Cathay General Bancorp (the “Company”, “we”, “us”, or “our”) (Nasdaq: CATY), the holding company for Cathay Bank, today announced its unaudited financial results for the quarter ended June 30, 2023. The Company reported net income of $93.2 million, or $1.28 per share, for the second quarter of 2023.
FINANCIAL PERFORMANCE | |||||
Three months ended | |||||
| (unaudited) | June 30, 2023 | March 31, 2023 | June 30, 2022 | ||
| Net income | $ 93.2 million | $ 96.0 million | $89.0 million | ||
| Basic earnings per common share | $1.29 | $1.32 | $1.19 | ||
| Diluted earnings per common share | $1.28 | $1.32 | $1.18 | ||
| Return on average assets | 1.67% | 1.76% | 1.69% | ||
| Return on average total stockholders' equity | 14.47% | 15.39% | 14.62% | ||
| Efficiency ratio | 45.36% | 40.25% | 39.06% | ||
SECOND QUARTER HIGHLIGHTS
- Total gross loans increased by $635.5 million, or 13.9% annualized, to $19.0 billion in the second quarter of 2023.
- The net interest margin decreased to 3.44% in the second quarter of 2023 from 3.74% in the first quarter of 2023.
- Diluted earnings per share decreased to $1.28 for the second quarter of 2023 compared to $1.32 for the first quarter of 2023.
“For the second quarter of 2023, our total loans increased by $635.5 million or 13.9% annualized to $19.0 billion. We are pleased by the $448.1 million increase or 9.7% in total deposits for the quarter,” commented Chang M. Liu, President and Chief Executive Officer of the Company.
INCOME STATEMENT REVIEW
SECOND QUARTER 2023 COMPARED TO THE FIRST QUARTER 2023
Net income for the quarter ended June 30, 2023 was $93.2 million, a decrease of $2.8 million, or 2.9%, compared to net income of $96.0 million for the first quarter of 2023. Net income for the second quarter of 2023 included a $10.7 million unrealized gain on equity securities, or $0.10 per diluted share. Diluted earnings per share for the second quarter of 2023 was $1.28 per share compared to $1.32 per share for the first quarter of 2023.
Return on average stockholders’ equity was 14.47% and return on average assets was 1.67% for the quarter ended June 30, 2023, compared to a return on average stockholders’ equity of 15.39% and a return on average assets of 1.76% in the first quarter of 2023.
Net interest income before provision for credit losses
Net interest income before provision for credit losses decreased $10.9 million, or 5.7%, to $181.5 million during the second quarter of 2023, compared to $192.4 million in the first quarter of 2023. The decrease was due primarily to an increase in deposit interest expense, offset by an increase in income from loans and securities.
The net interest margin was 3.44% for the second quarter of 2023 compared to 3.74% for the first quarter of 2023.
For the second quarter of 2023, the yield on average interest-earning assets was 5.68%, the cost of funds on average interest-bearing liabilities was 2.99%, and the cost of interest-bearing deposits was 2.91%. In comparison, for the first quarter of 2023, the yield on average interest-earning assets was 5.54%, the cost of funds on average interest-bearing liabilities was 2.46%, and the cost of interest-bearing deposits was 2.40%. The increase in the costs of interest-bearing liabilities was mainly a result of higher interest rates on interest bearing deposits. 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 2.69% for the second quarter of 2023, compared to 3.08% for the first quarter of 2023.
Provision for credit losses
The Company recorded a provision for credit losses of $9.2 million in the second quarter of 2023 compared with $8.1 million in the first quarter of 2023. As of June 30, 2023, the allowance for credit losses, comprised of the reserve for loan losses and the reserve for unfunded loan commitments, increased $7.1 million to $165.6 million, or 0.87% of gross loans, compared to $158.5 million, or 0.87% of gross loans, as of March 31, 2023.
