity:
In one year or less ................................................... 44 44
After one year through five years ..................................... 23 23
After ten years ....................................................... 961 961
-------- --------
Total mortgage-backed securities held to maturity ................ $ 1,028 $ 1,028
-------- --------
Total investment and mortgage-backed securities held to maturity . $ 51,472 $ 50,695
======== ========
Approximately $279.8 million and $346.7 million of investment and
mortgage-backed securities have been pledged to secure contractual arrangements
entered into by the Company at December 31, 2001 and 2000, respectively.
Proceeds from the sale of available for sale securities during 2001 totaled
$156.2 million, with gross realized gains of $602,000, and during 2000 totaled
$2.4 million, with gross realized gains of $135,000.
There were no mortgage-backed securities sold under agreements to
repurchase as of December 31, 2001 or 2000 or at any time during 2001. When the
Company enters into these transactions, the obligations generally mature within
one year and generally represent agreements to repurchase the same securities.
6. LOANS
As of December 31, 2001 and 2000, the composition of the loan portfolio was
as follows (dollars in thousands):
2001 2000
----------- -----------
Commercial:
Secured by real estate-nonresidential ...... $ 798,882 $ 597,981
Secured by real estate-multifamily ......... 677,271 514,697
Construction ............................... 182,558 131,878
Business ................................... 163,628 99,401
----------- -----------
Total commercial loans ....................... 1,822,339 1,343,957
----------- -----------
Consumer:
Residential mortgage (one to four family) .. 430,057 574,219
Other ...................................... 16,003 16,288
----------- -----------
Total consumer loans ......................... 446,060 590,507
----------- -----------
Gross loans .................................. 2,268,399 1,934,464
Net deferred loan fees ....................... (4,096) (2,642)
----------- -----------
Loans ........................................ 2,264,303 1,931,822
Allowance for loan losses .................... (34,550) (28,901)
----------- -----------
Net loans .................................... $ 2,229,753 $ 1,902,921
=========== ===========
40
As of December 31, 2001, loans at fixed interest rates amounted to $564.9
million, and loans at variable interest rates amounted to $1.70 billion. As of
December 31, 2001, the portfolio above contained $1.49 billion of loans that
were interest-rate sensitive within one year, $227.2 million from one to five
years, $207.4 million from five to ten years, $207.7 million from ten to twenty
years and $136.5 million over twenty years. Loans of approximately $991,000 and
$2.5 million were on nonaccrual status at December 31, 2001 and 2000,
respectively.
As of December 31, 2001, residential mortgage (one to four family) and
multifamily loans with a book value and market value of $1.01 billion were
pledged to secure FHLB advances (see Note 9). The Company serviced real estate
loans for others of $169.4 million and $53.7 million at December 31, 2001 and
2000, respectively. These loans are not included in the consolidated balance
sheets. In connection therewith, the Company held trust funds of approximately
$6.3 million and $1.7 million as of December 31, 2001 and 2000, respectively,
all of which were segregated in separate accounts and included in the respective
balance sheets. Some agreements with investors to whom the Company has sold
loans have provisions which could require repurchase of loans under certain
circumstances. Management does not believe that any such repurchases will be
significant.
The following table sets forth impaired loan disclosures as of and for the
years ended December 31, 2001, 2000, and 1999 (dollars in thousands):
2001 2000 1999
------- ------- ------
Impaired loans with an allowance ........................... $ -- $ -- $ --
Impaired loans without an allowance ........................ -- -- --
------- ------- ------
Total impaired loans ............................. $ -- $ -- $ --
======= ======= ======
Allowance for impaired loans under SFAS No. 114 ............ $ -- $ -- $ --
======= ======= ======
Interest income recognized on impaired loans during the year $ -- $ -- $ 69
======= ======= ======
For the years ended December 31, 2001, 2000, and 1999, the activity in the
allowance for loan losses was as follows (dollars in thousands):
2001 2000 1999
-------- -------- --------
Balance at beginning of year ...... $ 28,901 $ 19,503 $ 14,922
Provision for loan losses ......... 5,620 9,765 5,645
Loans charged off ................. (121) (917) (1,198)
Recoveries ........................ 150 550 134
-------- -------- --------
Balance at end of year ............ $ 34,550 $ 28,901 $ 19,503
======== ======== ========
7. PREMISES AND EQUIPMENT
As of December 31, 2001, and 2000, premises and equipment were as follows
(dollars in thousands):
2001 2000
-------- --------
Land and buildings ............................... $ 20,346 $ 19,879
Leasehold improvements ........................... 9,350 8,941
Equipment, furniture and fixtures ................ 12,090 11,349
-------- --------
41,786 40,169
Less accumulated depreciation and amortization ... (22,117) (19,994)
-------- --------
Total .................................. $ 19,669 $ 20,175
======== ========
Total depreciation and amortization expense was $2.6 million for years
ended December 31, 2001, 2000, and 1999.
