Cathay General Bancorp(US:CATY)2023-11-07 16:00PART I – FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS (Unaudited) This section presents Cathay General Bancorp's unaudited consolidated financial statements, including balance sheets, income statements, and cash flows, for the periods ending September 30, 2023 Consolidated Balance Sheets | Balance Sheet Highlights | Sep 30, 2023 (in billions) | Dec 31, 2022 (in billions) | | :--- | :--- | :--- | | Total Assets | $22.84 | $21.95 | | Loans, net | $18.86 | $18.10 | | Total Deposits | $19.64 | $18.51 | | Total Liabilities | $20.21 | $19.47 | | Total Stockholders' Equity | $2.64 | $2.47 | Consolidated Statements of Operations and Comprehensive Income | Income Statement Highlights | Three Months Ended Sep 30, 2023 (in millions) | Three Months Ended Sep 30, 2022 (in millions) | | :--- | :--- | :--- | | Net Interest Income | $185.6 | $197.5 | | Provision for Credit Losses | $7.0 | $2.0 | | Non-Interest Income | $7.8 | $9.9 | | Non-Interest Expense | $94.0 | $75.4 | | Net Income | $82.4 | $99.0 | | Diluted EPS | $1.13 | $1.33 | | Income Statement Highlights | Nine Months Ended Sep 30, 2023 (in millions) | Nine Months Ended Sep 30, 2022 (in millions) | | :--- | :--- | :--- | | Net Interest Income | $559.6 | $531.9 | | Provision for Credit Losses | $24.3 | $13.1 | | Non-Interest Income | $45.2 | $44.7 | | Non-Interest Expense | $270.0 | $222.2 | | Net Income | $271.6 | $263.0 | | Diluted EPS | $3.73 | $3.50 | Notes to Consolidated Financial Statements (Unaudited) - The company adopted ASU 2022-02, eliminating Troubled Debt Restructurings (TDRs) accounting guidance and enhancing loan modification disclosures, effective January 1, 2023347358 - On February 7, 2022, Cathay Bank acquired HSBC's West Coast retail and business banking operations, adding 10 branches, $646.1 million in loans, and $575.2 million in deposits307355 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management provides an in-depth analysis of the company's financial condition and operational results for the third quarter and first nine months of 2023, highlighting key performance drivers and balance sheet trends Quarterly Statement of Operations Review | Metric | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | Net Income (in millions) | $82.4 | $99.0 | | Diluted EPS | $1.13 | $1.33 | | Return on Average Assets | 1.42% | 1.81% | | Return on Average Equity | 12.36% | 15.94% | - Net interest income decreased 6.0% year-over-year to $185.6 million, driven by higher interest expense on deposits offsetting increased interest income from loans and securities199 - The net interest margin compressed to 3.38% in Q3 2023 from 3.83% in Q3 2022, reflecting rising funding costs181 - The provision for credit losses was $7.0 million in Q3 2023, compared to $2.0 million in Q3 2022 and $9.2 million in Q2 2023185 - Non-interest expense increased 24.7% to $94.0 million, primarily due to higher amortization of investments and increased salaries and employee benefits207 Balance Sheet Review - Total assets grew 4.1% to $22.84 billion as of September 30, 2023, from $21.95 billion at year-end 2022190 - Gross loans increased 4.2% to $19.02 billion, driven by commercial and residential mortgage growth, partially offset by declines in commercial and construction loans216239 - Total deposits increased 6.1% to $19.64 billion, with $9.00 billion in uninsured deposits, adequately covered by available liquidity sources434452 - The non-performing assets to total assets ratio slightly increased to 0.41% as of September 30, 2023, from 0.39% at year-end 2022219 - The allowance for credit losses (ACL) increased to $166.0 million, or 0.87% of gross loans, from $155.2 million, or 0.85% of gross loans, at year-end 2022252 Capital Resources - Total equity increased by $164.7 million to $2.64 billion as of September 30, 2023, primarily from $271.6 million in net income, partially offset by dividends and other comprehensive loss439458 | Capital Ratios (Bancorp) | Sep 30, 2023 | Dec 31, 2022 | Well-Capitalized Minimum | | :--- | :--- | :--- | :--- | | Common Equity Tier 1 | 12.70% | 12.21% | 6.50% | | Tier 1 Capital | 12.70% | 12.21% | 8.00% | | Total Capital | 14.21% | 13.73% | 10.00% | | Leverage Ratio | 10.44% | 10.08% | 5.00% | - The company declared a cash dividend of $0.34 per share in Q3 2023462 Item 3. 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 increase would raise net interest income by 11.6% over 12 months, while a decrease would reduce it by 14.3%, within established policy tolerance levels | Change in Interest Rate (Basis Points) | Net Interest Income Volatility (%) | Market Value of Equity Volatility (%) | | :--- | :--- | :--- | | +200 | +11.6 | -8.2 | | +100 | +5.8 | -3.9 | | -100 | -6.3 | +5.3 | | -200 | -14.3 | +11.8 | - The company's policy tolerance for net interest income volatility is a +/- 5% change for a hypothetical +/- 200 basis point rate change406 Item 4. CONTROLS AND PROCEDURES Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the period end, with no material changes to internal control over financial reporting during Q3 2023 - The principal executive and financial officers concluded that the company's disclosure controls and procedures are effective408 - No material changes occurred in the company's internal control over financial reporting during Q3 2023391 PART II – OTHER INFORMATION Item 1A. RISK FACTORS This section highlights risks related to recent financial services industry events, such as bank failures, which have decreased confidence and could lead to adverse regulatory changes, higher capital requirements, or increased FDIC insurance costs, potentially impacting the company's business - Recent bank failures, including Silicon Valley Bank and Signature Bank, have led to decreased confidence and significant market disruption in the banking sector411 - Potential adverse impacts include regulatory changes, higher capital requirements, increased funding costs, and elevated FDIC premiums or special assessments396