CATHAY GENERAL BANCORP [CATY] Filings

10-Q 1 caty20220930_10q.htm FORM 10-Q caty20220930_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

September 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		(I.R.S. Employer
or organization)		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, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting 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, 74,413,792 shares outstanding as of October 31, 2022.

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CATHAY GENERAL BANCORP AND SUBSIDIARIES

3^RD QUARTER 2022 REPORT ON FORM 10-Q

TABLE OF CONTENTS

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	70
Item 4. CONTROLS AND PROCEDURES.	71
PART II – OTHER INFORMATION	71
Item 1. LEGAL PROCEEDINGS.	71
Item 1A. RISK FACTORS.	72
Item 3. DEFAULTS UPON SENIOR SECURITIES.	73
Item 4. MINE SAFETY DISCLOSURES.	73
Item 5. OTHER INFORMATION.	73
Item 6. EXHIBITS.	73
SIGNATURES	75

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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)

	September 30, 2022			December 31, 2021
	(In thousands, except share and per share data)
Assets
Cash and due from banks	$	200,051		$	134,141
Short-term investments and interest-bearing deposits		1,063,294			2,315,563
Securities available-for-sale (amortized cost of $1,577,311 at September 30, 2022, and $1,126,867 at December 31, 2021)		1,414,411			1,127,309
Loans		18,106,803			16,342,479
Less: Allowance for loan losses		(148,817	)		(136,157	)
Unamortized deferred loan fees, net		(6,936	)		(4,321	)
Loans, net		17,951,050			16,202,001
Equity securities		23,123			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		325,439			299,211
Premises and equipment, net		96,419			99,402
Customers’ liability on acceptances		6,899			8,112
Accrued interest receivable		71,177			56,994
Goodwill		375,696			372,189
Other intangible assets, net		6,948			4,627
Right-of-use assets - operating leases		30,679			27,834
Other assets		303,628			195,403
Total assets	$	21,890,131		$	20,886,723

Liabilities and Stockholders’ Equity
Deposits:
Non-interest-bearing demand deposits	$	4,398,152		$	4,492,054
Interest-bearing deposits:
NOW deposits		2,570,036			2,522,442
Money market deposits		4,935,266			4,611,579
Savings deposits		1,128,823			915,515
Time deposits		5,543,474			5,517,252
Total deposits		18,575,751			18,058,842
Advances from the Federal Home Loan Bank		360,000			20,000
Other borrowings of affordable housing investments		22,651			23,145
Long-term debt		119,136			119,136
Acceptances outstanding		6,899			8,112
Lease liabilities - operating leases		33,931			30,694
Other liabilities		352,204			180,543
Total liabilities		19,470,572			18,440,472
Commitments and contingencies		—			—
Stockholders’ Equity
Common stock, $0.01 par value, 100,000,000 shares authorized; 91,067,423 issued and 73,411,960 outstanding at September 30, 2022, and 90,871,860 issued and 75,750,862 outstanding at December 31, 2021		911			909
Additional paid-in-capital		978,433			972,474
Accumulated other comprehensive loss, net		(112,874	)		(3,065	)
Retained earnings		2,172,098			1,985,168
Treasury stock, at cost (17,655,463 shares at September 30, 2022, and 15,120,998 shares at December 31, 2021)		(619,009	)		(509,235	)
Total equity		2,419,559			2,446,251
Total liabilities and equity	$	21,890,131		$	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 September 30,						Nine months ended September 30,
	2022			2021			2022			2021
	(In thousands, except share and per share data)
Interest and Dividend Income
Loans receivable	$	211,541		$	163,948		$	558,657		$	485,162
Investment securities		7,483			3,707			18,059			9,963
Federal Home Loan Bank stock		258			258			774			730
Deposits with banks		6,732			714			10,003			1,467
Total interest and dividend income		226,014			168,627			587,493			497,322

Interest Expense
Time deposits		10,218			9,299			22,002			33,363
Other deposits		13,871			5,243			25,894			16,302
Advances from Federal Home Loan Bank		2,941			146			3,396			1,036
Long-term debt		1,455			1,455			4,318			4,318
Total interest expense		28,485			16,143			55,610			55,019

Net interest income before provision/(reversal) for credit losses		197,529			152,484			531,883			442,303
Provision/(reversal) for credit losses		2,000			3,050			13,143			(19,508	)
Net interest income after provision/(reversal) for credit losses		195,529			149,434			518,740			461,811

Non-Interest Income
Net (losses)/gains from equity securities		(3,661	)		3			1,358			(3,628	)
Securities losses, net		—			—			—			853
Letters of credit commissions		1,609			1,764			4,767			5,236
Depository service fees		1,690			1,401			4,993			4,107
Wealth management fees		4,184			3,578			12,494			11,074
Other operating income		6,054			5,470			21,114			17,157
Total non-interest income		9,876			12,216			44,726			34,799

Non-Interest Expense
Salaries and employee benefits		34,677			33,437			107,453			98,917
Occupancy expense		5,975			5,136			17,150			15,142
Computer and equipment expense		3,509			3,175			9,762			10,093
Professional services expense		6,337			6,232			20,738			16,698
Data processing service expense		3,484			3,524			9,813			10,422
FDIC and regulatory assessments		2,003			1,830			5,999			5,195
Marketing expense		2,005			945			4,692			5,270
Other real estate owned expense/(income)		55			(88	)		93			197
Amortization of investments in low income housing and alternative energy partnerships		11,949			12,411			27,471			34,663
Amortization of core deposit intangibles		250			172			724			515
Cost associated with debt redemption		—			—			—			732
Acquisition, integration and restructuring costs		59			476			4,086			476
Other operating expense		5,085			4,965			14,227			15,005
Total non-interest expense		75,388			72,215			222,208			213,325