41
8. DEPOSITS
As of December 31, 2001 and 2000, deposit balances were as follows (dollars
in thousands):
2001 2000
------------------------ ------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
---------- ---- ---------- ----
NOW, checking and money market accounts $ 427,338 1.19% $ 282,611 1.66%
Savings accounts ...................... 449,735 1.41 349,679 2.30
Time deposits:
Less than $100,000 .................. 871,754 3.62 851,913 5.72
$100,000 or greater ................. 717,325 3.80 579,816 6.32
---------- ----------
Total time deposits ................. 1,589,079 3.70 1,431,729 5.97
---------- ----------
Total deposits .............. $2,466,152 2.85 $2,064,019 4.75
========== ==========
As of December 31, 2001, remaining maturities on time deposits were as
follows (dollars in thousands):
2002 ........................................................ $1,494,069
2003 ........................................................ 93,925
2004 ........................................................ 458
2005 ........................................................ 213
2006 ........................................................ 180
Aggregate thereafter ........................................ 234
----------
Total ............................................. $1,589,079
==========
For the years ended December 31, 2001, 2000, and 1999, interest expense on
deposits was as follows (dollars in thousands):
2001 2000 1999
-------- -------- --------
NOW, checking and money market accounts .... $ 5,080 $ 3,144 $ 2,498
Savings accounts ........................... 8,229 6,954 5,047
Time deposits .............................. 74,422 67,287 54,677
Less penalties for early withdrawal ........ (296) (382) (267)
-------- -------- --------
Total ............................ $ 87,435 $ 77,003 $ 61,955
======== ======== ========
42
9. BORROWINGS
For the years ended December 31, 2001 and 2000, the following short- and
long-term borrowings were outstanding (dollars in thousands):
2001 2000
-------- --------
Short-term borrowings:
FHLB of San Francisco advances:
Average balance outstanding .......................... $ 18,768 $164,799
Maximum amount outstanding at any month end period ... 39,177 239,000
Balance outstanding at end of period ................. 5,000 20,000
Weighted average interest rate during the period ..... 5.60% 6.32%
Weighted average interest rate at end of period ...... 6.52% 6.74%
Weighted average remaining term to maturity at end of
period (in years) ................................. 1 0
FRB direct investment borrowings:
Average balance outstanding .......................... $ 710 $ 4,749
Maximum amount outstanding at any month end period ... 10,000 10,000
Balance outstanding at end of period ................. -- 2,558
Weighted average interest rate during the period ..... 5.56% 5.81%
Weighted average interest rate at end of period ...... 0.00% 5.72%
Long-term borrowings:
FHLB of San Francisco advances:
Average balance outstanding .......................... $237,171 $234,114
Maximum amount outstanding at any month end period ... 238,000 238,000
Balance outstanding at end of period ................. 233,000 238,000
Weighted average interest rate during the period ..... 5.51% 5.53%
Weighted average interest rate at end of period ...... 5.44% 5.46%
Weighted average remaining term to maturity at end of
period (in years) ................................. 6 7
The Company maintains a secured credit facility with the FHLB of San
Francisco against which the Company may take advances. The terms of this credit
facility require the Company to maintain in safekeeping with the FHLB of San
Francisco eligible collateral of at least 100% of outstanding advances. Included
in the long-term borrowings were $216.0 million of advances maturing in 2008
with provisions which allow the FHLB of San Francisco, at their option, to
terminate the advances at quarterly intervals at specified periods ranging from
three to five years beyond the advance dates. The advances were secured with
mortgage-backed securities and loans. At December 31, 2001, credit availability
under this facility was approximately $695.7 million.
In December of 1998, the Bank entered into the Treasury Investment Program
with the Federal Reserve Bank of San Francisco. This borrowing line allowed the
Bank to utilize deposits made to the U.S. Treasury for federal tax payments
until the Treasury needed the funds. This borrowing line had to be fully
collateralized at all times. In March of 2001, the Bank discontinued its
participation in the Treasury Investment Program.
43
10. GUARANTEED PREFERRED BENEFICIAL INTERESTS IN JUNIOR SUBORDINATED DEBENTURES
OF UCBH HOLDINGS, INC. (UCBH)
The Company established special purpose trusts in 1998 and 2001 for the
purpose of issuing Guaranteed Preferred Beneficial Interests in UCBH's
Subordinated Debentures ("Capital Securities"). The trusts exist for the sole
purpose of issuing the Capital Securities and investing the proceeds thereof in
Junior Subordinated Debentures issued by UCBH. Payment of distributions out of
the monies held by the trusts and payments on liquidation of the trusts or the
redemption of the Capital Securities are guaranteed by UCBH to the extent the
trusts have funds available thereof. The obligations of UCBH under the
guarantees and the Junior Subordinated Debentures are subordinate and junior in
right of payment to all indebtedness of UCBH and will be structurally
subordinated to all liabilities and obligations of UCBH's subsidiaries. The
table below summarizes the outstanding Capital Securities issued by each special
purpose trust and the debentures issued by UCBH to each trust as of December 31,
2001.
CAPITAL SECURITIES AND
CAPITAL SECURITIES JUNIOR SUBORDINATED DEBENTURES
----------------------- ---------------------------------
PRINCIPAL SEMI-ANNUAL INTEREST
BALANCE OF ANNUALIZED PAYABLE/DISTRIBUTION
TRUST NAME ISSUANCE DATE AMOUNT DEBENTURES STATED MATURITY COUPON RATE DATES
- -------------------- ------------- ------- ------- ---------------- ------------- --------------------
(DOLLARS IN THOUSANDS)
UCBH Trust Co. ..... April 1998 $30,000 $30,928 May 1, 2008 9.38% May 1 and November 1
UCBH Capital Trust I November 2001 6,000 6,186 December 8, 2031 LIBOR + 0.38% June 8 and December 8
The Junior Subordinated Debentures are not redeemable prior to May 1, 2005
for UCBH Trust Co. and December 8, 2006 for UCBH Capital Trust I unless certain
events have occurred.
