NASDAQ:CATY Cathay General Bancorp Q2 2024 Earnings Report $42.72 -0.22 (-0.51%) Closing price 05/5/2025 04:00 PM EasternExtended Trading$42.26 -0.46 (-1.08%) As of 04:41 AM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Cathay General Bancorp EPS ResultsActual EPS$0.92Consensus EPS $0.94Beat/MissMissed by -$0.02One Year Ago EPS$1.28Cathay General Bancorp Revenue ResultsActual Revenue$178.53 millionExpected Revenue$179.19 millionBeat/MissMissed by -$660.00 thousandYoY Revenue Growth-12.80%Cathay General Bancorp Announcement DetailsQuarterQ2 2024Date7/22/2024TimeAfter Market ClosesConference Call DateMonday, July 22, 2024Conference Call Time6:00PM ETConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Cathay General Bancorp Q2 2024 Earnings Call TranscriptProvided by QuartrJuly 22, 2024 ShareLink copied to clipboard.There are 9 speakers on the call. Operator00:00:00afternoon, ladies and gentlemen, and welcome to the Cathay General Bancorp Second Quarter of 2024 Earnings Conference Call. My name is Cole, and I'll be your coordinator for today. At this time, all participants are in a listen only mode. Following the prepared remarks, there will be a question and answer session. Today's call is being recorded and will be available for replay at www.caseaygeneral bancorp.com. Operator00:00:37I would now like to turn the call over to Georgia Lowe, Investor Relations of Cathay General Bancorp. Please go ahead. Speaker 100:00:44Thank you, Cole, and good afternoon. Here to discuss the financial results today are Mr. Chang Liu, our President and Chief Executive Officer and Mr. Heng Chen, our Executive Vice President and Chief Financial Officer. Before we begin, we wish to remind you that the speakers on this call may make forward looking statements within the meaning of the applicable provisions of the Private Securities Litigation Reform Act of 1995 concerning future results and events, and that these statements are subject to certain risks and uncertainties that could cause actual results to differ materially. Speaker 100:01:13These results and uncertainties are further described in the company's annual report on 10 ks for the year ended December 31, 2023, at item 1A in particular and in other reports and filings with the Securities and Exchange Commission from time to time. As such, we caution you not to place undue reliance on such 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 obligations to update or review any forward looking statements to reflect future circumstances, developments or events or the occurrence of unanticipated events. This afternoon, Cathay General Bancorp issued an earnings release outlining its Q2 2024 results. To obtain a copy of our earnings release as well as our earnings presentation, please visit our website at www.cathaygeneralbancorp.com. Speaker 100:02:01After comments by management today, we will open up this call for questions. I will now turn the call over to our President and Chief Executive Officer, Mr. Chang Liu. Speaker 200:02:09Thank you, Georgia, and good afternoon. Welcome to our 2024 Q2 earnings conference call. This afternoon, we reported net income of $66,800,000 for Q2 2024, a 6.4% decrease as compared to $71,400,000 in Q1. Diluted earnings per share decreased by 6.1 percent to $0.92 per share for the Q2 of 2024 as compared to $0.98 per share in the prior quarter. During Q2, 2024, we repurchased 689,470 shares of our common stock at an average cost of $36.37 or $25,100,000 under our May 2024, 125,000,000 stock buyback program. Speaker 200:02:54Under the May 2024 stock repurchase program, we anticipate repurchasing around $35,000,000 in stock per quarter in Q3 and Q4 depending on market conditions. In Q2, twenty twenty four, total gross loans decreased $72,000,000 or 1.5 percent annualized, primarily driven by decreases of $42,000,000 or 5.1 percent annualized in commercial loans $69,000,000 or 4.6 percent annualized in residential mortgages and HELOC, and $25,000,000 or 24.4 percent annualized in construction loans, offset by an increase of $64,000,000 or 2.6 percent annualized in commercial real estate loans. Due to slower than expected loan growth in the first half of twenty twenty four, we have revised our overall loan growth guidance for 2024 to range between 0% 2%. Slide 6 shows the percentage of loans in each major loan portfolio that are either fixed rate or hybrid loans in their fixed rate period. Our loan portfolio consists of 64% fixed rate and hybrid loans excluding fixed to flow interest rate swaps on 4% of total loans. Speaker 200:04:03Fixed rate loans comprised 30% of total loans and hybrid in fixed rate period comprised 34% of total loans. We continue to monitor our commercial real estate loans. Turning to Slide 8 of our earnings presentation. As of June 30, 2024, the average loan to value of our CRE loans was 50%. As of June 30, 2024, our retail property loan portfolio as shown on Slide 9 comprised of 24% of our total CRE loan portfolio or 12% of our total loan portfolio. Speaker 200:04:3489% of the $2,400,000,000 in retail property loan is secured by retail building, a neighborhood, mixed use or strip centers and only 10% is secured by shopping centers. On Slide 10, office property loans represent 15% of our total commercial real estate loan portfolio or 8% of our total loan portfolio. Only 35% of the $1,500,000,000 office property loans are collateralized by pure office buildings, only 3% are in central business districts. 37% of office property loans are collateralized by office retail stores, office mixed use and medical offices and the remainder 28% are collateralized by office condos. For Q2, 2024, we reported net charge offs of $8,000,000 of which $5,100,000 was reserved as of March 31, 2024 as compared to $1,100,000 in Q1. Speaker 200:05:30Our non accrual loans were 0.55 percent of total loans as of June 30, 2024, which increased $9,200,000 to $107,300,000 as compared to Q1. The increase in non accrual loans during Q2 2024 came mainly from 1 office CRE loan and 1 retail condo CRE loan totaling $8,300,000 with no projected losses based on recent appraisals. Turning to Slide 12. As of June 30, 2024, classified loans increased to $224,000,000 from $244,000,000 in Q1 and our special mention loans decreased to $201,000,000 from $249,000,000 in Q1. We recorded a provision for credit loss of $6,600,000 in Q2 2024 as compared to a $1,900,000 in provisions for credit losses for Q1. Speaker 200:06:19Total deposits decreased by 73,000,000 or 1.5 percent annualized during Q2 2024 with NOW deposits decreased $186,000,000 in Q2 due to the runoff of broker NOW deposits. Total core deposits decreased $274,000,000 or 11% annualized and total time deposits increased $201,000,000 or 8.6 percent annualized during Q2 2024 due to a shift from core deposits to time deposit with higher rates. We expect the overall deposit growth to continue at an estimated range between 3% 4%. As of June 30, 2024, total uninsured deposits were $8,200,000,000 net of $800,000,000 in collateralized deposits or 41.5 percent of total deposits. We have an unused borrowing capacity from the Federal Home Loan Bank of $7,100,000,000 and the Federal Reserve Bank of $174,000,000 and unplaced securities of $1,700,000,000 as of June 30, 2024. Speaker 200:07:21These sources of available liquidity more than cover 100 percent of uninsured and un collateral deposits as of June 30, 2024. I will now turn the floor over to our Executive Vice President and Chief Financial Officer, Mr. Heng Chang to discuss the quarterly financial results in more detail. Speaker 300:07:38Thank you, Chang, and good afternoon, everyone. For Q2, twenty twenty four, net income decreased by $4,600,000 or 6.4 percent to $66,800,000 compared to $71,400,000 for Q1, primarily due to a $4,700,000 increase in the provision for credit losses for Q2 2024 and partially due to 4,100,000 dollars or $0.04 per diluted share from accelerated amortization of solar tax credit investments, which were previously forecasted to be amortized in the second half of twenty twenty four. Q2 twenty twenty four net interest margin was 3.01% as compared to 3.05% for Q1. We are seeing signs. Our net interest margin has begun to bottom out since the NIM for the month of June was 3.06%, approximately $7,200,000,000 in high cost CDs which will mature and reprice in the second half of twenty twenty four. Speaker 300:09:12And this will help lower the cost of deposits as they reprice. Include 2 interest recoveries and prepayment penalties added 2 basis points to the interest income I'm sorry, to the net interest margin as compared to no basis points in net interest margin for Q1. Non interest income for Q2 2024 increased $6,600,000 to $13,200,000 when compared to $6,600,000 in Q1 2024. The increase was primarily due to a $7,600,000 decrease in mark to market unrealized loss on equity securities, offset by $1,100,000 decrease in realized gain on sale of investment securities in Q1 2024. Non interest expense increased by $6,100,000 or 6.5 percent to 99 point $3,000,000 in Q2 2024 when compared to $93,200,000 in Q1. Speaker 300:10:40This increase was primarily due to $9,000,000 in higher amortization of low income housing and solar tax credit investments, $1,200,000 higher in professional expense and $1,200,000 higher in OREO expense, offset by a decrease of $3,000,000 in salaries and benefits due to a $2,000,000 true up for the 2023 bonuses in Q1 and $1,100,000 seasonally higher payroll expense in Q1. And lastly, a decrease of $2,300,000 in FDIC's assessment expense in Q1 2024. To build up the infrastructure of enterprise risk management and other control functions, we have increased the guidance for core non interest expense, excluding tax credit and core deposit intangible amortization and OREO expense to between 4% to 5% from our previous guidance of 3% to 3.5%. Effective tax rate for Q2 2024 was 7.9% as compared to 10.8% for Q1. We expect effective tax rate between 10.5% and 11.5 for the second half of twenty twenty four. Speaker 300:12:29We now expect a total 2024 solo tax credit investment amortization of 32,500,000 with $10,000,000 amortization in Q3 $2,000,000 amortization in Q4. As of June 30, 2024, our Tier 1 leverage capital ratio increased to 10.83% as compared to 10.71% as of March 31, 2024. Our Tier 1 risk based capital ratio increased to 13.6% from 13.8% as of March 31, 2024 and our total risk based capital ratio increased to 14.74% from 14.55% as of March 31, 2024. Speaker 200:13:31Thank you, Heng. We'll now proceed to the question and answer portion of the call. Operator00:13:36Thank you. And our first question today will come from Matthew Clark with Piper Sandler. Please go ahead. Speaker 400:14:08Hey, good afternoon. Thanks for the questions. Maybe the first one just on your spot rate on deposits at the end of June, you had that number, either interest bearing or total? Speaker 300:14:26Yes, hold on. We have it here. So the spot rate of deposits, total interest bearing, 3.92. Speaker 400:14:41Okay. Got it. Thank you. And then just on your updated expense guide on a core basis, it implies that core run rate of $74,200,000 this quarter drops slightly below $72,000,000 in the second half to get to the midpoint of the guide. I guess just trying to get a sense for what's going to drive that reduction in the core expense rate? Speaker 300:15:10Well, we continue to have some one time expenses in Q2, higher consulting, higher market, higher charitable contributions and things like that. We could be off $1,000,000 a quarter here or there, but we think expenses will moderate in the second half. Speaker 400:15:45Okay. And can you quantify, I guess, how much of that was unusual, I guess, around consulting, marketing, and charitable? Speaker 300:15:54Yes. I'd say it's about $2,500,000 Speaker 500:15:59Okay. Got it. Okay. Thank you. Speaker 400:16:04And then just a quick one, low income housing amortization expected in 3Q and 4Q? Speaker 300:16:11It's about $10,000,000 a quarter each for low income housing. Speaker 200:16:17Okay. Thank you. Speaker 300:16:19Thank you. Operator00:16:21And our next question will come from Andrew Terrell with Stephens. Please go ahead. Speaker 600:16:27Hey, good afternoon. I wanted to ask on the I appreciate the $7,200,000,000 I think you said of CDs that mature in the back half of the year. I was curious, are those more heavily weighted to 1 quarter or is it fairly spread out between 3Q and 4Q? And then just overall, can you talk about kind of your expectations for spread pickup there? What kind of deposit cost reduction you're kind of aiming for? Speaker 300:17:00Yes. It's Q3 is slightly higher than Q4, so it's 3.7 $1,000,000,000 in Q3 and Q4 is about 3,500,000,000 dollars Our 6 month CDs from the Chinese promotion started to renew in July. So the good news is we haven't seen any net runoff so far. And I think in general, that rate was 5.2%. We've tiered the rates this time and I think we're targeting around 5. Speaker 300:18:02So that would be 20 basis points. Speaker 600:18:08Okay, perfect. I appreciate it. And I would assume that any of the kind of re pricing benefit there is factored into your margin guidance already? Speaker 300:18:17Yes, yes, of course, yes. Speaker 600:18:19Okay. I was looking through the presentation on the classified loans, look like they stepped up a decent amount this quarter, I think from $244,000,000 last quarter up to $324,000,000 this quarter. I was hoping you could maybe just talk about the step up in classifieds a little more this quarter, kind of any common threads you're seeing in terms of what's driving the increase or just any color on the classified increase? Speaker 200:18:46They're mostly downgrades from the EM class and they're all they're mostly all real estate secure. So we don't think there's any significant risk there. Speaker 600:19:01Okay, got it. And then, Jane, maybe just quickly, any maybe refresh us on your interest for M and A currently. Just like to get kind of a strategy update on that point. Speaker 200:19:15Yes, we certainly have talked to you guys all about this and until there's a viable candidate out there or a company out there that makes sense for us, that's within our niche space, that we don't have anything on the boards right now. Speaker 500:19:32Okay. Thanks for the questions. Of course. Operator00:19:41Our next question will come from Gary Tenner with D. A. Davidson. Please go ahead. Speaker 700:19:46Thanks. Good afternoon. I just wanted to ask about the updated loan growth guidance. Annualized loans through the first half of the year were down 4%, so pretty solid second half just to get back to even if not above it. So given the change in tone in terms of the full year loan growth, could you talk about kind of how the pipelines look in various loan segments and where you expect kind of the driver of that improvement to come from? Speaker 200:20:17Gary, most of it probably will come from some of the commercial real estate growth as you saw in the first in the second quarter results. Our residential mortgage application is down 40% -ish from prior year. C and I business is also down as well given the higher rates and because of the higher rates, our clients are using their liquidity to pay down any of the outstanding balances as soon as they can. We're trying to increase our both our loan side and the deposit side and trying to pick up more C and I business. But for the most part, you'll probably see any of the increases, the positive side on the CRE side. Speaker 700:20:55I appreciate that. And then historically on C and I, you've had kind of some positive 4th quarter seasonality. Do you think that, that is a positive factor this year as well? Or given your comments about customers wanting to pay down those lines, do you think that that's a little bit more tempered this year? Speaker 200:21:14Probably more tempered this year, Gary. I think given where the rates are, even if there is a potential rate cut in September that I think the balances will still kind of stay on the lower end. Utilization, I think, has been relatively flat around the 51%, 50 percentile. So we're not expecting looking for a 4th quarter positive impact during that period. Thank you. Speaker 300:21:40Thanks. Operator00:21:43And our next question will come from Chris McGratty with KBW. Please go ahead. Speaker 800:21:50Hey, how's it going? This is Andrew Leichner on for Chris McGratty. I know you mentioned you're starting to see the NIM stabilize, being to bottom out here. But how should we be thinking about the NII trajectory from here? Thank you. Speaker 200:22:06Well, Speaker 300:22:10we're going to keep the earning asset number flat to up slightly. So that should go up, particularly with the now expected September rate cut and then second one in December. Speaker 800:22:41Okay. Thank you. And then just one more if I can. Your CRE reserve is at 79 basis points and your constant your CRE concentration is 2 88% of total RBC. What's your comfortability there? Speaker 800:22:56And any thoughts on greater reserve build from here? Thank you. Speaker 300:23:03Well, I think we're we look at the low LTVs, 50% and the fact that almost all of our CRE loans have full personal guarantees. So we just usually what happens with the non accrual loans is that they stay in non accrual for 2 or 3 quarters depending on whether in California or New York. And if the borrower still can't pay, they become OREO. So and then we normally are able to sell OREO close to our book. So we don't think there's a hit in CAFE's history. Speaker 300:24:05With the economy being so solid, we think we'll be okay. But to have solid quarterly loan loss provisions to make sure that we remain adequately reserved. Speaker 800:24:35Okay, great. Thank you for the color. I'll step back. Speaker 300:24:38Thank you. And thank Operator00:24:42you for your participation. I will now turn the call back over to Kissei General Bancorp's management for any closing remarks. Speaker 200:24:50I want to thank everyone for joining us on our call and we look forward to speaking with you at our next quarterly earnings release call. Operator00:24:57Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a good day. Good afternoon, ladies and gentlemen, and welcome to the Cathay General Bancorp Second Quarter of 2024 Earnings Conference Call. My name is Cole, and I'll be your coordinator for today. Operator00:31:51At this time, all participants are in a listen only mode. Following the prepared remarks, there will be a question and answer session. Today's call is being recorded and will be available for replay at www.caseajegeneralbancorp.com. I would now like to turn the call over to Georgia Loh, Investor Relations of Cathay General Bancorp. Please go