Cathay General Bancorp (the “Company”, “we”, “us”, or “our”) (Nasdaq: CATY), the holding company for Cathay Bank, today announced its unaudited financial results for the first quarter ended March 31, 2023. The Company reported net income of $96.0 million, or $1.32 per share, for the first quarter of 2023.

FINANCIAL PERFORMANCE

FIRST QUARTER HIGHLIGHTS

• Total deposits increased by $143.6 million, or 3.1% annualized, to $18.6 billion in the first quarter of 2023.
• The net interest margin decreased to 3.74% in the first quarter of 2023 from 3.87% in the fourth quarter of 2022.
• Diluted earnings per share decreased to $1.32 for the first quarter of 2023 compared to $1.33 for the fourth quarter of 2022.

“For the first quarter of 2023, our total deposits increased by $143.6 million or 3.1% annualized to $18.6 billion. We are prepared to operate during these challenging times to serve the financial needs of our customers,” commented Chang M. Liu, President and Chief Executive Officer of the Company.

INCOME STATEMENT REVIEW

FIRST QUARTER 2023 COMPARED TO THE FOURTH QUARTER 2022

Net income for the first quarter of 2023 was $96.0 million, a decrease of $1.6 million, or 1.6%, compared to net income of $97.6 million for the fourth quarter of 2022. Net income for the first quarter of 2023 included a $3.0 million write-off, or $0.03 per share of Signature Bank debt securities. Diluted earnings per share for the first quarter of 2023 was $1.32 per share compared to $1.33 per share for the fourth quarter of 2022.

Return on average stockholders’ equity was 15.39% and return on average assets was 1.76% for the quarter ended March 31, 2023, compared to a return on average stockholders’ equity of 15.73% and a return on average assets of 1.77% in the fourth quarter of 2022.

Net interest income before provision for credit losses

Net interest income before provision for credit losses decreased $9.4 million, or 4.7%, to $192.4 million during the first quarter of 2023, compared to $201.8 million in the fourth quarter of 2022. The decrease was due primarily to an increase in deposit interest expense, offset by an increase in income from loans and securities.

The net interest margin was 3.74% for the first quarter of 2023 compared to 3.87% for the fourth quarter of 2022.

For the first quarter of 2023, the yield on average interest-earning assets was 5.54%, the cost of funds on average interest-bearing liabilities was 2.46%, and the cost of interest-bearing deposits was 2.40%. In comparison, for the fourth quarter of 2022, the yield on average interest-earning assets was 5.06%, the cost of funds on average interest-bearing liabilities was 1.66%, and the cost of interest-bearing deposits was 1.59%. The increase in the yield on average interest-earning assets resulted mainly from higher interest rates on loans and securities. The net interest spread, defined as the difference between the yield on average interest-earning assets and the cost of funds on average interest-bearing liabilities, was 3.08% for the first quarter of 2023, compared to 3.40% for the fourth quarter of 2022.

Provision for credit losses

The Company recorded a provision for credit losses of $8.1 million in the first quarter of 2023 compared with $1.4 million in the fourth quarter of 2022. As of March 31, 2023, the allowance for credit losses, comprised of the reserve for loan losses and the reserve for unfunded loan commitments, increased $3.3 million to $158.5 million, or 0.87% of gross loans, compared to $155.2 million, or 0.85% of gross loans, as of December 31, 2022.

Non-interest income

Non-interest income, which includes revenues from depository service fees, letters of credit commissions, securities gains (losses), wealth management fees, and other sources of fee income, was $14.2 million for the first quarter of 2023, an increase of $2.2 million, or 18.2%, compared to $12.1 million for the fourth quarter of 2022. The increase was primarily due to a $5.8 million increase in unrealized gains on equity securities offset, in part, by a $3.0 million write-off of an available for sale security from Signature Bank when compared to the fourth quarter of 2022.

Non-interest expense

Non-interest expense increased $2.0 million, or 2.5%, to $83.2 million in the first quarter of 2023 compared to $81.2 million in the fourth quarter of 2022. The increase in non-interest expense in the first quarter of 2023 was primarily due to an increase of $3.1 million in salaries and employee benefits, and an increase of $1.1 million in FDIC deposit insurance assessment expense offset, in part, by a decrease of $1.4 million in marketing expense when compared to the fourth quarter of 2022. The efficiency ratio, defined as non-interest expense divided by the sum of net interest income before provision for loan losses plus non-interest income, was 40.3% in the first quarter of 2023 compared to 38.0% for the fourth quarter of 2022.

Income taxes

The effective tax rate for the first quarter of 2023 was 16.8% compared to 25.7% for the fourth quarter of 2022. The effective tax rate includes the impact of alternative energy investments and low-income housing tax credits.

BALANCE SHEET REVIEW

Gross loans were $18.32 billion as of March 31, 2023, an increase of $63.3 million, or 0.3%, from $18.25 billion as of December 31, 2022. The increase from December 31, 2022 was primarily due to an increase of $131.3 million, or 2.5%, in residential mortgage loans and an increase of $123.1 million, or 1.4%, in commercial mortgage loans offset, in part, by a decrease of $165.7 million, or 5.0%, in commercial loans, and a decrease of $25.9 million, or 8.0%, in home equity loans.

The loan balances and composition as of March 31, 2023, compared to December 31, 2022, and March 31, 2022, are presented below:

Total deposits were $18.65 billion as of March 31, 2023, an increase of $143.6 million, or 0.8%, from $18.51 billion as of December 31, 2022.

