Cathay General Bancorp Announces First Quarter 2022 Results

Cathay General Bancorp (the “Company”, “we”, “us”, or “our”) (Nasdaq: CATY), the holding company for Cathay Bank, today announced its unaudited financial results for the quarter ended March 31, 2022. The Company reported net income of $75.0 million, or $0.99 per share, for the first quarter of 2022.

FINANCIAL PERFORMANCE

FIRST QUARTER HIGHLIGHTS

• On February 7, 2022, the Company completed its purchase of HSBC’s West Coast mass retail market consumer banking business and retail business banking business.
• Total loans increased $1.1 billion in the first quarter to $17.4 billion, including $646.1 million acquired as part of the purchase of HSBC’s West Coast mass retail market consumer banking business.
  
  
  
  “For the first quarter of 2022, total loans, excluding HSBC loans and PPP loans, increased by $470.7 million, or 11.6% annualized. The Company completed its September 2021 stock buyback program by repurchasing 704,927 shares at an average cost of $46.67 for a total of $32.9 million during the first quarter,” commented Chang M. Liu, President and Chief Executive Officer of the Company.

FIRST QUARTER INCOME STATEMENT REVIEW

Net income for the quarter ended March 31, 2022, was $75.0 million, an increase of $1.6 million, or 2.2%, compared to net income of $73.4 million for the same quarter a year ago. Diluted earnings per share for the quarter ended March 31, 2022, was $0.99 per share compared to $0.92 per share for the same quarter a year ago.

Return on average stockholders’ equity was 12.29% and return on average assets was 1.46% for the quarter ended March 31, 2022, compared to a return on average stockholders’ equity of 12.18% and a return on average assets of 1.57% for the same quarter a year ago.

Net interest income before provision for credit losses

Net interest income before provision for credit losses increased $17.4 million, or 12.3%, to $159.2 million during the first quarter of 2022, compared to $141.8 million during the same quarter a year ago. The increase was due primarily to a decrease in interest expense from deposits and an increase in interest income from loans and securities.

The net interest margin was 3.26% for the first quarter of 2022 compared to 3.20% for the first quarter of 2021 and 3.23% for the fourth quarter of 2021.

For the first quarter of 2022, the yield on average interest-earning assets was 3.53%, the cost of funds on average interest-bearing liabilities was 0.38%, and the cost of interest-bearing deposits was 0.33%. In comparison, for the first quarter of 2021, the yield on average interest-earning assets was 3.68%, the cost of funds on average interest-bearing liabilities was 0.67%, and the cost of interest-bearing deposits was 0.63%. The decrease in the yield on average interest-earning assets resulted mainly from lower lending rates. The net interest spread, defined as the difference between the yield on average interest-earning assets and the cost of funds on average interest-bearing liabilities, was 3.15% for the quarter ended March 31, 2022, compared to 3.01% for the same quarter a year ago.

(Reversal)/provision for credit losses

The Company recorded a provision for credit losses of $8.6 million in the first quarter of 2022 compared with $3.5 million in the fourth quarter of 2021. As of March 31, 2022, the allowance for loan losses increased $9.6 million to $145.8 million, or 0.84% of gross loans, compared to $136.2 million, or 0.83% of gross loans, as of December 31, 2021. The change in the allowance for loan losses during the first quarter of 2022 consisted of a $9.3 million provision for loan losses, and $290 thousand in net recoveries.

Non-interest income

Non-interest income, which includes revenues from depository service fees, letters of credit commissions, securities gains (losses), wire transfer fees, and other sources of fee income, was $20.2 million for the first quarter of 2022, an increase of $10.2 million, or 102.0%, compared to $10.0 million for the first quarter of 2021. The increase was primarily due to an $8.7 million increase in net gains from equity securities and a $1.3 million increase in swap dealer fees, when compared to the same quarter a year ago.

Non-interest expense

Non-interest expense increased $1.3 million, or 1.8%, to $72.7 million in the first quarter of 2022 compared to $71.4 million in the same quarter a year ago. The increase in non-interest expense in the first quarter of 2022 was primarily due to an increase of $2.8 million in salaries and employee benefits, an increase of $3.3 million in acquisition, integration and restructuring costs, and an increase of $2.0 million in professional expenses, offset, in part, by a decrease of $3.3 million in amortization expense of investments in low-income housing and alternative energy partnerships, and a decrease of $1.9 million in contributions to the Cathay Bank foundation when compared to the same quarter a year ago. The efficiency ratio was 40.5% in the first quarter of 2022 compared to 47.0% for the same quarter a year ago.

