Cathay General Bancorp Announces Net Income of $18.1 Million, or $0.18 Per Share, For Fourth Quarter 2010

LOS ANGELES, Jan. 24, 2011 /PRNewswire/ -- Cathay General Bancorp (the "Company", (Nasdaq: CATY)), the holding company for Cathay Bank (the "Bank"), today announced results for the fourth quarter of 2010.

FOURTH QUARTER HIGHLIGHTS

• Improved profitability – Fourth quarter net income was $18.1 million compared to net income of $17.3 million in the third quarter of 2010 and compared to a net loss of $35.3 million in the same quarter a year ago.
• Decrease in net charge-offs – Net charge-offs decreased $45.5 million, or 66.6%, to $22.8 million in the fourth quarter of 2010 from $68.3 million in the same quarter a year ago and increased $4.8 million, or 26.6%, from $18.0 million in the third quarter of 2010. The provision for credit losses was $10.0 million for the fourth quarter of 2010 compared to $17.9 million in the third quarter of 2010 and $91.0 million in the same quarter a year ago.  
• Decrease in non-accrual loans – Total non-accrual loans decreased $41.4 million, or 14.6%, to $242.3 million at December 31, 2010, from $283.7 million at September 30, 2010.  The allowance for loan losses was 101% of non-accrual loans at December 31, 2010.

FULL YEAR HIGHLIGHTS

• Net income was $11.6 million for the year ended 2010 compared to net loss of $67.4 million for the year ended 2009.
• Net charge-offs decreased $92.9 million, or 42.4%, to $126.4 million for the year ended 2010 from $219.3 million for the year ended 2009.  The provision for credit losses was $156.9 million for the year ended 2010 compared to $307.0 million for the year ended 2009.

"We are pleased to report a profit for the full year of 2010 and are also encouraged by the 101% coverage of non-accrual loans by our allowance for loan losses at year end. With the stabilization in credit quality, we expect solid commercial and residential mortgage loan growth in the new year," commented Dunson Cheng, Chairman of the Board, Chief Executive Officer, and President of the Company.

"Our retail branches continue to experience solid growth in relationship deposits at the same time we are reducing the dependence on wholesale funding.  Our focus on core deposit generation resulted in core deposits increasing 6.6% in 2010," said Peter Wu, Executive Vice Chairman and Chief Operating Officer.

"Our net interest margin in the fourth quarter continued to improve as the rate paid on deposits continued to decline.  At the same time, we have also prepaid $314 million of fixed rate borrowings and expect to make additional prepayments during 2011 as part of our plan to further improve our net interest margin.  We are hopeful that our profitability will continue to improve to our historical levels over the course of time," concluded Dunson Cheng.

INCOME STATEMENT REVIEW

Net income attributable to common stockholders for the quarter ended December 31, 2010, was $14.0 million, an increase of $53.4 million, or 136%, compared to net loss attributable to common stockholders of $39.4 million for the same quarter a year ago.  Diluted earnings per share attributable to common stockholders for the quarter ended December 31, 2010, was $0.18 compared to a loss per share of $0.64 for the same quarter a year ago due primarily to decreases in the provision for credit losses, lower other real estate owned expenses, and increases in net securities gains which were partially offset by prepayment penalties on the repayment of Federal Home Loan Bank ("FHLB") advances.

Return on average stockholders' equity was 4.99% and return on average assets was 0.65% for the quarter ended December 31, 2010, compared to a return on average stockholders' equity of negative 10.45% and a return on average assets of negative 1.19% for the same quarter of 2009.

Net interest income before provision for credit losses

Net interest income before provision for credit losses increased to $75.2 million during the fourth quarter of 2010, an increase of $1.4 million, or 2.0%, compared to $73.8 million during the same quarter a year ago.  The increase was due primarily to the decrease in interest expense paid on time certificates of deposit and the prepayment of FHLB advances.