ahead. Speaker 100:32:26Thank you, Cole, and good afternoon. Here to discuss the financial results today are Mr. Chang Liu, our President and Chief Executive Officer and Mr. Heng Chen, our Executive Vice President and Chief Financial Officer. Before we begin, we wish to remind you that the speakers on this call may make forward looking statements within the meaning of the applicable provisions of the Private Securities Litigation Reform Act of 1995 concerning future results and events and that these statements are subject to certain risks and uncertainties that could cause actual results to differ materially. Speaker 100:32:55These results and uncertainties are further described in the company's annual report on Form 10 ks for the year ended December 31, 2023, at Item 1A in particular and in other reports and filings with the Securities and Exchange Commission from time to time. As such, we caution you not to place undue reliance on such 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 obligations to update or review any forward looking statements to reflect future circumstances, developments or events or the occurrence of unanticipated events. This afternoon, Cathay General Bancorp issued an earnings release outlining its Q2 2024 results. To obtain a copy of our earnings release as well as our earnings presentation, please visit our website at www.cafaygeneralbancorp.com. Speaker 100:33:43After comments by management today, we will open up this call for questions. I will now turn the call over to our President and Chief Executive Officer, Mr. Chang Liu. Speaker 200:33:51Thank you, Georgia, and good afternoon. Welcome to our 2024 Q2 earnings conference call. This afternoon, we reported net income of $66,800,000 for Q2 2024, a 6.4% decrease as compared to $71,400,000 in Q1. Diluted earnings per share decreased by 6.1 percent to $0.92 per share for the Q2 of 2024 as compared to $0.98 per share in the prior quarter. During Q2, 2024, we repurchased 689,470 shares of our common stock at an average cost of $36.37 or $25,100,000 under our May 2024, 125,000,000 stock buyback program. Speaker 200:34:37Under the May 2024 stock repurchase program, we anticipate repurchasing around $35,000,000 in stock per quarter in Q3 and Q4 depending on market conditions. In Q2, twenty twenty four, total gross loans decreased $72,000,000 or 1.5 percent annualized, primarily driven by decreases of $42,000,000 or 5.1 percent annualized in commercial loans $69,000,000 or 4.6 percent annualized in residential mortgages and HELOC, and $25,000,000 or 24.4 percent annualized in construction loans, offset by an increase of $64,000,000 or 2.6 percent annualized in commercial real estate loans. Due to slower than expected loan growth in the first half of twenty twenty four, we have revised our overall loan growth guidance for 2024 to range between 0% 2%. Slide 6 shows the percentage of loans in each major loan portfolio that are either fixed rate or hybrid loans in their fixed rate period. Our loan portfolio consists of 64% fixed rate and hybrid loans excluding fixed to float interest rate swaps on 4% of total loans. Speaker 200:35:45Fixed rate loans comprised 30% of total loans and hybrid and fixed rate period comprised 34% of total loans. We continue to monitor our commercial real estate loans. Turning to Slide 8 of our earnings presentation. As of June 30, 2024, the average loan to value of our CRE loans was 50%. As of June 30, 2024, our retail property as shown on Slide 9 comprised of 24% of our total CRE loan portfolio or 12% of our total loan portfolio. Speaker 200:36:1689% of the $2,400,000,000 in retail property loan is secured by retail building, a neighborhood, mixed use or strip centers and only 10% is secured by shopping centers. On Slide 10, office property loans represent 15% of our total commercial real estate loan portfolio or 8% of our total loan portfolio. Only 35% of the $1,500,000,000 in office property loans are collateralized by pure office buildings, only 3% are in central business districts. 37% of office property loans are collateralized by office retail stores, office mixed use and medical offices and the remainder 28% are collateralized by office condos. For Q2, twenty twenty four, we reported net charge offs of $8,000,000 of which $5,100,000 was reserved as of March 31, twenty 24 as compared to $1,100,000 in Q1. Speaker 200:37:12Our non accrual loans were 0.55 percent of total loans as of June 30, 2024, which increased $9,200,000 to $107,300,000 as compared to Q1. The increase in non accrual loans during Q2 2024 came mainly from 1 office CRE loan and 1 retail condo CRE loan totaling $8,300,000 with no projected losses based on recent appraisals. Turning to Slide 12. As of June 30, 2024, classified loans increased to $224,000,000 from $244,000,000 in Q1 and our special mention loans decreased to $201,000,000 from $249,000,000 in Q1. We recorded a provision for credit loss of $6,600,000 in Q2 2024 as compared to a $1,900,000 in provisions for credit losses for Q1. Speaker 200:38:01Total deposits decreased by $73,000,000 or 1.5 percent annualized during Q2 2024 with NOW deposits decreased $186,000,000 in Q2 due to the runoff of broker NOW deposits. Total core deposits decreased $274,000,000 or 11% annualized and total time deposits increased $201,000,000 or 8.6 percent annualized during Q2 2024 due to a shift from core deposits to time deposit with higher rates. We expect the overall deposit growth to continue at an estimated range between 3% 4%. As of June 30, 2024, total uninsured deposits were $8,200,000,000 net of $800,000,000 in collateralized deposits or 41.5 percent of total deposits. We have an unused borrowing capacity from the Federal Home Loan Bank of $7,100,000,000 and the Federal Reserve Bank of $174,000,000 and unplaced securities of $1,700,000,000 as of June 30, 2024. Speaker 200:39:03These sources of available liquidity more than cover 100% of uninsured and un collateral deposits as of June 30, 2024. I will now turn the floor over to our Executive Vice President and Chief Financial Officer, Mr. Heng Chang, to discuss the quarterly financial results in more detail. Speaker 300:39:20Thank you, Chang, and good afternoon, everyone. For Q2, 2024, net income decreased by $4,600,000 or 6.4 percent to 66 $800,000 compared to $71,400,000 for Q1, primarily due to a $4,700,000 increase in the provision for credit losses for Q2 2024 and partially due to $4,100,000 or $0.04 per diluted share from accelerated amortization of solar tax credit investments, which were previously forecasted to be amortized in the second half of twenty twenty four. Q222etinterestmarginwas3.01percentascomparedto3.05 3.05% for Q1. We are seeing signs. Net interest margin has begun to bottom out since the NIM for the month of June was 3.06%, Approximately $7,200,000,000 in high cost CDs will mature and reprice in the second half of twenty twenty four. Speaker 300:40:54And this will help lower the cost of deposits as they reprice. Include 2 interest recoveries and prepayment penalties added 2 basis points to the interest income I'm sorry, to the net interest margin as compared to no basis points in net interest margin for Q1. Non interest income for Q2 2024 increased $6,600,000 to $13,200,000 when compared to $6,600,000 in Q1 2024. The increase was primarily due to a $7,600,000 decrease in mark to market unrealized loss on equity securities, offset by $1,100,000 decrease in realized gain on sale of investment securities in Q1 2024. Non interest expense increased by 6,100,000 dollars or 6.5 percent to $99,300,000 in Q2 2024 when compared to $93,200,000 in Q1. Speaker 300:42:22This increase was primarily due to $9,000,000 in higher amortization of low income housing and solar tax credit investments, dollars 1,200,000 higher in professional expense and $1,200,000 higher in OREO expense, offset by a decrease of $3,000,000 in salaries and benefits due to a $2,000,000 true up for the 2023 bonuses in Q1 and $1,100,000 seasonally higher payroll expense in Q1. And lastly, a decrease of $2,300,000 in FDIC's assessment expense in Q1 2024. To build up the infrastructure of Enterprise Risk Management and other control functions, we have increased the guidance for core non interest expense, excluding tax credit and core deposit intangible amortization and OREO expense to between 4% to 5% from our previous guidance of 3% to 3.5%. Effective tax rate for Q2 2024 was 7.9% as compared to 10.8% for Q1. We expect effective tax rate between 10.5% and 11.5 for the second half of twenty twenty four. Speaker 300:44:11We now expect a total 2024 solo tax credit investment amortization of 32,500,000 with $10,000,000 amortization in Q3 $2,000,000 amortization in Q4. As of June 30, 2024, our Tier 1 leverage capital ratio increased to 10.83% as compared to 10.71% as of March 31, 2024. Our Tier 1 risk based capital ratio increased to 13.6% from 13.8 percent as of March 31, 2024. And our total risk based capital ratio increased 14.74% from 14.55% as of March 31, 2024. Speaker 200:45:13Thank you, Heng. We'll now proceed to the question and answer portion of the call. Thank Operator00:45:44you. And our first question today will come from Matthew Clark with Piper Sandler. Please go ahead. Speaker 400:45:50Hey, good afternoon. Thanks for the questions. Maybe the first one just on your spot rate on deposits at the end of June, if