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Cathay General Bancorp(CATY) - 2025 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents Cathay General Bancorp's unaudited consolidated financial statements, including balance sheets, income statements, equity changes, and cash flows, with notes on accounting policies Consolidated Balance Sheets As of June 30, 2025, total assets increased to $23.72 billion from $23.05 billion at year-end 2024, driven by growth in loans, with total liabilities rising to $20.84 billion and total stockholders' equity increasing to $2.89 billion Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $23,723,847 | $23,054,681 | | Loans held for investment, net | $19,597,337 | $19,203,649 | | Securities available-for-sale | $1,648,433 | $1,547,128 | | Total Liabilities | $20,837,552 | $20,208,977 | | Total deposits | $20,006,330 | $19,686,199 | | Advances from FHLB | $412,000 | $60,000 | | Total Stockholders' Equity | $2,886,295 | $2,845,704 | Consolidated Statements of Operations and Comprehensive Income Net income for Q2 2025 rose to $77.5 million ($1.10 diluted EPS) from $66.8 million in Q2 2024, driven by higher net interest income and lower non-interest expense, with six-month net income reaching $147.0 million Q2 2025 vs Q2 2024 Performance (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net Interest Income | $181,221 | $165,316 | | Provision for Credit Losses | $11,200 | $6,600 | | Non-Interest Income | $15,391 | $13,215 | | Non-Interest Expense | $89,134 | $99,352 | | Net Income | $77,450 | $66,829 | | Diluted EPS | $1.10 | $0.92 | Six Months 2025 vs 2024 Performance (in thousands, except per share data) | Metric | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | | Net Interest Income | $357,860 | $333,888 | | Provision for Credit Losses | $26,700 | $8,500 | | Non-Interest Income | $26,595 | $19,826 | | Non-Interest Expense | $174,790 | $192,591 | | Net Income | $146,956 | $138,264 | | Diluted EPS | $2.09 | $1.90 | Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity increased to $2.89 billion by June 30, 2025, from $2.85 billion at year-end 2024, primarily due to net income and other comprehensive income, partially offset by treasury stock purchases and cash dividends Reconciliation of Stockholders' Equity (Six Months Ended June 30, 2025, in thousands) | Description | Amount | | :--- | :--- | | Balance at Dec 31, 2024 | $2,845,704 | | Net Income | $146,956 | | Other Comprehensive Income | $16,385 | | Purchases of Treasury Stock | $(77,338) | | Cash Dividends | $(47,701) | | Other (Stock Comp, DRIP, etc.) | $(2,001) | | Balance at June 30, 2025 | $2,886,295 | Consolidated Statements of Cash Flows Net cash provided by operating activities was $162.9 million for the first half of 2025, while investing activities used $501.1 million and financing activities provided $545.6 million, resulting in a $207.5 million net increase in cash and cash equivalents Cash Flow Summary (Six Months Ended June 30, 2025, in thousands) | Activity | Amount | | :--- | :--- | | Net Cash from Operating Activities | $162,911 | | Net Cash from Investing Activities | $(501,088) | | Net Cash from Financing Activities | $545,632 | | Net Increase in Cash | $207,455 | Notes to Consolidated Financial Statements (Unaudited) This section provides detailed disclosures supporting the primary financial statements, covering business operations, accounting policies, investment securities, loan portfolio, credit losses, borrowed funds, fair value, derivatives, and equity activities Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's financial condition and results for Q2 and H1 2025, analyzing net interest income, credit losses, non-interest items, and balance sheet components including loans, non-performing assets, deposits, capital, and liquidity, alongside critical accounting policies like CECL Highlights The company reported strong Q2 2025 performance with net income of $77.5 million ($1.10 diluted EPS), a 16.0% increase year-over-year, alongside an improved net interest margin, and growth in total loans and deposits Q2 2025 Key Performance Metrics | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net Income (millions) | $77.5 | $66.8 | | Diluted EPS | $1.10 | $0.92 | | Return on Average Assets | 1.33% | 1.15% | | Return on Average Equity | 10.72% | 9.63% | | Efficiency Ratio | 45.34% | 