The net interest margin, on a fully taxable-equivalent basis, was 2.88% for the fourth quarter of 2010, an increase of 14 basis points from 2.74% for the third quarter of 2010 and an increase of 23 basis points from 2.65% for the fourth quarter of 2009.  The decrease in the rate on interest bearing deposits and the prepayment of FHLB advances contributed to the increase in the net interest margin from the corresponding quarter of the prior year.    

For the fourth quarter of 2010, the yield on average interest-earning assets was 4.52%, on a fully taxable-equivalent basis, the cost of funds on average interest-bearing liabilities equaled 1.99%, and the cost of interest bearing deposits was 1.16%.  In comparison, for the fourth quarter of 2009, the yield on average interest-earning assets was 4.66%, on a fully taxable-equivalent basis, cost of funds on average interest-bearing liabilities equaled 2.35%, and the cost of interest bearing deposits was 1.63%. The interest spread, defined as the difference between the yield on average interest-earning assets and the cost of funds on average interest-bearing liabilities, increased 22 basis points to 2.53% for the fourth  quarter ended December 31, 2010, from 2.31% for the same quarter a year ago, primarily due to the reasons discussed above.

The cost of deposits, including demand deposits, decreased 7 basis points to 1.00% in the fourth quarter of 2010 compared to 1.07% in the third quarter of 2010 and decreased 45 basis points from 1.45% in the fourth quarter of 2009 due primarily to the decrease in the rates paid on certificates of deposit upon renewal and on money market accounts as a result of the decline in market interest rates.

Provision for credit losses

The provision for credit losses was $10.0 million for the fourth quarter of 2010 compared to $17.9 million for the third quarter of 2010 and compared to $91.0 million in the fourth quarter of 2009.  The provision for credit losses was $156.9 million for the year ended 2010 compared to $307.0 million for the year ended 2009.  The provision for credit losses was based on the review of the adequacy of the allowance for loan losses at December 31, 2010. The provision for credit losses represents the charge against current earnings that is determined by management, through a credit review process, as the amount needed to establish an allowance that management believes to be sufficient to absorb credit losses inherent in the Company's loan portfolio, including unfunded commitments.  The following table summarizes the charge-offs and recoveries for the periods as indicated:

Non-interest income

Non-interest income, which includes revenues from depository service fees, letters of credit commissions, securities gains (losses), gains (losses) on loan sales, wire transfer fees, and other sources of fee income, was $16.2 million for the fourth quarter of 2010, an increase of $7.9 million compared to  non-interest income of $8.3 million for the fourth quarter of 2009. The increase in non-interest income in the fourth quarter of 2010 was primarily due to an increase in securities gains of $6.3 million, a decrease of $1.1 million in loss from interest rate swaps, and an increase of $321,000 in wealth management commissions compared to the fourth quarter of 2009.    

Non-interest expense

Non-interest expense increased $3.6 million, or 6.9%, to $56.3 million in the fourth quarter of 2010 compared to $52.7 million in the same quarter a year ago.  The efficiency ratio was 61.65% in the fourth quarter of 2010 compared to 64.25% for the same period a year ago due primarily to lower OREO expenses, lower occupancy expenses, and higher securities gains offset by $13.4 million in prepayment penalties  from prepayment of FHLB advances recorded in the fourth quarter of 2010.  

OREO expense decreased $5.3 million from $16.0 million in the fourth quarter of 2009 to $10.7 million in the fourth quarter of 2010 primarily due to increases in gains on OREO sales and decreases in OREO expenses.  Professional services expenses decreased $2.9 million primarily due to decreases in consulting expenses.  Occupancy expense decreased $2.2 million primarily due to a correction in the depreciation life for certain components of our administrative office building at 9650 Flair Drive, El Monte which opened in January 2009.  Offsetting the above decreases was a $13.4 million prepayment penalty from prepaying $314.4 million of FHLB advances in the fourth quarter of 2010.

Income taxes

The effective tax rate for the fourth quarter of 2010 was 27.3% compared to a benefit of 42.9% in the fourth quarter of 2009.  The effective tax rate includes the impact of the utilization of low income housing tax credits.    

BALANCE SHEET REVIEW

Total assets were $10.8 billion at December 31, 2010, a decrease of $786.2 million, or 6.8%, from $11.6 billion at December 31, 2009, primarily due to the decrease of $706.4 million, or 19.9%, in securities.