Income taxes

The effective tax rate for the first quarter of 2022 was 23.5% compared to 21.9% for the first quarter of 2021. The effective tax rate includes the impact of alternative energy investments and low-income housing tax credits.

ACQUISITION OF HSBC WEST COAST RETAIL BANKING BUSINESS

The Company’s subsidiary bank, Cathay Bank completed the purchase of HSBC Bank USA, National Association’s West Coast mass retail market consumer banking business and retail business banking business on February 7, 2022. As a result of the acquisition, Cathay Bank added 10 retail branches in California and additional loans with a principal balance of $646.1 million and deposits with a balance of $575.3 million associated with HSBC’s West Coast mass retail market consumer and retail business banking business.

BALANCE SHEET REVIEW

Gross loans were $17.4 billion as of March 31, 2022, an increase of $1.1 billion, or 6.7%, from $16.3 billion as of December 31, 2021. The increase was primarily due to an increase of $142.8, million, or 4.8%, in commercial loans, an increase of $652.8 million, or 15.6%, in residential mortgage loans, an increase of $258.5 million, or 3.2%, and an increase of $20.7 million, or 3.4%, in real estate construction loans, offset, in part, by a decrease of $20.6 million, or 4.9%, in home equity loans. For the first quarter of 2022, total loans, excluding PPP loans and HSBC purchased loans, increased by $470.7 million or 11.6% annualized.

The loan balances and composition as of March 31, 2022, compared to December 31, 2021 and March 31, 2021, are presented below:

Total deposits were $18.1 billion as of March 31, 2022 and remained unchanged from $18.1 billion as of December 31, 2021. Total deposits included $486.3 million of deposits acquired from HSBC. Total time deposits decreased during the quarter resulting primarily from the runoff of wholesale time deposits. During the first quarter of 2022, our deposits, excluding CD’s and HSBC deposits, increased by $98.3 million, or 3.1% annualized.

The deposit balances and composition as of March 31, 2022, compared to December 31, 2021 and March 31, 2021, are presented below:

ASSET QUALITY REVIEW

As of March 31, 2022, total non-accrual loans were $86.3 million, an increase of $20.5 million, or 31.1%, from $65.8 million as of December 31, 2021, and a decrease of $8.1 million, or 8.6%, from $94.4 million as of March 31, 2021. The increase from the fourth quarter was due primarily to a $14.0 million commercial loan placed on nonaccrual status during the first quarter of 2022.

The allowance for loan losses was $145.8 million and the allowance for off-balance sheet unfunded credit commitments was $6.4 million as of March 31, 2022. The allowances represent the amount estimated by management to be appropriate to absorb credit losses inherent in the loan portfolio, including unfunded credit commitments. The allowance for loan losses represented 0.84% of period-end gross loans, and 168.3% of non-performing loans as of March 31, 2022. The comparable ratios were 0.83% of period-end gross loans, and 202.4% of non-performing loans as of December 31, 2021.

The changes in non-performing assets and troubled debt restructurings as of March 31, 2022, compared to December 31, 2021 and March 31, 2021, are presented below:

The ratio of non-performing assets to total assets was 0.4% as of March 31, 2022, compared to 0.3% as of December 31, 2021. Total non-performing assets increased $19.0 million, or 26.5%, to $90.7 million as of March 31, 2022, compared to $71.7 million as of December 31, 2021, primarily due to an increase of $20.5 million, or 31.1%, in nonaccrual loans, offset in part, by a decrease of $1.1 million, or 79.2%, in accruing loans past due 90 days or more, and a decrease of $301 thousand in other real estate owned.

CAPITAL ADEQUACY REVIEW

As of March 31, 2022, the Company’s Tier 1 risk-based capital ratio of 12.37%, total risk-based capital ratio of 13.97%, and Tier 1 leverage capital ratio of 10.11%, calculated under the Basel III capital rules, continue to place the Company in the “well capitalized” category for regulatory purposes, which is defined as institutions with a Tier 1 risk-based capital ratio equal to or greater than 8%, a total risk-based capital ratio equal to or greater than 10%, and a Tier 1 leverage capital ratio equal to or greater than 5%. As of December 31, 2021, the Company’s Tier 1 risk-based capital ratio was 12.80%, total risk-based capital ratio was 14.41%, and Tier 1 leverage capital ratio was 10.40%.

