Cathay General Bancorp Announces Third Quarter 2018 Results

LOS ANGELES, Oct. 17, 2018 /PRNewswire/ -- Cathay General Bancorp (the "Company", "we", "us", or "our" NASDAQ: CATY), the holding company for Cathay Bank, today announced net income of $69.8 million, or $0.85 per share, for the third quarter of 2018. 

 THIRD QUARTER HIGHLIGHTS

• Total loans increased $298.9 million, or 9.3% annualized, to $13.6 billion for the quarter.
• Diluted earnings per share increased 39.3% to $0.85 per share for the third quarter of 2018 compared to $0.61 per share for the same quarter a year ago.

"For the third quarter of 2018, our total loans increased $298.9 million or 9.3% annualized to $13.6 billion.  Also, our deposits increased $476.5 million or 15.0% annualized to $13.6 billion compared to $13.1 billion in the second quarter of 2018, mainly as a result of our summer CD promotion," commented Pin Tai, Chief Executive Officer and President of the Company.

THIRD QUARTER INCOME STATEMENT REVIEW

Net income for the quarter ended September 30, 2018, was $69.8 million, an increase of $20.1 million, or 40.4%, compared to net income of $49.7 million for the same quarter a year ago.  Diluted earnings per share for the quarter ended September 30, 2018, was $0.85 compared to $0.61 for the same quarter a year ago.  Third quarter net income included an increase of $5.4 million in amortization expense of investments in low income housing and alternative energy partnerships and a decrease of $3.1 million in acquisition and integration costs related to the FENB acquisition.

Return on average stockholders' equity was 13.19% and return on average assets was 1.72% for the quarter ended September 30, 2018, compared to a return on average stockholders' equity of 9.77% and a return on average assets of 1.29% for the same quarter a year ago.   

Net interest income before provision for credit losses

Net interest income before provision for credit losses increased $11.9 million, or 8.9%, to $145.1 million during the third quarter of 2018, compared to $133.2 million during the same quarter a year ago.  The increase was due primarily to an increase in interest income from loans and securities, offset by increases in interest expense from time deposits.

The net interest margin was 3.83% for the third quarter of 2018 compared to 3.75% for the third quarter of 2017 and 3.83% for the second quarter of 2018. 

For the third quarter of 2018, the yield on average interest-earning assets was 4.67%, the cost of funds on average interest-bearing liabilities was 1.15%, and the cost of interest-bearing deposits was 1.05%.  In comparison, for the third quarter of 2017, the yield on average interest-earning assets was 4.34%, the cost of funds on average interest-bearing liabilities was 0.81%, and the cost of interest-bearing deposits was 0.68%. The increase in the yield on average interest-earning assets resulted mainly from higher rates on loans.  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 3.52% for the quarter ended September 30, 2018, compared to 3.53% for the same quarter a year ago.

Reversal for credit losses

The Company recorded a reversal for credit losses of $1.5 million in the third quarter of 2018 compared to no reversal for credit losses in the same quarter a year ago.  The reversal for credit losses was based on a review of the appropriateness of the allowance for loan losses at September 30, 2018.  The following table summarizes the charge-offs and recoveries for the periods indicated:

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 $7.8 million for the third quarter of 2018, a decrease of $5.2 million, or 40.0%, compared to $13.0 million for the third quarter of 2017, primarily due to a $5.4 million decrease in gain from acquisition.  

Non-interest expense

Non-interest expense increased $4.8 million, or 7.8%, to $66.0 million in the third quarter of 2018 compared to $61.2 million in the same quarter a year ago.  The increase in non-interest expense in the third quarter of 2018 was primarily due to a $2.6 million increase in salaries and employee benefits expense and a $5.4 million increase in amortization expense of investments in low income housing and alternative energy partnerships offset by a $3.1 million decrease in acquisition and integration costs, when compared to the same quarter a year ago.  The efficiency ratio was 43.1% in the third quarter of 2018 compared to 41.9% for the same quarter a year ago.   

Income taxes

The effective tax rate for the third quarter of 2018 was 21.1% compared to 41.4% for the third quarter of 2017.  The effective tax rate includes the reduction of the corporate tax rate from the enactment of the Tax Cuts and Jobs Act, an alternative energy investment made in the second quarter and the impact of low income housing tax credits.  Income tax expense for 2018 was reduced by $0.8 million in benefits from the distribution of restricted stock units and exercises of stock options.