Gross loans, excluding loans held for sale, were $6.87 billion at December 31, 2010, a decrease of $30.5 million, or 0.4%, from $6.90 billion at December 31, 2009, primarily due to a decrease of $216.1 million, or 34.5%, in construction loans, and a decrease of $125.1 million, or 3.1%, in commercial real estate loans offset by an increase of $133.3 million, or 10.2%, in commercial loans and an increase of $170.2 million, or 24.9% in residential mortgage loans.  The changes in loan composition from December 31, 2009, are presented below:

Total deposits were $7.0 billion at December 31, 2010, a decrease of $513.2 million, or 6.8%, from $7.5 billion at December 31, 2009, primarily due to a $435.1 million, or 51.0%, decrease in brokered deposits.  The changes in deposit composition from December 31, 2009, are presented below:

ASSET QUALITY REVIEW

At December 31, 2010, total non-accrual portfolio loans, excluding non-accrual loans held for sale, were $242.3 million, a decrease of $38.3 million, or 13.7%, from $280.6 million at December 31, 2009, and a decrease of $41.4 million, or 14.6%, from $283.7 million at September 30, 2010.  A summary of non-accrual loans, excluding non-accrual loans held for sale, and the related allowance and charge-offs as of December 31, 2010, is shown below:

The allowance for loan losses was $245.2 million and the allowance for off-balance sheet unfunded credit commitments was $2.3 million at December 31, 2010, and represented the amount that the Company believes to be sufficient to absorb credit losses inherent in the Company's loan portfolio including unfunded commitments.  The allowance for credit losses, the sum of allowance for loan losses and for off-balance sheet unfunded credit commitments, was $247.6 million at December 31, 2010, compared to $217.1 million at December 31, 2009, an increase of $30.5 million, or 14.0%.  The allowance for credit losses represented 3.60% of period-end gross loans, excluding loans held for sale, and 100.1% of non-performing portfolio loans at December 31, 2010.  The comparable ratios were 3.15% of period-end gross loans and 77.4% of non-performing loans at December 31, 2009.  Results of the changes from September 30, 2010, and December 31, 2009, to December 31, 2010, of the Company's non-performing assets and troubled debt restructurings are highlighted below:

At December 31, 2010, total residential construction loans were $151.3 million of which $10.6 million were in San Bernardino and Riverside counties in California and none were in the Central Valley of California. At December 31, 2010, total land loans were $123.2 million, of which $19.9 million were in San Bernardino, Riverside, and Imperial counties in California, $758,000 were in the Central Valley of California, and $2.9 million were in the state of Nevada.  

Troubled debt restructurings on non-accrual status totaled $28.1 million at December 31, 2010. Troubled debt restructurings on accrual status totaled $136.8 million at December 31, 2010.  These loans are classified as troubled debt restructurings as a result of granting a concession to borrowers.  The concessions may be granted in various forms, including reduction in the stated interest rate, reduction in the loan balance or accrued interest, or extension of the maturity date.  Although these loan modifications are considered troubled debt restructurings under Accounting Standard Codification 310-40, formerly Statement of Financial Accounting Standards 15, these loans have been performing under the restructured terms and have demonstrated sustained performance under the modified terms.  The sustained performance considered by management includes the periods prior to the modification if the prior performance met or exceeded the modified terms as well as cash paid to set up interest reserves.

Non-performing assets, excluding non-accrual loans held for sale, to total assets was 3.0% at December 31, 2010, compared to 3.0% at December 31, 2009, and compared to 3.2% at September 30, 2010.  Total non-performing portfolio assets decreased $26.6 million, or 7.6%, to $325.1 million at December 31, 2010, compared to $351.7 million at December 31, 2009, primarily due to a $38.3 million decrease in non-accrual loans offset by a $6.7 million increase in OREO and by a $5.0 million increase in accruing loans past due 90 days or more.  Total non-performing portfolio assets decreased $39.4 million, or 10.8%, to $325.1 million at December 31, 2010, compared to $364.5 million at September 30, 2010, primarily due to a $41.4 million decrease in non-accrual loans and a $2.2 million decrease in OREO offset by a $4.2 million increase in accruing loans past due 90 days or more.

