Cathay General Bancorp Announces Net Income of $30.4 Million, or $0.33 Per Share, For the Third Quarter 2012

LOS ANGELES, Oct. 16, 2012 /PRNewswire/ -- Cathay General Bancorp (the "Company,"NASDAQ: CATY), the holding company for Cathay Bank, today announced results for the third quarter of 2012.

FINANCIAL PERFORMANCE

THIRD QUARTER HIGHLIGHTS

• Improved profitability – Third quarter net income was $30.4 million, an increase of $4.3 million, or 16.4%, compared to net income of $26.1 million in the same quarter a year ago.
• Decrease in non-performing assets – Non-performing assets decreased $145.0 million, or 48.2%, to $155.6 million at September 30, 2012, from $300.6 million at December 31, 2011, and decreased $42.4 million, or 21.4%, from $198.0 million at June 30, 2012.

"Our loan growth for the third quarter was solid at $216.2 million, or a 12% annualized rate.  There were increases in most loan categories, with both commercial loans and residential mortgage loans leading the way at a 26% annualized rate," commented Dunson Cheng, Chairman of the Board, Chief Executive Officer, and President of the Company.

"Our focus on core deposit generation resulted in core deposits increasing at an annualized rate of 14% in the third quarter of 2012, another good quarter for core deposit generation," said Peter Wu, Executive Vice Chairman and Chief Operating Officer.

"We expect to maintain steady commercial loan and residential mortgage loan growth in the fourth quarter," concluded Dunson Cheng.

INCOME STATEMENT REVIEW

Net income available to common stockholders for the quarter ended September 30, 2012, was $26.2 million, an increase of $4.2 million, or 19.4%, compared to a net income available to common stockholders of $22.0 million for the same quarter a year ago.  Diluted earnings per share available to common stockholders for the quarter ended September 30, 2012, was $0.33 compared to $0.28 for the same quarter a year ago due primarily to decreases in the provision for credit losses, decreases in other real estate owned ("OREO") expenses, decreases in prepayment penalties on the repayment of Federal Home Loan Bank ("FHLB") advances and securities sold under agreements to repurchase, and decreases in operations expenses of affordable housing investments, which were partially offset by decreases in gains on sales of loans, increases in litigation settlement expenses, increases in salaries and employee benefits, and increases in income tax expense.

Return on average stockholders' equity was 7.62% and return on average assets was 1.14% for the quarter ended September 30, 2012, compared to a return on average stockholders' equity of 6.91% and a return on average assets of 0.98% for the same quarter a year ago.

Net interest income before provision for credit losses

Net interest income before provision for credit losses decreased $536,000, or 0.7%, to $80.4 million during the third quarter of 2012 compared to $81.0 million during the same quarter a year ago.  The decrease was due primarily to the decreases in yield and volume on investment securities and decreases in yield on loans offset by decreases in rates paid on time certificates of deposit, the prepayment of FHLB advances, and maturities of securities sold under agreements to repurchase.

The net interest margin, on a fully taxable-equivalent basis, was 3.26% for the third quarter of 2012, an increase of 2 basis points from 3.24% for the second quarter of 2012, and a decrease of 6 basis points from 3.32% for the third quarter of 2011.  The decrease in yields on investment securities and loans offset by decrease in the rate on interest bearing deposits, and the prepayment of FHLB advances and decreases in securities sold under agreements to repurchase caused the decrease in the net interest margin from the same quarter a year ago.   

For the third quarter of 2012, the yield on average interest-earning assets was 4.32%, on a fully taxable-equivalent basis, the cost of funds on average interest-bearing liabilities was 1.35%, and the cost of interest bearing deposits was 0.72%.  In comparison, for the third quarter of 2011, the yield on average interest-earning assets was 4.68%, on a fully taxable-equivalent basis, the cost of funds on average interest-bearing liabilities was 1.66%, and the cost of interest bearing deposits was 0.99%. 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, decreased 5 basis points to 2.97% for the quarter ended September 30, 2012, from 3.02% for the same quarter a year ago, primarily for the reasons discussed above.

