Cathay General Bancorp Announces Net Income of $24.3 Million, or $0.26 Per Share, For Second Quarter 2011

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

FINANCIAL PERFORMANCE

SECOND QUARTER HIGHLIGHTS

• Improved profitability – Second quarter net income was $24.3 million compared to net income of $22.1 million in the first quarter of 2011 and net income of $1.9 million in the same quarter a year ago.
• Strong growth in commercial loans – Commercial loans increased $105.5 million during the second quarter of 2011 and $196.0 million during the first half of 2011.
• Increase in net interest margin – The net interest margin increased to 3.19% for the second quarter of 2011, from 3.06% for the first quarter of 2011, and from 2.73% for the second quarter a year ago.

"We are pleased to see continuing improvement in profitability compared to prior quarters.   Commercial loan growth of 27% annualized was especially strong this quarter as we continued to decrease our exposure to commercial real estate loans," commented Dunson Cheng, Chairman of the Board, Chief Executive Officer, and President of the Company.

"Our net interest margin increased to 3.19% during the second quarter due mainly to a decrease in wholesale borrowings. We expect continued steady improvement in the net interest margin during the second half as well," 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 completed sales of $41 million of nonaccrual loans during the second quarter. We are hopeful that our continued growth in commercial and residential mortgage loans will increase our profitability back 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 June 30, 2011, was $20.2 million, an increase of $22.4 million compared to a net loss available to common stockholders of $2.2 million for the same quarter a year ago.  Diluted earnings per share available to common stockholders for the quarter ended June 30, 2011, was $0.26 compared to a loss per share of $0.03 for the same quarter a year ago due primarily to decreases in the provision for credit losses, decreases in net losses from interest rate swaps, decreases in FDIC assessments, and increases in net interest income which were partially offset by prepayment penalties on the repayment of Federal Home Loan Bank ("FHLB") advances and prepayment penalties on the prepayment of securities sold under an agreement to repurchase and increases in incentive compensation accruals.

Return on average stockholders' equity was 6.64% and return on average assets was 0.91% for the quarter ended June 30, 2011, compared to a return on average stockholders' equity of 0.54% and a return on average assets of 0.07% for the same quarter a year ago.

Net interest income before provision for credit losses

Net interest income before provision for credit losses increased $3.7 million, or 5.0% to $78.3 million during the second quarter of 2011 compared to $74.6 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 and securities sold under agreement to repurchase.

The net interest margin, on a fully taxable-equivalent basis, was 3.19% for the second quarter of 2011, an increase of 13 basis points from 3.06% for the first quarter of 2011 and an increase of 46 basis points from 2.73% for the second quarter of 2010.  The decrease in the rate on interest bearing deposits and the prepayment of FHLB advances and decreases in securities sold under agreement to repurchase contributed to the increase in the net interest margin from the same quarter a year ago.

For the second quarter of 2011, the yield on average interest-earning assets was 4.65%, on a fully taxable-equivalent basis, the cost of funds on average interest-bearing liabilities equaled 1.77%, and the cost of interest bearing deposits was 1.05%.  In comparison, for the second quarter of 2010, the yield on average interest-earning assets was 4.55%, on a fully taxable-equivalent basis, cost of funds on average interest-bearing liabilities equaled 2.14%, and the cost of interest bearing deposits was 1.33%. 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 47 basis points to 2.88% for the second quarter ended June 30, 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 4 basis points to 0.91% in the second quarter of 2011 compared to 0.95% in the first quarter of 2011 and decreased 27 basis points from 1.18% in the second quarter of 2010 due primarily to the decrease in the rates paid on certificates of deposit upon renewal and on money market accounts.

Provision for credit losses

The provision for credit losses was $10.0 million for the second quarter of 2011 compared to $6.0 million for the first quarter of 2011 and compared to $45.0 million in the second quarter of 2010.  The provision for credit losses was based on the review of the adequacy of the allowance for loan losses at June 30, 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 $12.5 million for the second quarter of 2011, an increase of $5.1 million, or 68.0%, compared to non-interest income of $7.4 million for the second quarter of 2010. The increase in non-interest income in the second quarter of 2011 was primarily due to a decrease of $2.5 million in loss from interest rate swaps, increases of $1.1 million from gains on sale of loans, $662,000 in commissions from foreign exchange transactions, $575,000 from wealth management commissions, and $327,000 in letters of credit commissions compared to the second quarter of 2010.

Non-interest expense

Non-interest expense increased $5.1 million, or 12.6%, to $45.4 million in the second quarter of 2011 compared to $40.3 million in the same quarter a year ago.  The efficiency ratio was 50.03% in the second quarter of 2011 compared to 49.16% for the same quarter a year ago due primarily to increases in salaries and incentive compensation expense and higher prepayment penalties from prepayment of FHLB advance and prepayment of repurchase agreements offset by decreased losses from interest rate swaps.

Prepayment penalties from prepaying FHLB advances and a repurchase agreement were $5.2 million in the second quarter of 2011 compared to none in the same quarter a year ago.  The Company prepaid a repurchase agreement of $50.0 million and a FHLB advance of $100.0 million during the second quarter of 2011.  Salaries and employee benefits increased $2.9 million to $17.7 million in the second quarter of 2011 compared to $14.8 million in the same quarter a year ago primarily due to increases in incentive compensation and the hiring of new employees.  OREO expense increased $664,000 to $2.3 million in the second quarter of 2011 compared to $1.6 million in the second quarter of 2010 primarily due to higher gains on transfer to OREO in 2010.  Offsetting the above increases was a decrease of $2.9 million in FDIC assessments primarily due to the change in the FDIC insurance assessment methodology that became effective on April 1, 2011.