Three months ended | Six months ended June 30, | ||||||||||||||||
June 30, 2023 | March 31, 2023 | June 30, 2022 | 2023 | 2022 | |||||||||||||
(In thousands) (Unaudited) | |||||||||||||||||
| Charge-offs: | |||||||||||||||||
Commercial loans | $ | 2,448 | $ | 3,911 | $ | 50 | $ | 6,359 | $ | 271 | |||||||
| Real estate loans (1) | 34 | 3,990 | 1 | 4,024 | 1 | ||||||||||||
| Installment and other loans | 1 | 6 | — | 7 | — | ||||||||||||
| Total charge-offs | 2,483 | 7,907 | 51 | 10,390 | 272 | ||||||||||||
| Recoveries: | |||||||||||||||||
| Commercial loans | 442 | 511 | 175 | 953 | 534 | ||||||||||||
| Construction loans | — | — | — | — | 6 | ||||||||||||
| Real estate loans (1) | 61 | 2,540 | 94 | 2,601 | 240 | ||||||||||||
| Total recoveries | 503 | 3,051 | 269 | 3,554 | 780 | ||||||||||||
| Net charge-offs/(recoveries) | $ | 1,980 | $ | 4,856 | $ | (218 | ) | $ | 6,836 | $ | (508 | ) | |||||
(1) Real estate loans include commercial mortgage loans, residential mortgage loans and equity lines. | |||||||||||||||||
Non-interest income
Non-interest income, which includes revenues from depository service fees, letters of credit commissions, securities gains (losses), wealth management fees, and other sources of fee income, was $23.1 million for the second quarter of 2023, an increase of $8.9 million, or 62.7%, compared to $14.2 million for the first quarter of 2023. The increase was primarily due to a $5.8 million increase in unrealized gains on equity securities and a decrease in the write-off of $3.0 million of an available for sale security from Signature Bank when compared to the first quarter of 2023.
Non-interest expense
Non-interest expense increased $9.6 million, or 11.5%, to $92.8 million in the second quarter of 2023 compared to $83.2 million in the first quarter of 2023. The increase in non-interest expense in the second quarter of 2023 was primarily due to an increase of $6.2 million in amortization expense of investments in low-income housing and alternative energy partnerships, an increase of $1.5 million in contributions to the Cathay Bank Foundation, and an increase of $1.5 million in professional services expenses offset, in part, by a decrease of $1.2 million in salaries and employee benefits when compared to the first quarter of 2023. The efficiency ratio, defined as non-interest expense divided by the sum of net interest income before provision for loan losses plus non-interest income, was 45.36% in the second quarter of 2023 compared to 40.25% for the first quarter of 2023.
Income taxes
The effective tax rate for the second quarter of 2023 was 9.2% compared to 16.8% for the first quarter of 2023. The effective tax rate includes the impact of alternative energy investments, including the impact of a new solar tax credit fund that closed in the second quarter of 2023, and low-income housing tax credits.
BALANCE SHEET REVIEW
Gross loans were $18.95 billion as of June 30, 2023, an increase of $635.5 million, or 3.5%, from $18.32 billion as of March 31, 2023. The increase from March 31, 2023 was primarily due to an increase of $376.7 million, or 4.2%, in commercial mortgage loans, an increase of $164.8 million, or 5.2%, in commercial loans and an increase of $158.2 million, or 2.9%, in residential mortgage loans offset, in part, by a decrease of $37.3 million, or 6.7%, in real estate construction loans, and a decrease of $26.6 million, or 8.9%, in home equity loans.
The loan balances and composition as of June 30, 2023, compared to March 31, 2023, and June 30, 2022, are presented below:
June 30, 2023 | March 31, 2023 | June 30, 2022 | |||
(In thousands) (Unaudited) | |||||
| Commercial loans | $ 3,317,868 | $ 3,153,039 | $ 3,194,509 | ||
| Residential mortgage loans | 5,542,466 | 5,384,220 | 5,045,383 | ||
| Commercial mortgage loans | 9,293,475 | 8,916,766 | 8,563,001 | ||
| Equity lines | 272,055 | 298,630 | 377,009 | ||
| Real estate construction loans | 521,673 | 558,967 | 602,052 | ||
| Installment and other loans | 5,257 | 5,717 | 5,934 | ||
| Gross loans | $ 18,952,794 | $ 18,317,339 | $ 17,787,888 | ||
| Allowance for loan losses | (155,109) | (144,884) | (148,772) | ||
| Unamortized deferred loan fees | (9,497) | (5,872) | (5,540) | ||
| Total loans, net | $ 18,788,188 | $ 18,166,583 | $ 17,633,576 | ||
Total deposits were $19.10 billion as of June 30, 2023, an increase of $448.1 million, or 2.4%, from $18.65 billion as of March 31, 2023.