55.65% | - Net interest margin expanded to 3.27% in Q2 2025 from 3.01% in Q2 2024171 - Total loans grew 2.11% to $19.78 billion and total deposits grew 1.6% to $20.01 billion since December 31, 2024171 Quarterly Statement of Operations Review Q2 2025 net interest income increased 9.6% year-over-year to $181.2 million due to lower cost of funds, while provision for credit losses rose, non-interest income increased, and non-interest expense decreased primarily from reduced amortization of tax credit investments - The increase in net interest income was primarily due to a decrease in interest expense from deposits, which more than offset a decrease in interest income from loans and securities168 - The provision for credit losses increased to $11.2 million in Q2 2025 from $6.6 million in Q2 2024175 - Non-interest expense decreased mainly due to a $12.2 million reduction in amortization expense from investments in low-income housing and alternative energy partnerships179 Balance Sheet Review The balance sheet review details changes from year-end 2024 to June 30, 2025, showing total asset growth to $23.72 billion driven by a 2.1% increase in gross loans to $19.78 billion, stable non-performing assets, 1.6% deposit growth, and an increased allowance for credit losses Loans Gross loans held for investment increased by $408.7 million (2.1%) to $19.78 billion by June 30, 2025, primarily driven by commercial real estate and commercial loans, with commercial real estate comprising 52.4% of the portfolio Loan Portfolio Composition (in thousands) | Loan Type | June 30, 2025 | Dec 31, 2024 | % Change | | :--- | :--- | :--- | :--- | | Commercial loans | $3,194,724 | $3,098,004 | 3.1% | | Construction loans | $301,125 | $319,649 | (5.8)% | | Commercial real estate loans | $10,363,109 | $10,033,830 | 3.3% | | Residential mortgage & equity lines | $5,922,143 | $5,919,092 | 0.1% | | Gross loans held for investment | $19,784,702 | $19,375,955 | 2.1% | Non-performing Assets Total non-performing assets increased slightly to $199.5 million by June 30, 2025, maintaining a stable 0.84% ratio to total assets, with non-accrual loans rising to $174.2 million primarily due to commercial real estate Non-Performing Assets (in thousands) | Category | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Accruing loans past due 90+ days | $6,389 | $4,050 | | Non-accrual loans | $174,153 | $169,161 | | Other real estate owned (OREO) | $18,990 | $23,071 | | Total Non-Performing Assets | $199,532 | $196,282 | | NPA / Total Assets | 0.84% | 0.85% | Allowance for Credit Losses The allowance for credit losses increased to $183.4 million by June 30, 2025, representing 0.93% of gross loans, driven by a $26.7 million provision, with the CECL methodology incorporating an 8-quarter forecast period sensitive to macroeconomic factors like unemployment Allowance for Credit Losses Ratios | Ratio | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | ACL to Gross Loans | 0.93% | 0.88% | | ACL to Non-Performing Loans | 101.60% | 98.98% | - The CECL model uses a blended scenario approach with an 8-quarter reasonable and supportable forecast period and a 4-quarter reversion period. The baseline scenario projects unemployment peaking at 4.8% in Q4 2026, while the downside scenario contemplates a recession with unemployment peaking at 8.3%232233234 - A sensitivity analysis indicates that applying a 100% weighting to the downside scenario would have increased the ACL by approximately $111.9 million as of June 30, 2025235 Deposits Total deposits increased by $320.1 million (1.6%) to $20.01 billion by June 30, 2025, maintaining a stable mix with time deposits at 48.5%, and available liquidity sources exceeding the $9.48 billion in uninsured deposits Deposit Composition (in thousands) | Deposit Type | June 30, 2025 | % of Total | | :--- | :--- | :--- | | Non-interest-bearing | $3,381,407 | 16.9% | | Interest-bearing | $16,624,923 | 83.1% | | Time deposits | $9,702,651 | 48.5% | | Total Deposits | $20,006,330 | 100.0% | - Total uninsured deposits were $9.48 billion. Excluding $824.0 million in collateralized deposits, uninsured and uncollateralized deposits were $8.66 billion, representing 43.3% of total deposits244 - The company has recognized $13.3 million cumulatively as of June 30, 2025, related to the FDIC special assessment to recover losses from the Deposit