CATHAY GENERAL BANCORP [CATY] Filings

10-Q 1 caty20220630_10q.htm FORM 10-Q caty20220630_10q.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

June 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission file number

001-31830

CATHAY GENERAL BANCORP

(Exact name of registrant as specified in its charter)

Delaware

95-4274680

(State of other jurisdiction of incorporation

or organization)

(I.R.S. Employer

Identification No.)

777 North Broadway, Los Angeles, California	90012
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code:

(213) 625-4700

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock	CATY	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☑ Accelerated filer ☐

Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common stock, $.01 par value, 74,469,620 shares outstanding as of July 31, 2022.

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CATHAY GENERAL BANCORP AND SUBSIDIARIES

2^ND QUARTER 2022 REPORT ON FORM 10-Q

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PART I – FINANCIAL INFORMATION	3
Item 1. FINANCIAL STATEMENTS (Unaudited)	3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)	8
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	44
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	72
Item 4. CONTROLS AND PROCEDURES	73
PART II – OTHER INFORMATION	73
Item 1. LEGAL PROCEEDINGS	73
Item 1A. RISK FACTORS	74
Item 3. DEFAULTS UPON SENIOR SECURITIES	75
Item 4. MINE SAFETY DISCLOSURES	75
Item 5. OTHER INFORMATION	75
Item 6. EXHIBITS	75
SIGNATURES	77

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Forward-Looking Statements

In this Quarterly Report on Form 10-Q, the term “Bancorp” refers to Cathay General Bancorp and the term “Bank” refers to Cathay Bank. The terms “Company,” “we,” “us,” and “our” refer to Bancorp and the Bank collectively.

The statements in this report include 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. We intend such forward-looking statements to be covered by the safe harbor provision for forward-looking statements in these provisions. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including statements about anticipated future operating and financial performance, financial position and liquidity, growth opportunities and growth rates, growth plans, acquisition and divestiture opportunities, business prospects, strategic alternatives, business strategies, financial expectations, regulatory and competitive outlook, loan and deposit growth, investment and expenditure plans, financing needs and availability, level of nonperforming assets, and other similar forecasts and statements of expectation and statements of assumptions underlying any of the foregoing. Words such as “aims,” “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “hopes,” “intends,” “may,” “optimistic,” “plans,” “potential,” “possible,” “predicts,” “projects,” “seeks,” “shall,” “should,” “will,” and variations of these words and similar expressions are intended to identify these forward-looking statements. Forward-looking statements by us 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, uncertainties and other factors that could cause actual results to differ materially from our historical experience and our present expectations or projections. Such risks, uncertainties and other factors include, but are not limited to:

	●	local, regional, national and international economic and market conditions and events and the impact they may have on us, our customers and our operations, assets and liabilities;
	●	the impact on our business, operations, financial condition, liquidity, results of operations, prospects and trading prices of our shares arising out of the COVID-19 pandemic and its related economic impacts;
	●	possible additional provisions for loan losses and charge-offs;
	●	credit risks of lending activities and deterioration in asset or credit quality;
	●	extensive laws and regulations and supervision that we are subject to, including potential supervisory action by bank supervisory authorities;
	●	increased costs of compliance and other risks associated with changes in regulation;
	●	higher capital requirements from the implementation of the Basel III capital standards;
	●	compliance with the Bank Secrecy Act and other money laundering statutes and regulations;
	●	potential goodwill impairment;
	●	liquidity risk;
	●	fluctuations in interest rates;
	●	risks associated with acquisitions and the expansion of our business into new markets;
	●	inflation and deflation;
	●	real estate market conditions and the value of real estate collateral;
	●	environmental liabilities;
	●	our ability to generate anticipated returns from our investments and/or financings in certain tax advantaged-projects;
	●	our ability to compete with larger competitors;

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	●	our ability to retain key personnel;
	●	successful management of reputational risk;
	●	natural disasters, public health crises (including the occurrence of a contagious disease or illness, such as COVID-19) and geopolitical events;
	●	failures, interruptions, or security breaches of our information systems;
	●	our ability to adapt our systems to the expanding use of technology in banking;
	●	risk management processes and strategies;
	●	adverse results in legal proceedings;
	●	the impact of regulatory enforcement actions, if any;
	●	certain provisions in our charter and bylaws that may affect acquisition of the Company;
	●	changes in accounting standards or tax laws and regulations;
	●	market disruption and volatility;
	●	fluctuations in the Bancorp’s stock price;
	●	restrictions on dividends and other distributions by laws and regulations and by our regulators and our capital structure;
	●	issuances of preferred stock;
	●	capital level requirements and successfully raising additional capital, if needed, and the resulting dilution of interests of holders of Bancorp common stock; and
	●	the soundness of other financial institutions.

