Cathay General Bancorp(CATY) - 2023 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The unaudited financial statements detail the company's financial position, performance, equity changes, and cash flows as of June 30, 2023 Consolidated Balance Sheets Total assets grew to $23.03 billion, driven by loan growth, while liabilities rose due to increased deposits and borrowings Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Loans, net | $18,788,188 | $18,100,898 | | Securities available-for-sale | $1,487,321 | $1,473,348 | | Total Assets | $23,028,438 | $21,947,976 | | Liabilities & Equity | | | | Total Deposits | $19,097,003 | $18,505,279 | | Advances from FHLB | $815,000 | $485,000 | | Total Liabilities | $20,425,767 | $19,473,936 | | Total Stockholders' Equity | $2,602,671 | $2,474,040 | Consolidated Statements of Operations and Comprehensive Income Net income for Q2 2023 rose to $93.2 million, driven by higher net interest income despite increased credit provisions Key Performance Indicators | Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $181.5M | $175.2M | $374.0M | $334.4M | | Provision for Credit Losses | $9.2M | $2.5M | $17.3M | $11.1M | | Net Income | $93.2M | $89.0M | $189.2M | $164.0M | | Diluted EPS | $1.28 | $1.18 | $2.60 | $2.17 | Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity grew to $2.60 billion, primarily from net income, partially offset by dividends and stock buybacks Changes in Stockholders' Equity (Six months ended June 30, 2023, in thousands) | Component | Amount | | :--- | :--- | | Balance at Dec 31, 2022 | $2,474,040 | | Net Income | $189,227 | | Other Comprehensive Income | $3,246 | | Cash Dividends Paid | $(49,266) | | Purchases of Treasury Stock | $(16,692) | | Balance at June 30, 2023 | $2,602,671 | Consolidated Statements of Cash Flows Net cash increased by $319.9 million, with financing inflows from deposits offsetting investing outflows from loan growth Cash Flow Summary (Six months ended June 30, in thousands) | Cash Flow Category | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $211,847 | $177,448 | | Net Cash used for Investing Activities | $(746,023) | $(1,086,866) | | Net Cash from Financing Activities | $854,039 | $(386,324) | | Net Increase/(Decrease) in Cash | $319,863 | $(1,295,742) | Notes to Consolidated Financial Statements The notes detail accounting policies, loan and investment portfolios, CECL methodology, and derivative instruments - The company operates 61 branches across nine U.S. states, one in Hong Kong, and three representative offices in Asia[60] - Adopted ASU 2022-02, which eliminates the Troubled Debt Restructuring (TDR) accounting model and enhances disclosure for certain loan modifications[40][123] - The Allowance for Credit Losses (ACL) is determined using the Current Expected Credit Loss (CECL) methodology, incorporating economic forecasts[77][388] - The company uses interest rate swaps to mitigate interest rate risk, with a notional amount of fair value hedges of $758.7 million[234][258][261] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes Q2 2023 performance, including loan growth, margin compression, and strong capital and liquidity positions Financial Performance Review Q2 2023 net income rose to $93.2 million, with higher net interest income offset by margin compression and rising expenses Q2 2023 Financial Highlights | Metric | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Net Income | $93.2 million | $89.0 million | | Diluted EPS | $1.28 | $1.18 | | Return on Average Assets | 1.67% | 1.69% | | Net Interest Margin | 3.44% | 3.52% | | Efficiency Ratio | 45.36% | 39.06% | - The provision for credit losses was $9.2 million in Q2 2023, compared to $2.5 million in Q2 2022, reflecting loan growth and a cautious economic outlook[283] Balance Sheet Analysis Assets grew to $23.03 billion, driven by a $698.8 million increase in gross loans and improved asset quality Loan Portfolio Composition (in billions) | Loan Type | June 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Commercial loans | $3.32 | $3.32 | | Commercial mortgage loans | $9.29 | $8.79 | | Residential mortgage & equity lines | $5.81 | $5.58 | | Gross Loans | $18.95 | $18.25 | - Non-performing assets to total assets ratio improved to 0.3% at June 30, 2023, from 0.5% at December 31, 2022[326] - Total uninsured deposits were $8.42 billion, with available liquidity sources exceeding 100% of uninsured and uncollateralized deposits[372] Allowance for Credit Losses (ACL) Analysis The ACL increased to $165.6 million (0.87% of loans), reflecting loan growth and a conservative economic outlook - The ACL to non-performing loans coverage ratio increased to 220.9% from 193.0% at year-end 2022[353] - The CECL model placed the most weight on the downside economic scenario, which contemplates a recession, for its 8-quarter forecast period[344][390] - A sensitivity analysis indicates that a 100% weighting to the downside scenario would have increased the ACL by approximately $51.8 million[368] Capital Resources and Liquidity The company maintains a strong capital position, with all ratios exceeding 'well capitalized' minimums and robust liquidity Regulatory Capital Ratios (Bancorp) | Ratio | June 30, 2023 | Well Capitalized Minimum | | :--- | :--- | :--- | | Common Equity Tier 1 (CET1) | 12.38% | 6.50% | | Tier 1 Capital | 12.38% | 8.00% | | Total Capital | 13.88% | 10.00% | | Leverage Ratio | 10.45% | 5.00% | - The company declared a quarterly cash dividend of $0.34 per share[433] - The Bank had access to a $7.71 billion credit line with the FHLB and borrowing capacity of $1.6 million from the Federal Reserve Bank Discount Window[412] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate risk through simulation models, remaining within policy tolerance levels Interest Rate Sensitivity Analysis (as of June 30, 2023) | Change in Interest Rate (bps) | % Change in Net Interest Income (12-month) | % Change in Market Value of Equity | | :--- | :--- | :--- | | +200 | 9.9% | -8.0% | | +100 | 4.9% | -3.9% | | -100 | -5.9% | 2.8% | | -200 | -13.6% | 8.7% | Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes in internal controls - Management confirms the effectiveness of disclosure controls and procedures as of June 30, 2023[445] - No material changes occurred in Q2 2023 that are reasonably likely to materially affect the Company's internal control over financial reporting[417] PART II – OTHER INFORMATION Item 1. Legal Proceedings Litigation arising from the ordinary course of business is not expected to have a material adverse financial impact - The company states that any liability from ordinary course litigation is not expected to have a material adverse impact[448] Item 1A. Risk Factors A new risk factor addresses potential impacts from recent financial industry instability and bank failures - A new risk factor was added related to recent events impacting the financial services industry, such as the failures of several U.S. banks[421][450] - Potential impacts include decreased depositor confidence, market volatility, adverse regulatory changes, and increased funding costs[422] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities were conducted during the reporting period - None reported[451][463] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including required certifications and XBRL data - Lists filed exhibits, including CEO/CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2) and XBRL data files[426][453][465][466]