The proceeds from the issuance of the Capital Securities were used
primarily to provide additional capital for the Bank. Interest expense on the
Capital Securities was $2.8 million for the years ended December 31, 2001, 2000,
and 1999.
11. STOCKHOLDERS' EQUITY AND REGULATORY CAPITAL REQUIREMENTS
The Company and the Bank are subject to various regulatory requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of its
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts are also subject to
qualitative judgments by the regulators about components, weightings, and other
factors.
Qualitative measures established by regulation to ensure capital adequacy
require financial institutions to maintain minimum amounts and ratios (set forth
in the table below) of total and Tier I Capital (as defined in the regulations)
to risk-weighed assets (as defined), and of Tier I Capital (as defined) to
average assets (as defined). Management believes, as of December 31, 2001, that
the Company and the Bank met all capital adequacy requirements to which they are
subject.
As of December 31, 2001, the Bank was classified as a "well capitalized"
institution under the regulatory framework for prompt corrective action. To be
classified as well capitalized, the Bank must maintain minimum total risk-based,
Tier I risk-based and Tier I leverage ratio as set forth in the table. There are
no conditions or events since December 31, 2001 that management believes have
changed the institution's category.
44
The Company's and the Bank's actual capital amounts and ratios are also
presented in the following table (dollars in thousands):
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
-------------------- ------------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ----- -------- ---- -------- -----
As of December 31, 2001
Total Capital (to risk-weighted assets)
United Commercial Bank .......................... $235,803 10.91% $172,955 8.00% $216,194 10.00%
UCBH Holdings, Inc. ............................. 243,664 11.24 173,402 8.00
Tier I Capital (to risk-weighted assets)
United Commercial Bank .......................... $208,686 9.65% $ 86,477 4.00% $129,716 6.00%
UCBH Holdings, Inc. ............................. 216,478 9.99 86,701 4.00
Tier I Capital (to average assets) (Leverage Ratio)
United Commercial Bank .......................... $208,686 7.26% $114,906 4.00% $143,632 5.00%
UCBH Holdings, Inc. ............................. 216,478 7.52 115,214 4.00
The following is a reconciliation of capital under Generally Accepted
Accounting Principles ("GAAP") with regulatory capital at December 31, 2001
(dollars in thousands):
TIER I CAPITAL RISK-BASED CAPITAL
------------------------------- -------------------------------
UNITED UCBH UNITED UCBH
COMMERCIAL BANK HOLDINGS, INC. COMMERCIAL BANK HOLDINGS, INC.
--------------- -------------- --------------- --------------
GAAP Capital ............................. $ 202,332 $ 174,124 $ 202,332 $ 174,124
Nonallowable components:
Unrealized losses on securities
available for sale .................. 6,481 6,481 6,481 6,481
Goodwill ............................... (23) (23) (23) (23)
Mortgage servicing rights - excess ..... (104) (104) (104) (104)
Additional capital components:
Guaranteed preferred beneficial
interests in junior subordinated
debentures .......................... -- 36,000 -- 36,000
Allowance for loan losses--
limited to 1.25% of risk-based
assets ............................... -- -- 27,117 27,186
--------- --------- --------- ---------
Regulatory capital ....................... $ 208,686 $ 216,478 $ 235,803 $ 243,664
========= ========= ========= =========
The Company and United are prohibited by federal regulations from paying
dividends if the payment would reduce their regulatory capital below certain
minimum requirements. Following its offering in 1998, the Company commenced
paying dividends in 2000. During 2000 and 2001, the Company declared dividends
totaling $0.10 per share and $0.16 per share, respectively.
45
12. EARNINGS PER SHARE
The following is a reconciliation of the numerator and denominator of the
basic and diluted earnings per share:
YEARS ENDED DECEMBER 31,
2001, 2000, AND 1999
---------------------------------------------
PER
INCOME SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
2001:
Basic:
Net income................................. $ 30,488 19,073,388 $1.60
Effect of stock options...................... -- 904,503
----------- ------------
Diluted:
Net income................................. $ 30,488 19,977,891 $1.53
=========== ============
2000:
Basic:
Net income................................. $ 24,128 18,708,878 $1.29
Effect of stock options...................... -- 734,300
----------- ------------
Diluted:
Net income................................. $ 24,128 19,443,178 $1.24
=========== ============
1999:
Basic:
Net income................................. $ 19,068 18,666,666 $1.02
Effect of stock options...................... -- 303,388
----------- ------------
Diluted:
Net income................................. $ 19,068 18,970,054 $1.01
=========== ============
13. SEGMENT INFORMATION
The Company adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information," on January 1, 1998. The Company designates
the internal organization that is used by management for making operating
decisions and assessing performance as the source of the Company's reportable
segments. The adoption of SFAS No. 131 did not affect the consolidated results
of operations or consolidated financial position as previously reported.
The Company has determined that its reportable segments are those that are
based on the Company's method of internal reporting, which disaggregates its
business into two reportable segments: Consumer Banking and Commercial Banking.
These segments serve California's consumers and businesses. Historically, our
customer base has been primarily the ethnic Chinese communities located mainly
in the San Francisco Bay area, Sacramento/Stockton and metropolitan Los Angeles.