Income taxes

The effective tax rate for the second quarter of 2011 was 31.0% compared to a benefit in the second quarter of 2010.  The effective tax rate includes the impact of the utilization of low income housing tax credits and recognition of other tax credits during the second quarter of 2011.  The effective tax rate for the remainder of 2011 is expected to be 34.1% based on the forecasted net income for the full year.

BALANCE SHEET REVIEW

Total assets were $10.5 billion at June 30, 2011, a decrease of $266.5 million, or 2.5%, from $10.8 billion at December 31, 2010, primarily due to the decrease of $387.4 million in investment securities offset by the increase of $145.0 million in securities purchased under agreements to resell.

Gross loans, excluding loans held for sale, were $6.92 billion at June 30, 2011, an increase of $53.5 million, or 0.8%, from $6.87 billion at December 31, 2010, primarily due to an increase of $196.0 million, or 13.6%, in commercial loans and an increase of $88.8 million, or 10.4%, in residential mortgage loans offset by a decrease of $101.0 million, or 24.6%, in construction loans, and a decrease of $135.5 million, or 3.4%, in commercial real estate loans.  The changes in loan composition from December 31, 2010, are presented below:

Total deposits were $7.1 billion at June 30, 2011, an increase of $117.3 million, or 1.7%, from $7.0 billion at December 31, 2010, primarily due to a $223.4 million, or 7.0%, increase in time deposits of $100,000 or more, a $64.5 million, or 6.9%, increase in non-interest-bearing demand deposits offset by a $40.3 million, or 4.1%, decrease in money market deposits and a $126.1 million, or 11.7%, decrease in time deposits under $100,000.  The changes in deposit composition from December 31, 2010, are presented below:

ASSET QUALITY REVIEW

At June 30, 2011, total non-accrual portfolio loans, excluding non-accrual loans held for sale, were $256.4 million, an increase of $14.1 million, or 5.8%, from $242.3 million at December 31, 2010, and a decrease of $57.0 million, or 18.2%, from $313.4 million at June 30, 2010.  A summary of non-accrual loans, excluding non-accrual loans held for sale, and the related allowance and charge-offs as of June 30, 2011, is shown below:

The allowance for loan losses was $229.9 million and the allowance for off-balance sheet unfunded credit commitments was $1.5 million at June 30, 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 $231.4 million at June 30, 2011, compared to $247.6 million at December 31, 2010, a decrease of $16.2 million, or 6.5%.  The allowance for credit losses represented 3.34% of period-end gross loans, excluding loans held for sale, and 90.3% of non-performing portfolio loans at June 30, 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 June 30, 2010, to June 30, 2011, of the Company's non-performing assets and troubled debt restructurings are highlighted below:

At June 30, 2011, total residential construction loans were $88.8 million of which $2.0 million were in Riverside county in California. At June 30, 2011, total land loans were $110.2 million, of which $17.5 million were in San Bernardino, Riverside, and Imperial counties in California, $714,000 were in the Central Valley of California, and $1.7 million were in the state of Nevada.

Troubled debt restructurings on non-accrual status totaled $38.2 million at June 30, 2011. Troubled debt restructurings on accrual status totaled $116.3 million at June 30, 2011.  These loans are classified as troubled debt restructurings as a result of granting a concession to borrowers who are experiencing financial difficulties.  The concessions may be granted in various forms, including change in the stated interest rate, reduction in the loan balance or accrued interest, or extension of the maturity date that causes a significant delay in payment.  Although these loan modifications are considered troubled debt restructurings under Accounting Standard Codification 310-40 and Accounting Standard Update 2011-02, 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 3.1% at June 30, 2011, compared to 3.0% at December 31, 2010, and compared to 3.6% at June 30, 2010.  Total non-performing portfolio assets increased $5.6 million, or 1.7%, to $330.7 million at June 30, 2011, compared to $325.1 million at December 31, 2010, primarily due to a $14.1 million increase in non-accrual loans offset by a $3.5 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 $84.6 million, or 20.4%, to $330.7 million at June 30, 2011, compared to $415.3 million at June 30, 2010, primarily due to a $57.0 million decrease in non-accrual loans, a $26.8 million decrease in OREO, and a $0.9 million decrease in accruing loans past due 90 days or more.

CAPITAL ADEQUACY REVIEW

At June 30, 2011, the Company's Tier 1 risk-based capital ratio of 15.75%, total risk-based capital ratio of 17.67%, and Tier 1 leverage capital ratio of 12.19%, 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%.

YEAR-TO-DATE REVIEW

Net income attributable to common stockholders was $38.2 million, an increase of $70.2 million, or 219%, compared to net loss attributable to common stockholders of $32.0 million for the same period a year ago due primarily to decreases in the provision for loan losses, decreases in net losses from interest rate swaps, decreases in FDIC assessments and increases in net interest income which were partially offset by prepayment penalties on the repayment of FHLB advances and the prepayment of securities sold under an agreement to repurchase and increases in salaries and incentive compensation expense.  Diluted earnings per share was $0.49 compared to $0.42 loss per share for the same period a year ago.  The net interest margin for the six months ended June 30, 2011, increased 40 basis points to 3.13% compared to 2.73% for the same period a year ago.

Return on average stockholders' equity was 6.42% and return on average assets was 0.87% for the six months ended June 30, 2011, compared to a negative return on average stockholders' equity of 3.42% and a negative return on average assets of 0.41% for the same period of 2010.  The efficiency ratio for the six months ended June 30, 2011 was 52.21% compared to 52.30% for the same period a year ago.

CONFERENCE CALL

Cathay General Bancorp will host a conference call this afternoon to discuss its second 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 1-800-901-5213 and enter Participant Passcode 60095560. 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 regulations 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 adverse financial market events of recent years, 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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