These and other factors are further described in Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2021 (Item 1A in particular), other reports and registration statements filed with the Securities and Exchange Commission (“SEC”), and other filings 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 report. Given these risks and uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements. We have no intention and undertake no obligation to update any forward-looking statement or to announce publicly any revision of any forward-looking statement to reflect developments, events, occurrences or circumstances after the date of such statement, except as required by law.

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) 279-3296.

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PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS (Unaudited)

CATHAY GENERAL BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 30, 2022			December 31, 2021
	(In thousands, except share and per share data)
Assets
Cash and due from banks	$	141,734		$	134,141
Short-term investments and interest-bearing deposits		1,012,228			2,315,563
Securities available-for-sale (amortized cost of $1,336,293 at June 30, 2022 and $1,126,867 at December 31, 2021)		1,234,571			1,127,309
Loans		17,787,888			16,342,479
Less: Allowance for loan losses		(148,772	)		(136,157	)
Unamortized deferred loan fees, net		(5,540	)		(4,321	)
Loans, net		17,633,576			16,202,001
Equity securities		26,785			22,319
Federal Home Loan Bank stock		17,250			17,250
Other real estate owned, net		4,067			4,368
Affordable housing investments and alternative energy partnerships, net		321,717			299,211
Premises and equipment, net		97,565			99,402
Customers’ liability on acceptances		12,650			8,112
Accrued interest receivable		61,939			56,994
Goodwill		375,696			372,189
Other intangible assets, net		7,231			4,627
Right-of-use assets - operating leases		31,883			27,834
Other assets		256,661			195,403
Total assets	$	21,235,553		$	20,886,723

Liabilities and Stockholders’ Equity
Deposits:
Non-interest-bearing demand deposits	$	4,433,959		$	4,492,054
Interest-bearing deposits:
NOW deposits		2,494,524			2,522,442
Money market deposits		5,322,510			4,611,579
Savings deposits		1,178,572			915,515
Time deposits		4,857,762			5,517,252
Total deposits		18,287,327			18,058,842
Advances from the Federal Home Loan Bank		95,000			20,000
Other borrowings of affordable housing investments		22,319			23,145
Long-term debt		119,136			119,136
Acceptances outstanding		12,650			8,112
Lease liabilities - operating leases		35,171			30,694
Other liabilities		232,418			180,543
Total liabilities		18,804,021			18,440,472
Commitments and contingencies		—			—
Stockholders’ Equity
Common stock, $0.01 par value, 100,000,000 shares authorized; 90,997,807 issued and 74,421,884 outstanding at June 30, 2022, and 90,871,860 issued and 75,750,862 outstanding at December 31, 2021		910			909
Additional paid-in-capital		976,547			972,474
Accumulated other comprehensive loss, net		(71,328	)		(3,065	)
Retained earnings		2,098,122			1,985,168
Treasury stock, at cost (16,575,923 shares at June 30, 2022, and 15,120,998 shares at December 31, 2021)		(572,719	)		(509,235	)
Total equity		2,431,532			2,446,251
Total liabilities and equity	$	21,235,553		$	20,886,723

See accompanying Notes to Consolidated Financial Statements.

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CATHAY GENERAL BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME

(Unaudited)

	Three months ended June 30,						Six months ended June 30,
	2022			2021			2022			2021
	(In thousands, except share and per share data)
Interest and Dividend Income
Loans receivable	$	181,022		$	161,493		$	347,116		$	321,214
Investment securities		5,748			3,189			10,576			6,256
Federal Home Loan Bank stock		255			255			516			472
Deposits with banks		2,508			438			3,271			753
Total interest and dividend income		189,533			165,375			361,479			328,695

