Cathay General Bancorp Announces Net Income of $22.1 Million, or $0.23 Per Share, For First Quarter 2011

LOS ANGELES, April 20, 2011 /PRNewswire/ -- Cathay General Bancorp (the "Company", NASDAQ: CATY), the holding company for Cathay Bank (the "Bank"), today announced results for the first quarter of 2011.

FINANCIAL PERFORMANCE

FIRST QUARTER HIGHLIGHTS

• Improved profitability – First quarter net income was $22.1 million compared to net income of $18.1 million in the fourth quarter of 2010 and a net loss of $25.7 million in the same quarter a year ago.
• Decrease in net charge-offs – Net charge-offs decreased $52.7 million, or 83.6%, to $10.4 million in the first quarter of 2011 from $63.1 million in the same quarter a year ago and decreased $12.4 million, or 54.5%, from $22.8 million in the fourth quarter of 2010. The provision for credit losses was $6.0 million for the first quarter of 2011 compared to $10.0 million in the fourth quarter of 2010 and $84.0 million in the same quarter a year ago.
• Increase in net interest margin – The net interest margin increased to 3.06% for the first quarter of 2011, from 2.88% for the fourth quarter of 2010, and from 2.72% for the first quarter a year ago.

"We are pleased to see continuing improvement in profitability compared to prior quarters.  Our commercial and residential mortgage loans continue to grow, while construction loans dropped another 16% in the first quarter of 2011," 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 which contributed to an improvement in our net interest margin to 3.06%. Our focus on core deposit generation resulted in core deposits increasing 12.4% on an annualized basis in the first quarter of 2011," said Peter Wu, Executive Vice Chairman and Chief Operating Officer.

"We continue to make steady progress in reducing the overall level of credit risk in our loan portfolio and in improving our net interest margin by prepaying shorter maturity wholesale borrowings on a selective basis. 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 available to common stockholders for the quarter ended March 31, 2011, was $18.0 million, an increase of $47.8 million, or 160%, compared to a net loss available to common stockholders of $29.8 million for the same quarter a year ago.  Diluted earnings per share available to common stockholders for the quarter ended March 31, 2011, was $0.23 compared to a loss per share of $0.41 for the same quarter a year ago due primarily to decreases in the provision for credit losses, lower other real estate owned expenses, decreases in net losses from interest rate swaps and increases in net securities gains which were partially offset by prepayment penalties on the repayment of Federal Home Loan Bank ("FHLB") advances and increases in salaries and employee benefits.

Return on average stockholders' equity was 6.20% and return on average assets was 0.83% for the quarter ended March 31, 2011, compared to a return on average stockholders' equity of negative 7.51% and a return on average assets of negative 0.88% for the same quarter a year ago.

Net interest income before provision for credit losses

Net interest income before provision for credit losses increased $384,000, or 0.5% to $75.1 million during the first quarter of 2011 compared to $74.7 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 3.06% for the first quarter of 2011, an increase of 18 basis points from 2.88% for the fourth quarter of 2010 and an increase of 34 basis points from 2.72% for the first quarter of 2010.  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 same quarter a year ago.

For the first quarter of 2011, the yield on average interest-earning assets was 4.63%, on a fully taxable-equivalent basis, the cost of funds on average interest-bearing liabilities equaled 1.90%, and the cost of interest bearing deposits was 1.10%.  In comparison, for the first quarter of 2010, the yield on average interest-earning assets was 4.61%, on a fully taxable-equivalent basis, cost of funds on average interest-bearing liabilities equaled 2.20%, and the cost of interest bearing deposits was 1.44%. 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 32 basis points to 2.73% for the first quarter ended March 31, 2011, from 2.41% for the same quarter a year ago, primarily due to the reasons discussed above.