CAPITAL ADEQUACY REVIEW

At December 31, 2010, the Company's Tier 1 risk-based capital ratio of 15.37%, total risk-based capital ratio of 17.27%, and Tier 1 leverage capital ratio of 11.44%, 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 6%, 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, 2009, the Company's Tier 1 risk-based capital ratio was 13.55%, total risk-based capital ratio was 15.43%, and Tier 1 leverage capital ratio was 9.64%.

YEAR-TO-DATE REVIEW

Net loss attributable to common stockholders was $4.8 million, a decrease of $78.9 million, or 94.2%, compared to net loss attributable to common stockholders of $83.7 million for the same period a year ago due primarily to decreases in the provision for loan losses, higher net interest income, lower OREO expenses partially offset by decreases in security gains and by prepayment penalties from prepayment of FHLB advances.  Loss per share was $0.06 for the year ended December 31, 2010, compared to a $1.59 loss per share for the same period a year ago.  The net interest margin for the year ended December 31, 2010, increased 15 basis points to 2.77% compared to 2.62% for the same period a year ago.

Return on average stockholders' equity was 0.81% and return on average assets was 0.10% for the year ended December 31, 2010, compared to a negative return on average stockholders' equity of 5.20% and a negative return on average assets of 0.58% for the year ended December 31, 2009.  The efficiency ratio for the year ended December 31, 2010, was 53.22% compared to 50.65% for the year ended December 31, 2009.

CONFERENCE CALL

Cathay General Bancorp will host a conference call this afternoon to discuss its fourth quarter 2010 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 1-866-800-8649 and enter Participant Passcode 66175528. 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 31 branches in California, eight branches in New York State, one in Massachusetts, two in Texas, three in Washington State, three in the Chicago, Illinois area, one in New Jersey, one in Hong Kong, and a representative office in Shanghai and in Taipei. Cathay Bank's website is found at http://www.cathaybank.com. Cathay General Bancorp's website is found at http://www.cathaygeneralbancorp.com.  Information set forth on such websites is not incorporated into this press release.

FORWARD-LOOKING STATEMENTS AND OTHER NOTICES

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," "could," "estimates," "expects," "hopes," "intends," "may," "plans," "projects," "seeks," "shall," "should," "will," "predicts," "potential," "continue," and variations of these words and similar expressions. Forward-looking statements are based on estimates, beliefs, projections, and assumptions 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: significant volatility and deterioration in the credit and financial markets; adverse changes and disruption in general economic conditions and the capital markets; the effects of the Emergency Economic Stabilization Act, the American Recovery and Reinvestment Act, and the Troubled Asset Relief Program (TARP) and any changes or amendments thereto; difficult conditions in the U.S. and international financial markets; credit loss and deterioration in asset or credit quality; the availability of capital; the impact of any goodwill impairment that may be determined; acquisitions of other banks, if any; fluctuations in interest rates; liquidity risk; inflation and deflation; real estate market conditions; the soundness of other financial institutions; expansion into new market areas; earthquakes, wildfires, or other natural disasters; our ability to compete with competitors and competitive pressures; our ability to retain key personnel; current and potential future supervisory action by bank supervisory authorities; changes in laws, regulations, and accounting rules, or their interpretations; legislative, judicial, or regulatory actions and developments including the potential impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act; and general economic or business conditions in California and other regions where Cathay Bank has operations, including, but not limited to, adverse changes in economic conditions.

These and other factors are further described in Cathay General Bancorp's Annual Report on Form 10-K for the year ended December 31, 2009 (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.

Cathay General Bancorp's filings with the SEC are available at the website maintained by the SEC at http://www.sec.gov, or by request directed to Cathay General Bancorp, 9650 Flair Drive, El Monte, California 91731, Attention: Investor Relations (626) 279-3286.

SOURCE Cathay General Bancorp