Interest Expense
Time deposits		5,724			10,055			11,784			24,064
Other deposits		6,895			5,465			12,023			11,059
Advances from Federal Home Loan Bank		312			415			455			890
Long-term debt		1,439			1,439			2,863			2,863
Total interest expense		14,370			17,374			27,125			38,876
Net interest income before provision/(reversal) for credit losses		175,163			148,001			334,354			289,819
Provision/(reversal) for credit losses		2,500			(9,000	)		11,143			(22,558	)
Net interest income after provision/(reversal) for credit losses		172,663			157,001			323,211			312,377

Non-Interest Income
Net gains/(losses) from equity securities		(955	)		(879	)		5,019			(3,631	)
Securities losses, net		—			—			—			853
Letters of credit commissions		1,602			1,782			3,158			3,472
Depository service fees		1,632			1,343			3,303			2,706
Wealth management fees		3,956			3,939			8,310			7,496
Other operating income		8,383			6,398			15,060			11,687
Total non-interest income		14,618			12,583			34,850			22,583

Non-Interest Expense
Salaries and employee benefits		37,301			32,758			72,776			65,480
Occupancy expense		5,562			4,960			11,175			10,006
Computer and equipment expense		3,297			3,647			6,253			6,918
Professional services expense		7,704			5,756			14,401			10,466
Data processing service expense		3,420			3,243			6,329			6,898
FDIC and regulatory assessments		2,194			1,440			3,996			3,365
Marketing expense		1,740			1,443			2,687			4,325
Other real estate owned (income)/expense		(33	)		191			38			285
Amortization of investments in low income housing and alternative energy partnerships		7,235			10,682			15,522			22,252
Amortization of core deposit intangibles		250			171			474			343
Cost associated with debt redemption		—			—			—			732
Acquisition, integration and restructuring costs		91			—			4,027			—
Other operating expense		5,362			5,416			9,142			10,040
Total non-interest expense		74,123			69,707			146,820			141,110

Income before income tax expense		113,158			99,877			211,241			193,850
Income tax expense		24,180			22,678			47,235			43,267
Net income	$	88,978		$	77,199		$	164,006		$	150,583

Other Comprehensive Income, net of tax
Unrealized holding (losses)/gains on securities available-for-sale		(26,455	)		247			(72,421	)		(4,039	)
Unrealized holding gains on cash flow hedge derivatives		1,104			439			4,158			1,702
Less: reclassification adjustments for losses included in net income		—			—			—			601
Total other comprehensive (loss)/income, net of tax		(25,351	)		686			(68,263	)		(2,938	)
Total other comprehensive income	$	63,627		$	77,885		$	95,743		$	147,645

Net Income Per Common Share:
Basic	$	1.19		$	0.98		$	2.18		$	1.90
Diluted	$	1.18		$	0.97		$	2.17		$	1.89
Cash dividends paid per common share	$	0.34		$	0.31		$	0.68		$	0.62
Average Common Shares Outstanding:
Basic		74,958,913			79,167,004			75,144,414			79,347,886
Diluted		75,270,140			79,418,668			75,493,516			79,624,344

See accompanying Notes to Consolidated Financial Statements.

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CATHAY GENERAL BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

									Accumulated
	Common Stock					Additional			Other									Total
	*Number of*					*Paid-in*			*Comprehensive*			*Retained*			*Treasury*			*Stockholders'*
Three months ended	*Shares*			*Amount*		*Capital*			*loss*			*Earnings*			*Stock*			*Equity*
	(In thousands, except share data)
Balance at March 31, 2022		75,078,258		$	909	$	974,748		$	(45,977	)	$	2,034,681		$	(542,131	)	$	2,422,230
Dividend Reinvestment Plan		21,847			—		927			—			—			—			927
Restricted stock units vested		51,997			1		—			—			—			—			1
Stock issued to directors		19,780			—		849			—			—			—			849
Shares withheld related to net share settlement of RSUs		—			—		(1,730	)		—			—			—			(1,730	)
Purchases of treasury stock		(749,998	)		—		—			—			—			(30,588	)		(30,588	)
Stock-based compensation		—			—		1,753			—			—			—			1,753
Cash dividends of $0.34 per share		—			—		—			—			(25,537	)		—			(25,537	)
Other comprehensive loss		—			—		—			(25,351	)		—			—			(25,351	)
Net income		—			—		—			—			88,978			—			88,978
Balance at June 30, 2022		74,421,884		$	910	$	976,547		$	(71,328	)	$	2,098,122		$	(572,719	)	$	2,431,532