The deposit balances and composition as of June 30, 2023, compared to March 31, 2023, and June 30, 2022, are presented below:
June 30, 2023 | March 31, 2023 | June 30, 2022 | |||
(In thousands) (Unaudited) | |||||
| Non-interest-bearing demand deposits | $ 3,561,237 | $ 3,748,719 | $ 4,433,959 | ||
| NOW deposits | 2,404,470 | 2,354,195 | 2,494,524 | ||
| Money market deposits | 3,033,868 | 3,014,500 | 5,322,510 | ||
| Savings deposits | 1,131,602 | 891,061 | 1,178,572 | ||
| Time deposits | 8,965,826 | 8,640,397 | 4,857,762 | ||
| Total deposits | $ 19,097,003 | $ 18,648,872 | $ 18,287,327 | ||
ASSET QUALITY REVIEW
As of June 30, 2023, total non-accrual loans were $69.0 million, a decrease of $4.6 million, or 6.2%, from $73.6 million as of March 31, 2023.
The allowance for loan losses was $155.1 million and the allowance for off-balance sheet unfunded credit commitments was $10.5 million as of June 30, 2023. The allowances represent the amount estimated by management to be appropriate to absorb expected credit losses inherent in the loan portfolio, including unfunded credit commitments. The allowance for loan losses represented 0.82% of period-end gross loans, and 206.89% of non-performing loans as of June 30, 2023. The comparable ratios were 0.79% of period-end gross loans, and 167.81% of non-performing loans as of March 31, 2023.
The changes in non-performing assets and modifications to borrowers experiencing financial difficulties as of June 30, 2023, compared to March 31, 2023, and June 30, 2022, are presented below:
| (Dollars in thousands) (Unaudited) | June 30, 2023 | March 31, 2023 |
%
| June 30, 2022 |
%
| ||||||||||||
| Non-performing assets | |||||||||||||||||
| Accruing loans past due 90 days or more | $ | 5,968 | $ | 12,756 | (53 | ) | $ | 1,737 | 244 | ||||||||
| Non-accrual loans: | |||||||||||||||||
| Commercial mortgage loans | 39,558 | 40,218 | (2 | ) | 15,141 | 161 | |||||||||||
| Commercial loans | 17,574 | 22,079 | (20 | ) | 27,849 | (37 | ) | ||||||||||
| Residential mortgage loans | 11,872 | 11,283 | 5 | 17,583 | (32 | ) | |||||||||||
| Installment and other loans | — | — | — | 79 | (100 | ) | |||||||||||
| Total non-accrual loans | $ | 69,004 | $ | 73,580 | (6 | ) | $ | 60,652 | 14 | ||||||||
| Total non-performing loans | 74,972 | 86,336 | (13 | ) | 62,389 | 20 | |||||||||||
| Other real estate owned | 4,067 | 4,067 | — | 4,067 | — | ||||||||||||
| Total non-performing assets | $ | 79,039 | $ | 90,403 | (13 | ) | $ | 66,456 | 19 | ||||||||
|
Accruing loan modifications to borrowers experiencing financial
difficulties (1) | $ | — | $ | — | — | $ | — | — | |||||||||
| Accruing troubled debt restructurings (TDRs) | $ | — | $ | — | — | $ | 12,675 | (100 | ) | ||||||||
| Allowance for loan losses | $ | 155,109 | $ | 144,884 | 7 | $ | 148,772 | 4 | |||||||||
| Total gross loans outstanding, at period-end | $ | 18,952,794 | $ | 18,317,339 | 3 | $ | 17,787,888 | 7 | |||||||||
| Allowance for loan losses to non-performing loans, at period-end | 206.89 | % | 167.81 | % | 238.46 | % | |||||||||||
| Allowance for loan losses to gross loans, at period-end | |||||||||||||||||