CONFERENCE CALL

Cathay General Bancorp will host a conference call to discuss its first quarter 2022 financial results this afternoon, Monday, April 25, 2022, at 3:00 p.m., Pacific Time. Analysts and investors may dial in and participate in the question-and-answer session. To access the call, please dial 1-855-761-3186 and enter Conference ID 5080167. A presentation to accompany the earnings call will be available at www.cathaygeneralbancorp.com. A listen-only live Webcast of the call will be available at www.cathaygeneralbancorp.com and a recorded version is scheduled to be available for replay for 12 months after the call.

ABOUT CATHAY GENERAL BANCORP

Cathay General Bancorp is the holding company for Cathay Bank, a California state-chartered bank. Founded in 1962, Cathay Bank offers a wide range of financial services. Cathay Bank currently operates 47 branches in California, 10 branches in New York State, four in Washington State, two in Illinois, two in Texas, one in Maryland, Massachusetts, Nevada, and New Jersey, one in Hong Kong, and a representative office in Taipei, Beijing, and Shanghai. Cathay Bank’s website is at www.cathaybank.com. Cathay General Bancorp’s website is at www.cathaygeneralbancorp.com. Information set forth on such websites is not incorporated into this press release.

FORWARD-LOOKING STATEMENTS

Statements made in this press release, other than statements of historical fact, are forward-looking statements within the meaning of the applicable provisions of the Private Securities Litigation Reform Act of 1995 regarding management’s beliefs, projections, and assumptions concerning future results and events. These forward-looking statements may include, but are not limited to, such words as “aims,” “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “hopes,” “intends,” “may,” “plans,” “projects,” “predicts,” “potential,” “possible,” “optimistic,” “seeks,” “shall,” “should,” “will,” and variations of these words and similar expressions. Forward-looking statements are based on estimates, beliefs, projections, and assumptions of management and are not guarantees of future performance. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. Such risks and uncertainties and other factors include, but are not limited to, adverse developments or conditions related to or arising from local, regional, national and international business, market and economic conditions and events (such as the COVID-19 pandemic) and the impact they may have on us, our customers and our operations, assets and liabilities; possible additional provisions for loan losses and charge-offs; credit risks of lending activities and deterioration in asset or credit quality; extensive laws and regulations and supervision that we are subject to including potential future supervisory action by bank supervisory authorities; increased costs of compliance and other risks associated with changes in regulation including the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act; higher capital requirements from the implementation of the Basel III capital standards; compliance with the Bank Secrecy Act and other money laundering statutes and regulations; potential goodwill impairment; liquidity risk; fluctuations in interest rates; risks associated with acquisitions and the expansion of our business into new markets; inflation and deflation; real estate market conditions and the value of real estate collateral; our ability to generate anticipated returns on our investments and financings, including in tax-advantaged projects; environmental liabilities; our ability to compete with larger competitors; our ability to retain key personnel; successful management of reputational risk; natural disasters, public health crises (such as the COVID-19 pandemic) and geopolitical events; general economic or business conditions in Asia, and other regions where Cathay Bank has operations; failures, interruptions, or security breaches of our information systems; our ability to adapt our systems to technological changes; risk management processes and strategies; adverse results in legal proceedings; certain provisions in our charter and bylaws that may affect acquisition of the Company; changes in accounting standards or tax laws and regulations; market disruption and volatility; restrictions on dividends and other distributions by laws and regulations and by our regulators and our capital structure; issuance of preferred stock; successfully raising additional capital, if needed, and the resulting dilution of interests of holders of our common stock; the soundness of other financial institutions; and general competitive, economic political, and market conditions and fluctuations.

These and other factors are further described in Cathay General Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2021 (Item 1A in particular), other reports filed with the Securities and Exchange Commission (“SEC”), and other filings Cathay General Bancorp makes with the SEC from time to time. Actual results in any future period may also vary from the past results discussed in this press release. Given these risks and uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and, except as required by law, we undertake no obligation to update or review any forward-looking statement to reflect circumstances, developments or events occurring after the date on which the statement is made or to reflect the occurrence of unanticipated events.

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