you had that number, either interest bearing or total? Speaker 300:46:08Yes. Hold on. Well, We have it here. So the spot rate of deposits, total interest bearing, 3 point 92. Speaker 500:46:23Okay. Got it. Thank you. Speaker 400:46:26And then just on your updated expense guide on a core basis, it implies that core run rate of $74,200,000 this quarter drops slightly below $72,000,000 in the second half to get to the midpoint of the guide. I guess just trying to get a sense of what's going to drive that reduction in the core expense rate? Speaker 300:46:52Well, we continue to have some one time expenses in Q2, higher consulting, higher marketing, higher charitable contributions and things like that. We could be off $1,000,000 a quarter here or there, but we think expenses will moderate in the second half. Speaker 400:47:27Okay. And can you quantify, I guess, how much of that was unusual, I guess, around consulting, marketing and charitable? Speaker 300:47:37Yes. I'd say it's about 2,500,000 Speaker 500:47:43dollars Okay. Got it. Okay. Thank you. And then just Speaker 200:47:46a quick Speaker 400:47:47one, low income housing amortization expected in 3Q and 4Q? Speaker 300:47:53It's about $10,000,000 a quarter each for low income housing. Speaker 200:47:59Okay. Thank you. Speaker 300:48:01Thank you. Operator00:48:03And our next question will come from Andrew Terrell with Stephens. Please go ahead. Speaker 600:48:09Hey, good afternoon. Hi. I wanted to ask on the I appreciate the $7,200,000,000 I think you said of CDs that mature in the back half of the year. I was curious, are those more heavily weighted to 1 quarter or is it fairly spread out between 3Q and 4Q? And then just overall, can you talk about kind of your expectations for spread pickup there? Speaker 600:48:34What kind of deposit cost reduction you're kind of aiming for? Speaker 300:48:42Yes. It's Q3 is slightly higher than Q4. So it's 3.7 $1,000,000,000 in Q3 and Q4 is about 3,500,000,000 Speaker 500:49:06dollars Speaker 300:49:08Our 6 month CDs from the Chinese promotion started to renew in July. So the good news is we haven't seen any net runoff so far. And I think in general, that rate was 5.2%. We've cured the rates this time and I think we're targeting around 5. So that would be 20 basis points. Speaker 600:49:50Okay, perfect. I appreciate it. And I would assume that any of the repricing benefit there is factored into your margin guidance already? Speaker 300:49:59Yes, of course. Yes. Speaker 500:50:01Okay. Speaker 600:50:03I was looking through the presentation on the classified loans, look like they stepped up a decent amount this quarter. I think from $244,000,000 last quarter up to $324,000,000 this quarter. I was hoping you could maybe just talk about the step up in classifieds a little more this quarter, kind of any common threads you're seeing in terms of what's driving the increase or just any color on the classified increase? Speaker 200:50:28They're mostly downgrades from the EM class and they're mostly all real estate secure. So we don't think there's any significant risk there. Speaker 600:50:43Okay, got it. And then, Jamie, just quickly, any can you maybe refresh us on your interest for M and A currently. Just like to get kind of a strategy update on that point. Speaker 200:50:57Yes, we certainly have talked to you guys all about this and until there's a viable candidate out there or a company out there that makes sense for us, that's within our niche space, that we don't have anything on the boards right now. Speaker 500:51:14Okay. Thanks for the questions. Of course. Operator00:51:23Our next question will come from Gary Tenner with D. A. Davidson. Please go ahead. Speaker 700:51:28Thanks. Good afternoon. I just wanted to ask about the updated loan growth guidance. Annualized loans through the first half of the year were down 4%, tone in terms of the full year loan growth, could you talk about kind of how the pipelines look in various loan segments and where you expect kind of the driver of that improvement to come from? Speaker 200:51:59Gary, most of it probably will come from some of the commercial real estate growth as you saw in the first in the second quarter results. Our residential mortgage application is down 40% -ish from prior year. C and I business is also down as well given the higher rates and because of the higher rates, our clients are using their liquidity to pay down any of the outstanding balances as soon as they can. We're trying to increase our both our loan side and the deposit side and trying to pick up more C and I business. But for the most part, you'll probably see any of the increases, the positive side on the CRE side. Speaker 700:52:37I appreciate that. And then historically on C and I, you've had kind of some positive 4th quarter seasonality. Do you think that, that is a positive factor this year as well? Or given your comments about customers wanting to pay down those lines, do you think that that's a little bit more tempered this year? Speaker 200:52:56Probably more tempered this year, Gary. I think given where the rates are, even if there is a potential rate cutting September that I think the balances will still kind of stay on the lower end. Utilization, I think, has been relatively flat around the 51%, 50 percentile. So we're not expecting looking for a 4th quarter positive impact during that period. Thank you. Speaker 500:53:22Thanks. Operator00:53:25And our next question will come from Chris McGratty with KBW. Please go ahead. Speaker 800:53:32Hey, how's it going? This is Andrew Leichner on for Chris McGratty. I know you mentioned you're starting to see the NIM stabilize being the bottom out here. But how should we be thinking about the NII trajectory from here? Thank you. Speaker 800:53:49Well, Speaker 300:53:52we're going to keep the earning asset number flat to up slightly. So that should go up particularly with the now expected September rate cut and then the second one in December. Speaker 800:54:23Okay. Thank you. And then just one more if I can. Your CRE reserve is at 79 basis points and your constant your CRE concentration is 288% of total RBC. What's your comfortability there and any thoughts on greater reserve build from here? Speaker 800:54:42Thank you. Speaker 300:54:45Well, I think we're we look at the low LTVs, 50% and the fact that almost all of our CRE loans have full personal guarantees. So we just usually what happens with the non accrual loans is that they stay in non accrual for 2 or 3 quarters depending on whether in California or New York. And if the borrower still can't pay, they become OREO. So and then we normally are able to sell OREO close to our book. So we don't think there's a hit in CAFE's history. Speaker 300:55:47With the economy being so solid, we think we'll be okay. But we would want to have solid quarterly loan loss provisions to make sure that we remain adequately reserved. Speaker 800:56:17Okay, great. Thank you for the color. I'll step back. Speaker 300:56:20Thank you. Operator00:56:24And thank you for your participation. I will now turn the call back over to Kissei General Bancorp's management for any closing remarks. Speaker 200:56:32I want to thank everyone for joining us on our call, and we look forward to speaking with you at our next quarterly earnings release call. Operator00:56:39Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a good day.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallCathay General Bancorp Q2 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Cathay General Bancorp Earnings HeadlinesDA Davidson Has Positive Estimate for CATY FY2025 EarningsMay 6 at 2:43 AM | americanbankingnews.comWhat is DA Davidson's Forecast for CATY Q2 Earnings?May 4 at 1:33 AM | americanbankingnews.comTrump wipes out trillions overnight…Is there anybody more powerful than Donald Trump right now? In a single tariff announcement, he wiped out nearly $5 trillion in wealth from the S&P 500 and $6.4 trillion from the Dow Jones… Not to mention the countless trillions of dollars lost in every market around the world… leaving the major political powers scrambling in fear of Trump’s next move.May 6, 2025 | Porter & Company (Ad)Cathay General Bancorp: Fixed Rate Exposure Is Not Currently In Its Favor (Rating Upgrade)April 26, 2025 | seekingalpha.comCathay General Bancorp (NASDAQ:CATY) Q1 2025 Earnings Call TranscriptApril 23, 2025 | msn.comKBW Remains a Hold on Cathay General Bancorp (CATY)April 22, 2025 | markets.businessinsider.comSee More Cathay General Bancorp Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Cathay General Bancorp? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Cathay General Bancorp and other key companies, straight to your email. Email Address About Cathay General BancorpCathay General Bancorp (NASDAQ:CATY) operates as the holding company for Cathay Bank that offers various commercial banking products and services to individuals, professionals, and small to medium-sized businesses in the United States. The company offers various deposit products, including passbook accounts, checking accounts, money market deposit accounts, certificates of deposit, individual retirement accounts, and public funds deposits. It also provides loan products, such as commercial mortgage loans, commercial loans, small business administration loans, residential mortgage loans, real estate construction loans, and home equity lines of credit, as well as installment loans to individuals for household, and other consumer expenditures. In addition, the company offers trade financing, letter of credit, wire transfer, forward currency spot and forward contract, safe deposit, collection, automatic teller machine, Internet banking, investment, and other customary bank services, as well as securities and insurance products. Cathay General Bancorp was founded in 1962 and is headquartered in Los Angeles, California.View Cathay General Bancorp ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Is Reddit Stock a Buy, Sell, or Hold After Earnings Release?Warning or Opportunity After Super Micro Computer's EarningsAmazon Earnings: 2 Reasons to Love It, 1 Reason to Be CautiousRocket Lab Braces for Q1 Earnings Amid Soaring ExpectationsMeta Takes A Bow With Q1 Earnings - Watch For Tariff Impact in Q2Palantir Earnings: 1 Bullish Signal and 1 Area of ConcernVisa Q2 Earnings Top Forecasts, Adds $30B Buyback Plan Upcoming Earnings Fortinet (5/7/2025)ARM (5/7/2025)DoorDash (5/7/2025)AppLovin (5/7/2025)MercadoLibre (5/7/2025)Lloyds Banking Group (5/7/2025)Manulife Financial (5/7/2025)Novo Nordisk A/S (5/7/2025)Uber Technologies (5/7/2025)Johnson Controls International (5/7/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. Start Your 30-Day Trial MarketBeat All Access Features Best-in-Class Portfolio Monitoring Get personalized stock ideas. Compare portfolio to indices. Check stock news, ratings, SEC filings, and more. Stock Ideas and Recommendations See daily stock ideas from top analysts. Receive short-term trading ideas from MarketBeat. Identify trending stocks on social media. Advanced Stock Screeners and Research Tools Use our seven stock screeners to find suitable stocks. Stay informed with MarketBeat's real-time news. Export data to Excel for personal analysis. Sign in to your free account to enjoy these benefits In-depth profiles and analysis for 20,000 public companies. Real-time analyst ratings, insider transactions, earnings data, and more. Our daily ratings and market update email newsletter. Sign in to your free account to enjoy all that MarketBeat has to offer. Sign In Create Account Your Email Address: Email Address Required Your Password: Password Required Log In or Sign in with Facebook Sign in with Google Forgot your password? Your Email Address: Please enter your email address. Please enter a valid email address Choose a Password: Please enter your password. Your password must be at least 8 characters long and contain at least 1 number, 1 letter, and 1 special character. Create My Account (Free) or Sign in with Facebook Sign in with Google By creating a free account, you agree to our terms of service. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
There are 9 speakers on the call. Operator00:00:00afternoon, ladies and gentlemen, and welcome to the Cathay General Bancorp Second Quarter of 2024 Earnings Conference Call. My name is Cole, and I'll be your coordinator for today. At this time, all participants are in a listen only mode. Following the prepared remarks, there will be a question and answer session. Today's call is being recorded and will be available for replay at www.caseaygeneral bancorp.com. Operator00:00:37I would now like to turn the call over to Georgia Lowe, Investor Relations of Cathay General Bancorp. Please go ahead. Speaker 100:00:44Thank you, Cole, and good afternoon. Here to discuss the financial results today are Mr. Chang Liu, our President and Chief Executive Officer and Mr. Heng Chen, our Executive Vice President and Chief Financial Officer. Before we begin, we wish to remind you that the speakers on this call may make forward looking statements within the meaning of the applicable provisions of the Private Securities Litigation Reform Act of 1995 concerning future results and events, and that these statements are subject to certain risks and uncertainties that could cause actual results to differ materially. Speaker 100:01:13These results and uncertainties are further described in the company's annual report on 10 ks for the year ended December 31, 2023, at item 1A in particular and in other reports and filings with the Securities and Exchange Commission from time to time. As such, we caution you not to place undue reliance on such 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 obligations to update or review any forward looking statements to reflect future circumstances, developments or events or the occurrence of unanticipated events. This afternoon, Cathay General Bancorp issued an earnings release outlining its Q2 2024 results. To obtain a copy of our earnings release as well as our earnings presentation, please visit our website at www.cathaygeneralbancorp.com. Speaker 100:02:01After comments by management today, we will open up this call for questions. I will now turn the call over to our President and Chief Executive Officer, Mr. Chang Liu. Speaker 200:02:09Thank you, Georgia, and good afternoon. Welcome to our 2024 Q2 earnings conference call. This afternoon, we reported net income of $66,800,000 for Q2 2024, a 6.4% decrease as compared to $71,400,000 in Q1. Diluted earnings per share decreased by 6.1 percent to $0.92 per share for the Q2 of 2024 as compared to $0.98 per share in the prior quarter. During Q2, 2024, we repurchased 689,470 shares of our common stock at an average cost of $36.37 or $25,100,000 under our May 2024, 125,000,000 stock buyback program. Speaker 200:02:54Under the May 2024 stock repurchase program, we anticipate repurchasing around $35,000,000 in stock per quarter in Q3 and Q4 depending on market conditions. In Q2, twenty twenty four, total gross loans decreased $72,000,000 or 1.5 percent annualized, primarily driven by decreases of $42,000,000 or 5.1 percent annualized in commercial loans $69,000,000 or 4.6 percent annualized in residential mortgages and HELOC, and $25,000,000 or 24.4 percent annualized in construction loans, offset by an increase of $64,000,000 or 2.6 percent annualized in commercial real estate loans. Due to slower than expected loan growth in the first half of twenty twenty four, we have revised our overall loan growth guidance for 2024 to range between 0% 2%. Slide 6 shows the percentage of loans in each major loan portfolio that are either fixed rate or hybrid loans in their fixed rate period. Our loan portfolio consists of 64% fixed rate and hybrid loans excluding fixed to flow interest rate swaps on 4% of total loans. Speaker 200:04:03Fixed rate loans comprised 30% of total loans and hybrid in fixed rate period comprised 34% of total loans. We continue to monitor our commercial real estate loans. Turning to Slide 8 of our earnings presentation. As of June 30, 2024, the average loan to value of our CRE loans was 50%. As of June 30, 2024, our retail property loan portfolio as shown on Slide 9 comprised of 24% of our total CRE loan portfolio or 12% of our total loan portfolio. Speaker 200:04:3489% of the $2,400,000,000 in retail property loan is secured by retail building, a neighborhood, mixed use or strip centers and only 10% is secured by shopping centers. On Slide 10, office property loans represent 15% of our total commercial real estate loan portfolio or 8% of our total loan portfolio. Only 35% of the $1,500,000,000 office property loans are collateralized by pure office buildings, only 3% are in central business districts. 37% of office property loans are collateralized by office retail stores, office mixed use and medical offices and the remainder 28% are collateralized by office condos. For Q2, 2024, we reported net charge offs of $8,000,000 of which $5,100,000 was reserved as of March 31, 2024 as compared to $1,100,000 in Q1. Speaker 200:05:30Our non accrual loans were 0.55 percent of total loans as of June 30, 2024, which increased $9,200,000 to $107,300,000 as compared to Q1. The increase in non accrual loans during Q2 2024 came mainly from 1 office CRE loan and 1 retail condo CRE loan totaling $8,300,000 with no projected losses based on recent appraisals. Turning to Slide 12. As of June 30, 2024, classified loans increased to $224,000,000 from $244,000,000 in Q1 and our special mention loans decreased to $201,000,000 from $249,000,000 in Q1. We recorded a provision for credit loss of $6,600,000 in Q2 2024 as compared to a $1,900,000 in provisions for credit losses for Q1. Speaker 200:06:19Total deposits decreased by 73,000,000 or 1.5 percent annualized during Q2 2024 with NOW deposits decreased $186,000,000 in Q2 due to the runoff of broker NOW deposits. Total core deposits decreased $274,000,000 or 11% annualized and total time deposits increased $201,000,000 or 8.6 percent annualized during Q2 2024 due to a shift from core deposits to time deposit with higher rates. We expect the overall deposit growth to continue at an estimated range between 3% 4%. As of June 30, 2024, total uninsured deposits were $8,200,000,000 net of $800,000,000 in collateralized deposits or 41.5 percent of total deposits. We have an unused borrowing capacity from the Federal Home Loan Bank of $7,100,000,000 and the Federal Reserve Bank of $174,000,000 and unplaced securities of $1,700,000,000 as of June 30, 2024. Speaker 200:07:21These sources of available liquidity more than cover 100 percent of uninsured and un collateral deposits as of June 30, 2024. I will now turn the