Provision for credit losses

There was no change in the provision for credit losses for the third quarter of 2012 compared to a credit of $5.0 million for the second quarter of 2012 and a charge of $9.0 million in the third quarter of 2011.  The provision for credit losses was based on the review of the adequacy of the allowance for loan losses at September 30, 2012. The provision or reversal for credit losses represents the charge against or benefit toward 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 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 $15.6 million for the third quarter of 2012, a decrease of $1.2 million, or 7.2%, compared to $16.8 million for the third quarter of 2011. The decrease in non-interest income in the third quarter of 2012 was primarily due to decreases of $1.6 million from gains on sale of loans offset by a $513,000 increase in revenue from trading securities.    

Non-interest expense

Non-interest expense decreased $539,000, or 1.1%, to $47.8 million in the third quarter of 2012 compared to $48.4 million in the same quarter a year ago.  The efficiency ratio was 49.82% in the third quarter of 2012 compared to 49.48% for the same quarter a year ago.  

OREO expenses decreased $4.3 million to $1.8 million in the third quarter of 2012 compared to $6.1 million in the same quarter a year ago primarily due to decreases in provisions for OREO write-downs, higher OREO gains, and decreases in OREO expenses.  Operation expense on affordable housing investments also decreased $1.6 million in the third quarter of 2012 compared to the same quarter a year ago primarily due to gains realized from sales of properties owned by an affordable housing limited partnerships.  Prepayment penalties decreased by $1.1 million, or 24.0% in the third quarter of 2012 compared to the same quarter a year ago.  FDIC and State assessments decreased $548,000, or 20.7%, to $2.1 million in the third quarter of 2012 from $2.6 million for the same quarter a year ago.

Offsetting the above decreases were increases in litigation accruals of $5.8 million mainly due to an accrual for the Company's share of a jury verdict that is not final in a trial that is not completed.  Salaries and employee benefits increased $970,000, or 5.5%, in the third quarter of 2012 compared to the same quarter a year ago primarily due to the hiring of new employees.  Professional services expense increased $427,000, or 8.8%, primarily due to increases in consulting expenses related to the upcoming core system conversion. 

Income taxes

The effective tax rate for the third quarter of 2012 was 36.8% compared to 35.2% in the third quarter of 2011.  The effective tax rate includes the impact of the utilization of low income housing tax credits and the recognition of other tax credits.

BALANCE SHEET REVIEW

Gross loans, excluding loans held for sale, were $7.26 billion at September 30, 2012, an increase of $216.2 million, or 3.1%, from $7.04 billion at June 30, 2012, primarily due to a $137.2 million, or 7.1% increase in commercial loans. Gross loans, excluding loans held for sale, were $7.26 billion at September 30, 2012, an increase of $200.7 million, or 2.8%, from $7.06 billion at December 31, 2011, primarily due to an increase of $214.6 million, or 11.5%, in commercial loans and an increase of $101.6 million, or 10.5%, in residential mortgage loans offset by a decrease of $50.1 million, or 21.1%, in real estate construction loans and a decrease of $44.1 million, or 1.2%, in commercial mortgage loans.  The changes in loan composition from December 31, 2011, are presented below:

Total deposits were $7.4 billion at September 30, 2012, an increase of $123.9 million, or 1.7%, from $7.2 billion at December 31, 2011, primarily due to a $170.6 million, or 15.9%, increase in non-interest bearing demand deposits, a $132.4 million, or 13.9% increase in money market deposits, a $118.2 million, or 26.2%, increase in NOW deposits, and a $40.2 million, or 9.6%, increase in savings deposits, offset by a $164.9 million, or 19.8%, decrease in time deposits under $100,000 and a $172.5 million, or 4.9%, decrease in time deposits of $100,000 or more.  The changes in deposit composition from December 31, 2011, are presented below:

ASSET QUALITY REVIEW

At September 30, 2012, total non-accrual portfolio loans, excluding loans held for sale, were $94.9 million, a decrease of $106.3 million, or 52.8%, from $201.2 million at December 31, 2011, and a decrease of $97.8 million, or 50.7%, from $192.7 million at September 30, 2011.       