The financial results of the Company's operating segments are presented on
an accrual basis. There are no significant differences between the accounting
policies of the segments as compared to the Company's consolidated financial
statements. The Company evaluates the performance of its segments and allocates
resources to them based on interest income, interest expense and net interest
income. There are no material intersegment revenues.
Following is segment information of the Company for the years ended
December 31, 2001, 2000, and 1999:
COMMERCIAL CONSUMER TOTAL
---------- ---------- ----------
(DOLLARS IN MILLIONS)
2001
Net interest income (before provision for loan losses) $ 58,771 $ 39,686 $ 98,457
Segment net income ................................... 22,749 7,739 30,488
Segment total assets ................................. 1,804,500 1,127,543 2,932,043
2000
Net interest income (before provision for loan losses) $ 36,465 $ 46,519 $ 82,984
Segment net income ................................... 12,111 12,017 24,128
Segment total assets ................................. 1,333,256 1,168,863 2,502,119
1999
Net interest income (before provision for loan losses) $ 22,768 $ 47,946 $ 70,714
Segment net income ................................... 4,368 14,700 19,068
Segment total assets ................................. 998,086 1,286,714 2,284,800
14. EMPLOYEE BENEFIT PLANS
Stock Option Plan
In May 1998, the Company adopted a Stock Option Plan ("Plan") which
provides for the granting of stock options to eligible officers, employees and
directors of the Company and United. The Plan was amended in April 1999 to
increase the number of shares reserved to be issued pursuant to the Plan from
1,306,666 shares to 1,866,666, on a post-split basis. The Plan was amended in
April 2001 to increase the number of shares reserved to be issued pursuant to
the Plan from 1,866,666 shares to 3,733,332 shares, on a post-split basis.
46
All of the options are exercisable for ten years following the option
grant date and vest over a three-year period. The following table summarizes the
stock option activity during the years ended December 31, 2001, and 2000.
2001 2000
-------------------------------- --------------------------------
NUMBER WEIGHTED NUMBER WEIGHTED
OF AVERAGE OF AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- -------------- --------- --------------
Options outstanding, beginning of year ... 1,760,732 $ 8.09 1,716,334 $ 7.54
Granted .................................. 1,633,550 24.62 203,000 12.54
Canceled or expired ...................... (198,817) 21.86 (75,660) 8.17
Exercised ................................ (609,674) 7.67 (82,942) 7.50
--------- ---------
Options outstanding, end of year ......... 2,585,791 17.57 1,760,732 8.09
========= =========
Shares exercisable end of year ........... 845,098 7.77 887,462 7.57
Weighted average fair value of options
granted during the year ................ 10.33 7.69
Market value of stock at December 31, 2001
and 2000 period end .................... $ 28.44 $ 23.31
For options outstanding at December 31, 2001, the range of exercise
prices was as follows:
WEIGHTED
OPTIONS WEIGHTED AVERAGE AVERAGE OPTIONS WEIGHTED AVERAGE
EXERCISE PRICE OUTSTANDING EXERCISE PRICE REMAINING LIFE EXERCISABLE EXERCISE PRICE
-------------- ----------- ---------------- -------------- ----------- ----------------
$ 7.50 - $10.00 996,393 $ 7.64 6.79 817,761 $ 7.53
$10.01 - $20.00 120,998 13.93 8.55 27,337 14.94
$20.01 - $30.00 1,461,400 24.58 9.32 -- --
$30.01 - $31.05 7,000 31.05 9.53 -- --
--------- --------
Total/Average 2,585,791 17.57 8.31 845,098 7.77
========= ========
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation."
This Statement establishes a new fair value based accounting method for
stock-based compensation for plans and encourages, but does not require,
employers to adopt the new method in place for the provisions of Accounting
Principles Board ("APB") Release No. 25. Companies may continue to apply the
accounting provisions of APB No. 25 in determining net income. However, they
must apply the disclosure requirements of SFAS No. 123 for all grants issued
after 1994. The Company elected to apply the provisions of APB No. 25 in
accounting for the employee stock plan described above. Accordingly, no
compensation cost has been recognized for stock options granted under the Plan.
If the computed fair values of the stock awards had been amortized to
expense over the vesting period of the awards, pro forma amounts would have been
as shown in the following table. The impact of outstanding nonvested stock
options has been excluded from the pro forma calculation.
2001 2000
---------- ----------
(DOLLARS IN THOUSANDS,
EXCEPT EARNINGS PER SHARE)
Net income:
As reported ..................... $ 34,088 $ 24,128
Pro Forma ....................... 28,074 24,044
Basic earnings per share:
As reported ..................... 1.60 1.29
Pro Forma ....................... 1.47 1.29
Diluted earnings per share:
As reported ..................... 1.53 1.24
Pro Forma ....................... 1.41 1.24
47
These calculations require the use of option pricing models, even though
such models were developed to estimate the fair value of freely tradable, fully
transferable options without vesting restrictions, which significantly differ
from the Company's stock option awards. These models also require subjective
assumptions, including future stock price volatility, dividend yield, and
expected time to exercise, which greatly affect the calculated values. The
following weighted average assumptions were used in the Black-Scholes option
pricing model for options granted in 2001, 2000, and 1999:
2001 2000 1999
----- ----- -----
Dividend yield .................. 0.60% 1.30% 1.70%
Volatility ...................... 43.31% 35.16% 28.20%
Risk-free interest rate ......... 4.80% 6.30% 5.20%
Expected lives (years) .......... 6.5 5.0 5.0
United Commercial Bank Savings Plus Plan
The Bank has a 401(k) tax deferred savings plus plan ("401(k) Plan")
under which eligible employees may elect to defer a portion of their salary (up
to 15%) as a contribution to the 401(k) Plan. The Bank matches the employees'
contributions at a rate set by the Board of Directors. The Plan provides for
employer contributions of 50 percent of employee contributions for employee
participants whose annual compensation was less than $80,000 for 1999 and all
employees for 2000 and 2001. For 1999, 2000 and 2001, employer contributions
were limited to $2,000 per participant. The matching contribution vests ratably
over the first five years of service.