Income before income tax expense		130,017			89,435			341,258			283,285
Income tax expense		30,982			17,038			78,217			60,305
Net income	$	99,035		$	72,397		$	263,041		$	222,980

Other Comprehensive Income, net of tax
Net holding losses on securities available-for-sale		(43,191	)		(3,232	)		(115,612	)		(7,872	)
Net holding gains on cash flow hedge derivatives		1,645			492			5,803			2,194
Total other comprehensive loss, net of tax		(41,546	)		(2,740	)		(109,809	)		(5,678	)
Total other comprehensive income	$	57,489		$	69,657		$	153,232		$	217,302

Net Income Per Common Share:
Basic	$	1.35		$	0.93		$	3.53		$	2.83
Diluted	$	1.35		$	0.93		$	3.52		$	2.82
Cash dividends paid per common share	$	0.34		$	0.31		$	1.02		$	0.93
Average Common Shares Outstanding:
Basic		73,158,096			77,846,424			74,475,032			78,841,899
Diluted		73,444,096			78,153,408			74,799,324			79,128,644

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 June 30, 2022		74,421,884		$	910	$	976,547		$	(71,328	)	$	2,098,122		$	(572,719	)	$	2,431,532
Dividend Reinvestment Plan		21,880			1		919			—			—			—			920
Restricted stock units vested		47,736			—		—			—			—			—			—
Shares withheld related to net share settlement of RSUs		—			—		(849	)		—			—			—			(849	)
Purchases of treasury stock		(1,079,540	)		—		—			—			—			(46,290	)		(46,290	)
Stock-based compensation		—			—		1,816			—			—			—			1,816
Cash dividends of $0.34 per share		—			—		—			—			(25,059	)		—			(25,059	)
Other comprehensive loss		—			—		—			(41,546	)		—			—			(41,546	)
Net income		—			—		—			—			99,035			—			99,035
Balance at September 30, 2022		73,411,960		$	911	$	978,433		$	(112,874	)	$	2,172,098		$	(619,009	)	$	2,419,559

									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 June 30, 2021		78,158,590		$	908	$	967,166		$	2,372		$	1,887,571		$	(405,660	)	$	2,452,357
Dividend Reinvestment Plan		22,267			—		894			—			—			—			894
Restricted stock units vested		1,971			—		—			—			—			—			—
Shares withheld related to net share settlement of RSUs		—			—		(38	)		—			—			—			(38	)
Purchases of treasury stock		(942,613	)		—		—			—			—			(37,139	)		(37,139	)
Stock-based compensation		—			—		1,697			—			—			—			1,697
Cash dividends of $0.31 per share		—			—		—			—			(24,137	)		—			(24,137	)
Other comprehensive income		—			—		—			(2,740	)		—			—			(2,740	)
Net income		—			—		—			—			72,397			—			72,397
Balance at September 30, 2021		77,240,215		$	908	$	969,719		$	(368	)	$	1,935,831		$	(442,799	)	$	2,463,291

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'*
Nine 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		65,142			1		2,791			—			—			—			2,792
Restricted stock units vested		110,641			1		—			—			—			—			1
Stock issued to directors		19,780			—		849			—			—			—			849
Shares withheld related to net share settlement of RSUs		—			—		(2,864	)		—			—			—			(2,864	)
Purchases of treasury stock		(2,534,465	)		—		—			—			—			(109,774	)		(109,774	)
Stock-based compensation		—			—		5,183			—			—			—			5,183
Cash dividends of $1.02 per share		—			—		—			—			(76,111	)		—			(76,111	)
Other comprehensive loss		—			—		—			(109,809	)		—			—			(109,809	)
Net income		—			—		—			—			263,041			—			263,041
Balance at September 30, 2022		73,411,960		$	911	$	978,433		$	(112,874	)	$	2,172,098		$	(619,009	)	$	2,419,559

									Accumulated
	Common Stock					Additional			Other									Total
	*Number of*					*Paid-in*			*Comprehensive*			*Retained*			*Treasury*			*Stockholders'*
	*Shares*			*Amount*		*Capital*			*Income or (loss)*			*Earnings*			*Stock*			*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		62,326			1		2,618			—			—			—			2,619
Restricted stock units vested		123,893			1		—			—			—			—			1
Stock issued to directors		20,750			—		850			—			—			—			850
Shares withheld related to net share settlement of RSUs		—			—		(2,632	)		—			—			—			(2,632	)
Purchases of treasury stock		(2,475,019	)		—		—			—			—			(100,668	)		(100,668	)
Stock-based compensation		—			—		4,149			—			—			—			4,149
Cash dividends of $0.93 per share		—			—		—			—			(73,335	)		—			(73,335	)
Other comprehensive loss		—			—		—			(5,678	)		—			—			(5,678	)
Net income		—			—		—			—			222,980			—			222,980
Balance at September 30, 2021		77,240,215		$	908	$	969,719		$	(368	)	$	1,935,831		$	(442,799	)	$	2,463,291

See accompanying Notes to Consolidated Financial Statements.

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CATHAY GENERAL BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

		Nine months ended September 30,
		2022