The deposit balances and composition as of March 31, 2023, compared to December 31, 2022, and March 31, 2022, are presented below:

ASSET QUALITY REVIEW

As of March 31, 2023, total non-accrual loans were $73.6 million, an increase of $4.7 million, or 6.8%, from $68.9 million as of December 31, 2022.

The allowance for loan losses was $144.9 million and the allowance for off-balance sheet unfunded credit commitments was $13.6 million as of March 31, 2023. The allowances represent the amount estimated by management to be appropriate to absorb expected credit losses inherent in the loan portfolio, including unfunded credit commitments. The allowance for loan losses represented 0.79% of period-end gross loans, and 167.81% of non-performing loans as of March 31, 2023. The comparable ratios were 0.80% of period-end gross loans, and 182.12% of non-performing loans as of December 31, 2022.

The changes in non-performing assets and troubled debt restructurings as of March 31, 2023, compared to December 31, 2022, and March 31, 2022, are presented below:

The ratio of non-performing assets to total assets was 0.4% as of March 31, 2023, compared to 0.4% as of December 31, 2022. Total non-performing assets increased $5.9 million, or 7.0%, to $90.4 million as of March 31, 2023, compared to $84.5 million as of December 31, 2022, primarily due to an increase of $4.7 million, or 6.9%, in nonaccrual loans and an increase of $1.2 million, or 10.2%, in accruing loans past due 90 days or more.

CAPITAL ADEQUACY REVIEW

As of March 31, 2023, the Company’s Tier 1 risk-based capital ratio of 12.42%, total risk-based capital ratio of 13.94%, and Tier 1 leverage capital ratio of 10.27%, calculated under the Basel III capital rules, continue to place the Company in the “well capitalized” category for regulatory purposes, which is defined as institutions with a Tier 1 risk-based capital ratio equal to or greater than 8%, a total risk-based capital ratio equal to or greater than 10%, and a Tier 1 leverage capital ratio equal to or greater than 5%. As of December 31, 2022, the Company’s Tier 1 risk-based capital ratio was 12.21%, total risk-based capital ratio was 13.73%, and Tier 1 leverage capital ratio was 10.08%.

CONFERENCE CALL

Cathay General Bancorp will host a conference call to discuss its first quarter 2023 financial results this afternoon, Thursday, April 20, 2023, at 3:00 p.m., Pacific Time. Analysts and investors may dial in and participate in the question-and-answer session. To access the call, please dial 1-833-816-1377 and refer to Conference Code 10177602. The presentation accompanying this call and access to the live webcast is available on our site at www.cathaygeneralbancorp.com and a replay of the webcast will be archived for one year within 24 hours after the event.

ABOUT CATHAY GENERAL BANCORP

Cathay General Bancorp is a publicly traded company (Nasdaq: CATY) and is the holding company for Cathay Bank, a California state-chartered bank. Founded in 1962, Cathay Bank offers a wide range of financial services and currently operate over 60 branches across the United States in California, New York, Washington, Texas, Illinois, Massachusetts, Maryland, Nevada, and New Jersey. Overseas, it has a branch outlet in Hong Kong, and a representative office in Beijing, Shanghai, and Taipei. To learn more about Cathay Bank, please visit www.cathaybank.com. Cathay General Bancorp’s website is at www.cathaygeneralbancorp.com. Information set forth on such websites is not incorporated into this press release.

FORWARD-LOOKING STATEMENTS

Statements made in this press release, other than statements of historical fact, are 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. These forward-looking statements may include, but are not limited to, such words as “aims,” “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “hopes,” “intends,” “may,” “plans,” “projects,” “predicts,” “potential,” “possible,” “optimistic,” “seeks,” “shall,” “should,” “will,” and variations of these words and similar expressions. Forward-looking statements 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 and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. Such risks and uncertainties and other factors include, but are not limited to, adverse developments or conditions related to or arising from local, regional, national and international business, market and economic conditions and events and the impact they may have on us, our customers and our operations, assets and liabilities; 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 future supervisory action by bank supervisory authorities; increased costs of compliance and other risks associated with changes in regulation including the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act; 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; our ability to generate anticipated returns on our investments and financings, including in tax-advantaged projects; environmental liabilities; our ability to compete with larger competitors; our ability to retain key personnel; successful management of reputational risk; natural disasters, public health crises and geopolitical events; general economic or business conditions in Asia, and other regions where Cathay Bank has operations; failures, interruptions, or security breaches of our information systems; our ability to adapt our systems to technological changes; risk management processes and strategies; adverse results in legal proceedings; 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; restrictions on dividends and other distributions by laws and regulations and by our regulators and our capital structure; issuance of preferred stock; successfully raising additional capital, if needed, and the resulting dilution of interests of holders of our common stock; the soundness of other financial institutions; and general competitive, economic political, and market conditions and fluctuations.

These and other factors are further described in Cathay General Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2022 (Item 1A in particular), other reports filed with the Securities and Exchange Commission (“SEC”), and other filings Cathay General 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 press release. Given these risks and uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and, except as required by law, we undertake no obligation to update or review any forward-looking statement to reflect circumstances, developments or events occurring after the date on which the statement is made or to reflect the occurrence of unanticipated events.

The Company uses certain non-GAAP financial measures to provide supplemental information regarding the Company’s performance. Tangible equity and tangible equity to tangible assets ratio are non-GAAP financial measures. Tangible equity and tangible assets represent stockholders’ equity and total assets, respectively, which have been reduced by goodwill and other intangible assets. Given that the use of such measures and ratios is more prevalent in the banking industry, and such measures and ratios are used by banking regulators and analysts, the Company has included them below for discussion.

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