For the years ended December 31, 2001, 2000, and 1999, the Bank
contributed $475,000, $433,000, and $392,000, respectively, to the 401(k) Plan.
15. FEDERAL AND STATE TAXES ON INCOME
Following is a summary of the provision for taxes on income (dollars in
thousands):
YEARS ENDED DECEMBER 31,
--------------------------------------------
2001 2000 1999
-------- -------- --------
Current tax expense:
Federal ..................... $ 24,450 $ 15,539 $ 1,933
State ....................... 7,421 3,409 1,104
-------- -------- --------
31,871 18,948 3,037
-------- -------- --------
Deferred tax (benefit) expense:
Federal ..................... (9,262) (4,152) 8,288
State ....................... (2,651) (1,053) 1,553
-------- -------- --------
(11,913) (5,205) 9,841
-------- -------- --------
$ 19,958 $ 13,743 $ 12,878
======== ======== ========
48
Deferred tax liabilities (assets) are comprised of the following
(dollars in thousands):
YEARS ENDED
DECEMBER 31,
--------------------------
2001 2000
-------- --------
Deferred tax liabilities:
Deferred loan fees ............................................ $ 3,092 $ 2,484
FHLB dividends ................................................ 2,866 2,539
Purchase accounting adjustments ............................... 39 98
Market value adjustments on certain loans and securities ...... 831 7,925
Other ......................................................... 514 224
-------- --------
7,342 13,270
-------- --------
Deferred tax assets:
Loan and OREO loss allowances ................................. (12,034) (9,559)
Depreciation .................................................. (999) (594)
Unrealized losses on securities available for sale ............ (4,693) (9,427)
State taxes ................................................... (3,192) (259)
Compensation and benefits ..................................... (323) (224)
Other ......................................................... (224) (135)
-------- --------
(21,465) (20,198)
-------- --------
Net deferred tax assets ......................................... $(14,123) $ (6,928)
======== ========
The following table reconciles the statutory income tax rate to the
consolidated effective income tax rate:
YEARS ENDED DECEMBER 31,
----------------------------------
2001 2000 1999
---- ---- ----
Federal income tax rate ......................................... 35.0% 35.0% 35.0%
State franchise tax rate, net of federal income tax effects ..... 7.0 7.0 7.0
---- ---- ----
Statutory income tax rate ....................................... 42.0 42.0 42.0
---- ---- ----
Increase (reduction) in tax rate resulting from:
California and federal tax credits and incentives ............. (1.3) (2.9) --
Tax exempt income ............................................. (1.3) (1.6) (2.3)
Amortization of intangibles ................................... -- 0.1 0.1
Other, net .................................................... 0.2 (1.3) 0.5
---- ---- ----
39.6% 36.3% 40.3%
==== ==== ====
The Company's assets and liabilities included the following amounts
related to income taxes (dollars in thousands):
YEARS ENDED DECEMBER 31,
------------------------
2001 2000
------- -------
Net deferred (asset) liability:
Federal income tax ......................... $(11,851) $(5,243)
State franchise tax ........................ (2,272) (1,685)
-------- -------
(14,123) (6,928)
(Prepaid income taxes) taxes payable ......... 6,359 (1,482)
-------- -------
$ (7,764) $(8,410)
======== =======
The years 1998 through 2000 remain open for Internal Revenue Service
purposes and the years 1997 through 2000 remain open for California Franchise
Tax Board purposes. The 2001 Federal and State tax returns have not yet been
filed.
16. DERIVATIVE FINANCIAL INSTRUMENT AND FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK
The Company is a party to derivative financial instruments and financial
instruments with off-balance-sheet risk in the normal course of business to meet
the financing needs of its customers and to reduce its own exposure to
fluctuations in interest rates. The Company does not hold or issue financial
instruments for trading purposes. Financial instruments in the normal course of
business include commitments to extend and purchase credit, forward commitments
to sell loans, letters of
49
credit and interest-rate caps. Those instruments involve, to varying degrees,
elements of credit and interest-rate risk in excess of the amount recognized in
the statement of financial position. The contract or notional amounts of those
instruments reflects the extent of involvement the Company has in particular
classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit is
represented by the contractual or notional 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. For interest-rate swap
and cap transactions and forward commitments to sell loans, the contract or
notional amounts do not represent exposure to credit loss. The Company controls
the credit risk of its interest-rate swap and cap agreements and forward
commitments to sell loans through credit approvals, limits, and monitoring
procedures. The Company does not require collateral or other security to support
interest-rate swap transactions with credit risk.