BALANCE SHEET REVIEW

Gross loans, excluding loans held for sale, were $13.6 billion at September 30, 2018, an increase of $777.4 million, or 6.0%, from $12.9 billion at December 31, 2017.  The increase was primarily due to increases of $507.1 million, or 16.6%, in residential mortgage loans, $212.8 million, or 8.6%, in commercial loans, and $97.6 million, or 1.5%, in commercial mortgage loans, which were partially offset by a decrease of $81.8 million, or 12.0%, in real estate construction loans.  The loan balances and composition at September 30, 2018, compared to December 31, 2017 and September 30, 2017, are presented below:

Total deposits were $13.6 billion at September 30, 2018, an increase of $891.2 million, or 7.0%, from $12.7 billion at December 31, 2017.  The deposit balances and composition at September 30, 2018, compared to December 31, 2017 and September 30, 2017, are presented below: 

ASSET QUALITY REVIEW

At September 30, 2018, total non-accrual loans were $42.4 million, a decrease of $6.4 million, or 13.1%, from $48.8 million at December 31, 2017, and a decrease of $23.0 million, or 35.2%, from $65.4 million at September 30, 2017.         

The allowance for loan losses was $123.5 million and the allowance for off-balance sheet unfunded credit commitments was $3.1 million at September 30, 2018, which represented the amount believed by management to be appropriate to absorb credit losses inherent in the loan portfolio, including unfunded credit commitments.  The $123.5 million allowance for loan losses at September 30, 2018, increased $178 thousand, or 0.1%, from $123.3 million at December 31, 2017.  The allowance for loan losses represented 0.90% of period-end gross loans, excluding loans held for sale, and 251.5% of non-performing loans at September 30, 2018.  The comparable ratios were 0.96% of period-end gross loans, excluding loans held for sale, and 252.7% of non-performing loans at December 31, 2017.  The changes in non-performing assets and troubled debt restructurings at September 30, 2018, compared to December 31, 2017 and September 30, 2017, are shown below:

The ratio of non-performing assets, excluding non-accrual loans held for sale, to total assets was 0.4% at September 30, 2018, compared to 0.4% at December 31, 2017.  Total non-performing assets decreased $396 thousand, or 0.7%, to $57.8 million at September 30, 2018, compared to $58.2 million at December 31, 2017, primarily due to a decrease of $6.4 million, or 13.1%, in non-accrual loans, and a decrease of $701 thousand, or 7.4%, in other real estate owned, offset by an increase of $6.7 million, or 100.0%, in accruing loans past due 90 days or more. 

CAPITAL ADEQUACY REVIEW

At September 30, 2018, the Company's Tier 1 risk-based capital ratio of 12.81%, total risk-based capital ratio of 14.60%, and Tier 1 leverage capital ratio of 11.03%, 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 common equity tier 1 capital ratio equal to or greater than 6.5%, 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%. At December 31, 2017, the Company's Tier 1 risk-based capital ratio was 12.19%, total risk-based capital ratio was 14.11%, and Tier 1 leverage capital ratio was 10.35%.

YEAR-TO-DATE REVIEW

Net income for the nine months ended September 30, 2018, was $207.2 million, an increase of $57.1 million, or 38.0%, compared to net income of $150.1 million for the same period a year ago.  Diluted earnings per share was $2.53 compared to $1.86 per share for the same period a year ago.  The net interest margin for the nine months ended September 30, 2018, was 3.80% compared to 3.63% for the same period a year ago.

Return on average stockholders' equity was 13.56% and return on average assets was 1.75% for the nine months ended September 30, 2018, compared to a return on average stockholders' equity of 10.46% and a return on average assets of 1.39% for the same period a year ago.  The efficiency ratio for the nine months ended September 30, 2018, was 43.05% compared to 43.71% for the same period a year ago.   

CONFERENCE CALL

Cathay General Bancorp will host a conference call this afternoon to discuss its third quarter 2018 financial results. The call will begin 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 7546169. 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 40 branches in California, 11 branches in New York State, three in the Chicago, Illinois area, four in Washington State, two in Texas, one in Maryland, one in Massachusetts, one in Nevada, one in New Jersey, one in Hong Kong, and a representative office in Taipei, Beijing, and Shanghai. Cathay Bank's website is found at www.cathaybank.com. Cathay General Bancorp's website is found 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 U.S. and international business and economic conditions; 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; environmental liabilities; our ability to compete with larger competitors; our ability to retain key personnel; successful management of reputational risk; natural disasters 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; our ability to consummate and realize the anticipated benefits of our acquisitions, including the recent acquisition of SinoPac Bancorp and Far East National Bank; the risk that integration of business operations following any acquisitions, including the recent acquisition of SinoPac Bancorp and Far East National Bank, will be materially delayed or will be more costly or difficult than expected; the diversion of management's attention from ongoing business operations and opportunities; the challenges of integrating and retaining key employees; 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, 2017 (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, which speak to the date of this press release. Cathay General Bancorp has no intention and undertakes no obligation to update any forward-looking statement or to publicly announce any revision of any forward-looking statement to reflect future developments or events, except as required by law.   

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