Insurance Fund (DIF)246 Capital Resources Total equity increased to $2.89 billion in H1 2025, with the company remaining well-capitalized as evidenced by a 13.35% CET1 ratio and 14.92% Total Capital ratio, while maintaining a $0.34 quarterly cash dividend per share Bancorp Capital Ratios | Ratio | June 30, 2025 | Required (incl. buffer) | | :--- | :--- | :--- | | CET1 Capital Ratio | 13.35% | 7.00% | | Tier 1 Capital Ratio | 13.35% | 8.50% | | Total Capital Ratio | 14.92% | 10.50% | | Leverage Ratio | 11.09% | 4.00% | - The company declared a cash dividend of $0.34 per share in Q2 2025, continuing the rate set in Q4 2021256258 Liquidity The company maintains a strong liquidity position, with principal sources including deposit growth, securities cash flows, and FHLB advances, holding an $8.12 billion approved FHLB credit line with $7.00 billion unused capacity, deemed adequate for the next twelve months - The average monthly liquidity ratio was 13.9% as of June 30, 2025259 - At June 30, 2025, the Bank had an approved FHLB credit line of $8.12 billion, with $412.0 million in advances outstanding and $930.0 million in standby letters of credit issued260 Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate risk using a net interest income simulation model, projecting that a +200 basis point shock would increase NII by 13.0% and decrease market value of equity by 8.4%, while a -200 basis point shock would decrease NII by 4.2% and increase market value of equity by 5.2% Interest Rate Sensitivity Analysis (as of June 30, 2025) | Change in Interest Rate (bps) | % Change in Net Interest Income (12 mo.) | % Change in Market Value of Equity | | :--- | :--- | :--- | | +200 | 13.0% | -8.4% | | +100 | 6.5% | -3.7% | | -100 | -2.3% | 3.2% | | -200 | -4.2% | 5.2% | - The company has established policy tolerance levels to limit NII volatility to +/- 5% and the loss in net economic value to zero for a +/- 200 basis point rate shock266 Controls and Procedures The company's principal executive and financial officers concluded that disclosure controls and procedures were effective as of Q2 2025, with no material changes in internal control over financial reporting during the quarter - Management concluded that the Company's disclosure controls and procedures are effective as of the end of the period covered by the report270 - No changes in internal control over financial reporting occurred during Q2 2025 that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting271 PART II – OTHER INFORMATION Legal Proceedings The company is involved in ordinary course litigation, but management believes any resulting liability would not materially adversely impact its financial condition, results of operations, or liquidity - Management believes that the outcomes of current legal proceedings are not expected to have a material adverse impact on the Company's consolidated financial condition273 Risk Factors The company states that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2024 - There have been no material changes to the risk factors disclosed in the Company's 2024 Form 10-K274 Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 804,179 shares in June 2025 at an average price of $44.22 as part of a new $150.0 million stock repurchase program, with approximately $114.4 million remaining available as of June 30, 2025 Issuer Purchases of Equity Securities (Q2 2025) | Period | Total Shares Purchased | Average Price Paid per Share | Approx. Value Remaining in Program | | :--- | :--- | :--- | :--- | | April 2025 | 0 | $0.00 | - | | May 2025 | 0 | $0.00 | - | | June 2025 | 804,179 | $44.22 | $114,438,105 | - A new stock repurchase program of up to $150.0 million was announced on June 4, 2025, after the completion of the previous $125.0 million program159 Other Information President and CEO Chang M. Liu entered into a Rule 10b5-1 trading agreement on May 1, 2025, for the sale of vested net shares to cover estimated tax liabilities from equity compensation - President and CEO Chang M. Liu entered into a Rule 10b5-1 trading agreement on May 1, 2025, to sell shares to cover tax liabilities associated with equity awards280 Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO pursuant to the Sarbanes-Oxley Act and Inline XBRL data files - Exhibits filed include CEO and CFO certifications (Rule 302 and 906) and Inline XBRL documents281282