Contract or notional amounts of derivative financial instruments and
financial instruments with off-balance-sheet risk as of December 31, 2001 and
2000 are as follows (dollars in millions):
2001 2000
------ ------
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit:
Consumer (including residential mortgage) ............................ $ 26.1 $ 21.0
Commercial (excluding construction) .................................. 220.6 91.1
Construction ......................................................... 182.7 170.8
Letters of credit .................................................... 23.5 9.3
Commitments to purchase securities ................................... 11.8 --
Financial instruments whose notional or contract amounts exceed
the amount of credit risk:
Interest-rate cap and swap agreements ..................................... $ -- $185.0
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses.
The Company evaluates each customer's credit worthiness 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 counter
party. Collateral held generally includes residential or commercial real estate,
accounts receivable, or other assets.
Letters of credit 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 extending loan facilities to customers. These letters of credit are usually
secured by inventories or by deposits held at the Company.
In order to minimize the exposure arising from forward contracts, the
Company enters into hedge options from time to time. Interest rate caps are
interest rate protection instruments that involve the payment from the seller to
the buyer of an interest differential. This differential represents the
difference between current interest rates and agreed-upon rate applied to a
notional principal amount. Entering into interest-rate cap agreements involves
the risk of dealing with counter parties and their ability to meet the terms of
the contracts. Notional principal amounts often are used to express the volume
of these transactions, but the amounts potentially subject to credit risk are
much smaller. The Company is a purchaser of interest rate caps and swaps. At
December 31, 2001, no interest rate caps or swaps were outstanding. At December
31, 2000, the Company had LIBOR-based interest rate caps with a notional amount
of $160.0 million outstanding and $25.0 million of interest rate swaps
outstanding. For the year ended December 31, 2001, interest rate caps and swaps
positively impacted net interest income by $118,000. For the year ended December
31, 2000, interest rate caps and swaps negatively impacted net interest income
by $261,000.
17. CONCENTRATIONS OF CREDIT RISK
The Company's loan activity is primarily with customers located
throughout the State of California. Substantially all residential and commercial
real estate loans are secured by properties located in the State of California
and are originated at 80% loan-to-value or less. Management believes that the
risk of significant losses in excess of underlying collateral value is low.
50
18. LEASE COMMITMENTS AND CONTINGENT LIABILITIES
Lease Commitments
The Company leases various premises and equipment under noncancellable
operating leases, many of which contain renewal options and some of which
contain escalation clauses.
Future minimum rental payments, which do not include common area costs,
due each year under existing operating leases that have initial or remaining
noncancellable lease terms in excess of one year as of December 31, 2001, are
payable as follows (dollars in thousands):
2002 .............................................. $ 3,808
2003 .............................................. 3,352
2004 .............................................. 2,214
2005 .............................................. 1,845
2006 .............................................. 1,437
Aggregate thereafter .............................. 7,209
-------
Total minimum payments required ......... $19,865
=======
Rental expense was approximately $3.8 million, $3.6 million, and $3.5
million for the years ended December 31, 2001, 2000, and 1999, respectively.
Contingent Liabilities
The Company is subject to pending or threatened actions and proceedings
arising in the normal course of business. In the opinion of management, the
ultimate disposition of all pending or threatened actions and proceedings will
not have a material adverse effect on the Company's operations or financial
condition.
19. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instrument," requires all entities to estimate the fair
value of all financial instrument assets, liabilities, and off-balance-sheet
transactions. Fair values are point-in-time estimates that can change
significantly based on numerous factors. Accordingly, management cannot provide
any assurance that the estimated fair values presented below could actually be
realized. The fair value estimates for financial instruments were determined as
of December 31, 2001 and 2000, by application of the described methods and
significant assumptions.
Cash and Short-term Investments
For these short-term instruments, the carrying value of $32.6 million at
December 31, 2001 and $38.2 million at December 31, 2000 is a reasonable
estimate of fair value.
Investment and Mortgage-backed Securities
The aggregate fair value of investment and mortgage-backed securities is
$615.6 million at December 31, 2001 and $502.7 million at December 31, 2000.
Fair value equals quoted market price, if available. If a quoted market price is
not available, fair value is estimated using quoted market prices for similar
securities.
Loans Receivable
The aggregate fair value of loans receivable is $2.35 billion at
December 31, 2001 and $1.90 billion at December 31, 2000. Fair value is
estimated by discounting the future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings at the same
remaining maturities. In addition, the allowance for loan losses was considered
a reasonable adjustment for credit risk for the entire portfolio.
51
Deposit Liabilities
Fair value of demand deposits, savings accounts, and certain money
market deposits is the amount payable on demand at the reporting date. The fair
value of fixed maturity certificates of deposit is estimated using the rates
currently offered for deposits of similar remaining maturities. The aggregate
fair value of deposits is $2.50 billion at December 31, 2001 and $2.07 billion
at December 31, 2000.
Federal Home Loan Bank Advances and Other Borrowings
Fair value of Federal Home Loan Bank advances and other borrowings is
estimated using the rates currently being offered for advances with similar
remaining maturities. The aggregate fair value of Federal Home Loan Bank
advances and other borrowings at December 31, 2001 was $239.1 million and $260.6
million at December 31, 2000.