									Accumulated
	Common Stock					Additional			Other								Total
	*Number of*					*Paid-in*			*Comprehensive*		*Retained*			*Treasury*			*Stockholders'*
	*Shares*			*Amount*		*Capital*			*Income*		*Earnings*			*Stock*			*Equity*
	(In thousands, except share data)
Balance at March 31, 2021		79,595,025		$	907	$	965,566		$	1,686	$	1,834,920		$	(342,131	)	$	2,460,948
Dividend Reinvestment Plan		20,023			1		856			—		—			—			857
Restricted stock units vested		55,198			—		—			—		—			—			—
Shares withheld related to net share settlement of RSUs		—			—		(1,315	)		—		—			—			(1,315	)
Stock issued to directors		20,750			—		850			—		—			—			850
Purchases of treasury stock		(1,532,406	)		—		—			—		—			(63,529	)		(63,529	)
Stock-based compensation		—			—		1,209			—		—			—			1,209
Cash dividends of $0.31 per share		—			—		—			—		(24,548	)		—			(24,548	)
Other comprehensive income		—			—		—			686		—			—			686
Net income		—			—		—			—		77,199			—			77,199
Balance at June 30, 2021		78,158,590		$	908	$	967,166		$	2,372	$	1,887,571		$	(405,660	)	$	2,452,357

See accompanying Notes to Consolidated Financial Statements.

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CATHAY GENERAL BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

									Accumulated
	Common Stock					Additional			Other									Total
	*Number of*					*Paid-in*			*Comprehensive*			*Retained*			*Treasury*			*Stockholders'*
Six months ended	*Shares*			*Amount*		*Capital*			*loss*			*Earnings*			*Stock*			*Equity*
	(In thousands, except share data)
Balance at December 31, 2021		75,750,862		$	909	$	972,474		$	(3,065	)	$	1,985,168		$	(509,235	)	$	2,446,251
Dividend Reinvestment Plan		43,262			—		1,872			—			—			—			1,872
Restricted stock units vested		62,905			1		—			—			—			—			1
Stock issued to directors		19,780			—		849			—			—			—			849
Shares withheld related to net share settlement of RSUs		—			—		(2,015	)		—			—			—			(2,015	)
Purchases of treasury stock		(1,454,925	)		—		—			—			—			(63,484	)		(63,484	)
Stock-based compensation		—			—		3,367			—			—			—			3,367
Cash dividends of $0.68 per share		—			—		—			—			(51,052	)		—			(51,052	)
Other comprehensive loss		—			—		—			(68,263	)		—			—			(68,263	)
Net income		—			—		—			—			164,006			—			164,006
Balance at June 30, 2022		74,421,884		$	910	$	976,547		$	(71,328	)	$	2,098,122		$	(572,719	)	$	2,431,532

									Accumulated
	Common Stock					Additional			Other Comprehensive									Total
	Number of Shares			Amount		Paid-in Capital			Income or (loss)			Retained Earnings			Treasury Stock			Stockholders' Equity
	(In thousands, except share data)
Balance at December 31, 2020		79,508,265		$	906	$	964,734		$	5,310		$	1,789,325		$	(342,131	)	$	2,418,144
Cumulative effect of change in accounting principle related to ASC 326, net of tax		—			—		—			—			(3,139	)		—			(3,139	)
Dividend Reinvestment Plan		40,059			1		1,724			—			—			—			1,725
Restricted stock units vested		121,922			1		—			—			—			—			1
Shares withheld related to net share settlement of RSUs		—			—		(2,594	)		—			—			—			(2,594	)
Stock issued to directors		20,750			—		850			—			—			—			850
Purchases of treasury stock		(1,532,406	)		—		—			—			—			(63,529	)		(63,529	)
Stock-based compensation		—			—		2,452			—			—			—			2,452
Cash dividends of $0.62 per share		—			—		—			—			(49,198	)		—			(49,198	)
Other comprehensive loss		—			—		—			(2,938	)		—			—			(2,938	)
Net income		—			—		—			—			150,583			—			150,583
Balance at June 30, 2021		78,158,590		$	908	$	967,166		$	2,372		$	1,887,571		$	(405,660	)	$	2,452,357