The cost of deposits, including demand deposits, decreased 5 basis points to 0.95% in the first quarter of 2011 compared to 1.00% in the fourth quarter of 2010 and decreased 33 basis points from 1.28% in the first quarter of 2010 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 $6.0 million for the first quarter of 2011 compared to $10.0 million for the fourth quarter of 2010 and compared to $84.0 million in the first quarter of 2010.  The provision for credit losses was based on the review of the adequacy of the allowance for loan losses at March 31, 2011. 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 $12.6 million for the first quarter of 2011, an increase of $7.8 million, or 164%, compared to non-interest income of $4.8 million for the first quarter of 2010. The increase in non-interest income in the first quarter of 2011 was primarily due to an increase in securities gains of $2.8 million, a decrease of $3.9 million in loss from interest rate swaps, an increase of $336,000 in commissions from foreign exchange and currency transactions, and an increase of $318,000 in letters of credit commissions compared to the first quarter of 2010.

Non-interest expense

Non-interest expense increased $3.6 million, or 8.2%, to $47.8 million in the first quarter of 2011 compared to $44.2 million in the same quarter a year ago.  The efficiency ratio was 54.47% in the first quarter of 2011 compared to 55.55% for the same quarter a year ago due primarily to lower OREO expenses, decreased losses from interest rate swaps and higher securities gains offset by higher prepayment penalties from prepayment of FHLB advances and increases in salaries and employee benefits in the first quarter of 2011.

Prepayment penalties from prepaying FHLB advances increased $7.9 million to $8.8 million in the first quarter of 2011 from $909,000 in the same quarter a year ago.  The Company prepaid $200.0 million of FHLB advances with a weighted average rate of 4.29% in the first quarter of 2011 compared to $65.0 million with a rate of 3.49% in the same quarter a year ago.  Salaries and employee benefits increased $3.0 million to $18.2 million in the first quarter of 2011 compared to $15.2 million in the same quarter a year ago primarily due to a $2.2 million increase in bonus expenses and the hiring of new employees.

Offsetting the above increases were a decrease of $3.0 million in OREO expense, a $2.3 million decrease in write-down on loans held for sale, a $910,000 decrease in professional services expense and an $827,000 decrease in FDIC assessments.  OREO expense was $221,000 in the first quarter of 2011 compared $3.3 million in the first quarter of 2010 primarily due to increases in gains on sale of OREO and decreases in provision for OREO losses.  Professional services expense decreased primarily due to decreases in consulting and collection expenses.  Decreases in the level of deposits between the first quarter of 2010 and the first quarter of 2011 as a result of the planned runoff of brokered deposits caused the decreases in FDIC assessment expense.

Income taxes

The effective tax rate for the first quarter of 2011 was 34.7% compared to a benefit of 47.3% in the first quarter of 2010.  The effective tax rate includes the impact of the utilization of low income housing tax credits and for the first quarter of 2011 was based on the forecasted net income for the full year.

BALANCE SHEET REVIEW

Total assets were $10.6 billion at March 31, 2011, a decrease of $187.6 million, or 1.7%, from $10.8 billion at December 31, 2010, primarily due to the decrease of $110.0 million in securities purchased under agreements to resell and the decrease of $74.6 million, or 2.6%, in investment securities.

Gross loans, excluding loans held for sale, were $6.89 billion at March 31, 2011, an increase of $25.7 million, or 0.4%, from $6.87 billion at December 31, 2010, primarily due to an increase of $90.4 million, or 6.3%, in commercial loans and an increase of $44.7 million, or 5.2% in residential mortgage loans offset by a decrease of $67.5 million, or 16.5%, in construction loans, and a decrease of $46.2 million, or 1.2%, in commercial real estate loans.  The changes in loan composition from December 31, 2010, are presented below:

Total deposits were $7.1 billion at March 31, 2011, an increase of $87.5 million, or 1.3%, from $7.0 billion at December 31, 2010, primarily due to a $87.9 million, or 2.8%, increase in time deposits of $100,000 or more, a $30.4 million, or 3.3%, increase in non-interest-bearing demand deposits, a $29.7 million, or 3.0%, increase in money market deposits offset by a $63.3 million, or 5.9%, decrease in time deposits under $100,000.  The changes in deposit composition from December 31, 2010, are presented below:

ASSET QUALITY REVIEW

At March 31, 2011, total non-accrual portfolio loans, excluding non-accrual loans held for sale, were $274.5 million, an increase of $32.2 million, or 13.3%, from $242.3 million at December 31, 2010, and a decrease of $20.9 million, or 7.1%, from $295.4 million at March 31, 2010.  A summary of non-accrual loans, excluding non-accrual loans held for sale, and the related allowance and charge-offs as of March 31, 2011, is shown below:

The allowance for loan losses was $241.0 million and the allowance for off-balance sheet unfunded credit commitments was $2.2 million at March 31, 2011, 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 $243.2 million at March 31, 2011, compared to $247.6 million at December 31, 2010, a decrease of $4.4 million, or 1.8%.  The allowance for credit losses represented 3.53% of period-end gross loans, excluding loans held for sale, and 88.6% of non-performing portfolio loans at March 31, 2011.  The comparable ratios were 3.60% of period-end gross loans and 100.1% of non-performing loans at December 31, 2010.  Results of the changes from December 31, 2010, and March 31, 2010, to March 31, 2011, of the Company's non-performing assets and troubled debt restructurings are highlighted below:

At March 31, 2011, total residential construction loans were $100.3 million of which $2.0 million were in Riverside county in California. At March 31, 2011, total land loans were $126.2 million, of which $18.4 million were in San Bernardino, Riverside, and Imperial counties in California, $754,000 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 $43.1 million at March 31, 2011. Troubled debt restructurings on accrual status totaled $135.3 million at March 31, 2011.  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 3.3% at March 31, 2011, compared to 3.0% at December 31, 2010, and compared to 3.5% at March 31, 2010.  Total non-performing portfolio assets increased $25.3 million, or 7.8%, to $350.4 million at March 31, 2011, compared to $325.1 million at December 31, 2010, primarily due to a $32.2 million increase in non-accrual loans offset by a $2.2 million decrease in OREO and by a $5.0 million decrease in accruing loans past due 90 days or more.  Total non-performing portfolio assets decreased $62.7 million, or 15.2%, to $350.4 million at March 31, 2011, compared to $413.1 million at March 31, 2010, primarily due to a $20.9 million decrease in non-accrual loans, a $36.3 million decrease in OREO, and a $5.9 million decrease in accruing loans past due 90 days or more.

As of April 19, 2011, the Company has sold or entered into agreements to sell thirteen OREOs with net book values as of March 31, 2011, totaling $31.6 million.

CAPITAL ADEQUACY REVIEW

At March 31, 2011, the Company's Tier 1 risk-based capital ratio of 15.36%, total risk-based capital ratio of 17.28%, and Tier 1 leverage capital ratio of 11.79%, 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, 2010, the Company's Tier 1 risk-based capital ratio was 15.37%, total risk-based capital ratio was 17.27%, and Tier 1 leverage capital ratio was 11.44%.

CONFERENCE CALL

Cathay General Bancorp will host a conference call this afternoon to discuss its first quarter 2011 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 1-800-510-0146 and enter Participant Passcode 79400440. 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 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 economic and market conditions; market disruption and volatility; current and potential future supervisory action by bank supervisory authorities and changes in laws and regulations, or their interpretations; restrictions on dividends and other distributions by laws and regulations and by our regulators and our capital structure; credit losses and deterioration in asset or credit quality; availability of capital; potential goodwill impairment; liquidity risk; fluctuations in interest rates; past and future acquisitions; inflation and deflation; success of expansion, if any, of our business in new markets; the soundness of other financial institutions; real estate market conditions; our ability to compete with competitors; increased costs of compliance and other risks associated with changes in regulation and the current regulatory environment, including the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the potential for substantial changes in the legal, regulatory, and enforcement framework and oversight applicable to financial institutions in reaction to recent adverse financial market events, including changes pursuant to the Dodd-Frank Act; the short term and long term impact of the Basel II and the proposed Basel III capital standards of the Basel Committee; our ability to retain key personnel; successful management of reputational risk; natural disasters and geopolitical events; general economic or business conditions in California, Asia, and other regions where Cathay Bank has operations; restrictions on compensation paid to our executives as a result of our participation in the TARP Capital Purchase Program; our ability to adapt our information technology systems; and changes in accounting standards or tax laws and regulations.

These and other factors are further described in Cathay General Bancorp's Annual Report on Form 10-K for the year ended December 31, 2010 (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

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