Guaranteed Preferred Beneficial Interests in Junior Subordinated Debentures
The fair value of the Company's junior subordinated debentures is
estimated using market interest rates currently being offered for similar
unrated debt instruments. The fair market value of the junior subordinated
debentures was $33.2 million at December 31, 2001 and $25.6 million at December
31, 2000.
Interest Rate Cap and Swap Agreements
The fair value of the cap and swap agreements used for hedging purposes
is the estimated amount that the Company would receive or pay to terminate the
agreements at the reporting date, taking into account current interest rates and
the current creditworthiness of the cap counter parties. There were no cap or
swap agreements as of December 31, 2001. The fair market value of cap and swap
agreements was $226,000 at December 31, 2000.
Commitments to Extend Credit, Commitments to Purchase Loans, Securities Sold But
Not Owned, and Options on Interest Rate Futures
The fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the present creditworthiness of the counter parties.
For fixed-rate commitments, fair value also considers the difference between
current levels of interest rates and the committed rates. Fair values for
securities sold but not owned and options on interest rate futures are based on
quoted market prices or dealer quotes. The fair value of commitments to extend
credit and commitments to purchase loans cannot be readily determined. There
were no put or call options at December 31, 2001 or December 31, 2000.
52
20. PARENT COMPANY
Condensed unconsolidated financial information of UCBH Holdings, Inc. is
presented below.
CONDENSED BALANCE SHEET
(DOLLARS IN THOUSANDS)
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------
2001 2000
--------- ---------
ASSETS
Cash and due from banks ................................................... $ 3,155 $ 70
Investment and mortgage-backed securities available for sale, at fair value -- 470
Investment in subsidiaries ................................................ 202,331 157,890
Other assets .............................................................. 6,132 6,295
--------- ---------
Total assets .................................................... $ 211,618 $ 164,725
========= =========
LIABILITIES
Accrued interest payable .................................................. $ 501 $ 470
Other liabilities ......................................................... 993 610
Junior subordinated debentures, payable to subsidiary trust ............... 36,000 30,000
--------- ---------
Total liabilities ............................................... 37,494 31,080
--------- ---------
STOCKHOLDERS' EQUITY
Common stock .............................................................. 194 94
Additional paid-in capital ................................................ 66,685 60,366
Subsidiary's accumulated other comprehensive income ....................... (6,481) (13,019)
Retained earnings ......................................................... 113,726 86,204
--------- ---------
Total stockholders' equity ...................................... 174,124 133,645
--------- ---------
Total liabilities and stockholders' equity ...................... $ 211,618 $ 164,725
========= =========
CONDENSED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------------------
2001 2000 1999
-------- -------- --------
INCOME
Interest income on investment securities ......................... $ 56 $ 59 $ 18
Dividends from subsidiary ........................................ 800 5,600 3,100
Miscellaneous income ............................................. -- -- --
-------- -------- --------
Total income ........................................... 856 5,659 3,118
-------- -------- --------
EXPENSE
Interest expense on junior subordinated debentures ............... 2,845 2,812 2,812
Miscellaneous expense ............................................ 2,562 1,878 878
-------- -------- --------
Total expense .......................................... 5,407 4,690 3,690
-------- -------- --------
Income (loss) before taxes and equity in undistributed
net income of subsidiary ....................................... (4,551) 969 (572)
Income tax benefit ............................................... 2,135 1,789 1,355
Equity in undistributed net income of subsidiary ................. 32,904 21,370 18,285
-------- -------- --------
Net income ............................................. $ 30,488 $ 24,128 $ 19,068
======== ======== ========
53
CONDENSED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
2001 2000 1999
-------- -------- --------
OPERATING ACTIVITIES
Net income ......................................................... $ 30,488 $ 24,128 $ 19,068
Adjustments to reconcile net income to
net cash provided by (used for)
operating activities:
Equity in undistributed net income of subsidiary .............. (32,904) (21,370) (18,285)
Decrease (increase) in other assets ........................... 164 (2,050) (1,623)
Increase in accrued interest payable .......................... 31 -- --
Increase (decrease) in other liabilities ...................... 1,823 112 (160)
-------- -------- --------
Net cash used for operating activities ...................... (398) 820 (1,000)
-------- -------- --------
INVESTING ACTIVITIES
Maturities of investments available for sale ....................... -- -- 1,500
Capital contribution to subsidiary ................................. (5,000) -- --
-------- -------- --------
Net cash provided by (used in) investing activities ......... (5,000) -- 1,500
-------- -------- --------
FINANCING ACTIVITIES
Proceeds from issuance of common stock ............................. 4,674 623 --
Proceeds from issuance of junior subordinated
debentures, payable to
subsidiary trust ................................................ 6,000 -- --
Payment of cash dividend on common stock ........................... (2,661) (1,403) --
-------- -------- --------
Net cash (used in) provided by financing activities ......... 8,013 (780) --
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ............... 2,615 40 500
Cash and cash equivalents beginning of year ........................ 540 500 --
-------- -------- --------
Cash and cash equivalents end of year .............................. $ 3,155 $ 540 $ 500
======== ======== ========
UNAUDITED SUPPLEMENTAL INFORMATION
UCBH HOLDINGS, INC.