The allowance for loan losses was $184.4 million and the allowance for off-balance sheet unfunded credit commitments was $1.6 million at September 30, 2012, which represented the amount believed by management to be sufficient to absorb credit losses inherent in the loan portfolio, including unfunded commitments.  The allowance for credit losses, which is the sum of the allowances for loan losses and for off-balance sheet unfunded credit commitments, was $186.0 million at September 30, 2012, compared to $208.3 million at December 31, 2011, a decrease of $22.3 million, or 10.7%.  The allowance for credit losses represented 2.56% of period-end gross loans, excluding loans held for sale, and 196.0% of non-performing portfolio loans at September 30, 2012.  The comparable ratios were 2.95% of period-end gross loans, excluding loans held for sale, and 100.2% of non-performing portfolio loans at December 31, 2011.  The changes in the Company's non-performing assets and troubled debt restructurings at September 30, 2012, compared to December 31, 2011, and September 30, 2011, are highlighted below:

Troubled debt restructurings on accrual status totaled $170.2 million at September 30, 2012, compared to $120.0 million at December 31, 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 a change in the stated interest rate, a reduction in the loan balance or accrued interest, or an 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.

The ratio of non-performing assets, excluding non-accrual loans held for sale, to total assets was 1.5% at September 30, 2012, compared to 2.8% at December 31, 2011.  Total non-performing portfolio assets decreased $145.0 million, or 48.2%, to $155.6 million at September 30, 2012, compared to $300.6 million at December 31, 2011, primarily due to a $106.3 million decrease in non-accrual loans, a $32.1 million decrease in OREO, and a $6.7 million decrease in accruing loans past due 90 days or more. 

CAPITAL ADEQUACY REVIEW

At September 30, 2012, the Company's Tier 1 risk-based capital ratio of 17.08%, total risk-based capital ratio of 18.96%, and Tier 1 leverage capital ratio of 13.57%, 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, 2011, the Company's Tier 1 risk-based capital ratio was 15.97%, total risk-based capital ratio was 17.85%, and Tier 1 leverage capital ratio was 12.93%.

YEAR-TO-DATE REVIEW

Net income attributable to common stockholders for the nine months ended September 30, 2012, was $76.8 million, an increase of $16.7 million, or 27.7%, compared to net income attributable to common stockholders of $60.1 million for the same period a year ago due primarily to decreases in the provision for loan losses, decreases in  prepayment penalties on the repayment of FHLB advances and the prepayment of securities sold under an agreement to repurchase, decreases in gains on sale of securities, decreases in operation expenses of affordable housing investments, and decreases in FDIC and State assessments, which were partially offset by increases in income tax expenses, increases in litigation accrual expenses, increases in OREO expenses, and increases in salaries and incentive compensation expense.  Diluted earnings per share was $0.98 compared to $0.76 per share for the same period a year ago.  The net interest margin for the nine months ended September 30, 2012, increased 9 basis points to 3.28% compared to 3.19% for the same period a year ago.

Return on average stockholders' equity was 7.65% and return on average assets was 1.12% for the nine months ended September 30, 2012, compared to a return on average stockholders' equity of 6.59% and a return on average assets of 0.91% for the same period of 2011.  The efficiency ratio for the nine months ended September 30, 2012, was 52.12% compared to 51.24% for the same period a year ago.

CONFERENCE CALL

Cathay General Bancorp will host a conference call this afternoon to discuss its third quarter of 2012 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 1-866-362-4666 and enter Participant Passcode 29044536. 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," "can," "could," "estimates," "expects," "hopes," "intends," "may," "plans," "projects," "seeks," "shall," "should," "will," "predicts," "potential," "continue," "possible," "optimistic," 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; credit risks of lending activities and deterioration in asset or credit quality; adverse results in legal proceedings; current and potential future supervisory action by federal supervisory authorities; 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"), and 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; potential goodwill impairment; liquidity risk; fluctuations in interest rates; inflation and deflation; risks associated with acquisitions and the expansion of our business into new markets; real estate market conditions and the value of real estate collateral; environmental liabilities; the effect of repeal of the federal prohibition on payment of interest on demand deposit accounts; our ability to compete with larger competitors; the possibility of higher capital requirements, including implementation of the 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; failures, interruptions, or security breaches of systems or data breaches; our ability to adapt our systems to technological changes, including successfully implementing our core system conversion; 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; successfully raising additional capital, if needed, and the resulting dilution of interests of holders of our common stock; and the soundness of other financial institutions.

These and other factors are further described in Cathay General Bancorp's Annual Report on Form 10-K for the year ended December 31, 2011 (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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