floor over to our Executive Vice President and Chief Financial Officer, Mr. Heng Chang to discuss the quarterly financial results in more detail. Speaker 300:07:38Thank you, Chang, and good afternoon, everyone. For Q2, twenty twenty four, net income decreased by $4,600,000 or 6.4 percent to $66,800,000 compared to $71,400,000 for Q1, primarily due to a $4,700,000 increase in the provision for credit losses for Q2 2024 and partially due to 4,100,000 dollars or $0.04 per diluted share from accelerated amortization of solar tax credit investments, which were previously forecasted to be amortized in the second half of twenty twenty four. Q2 twenty twenty four net interest margin was 3.01% as compared to 3.05% for Q1. We are seeing signs. Our net interest margin has begun to bottom out since the NIM for the month of June was 3.06%, approximately $7,200,000,000 in high cost CDs which will mature and reprice in the second half of twenty twenty four. Speaker 300:09:12And this will help lower the cost of deposits as they reprice. Include 2 interest recoveries and prepayment penalties added 2 basis points to the interest income I'm sorry, to the net interest margin as compared to no basis points in net interest margin for Q1. Non interest income for Q2 2024 increased $6,600,000 to $13,200,000 when compared to $6,600,000 in Q1 2024. The increase was primarily due to a $7,600,000 decrease in mark to market unrealized loss on equity securities, offset by $1,100,000 decrease in realized gain on sale of investment securities in Q1 2024. Non interest expense increased by $6,100,000 or 6.5 percent to 99 point $3,000,000 in Q2 2024 when compared to $93,200,000 in Q1. Speaker 300:10:40This increase was primarily due to $9,000,000 in higher amortization of low income housing and solar tax credit investments, $1,200,000 higher in professional expense and $1,200,000 higher in OREO expense, offset by a decrease of $3,000,000 in salaries and benefits due to a $2,000,000 true up for the 2023 bonuses in Q1 and $1,100,000 seasonally higher payroll expense in Q1. And lastly, a decrease of $2,300,000 in FDIC's assessment expense in Q1 2024. To build up the infrastructure of enterprise risk management and other control functions, we have increased the guidance for core non interest expense, excluding tax credit and core deposit intangible amortization and OREO expense to between 4% to 5% from our previous guidance of 3% to 3.5%. Effective tax rate for Q2 2024 was 7.9% as compared to 10.8% for Q1. We expect effective tax rate between 10.5% and 11.5 for the second half of twenty twenty four. Speaker 300:12:29We now expect a total 2024 solo tax credit investment amortization of 32,500,000 with $10,000,000 amortization in Q3 $2,000,000 amortization in Q4. As of June 30, 2024, our Tier 1 leverage capital ratio increased to 10.83% as compared to 10.71% as of March 31, 2024. Our Tier 1 risk based capital ratio increased to 13.6% from 13.8% as of March 31, 2024 and our total risk based capital ratio increased to 14.74% from 14.55% as of March 31, 2024. Speaker 200:13:31Thank you, Heng. We'll now proceed to the question and answer portion of the call. Operator00:13:36Thank you. And our first question today will come from Matthew Clark with Piper Sandler. Please go ahead. Speaker 400:14:08Hey, good afternoon. Thanks for the questions. Maybe the first one just on your spot rate on deposits at the end of June, you had that number, either interest bearing or total? Speaker 300:14:26Yes, hold on. We have it here. So the spot rate of deposits, total interest bearing, 3.92. Speaker 400:14:41Okay. Got it. Thank you. And then just on your updated expense guide on a core basis, it implies that core run rate of $74,200,000 this quarter drops slightly below $72,000,000 in the second half to get to the midpoint of the guide. I guess just trying to get a sense for what's going to drive that reduction in the core expense rate? Speaker 300:15:10Well, we continue to have some one time expenses in Q2, higher consulting, higher market, higher charitable contributions and things like that. We could be off $1,000,000 a quarter here or there, but we think expenses will moderate in the second half. Speaker 400:15:45Okay. And can you quantify, I guess, how much of that was unusual, I guess, around consulting, marketing, and charitable? Speaker 300:15:54Yes. I'd say it's about $2,500,000 Speaker 500:15:59Okay. Got it. Okay. Thank you. Speaker 400:16:04And then just a quick one, low income housing amortization expected in 3Q and 4Q? Speaker 300:16:11It's about $10,000,000 a quarter each for low income housing. Speaker 200:16:17Okay. Thank you. Speaker 300:16:19Thank you. Operator00:16:21And our next question will come from Andrew Terrell with Stephens. Please go ahead. Speaker 600:16:27Hey, good afternoon. I wanted to ask on the I appreciate the $7,200,000,000 I think you said of CDs that mature in the back half of the year. I was curious, are those more heavily weighted to 1 quarter or is it fairly spread out between 3Q and 4Q? And then just overall, can you talk about kind of your expectations for spread pickup there? What kind of deposit cost reduction you're kind of aiming for? Speaker 300:17:00Yes. It's Q3 is slightly higher than Q4, so it's 3.7 $1,000,000,000 in Q3 and Q4 is about 3,500,000,000 dollars Our 6 month CDs from the Chinese promotion started to renew in July. So the good news is we haven't seen any net runoff so far. And I think in general, that rate was 5.2%. We've tiered the rates this time and I think we're targeting around 5. Speaker 300:18:02So that would be 20 basis points. Speaker 600:18:08Okay, perfect. I appreciate it. And I would assume that any of the kind of re pricing benefit there is factored into your margin guidance already? Speaker 300:18:17Yes, yes, of course, yes. Speaker 600:18:19Okay. I was looking through the presentation on the classified loans, look like they stepped up a decent amount this quarter, I think from $244,000,000 last quarter up to $324,000,000 this quarter. I was hoping you could maybe just talk about the step up in classifieds a little more this quarter, kind of any common threads you're seeing in terms of what's driving the increase or just any color on the classified increase? Speaker 200:18:46They're mostly downgrades from the EM class and they're all they're mostly all real estate secure. So we don't think there's any significant risk there. Speaker 600:19:01Okay, got it. And then, Jane, maybe just quickly, any maybe refresh us on your interest for M and A currently. Just like to get kind of a strategy update on that point. Speaker 200:19:15Yes, we certainly have talked to you guys all about this and until there's a viable candidate out there or a company out there that makes sense for us, that's within our niche space, that we don't have anything on the boards right now. Speaker 500:19:32Okay. Thanks for the questions. Of course. Operator00:19:41Our next question will come from Gary Tenner with D. A. Davidson. Please go ahead. Speaker 700:19:46Thanks. Good afternoon. I just wanted to ask about the updated loan growth guidance. Annualized loans through the first half of the year were down 4%, so pretty solid second half just to get back to even if not above it. So given the change in tone in terms of the full year loan growth, could you talk about kind of how the pipelines look in various loan segments and where you expect kind of the driver of that improvement to come from? Speaker 200:20:17Gary, most of it probably will come from some of the commercial real estate growth as you saw in the first in the second quarter results. Our residential mortgage application is down 40% -ish from prior year. C and I business is also down as well given the higher rates and because of the higher rates, our clients are using their liquidity to pay down any of the outstanding balances as soon as they can. We're trying to increase our both our loan side and the deposit side and trying to pick up more C and I business. But for the most part, you'll probably see any of the increases, the positive side on the CRE side. Speaker 700:20:55I appreciate that. And then historically on C and I, you've had kind of some positive 4th quarter seasonality. Do you think that, that is a positive factor this year as well? Or given your comments about customers wanting to pay down those lines, do you think that that's a little bit more tempered this year? Speaker 200:21:14Probably more tempered this year, Gary. I think given where the rates are, even if there is a potential rate cut in September that I think the balances will still kind of stay on the lower end. Utilization, I think, has been relatively flat around the 51%, 50 percentile. So we're not expecting looking for a 4th quarter positive impact during that period. Thank you. Speaker 300:21:40Thanks. Operator00:21:43And our next question will come from Chris McGratty with KBW. Please go ahead. Speaker 800:21:50Hey, how's it going? This is Andrew Leichner on for Chris McGratty. I know you mentioned you're starting to see the NIM stabilize, being to bottom out here. But how should we be thinking about the NII trajectory from here? Thank you. Speaker 200:22:06Well, Speaker 300:22:10we're going to keep the earning asset number flat to up slightly. So that should go up, particularly with the now expected September rate cut and then second one in