Quarterly Condensed Consolidated Financial Information
2001 QUARTERS 2000 QUARTERS
------------------------------------------- -------------------------------------------
FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
------- ------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
Interest income ............. $49,083 $51,315 $51,460 $50,929 $49,622 $48,174 $45,830 $43,062
Interest expense ............ 22,683 25,948 27,567 28,132 27,978 27,168 25,397 23,161
------- ------- ------- ------- ------- ------- ------- -------
Net interest income ......... 26,400 25,367 23,893 22,797 21,644 21,006 20,433 19,901
------- ------- ------- ------- ------- ------- ------- -------
Provision for credit losses . 1,831 2,084 952 753 3,197 2,862 1,951 1,755
Noninterest income .......... 2,098 1,853 1,688 1,266 1,339 1,231 1,149 1,032
Noninterest expense ......... 13,232 12,138 12,176 11,751 10,431 10,099 9,826 9,743
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes .. 13,436 12,998 12,453 11,559 9,355 9,276 9,805 9,435
Income tax expense .......... 5,202 5,200 5,025 4,531 2,898 3,048 3,937 3,860
------- ------- ------- ------- ------- ------- ------- -------
Net income .................. $ 8,234 $ 7,798 $ 7,428 $ 7,028 $ 6,457 $ 6,228 $ 5,868 $ 5,575
======= ======= ======= ======= ======= ======= ======= =======
Net income per common share
Basic net income .......... $ 0.43 $ 0.41 $ 0.39 $ 0.37 $ 0.34 $ 0.33 $ 0.32 $ 0.30
Diluted net income ........ 0.41 0.39 0.37 0.36 0.33 0.32 0.30 0.29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
54
PART III
ITEMS 10.-12.
The information required by Item 10: Directors and Executive Officers of
the Registrant; Item 11: Executive Compensation; Item 12: Security Ownership of
Certain Beneficial Owners and Management will be included in and incorporated by
reference to the Company's Definitive Proxy Statement for the 2002 Annual
Meeting of Stockholders, to be filed pursuant to Regulation 14A within 120 days
after the close of the fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
55
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The report of independent accountants and the consolidated
financial statements of the Company are presented in Item 8.
(2) All schedules are omitted because they are not required or
applicable, or the required information is shown in the
Consolidated Financial Statements, or the notes thereto.
(3) Exhibits:
The exhibits filed as a part of this Form 10-K are as follows (filed
herewith unless otherwise noted):
3.1 Amended and Restated Certificate of Incorporation of UCBH
Holdings, Inc.*
3.2 Bylaws of UCBH Holdings, Inc.*
4.0 Form of Stock Certificate of UCBH Holdings, Inc.*
4.1 Indenture of UCBH Holdings, Inc., dated April 17, 1998, relating
to Series B Junior Subordinated Debentures**
4.2 Form of Certificate of Series B Junior Subordinated Debenture**
4.3 Certificate of Trust of UCBH Trust Co.**
4.4 Amended and Restated Declaration of Trust of UCBH Trust Co.**
4.5 Form of Series B Capital Security Certificate for UCBH Trust
Co.**
4.6 Form of Series B Guarantee of the Company relating to the Series
B Capital Securities**
10.1 Employment Agreement between United Commercial Bank and Thomas
S. Wu*
10.2 Employment Agreement between UCBH Holdings, Inc. and Thomas S.
Wu*
10.3 Form of Termination and Change in Control Agreement between
United Commercial Bank and certain executive officers*
10.4 Form of Termination and Change in Control Agreement between UCBH
Holdings, Inc. and certain executive officers*
10.5 UCBH Holdings, Inc. 1998 Stock Option Plan***
21.0 Subsidiaries of UCBH Holdings, Inc. (see Item 1 - Business)
23.1 Consent of PricewaterhouseCoopers LLP
--------
* Incorporated herein by reference to the Exhibit of the same
number in the Company's Registration Statement on Form S-1 filed
with the SEC on July 1, 1998 (SEC File No. 333-58325).
** Incorporated herein by reference to the Exhibit of the same
number in the Company's Registration Statement on Form S-4 filed
with the SEC on July 1, 1998 (SEC File No. 333-58335).
*** Incorporated herein by reference to the Exhibit of the same
number in the Company's Form 10-Q for the quarter ended June 30,
1999 filed with the SEC on August 6, 1999 (SEC File No.
0-24947).
(b) Reports on Form 8-K
None.
56
SIGNATURES
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.
Date: January 31, 2002 UCBH HOLDINGS, INC.
By /s/ Jonathan H. Downing
-----------------------------
Jonathan H. Downing
Executive Vice President,
Chief Financial Officer,
Treasurer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.
Name Date
- ---- ----
/s/ Thomas S. Wu Chairman, President, January 31, 2002
- ---------------------------------- Chief Executive Officer and Director
Thomas S. Wu (principal executive officer)
/s/ Jonathan H. Downing Executive Vice President, January 31, 2002
- ---------------------------------- Chief Financial Officer,
Jonathan H. Downing Treasurer and Director
(principal financial officer)
/s/ Sandra Go Senior Vice President and Controller January 31, 2002
- ---------------------------------- (principal accounting officer)
Sandra Go
/s/ Li-Lin Ko Director January 31, 2002
- ----------------------------------
Li-Lin Ko
/s/ Ronald S. McMeekin Director January 31, 2002
- ----------------------------------
Ronald S. McMeekin
/s/ Dr. Godwin Wong Director January 31, 2002
- ----------------------------------
Dr. Godwin Wong
/s/ Joseph S. Wu Director January 31, 2002
- ----------------------------------
Joseph S. Wu
57