Cathay General Expands Margin as Deposit Costs Recede
Net interest income rose 3.5% sequentially to $200.9 million as the bank benefited from lower repricing of maturing time deposits.
Net interest income before provision for credit losses rose 3.5% sequentially to $200.9 million. The result followed a 5 bps expansion in net interest margin to 3.48% from 3.43%.
Margin growth was driven by a 10 bps decline in the cost of average interest-bearing deposits to 2.86%. This reduction in funding costs, stemming from the lower repricing of maturing time deposits, offset a 4 bps decline in the yield on average interest-earning assets, which fell to 5.66%.
Loan growth remained positive as total loans, excluding those held for sale, rose 2.2% sequentially to $20.62 billion. Commercial loans increased by $242.4 million and commercial real estate loans grew by $190.6 million, though these gains were partially offset by a 14.1% decrease in construction loans.
Total deposits rose 1.9% sequentially to $21.06 billion. Non-interest-bearing demand deposits grew by $168.1 million and NOW deposits grew by $275.9 million, while time deposits decreased by $154.3 million.
Cathay General Bancorp (CATY), a commercial bank focused on the Chinese-American community, increased its Tier 1 risk-based capital ratio by 23 bps to 13.70%. The board increased the share repurchase authorization by $50 million to a total of $200 million and approved the redemption of $54.1 million of trust preferred securities, representing approximately 45% of the outstanding amount.
Credit provisions fell to $11.2 million from $18.2 million in the prior quarter. Net charge-offs for the period were $1.85 million, a decrease from $12.74 million in the same quarter a year ago. However, non-performing assets rose 13.7% sequentially to $145.4 million, driven by a 25.5% increase in non-accrual loans to $111.7 million.
Non-interest income rose 3.4% sequentially to $21.4 million. A $5.1 million reduction in investment securities repositioning losses and an $0.8 million increase in wealth management fees were offset by a $5.7 million decrease in unrealized gains from equity securities.
Non-interest expense rose 6.5% sequentially to $92.3 million. Higher salaries and benefits added $1.2 million to the total, while amortization of low-income housing and alternative energy partnerships increased by $3.1 million. The efficiency ratio rose to 41.53% from 40.35%.