December. Speaker 800:22:41Okay. Thank you. And then just one more if I can. Your CRE reserve is at 79 basis points and your constant your CRE concentration is 2 88% of total RBC. What's your comfortability there? Speaker 800:22:56And any thoughts on greater reserve build from here? Thank you. Speaker 300:23:03Well, I think we're we look at the low LTVs, 50% and the fact that almost all of our CRE loans have full personal guarantees. So we just usually what happens with the non accrual loans is that they stay in non accrual for 2 or 3 quarters depending on whether in California or New York. And if the borrower still can't pay, they become OREO. So and then we normally are able to sell OREO close to our book. So we don't think there's a hit in CAFE's history. Speaker 300:24:05With the economy being so solid, we think we'll be okay. But to have solid quarterly loan loss provisions to make sure that we remain adequately reserved. Speaker 800:24:35Okay, great. Thank you for the color. I'll step back. Speaker 300:24:38Thank you. And thank Operator00:24:42you for your participation. I will now turn the call back over to Kissei General Bancorp's management for any closing remarks. Speaker 200:24:50I want to thank everyone for joining us on our call and we look forward to speaking with you at our next quarterly earnings release call. Operator00:24:57Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a good day. Good afternoon, ladies and gentlemen, and welcome to the Cathay General Bancorp Second Quarter of 2024 Earnings Conference Call. My name is Cole, and I'll be your coordinator for today. Operator00:31:51At this time, all participants are in a listen only mode. Following the prepared remarks, there will be a question and answer session. Today's call is being recorded and will be available for replay at www.caseajegeneralbancorp.com. I would now like to turn the call over to Georgia Loh, Investor Relations of Cathay General Bancorp. Please go ahead. Speaker 100:32:26Thank you, Cole, and good afternoon. Here to discuss the financial results today are Mr. Chang Liu, our President and Chief Executive Officer and Mr. Heng Chen, our Executive Vice President and Chief Financial Officer. Before we begin, we wish to remind you that the speakers on this call may make forward looking statements within the meaning of the applicable provisions of the Private Securities Litigation Reform Act of 1995 concerning future results and events and that these statements are subject to certain risks and uncertainties that could cause actual results to differ materially. Speaker 100:32:55These results and uncertainties are further described in the company's annual report on Form 10 ks for the year ended December 31, 2023, at Item 1A in particular and in other reports and filings with the Securities and Exchange Commission from time to time. As such, we caution you not to place undue reliance on such 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 obligations to update or review any forward looking statements to reflect future circumstances, developments or events or the occurrence of unanticipated events. This afternoon, Cathay General Bancorp issued an earnings release outlining its Q2 2024 results. To obtain a copy of our earnings release as well as our earnings presentation, please visit our website at www.cafaygeneralbancorp.com. Speaker 100:33:43After comments by management today, we will open up this call for questions. I will now turn the call over to our President and Chief Executive Officer, Mr. Chang Liu. Speaker 200:33:51Thank you, Georgia, and good afternoon. Welcome to our 2024 Q2 earnings conference call. This afternoon, we reported net income of $66,800,000 for Q2 2024, a 6.4% decrease as compared to $71,400,000 in Q1. Diluted earnings per share decreased by 6.1 percent to $0.92 per share for the Q2 of 2024 as compared to $0.98 per share in the prior quarter. During Q2, 2024, we repurchased 689,470 shares of our common stock at an average cost of $36.37 or $25,100,000 under our May 2024, 125,000,000 stock buyback program. Speaker 200:34:37Under the May 2024 stock repurchase program, we anticipate repurchasing around $35,000,000 in stock per quarter in Q3 and Q4 depending on market conditions. In Q2, twenty twenty four, total gross loans decreased $72,000,000 or 1.5 percent annualized, primarily driven by decreases of $42,000,000 or 5.1 percent annualized in commercial loans $69,000,000 or 4.6 percent annualized in residential mortgages and HELOC, and $25,000,000 or 24.4 percent annualized in construction loans, offset by an increase of $64,000,000 or 2.6 percent annualized in commercial real estate loans. Due to slower than expected loan growth in the first half of twenty twenty four, we have revised our overall loan growth guidance for 2024 to range between 0% 2%. Slide 6 shows the percentage of loans in each major loan portfolio that are either fixed rate or hybrid loans in their fixed rate period. Our loan portfolio consists of 64% fixed rate and hybrid loans excluding fixed to float interest rate swaps on 4% of total loans. Speaker 200:35:45Fixed rate loans comprised 30% of total loans and hybrid and fixed rate period comprised 34% of total loans. We continue to monitor our commercial real estate loans. Turning to Slide 8 of our earnings presentation. As of June 30, 2024, the average loan to value of our CRE loans was 50%. As of June 30, 2024, our retail property as shown on Slide 9 comprised of 24% of our total CRE loan portfolio or 12% of our total loan portfolio. Speaker 200:36:1689% of the $2,400,000,000 in retail property loan is secured by retail building, a neighborhood, mixed use or strip centers and only 10% is secured by shopping centers. On Slide 10, office property loans represent 15% of our total commercial real estate loan portfolio or 8% of our total loan portfolio. Only 35% of the $1,500,000,000 in office property loans are collateralized by pure office buildings, only 3% are in central business districts. 37% of office property loans are collateralized by office retail stores, office mixed use and medical offices and the remainder 28% are collateralized by office condos. For Q2, twenty twenty four, we reported net charge offs of $8,000,000 of which $5,100,000 was reserved as of March 31, twenty 24 as compared to $1,100,000 in Q1. Speaker 200:37:12Our non accrual loans were 0.55 percent of total loans as of June 30, 2024, which increased $9,200,000 to $107,300,000 as compared to Q1. The increase in non accrual loans during Q2 2024 came mainly from 1 office CRE loan and 1 retail condo CRE loan totaling $8,300,000 with no projected losses based on recent appraisals. Turning to Slide 12. As of June 30, 2024, classified loans increased to $224,000,000 from $244,000,000 in Q1 and our special mention loans decreased to $201,000,000 from $249,000,000 in Q1. We recorded a provision for credit loss of $6,600,000 in Q2 2024 as compared to a $1,900,000 in provisions for credit losses for Q1. Speaker 200:38:01Total deposits decreased by $73,000,000 or 1.5 percent annualized during Q2 2024 with NOW deposits decreased $186,000,000 in Q2 due to the runoff of broker NOW deposits. Total core deposits decreased $274,000,000 or 11% annualized and total time deposits increased $201,000,000 or 8.6 percent annualized during Q2 2024 due to a shift from core deposits to time deposit with higher rates. We expect the overall deposit growth to continue at an estimated range between 3% 4%. As of June 30, 2024, total uninsured deposits were $8,200,000,000 net of $800,000,000 in collateralized deposits or 41.5 percent of total deposits. We have an unused borrowing capacity from the Federal Home Loan Bank of $7,100,000,000 and the Federal Reserve Bank of $174,000,000 and unplaced securities of $1,700,000,000 as of June 30, 2024. Speaker 200:39:03These sources of available liquidity more than cover 100% of uninsured and un collateral deposits as of June 30, 2024. I will now turn the floor over to our Executive Vice President and Chief Financial Officer, Mr. Heng Chang, to discuss the quarterly financial results in more detail. Speaker 300:39:20Thank you, Chang, and good afternoon, everyone. For Q2, 2024, net income decreased by $4,600,000 or 6.4 percent to 66 $800,000 compared to $71,400,000 for Q1, primarily due to a $4,700,000 increase in the provision for credit losses for Q2 2024 and partially due to $4,100,000 or $0.04 per diluted share from accelerated amortization of solar tax credit investments, which were previously forecasted to be amortized in the second half of twenty twenty four. Q222etinterestmarginwas3.01percentascomparedto3.05 3.05% for Q1. We are seeing signs. Net interest margin has begun to bottom out since the NIM for the month of June was 3.06%, Approximately $7,200,000,000 in high cost CDs will mature and reprice in the second half of twenty twenty four. Speaker 300:40:54And this will help lower the cost of deposits as they reprice. Include 2 interest recoveries and prepayment penalties added 2 basis points to the interest income I'm sorry, to the net interest margin as compared to no basis points in net interest margin for Q1. Non interest income for Q2 2024 increased $6,600,000 to $13,200,000 when compared to $6,600,000 in Q1 2024. The increase was primarily due to a $7,600,000 decrease in mark to market unrealized loss on equity securities, offset by $1,100,000 decrease in realized gain on sale of investment securities in Q1 2024. Non interest expense increased by 6,100,000 dollars or 6.5 percent to $99,300,000 in Q2 2024 when compared to $93,200,000 in Q1. Speaker 300:42:22This increase was primarily due to $9,000,000 in higher amortization of low income housing and solar tax credit investments, dollars 1,200,000 higher in professional expense and $1,200,000 higher in OREO expense, offset by a decrease of $3,000,000 in salaries and benefits due to a $2,000,000 true up for the 2023 bonuses in Q1 and $1,100,000 seasonally higher payroll expense in Q1. And lastly, a decrease of $2,300,000 in FDIC's assessment expense in Q1 2024. To build up the infrastructure of Enterprise Risk Management and other control functions, we have increased the guidance for core non interest expense, excluding tax credit and core deposit intangible amortization and OREO expense to between 4% to 5% from our previous guidance of 3% to 3.5%. Effective tax rate for Q2 2024 was 7.9% as compared to 10.8% for Q1. We expect effective tax rate between 10.5% and 11.5 for the second half of twenty twenty four. Speaker 300:44:11We now expect a total 2024 solo tax credit investment amortization of 32,500,000 with $10,000,000 amortization in Q3 $2,000,000 amortization in Q4. As of June 30, 2024, our Tier 1 leverage capital ratio increased to 10.83% as compared to 10.71% as of March 31, 2024. Our Tier 1 risk based capital ratio increased to 13.6% from 13.8 percent as of March 31, 2024. And our total risk based capital ratio increased 14.74% from 14.55% as of March 31, 2024. Speaker 200:45:13Thank you, Heng. We'll now proceed to the question and answer portion of the call. Thank Operator00:45:44you. And our first question today will come from Matthew Clark with Piper Sandler. Please go ahead. Speaker 400:45:50Hey, good afternoon. Thanks for the questions. Maybe the first one just on your spot rate on deposits at the end of June, if you had that number, either interest bearing or total? Speaker 300:46:08Yes. Hold on. Well, We have it here. So the spot rate of deposits, total interest bearing, 3 point 92. Speaker 500:46:23Okay. Got it. Thank you. Speaker 400:46:26And then just on your updated expense guide on a core basis, it implies that core run rate of $74,200,000 this quarter drops slightly below $72,000,000 in the second half to get to the midpoint of the guide. I guess just trying to get a sense of what's going to drive that reduction in the core expense rate? Speaker 300:46:52Well, we continue to have some one time expenses in Q2, higher consulting, higher marketing, higher charitable contributions and things like that. We could be off $1,000,000 a quarter here or there, but we think expenses will moderate in the second half. Speaker 400:47:27Okay. And can you quantify, I guess, how much of that was unusual, I guess, around consulting, marketing and charitable? Speaker 300:47:37Yes. I'd say it's about 2,500,000 Speaker 500:47:43dollars Okay. Got it. Okay. Thank you. And then just Speaker 200:47:46a quick Speaker 400:47:47one, low income housing amortization expected in 3Q and 4Q? Speaker 300:47:53It's about $10,000,000 a quarter each for low income housing. Speaker 200:47:59Okay. Thank you. Speaker 300:48:01Thank you. Operator00:48:03And our next question will come from Andrew Terrell with Stephens. Please go ahead. Speaker 600:48:09Hey, good afternoon. Hi. I wanted to ask on the I appreciate the $7,200,000,000 I think you said of CDs that mature in the back half of the year. I was curious, are those more heavily weighted to 1 quarter or is it fairly spread out between 3Q and 4Q? And then just overall, can you talk about kind of your expectations for spread pickup there? Speaker 600:48:34What kind of deposit cost reduction you're kind of aiming for? Speaker 300:48:42Yes. It's Q3 is slightly higher than Q4. So it's 3.7 $1,000,000,000 in Q3 and Q4 is about 3,500,000,000 Speaker 500:49:06dollars Speaker 300:49:08Our 6 month CDs from the Chinese promotion started to renew in July. So the good news is we haven't seen any net runoff so far. And I think in general, that rate was 5.2%. We've cured the rates this time and I think we're targeting around 5. So that would be 20 basis points. Speaker 600:49:50Okay, perfect. I appreciate it. And I would assume that any of the repricing benefit there is factored into your margin guidance already? Speaker 300:49:59Yes, of course. Yes. Speaker 500:50:01Okay. Speaker 600:50:03I was looking through the presentation on the classified loans, look like they stepped up a decent amount this quarter. I think from $244,000,000 last quarter up to $324,000,000 this quarter. I was hoping you could maybe just talk about the step up in classifieds a little more this quarter, kind of any common threads you're seeing in terms of what's driving the increase or just any color on the classified increase? Speaker 200:50:28They're mostly downgrades from the EM class and they're mostly all real estate secure. So we don't think there's any significant risk there. Speaker 600:50:43Okay, got it. And then, Jamie, just quickly, any can you maybe refresh us on your interest for M and A currently. Just like to get kind of a strategy update on that point. Speaker 200:50:57Yes, we certainly have talked to you guys all about this and until there's a viable candidate out there or a company out there that makes sense for us, that's within our niche space, that we don't have anything on the boards right now. Speaker 500:51:14Okay. Thanks for the questions. Of course. Operator00:51:23Our next question will come from Gary Tenner with D. A. Davidson. Please go ahead. Speaker 700:51:28Thanks. Good afternoon. I just wanted to ask about the updated loan growth guidance. Annualized loans through the first half of the year were down 4%, tone in terms of the full year loan growth, could you talk about kind of how the pipelines look in various loan segments and where you expect kind of the driver of that improvement to come from? Speaker 200:51:59Gary, most of it probably will come from some of the commercial real estate growth as you saw in the first in the second quarter results. Our residential mortgage application is down 40% -ish from prior year. C and I business is also down as well given the higher rates and because of the higher rates, our clients are using their liquidity to pay down any of the outstanding balances as soon as they can. We're trying to increase our both our loan side and the deposit side and trying to pick up more C and I business. But for the most part, you'll probably see any of the increases, the positive side on the CRE side. Speaker 700:52:37I appreciate that. And then historically on C and I, you've had kind of some positive 4th quarter seasonality. Do you think that, that is a positive factor this year as well? Or given your comments about customers wanting to pay down those lines, do you think that that's a little bit more tempered this year? Speaker 200:52:56Probably more tempered this year, Gary. I think given where the rates are, even if there is a potential rate cutting September that I think the balances will still kind of stay on the lower end. Utilization, I think, has been relatively flat around the 51%, 50 percentile. So we're not expecting looking for a 4th quarter positive impact during that period. Thank you. Speaker 500:53:22Thanks. Operator00:53:25And our next question will come from Chris McGratty with KBW. Please go ahead. Speaker 800:53:32Hey, how's it going? This is Andrew Leichner on for Chris McGratty. I know you mentioned you're starting to see the NIM stabilize being the bottom out here. But how should we be thinking about the NII trajectory from here? Thank you. Speaker 800:53:49Well, Speaker 300:53:52we're going to keep the earning asset number flat to up slightly. So that should go up particularly with the now expected September rate cut and then the second one in December. Speaker 800:54:23Okay. Thank you. And then just one more if I can. Your CRE reserve is at 79 basis points and your constant your CRE concentration is 288% of total RBC. What's your comfortability there and any thoughts on greater reserve build from here? Speaker 800:54:42Thank you. Speaker 300:54:45Well, I think we're we look at the low LTVs, 50% and the fact that almost all of our CRE loans have full personal guarantees. So we just usually what happens with the non accrual loans is that they stay in non accrual for 2 or 3 quarters depending on whether in California or New York. And if the borrower still can't pay, they become OREO. So and then we normally are able to sell OREO close to our book. So we don't think there's a hit in CAFE's history. Speaker 300:55:47With the economy being so solid, we think we'll be okay. But we would want to have solid quarterly loan loss provisions to make sure that we remain adequately reserved. Speaker 800:56:17Okay, great. Thank you for the color. I'll step back. Speaker 300:56:20Thank you. Operator00:56:24And thank you for your participation. I will now turn the call back over to Kissei General Bancorp's management for any closing remarks. Speaker 200:56:32I want to thank everyone for joining us on our call, and we look forward to speaking with you at our next quarterly earnings release call. Operator00:56:39Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a good day.Read morePowered by