Cathay General Bancorp Q1 2025 Earnings Call Transcript

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April 21, 2025
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Operator

Afternoon, ladies and gentlemen, and welcome to the Cathay General Bancorp's First Quarter twenty twenty five Earnings Conference Call. My name is Rocco, and I will be your coordinator for today. At this time, all participants are in listen only mode. Following the prepared remarks, there will be a question and answer session. If would like to participate in this portion of the call, please press star followed by one at any time during the conference.

Operator

Today's call is being recorded and will be available for replay at www.cathaygeneralbancorp.com. I would now like to turn the call over to Georgia Lo, Investor Relations of Cathay General Bancorp. Please go ahead.

Georgia Lo
Georgia Lo
FVP, Assistant Corp Secretary & LACA Officer at Cathay General Bancorp

Thank you, Rocco, and good afternoon. Here to discuss the financial results today are Mr. Cheng Lu, 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 speaker on this call may make forward looking statements within the meaning of 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.

Georgia Lo
Georgia Lo
FVP, Assistant Corp Secretary & LACA Officer at Cathay General Bancorp

These risks and uncertainties are further described in the company's annual report on Form 10 ks for the year ended 12/31/2024, 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 of which it is made. Except as required by law, we undertake no obligation 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 first quarter twenty twenty five results.

Georgia Lo
Georgia Lo
FVP, Assistant Corp Secretary & LACA Officer at Cathay General Bancorp

To obtain a copy of our earnings release as well as our earnings presentation, please visit our website at www.cathegeneralbankcorp.com. After comments by management today, we will open this call up for questions. I will now turn the call over to our President and Chief Executive Officer, Mr. Chang Liu.

Chang Liu
Chang Liu
CEO, President & Director at Cathay General Bancorp

Thank you, Georgia, and good afternoon. Before we discuss our twenty twenty five first quarter earnings, I want to address the current tariffs between The U. S. And China. Based on our survey, customers have moved their sourcing away from China since 2018 to other countries, including some to Mexico.

Chang Liu
Chang Liu
CEO, President & Director at Cathay General Bancorp

Our borrowers have told us that for the most part, they can move their sourcing to other countries or pause importing from China until the tariffs are more reasonable. We estimate that about 1.4% of total loans could be adversely impacted by the proposed tariffs. We are closely monitoring the impact of the evolving tariff situation on our borrowers and our loan portfolio. This afternoon, we reported net income of $69,500,000 for Q1 twenty twenty five, a 13.3% decrease as compared to $80,200,000 for Q4 twenty twenty four. Diluted earnings per share decreased 12.5% to $0.98 for Q1 twenty twenty five as compared to $1.12 in Q4 twenty twenty four.

Chang Liu
Chang Liu
CEO, President & Director at Cathay General Bancorp

During Q1 twenty twenty five, we repurchased 876,906 shares of our common stock at an average cost of $46.83 per share for 41,100,000.0 completing our May 2024 '1 hundred and '20 '5 million dollars stock repurchase program. In Q1 twenty twenty five, total gross loans decreased $23,000,000 or 0.5 percent annualized, primarily driven by decreases of $100,000,000 in commercial loans and $65,000,000 in residential loans, offset by increases of $127,000,000 in CRE loans and $13,000,000 in construction loans. Given the uncertainties in the economy, we have widened our 2025 loan growth guidance to 1% to 4% from the previous guidance of 3% to 4%. Slide six shows the percentage of loans in each major loan portfolio that are either at a fixed rate or hybrid loans in their fixed rate period. Our loan portfolio consists of 62% fixed rate and hybrid loans excluding fixed to float interest rate swaps of 4.1% of total loans.

Chang Liu
Chang Liu
CEO, President & Director at Cathay General Bancorp

Fixed rate loans comprise 30% of total loans, and hybrid and fixed rate period comprise 32% of total loans. We expect these fixed rate loans to support our loan yields as market rates are expected to decline. We continue to monitor our commercial real estate loans. Turning to slide eight of our earnings presentation. As 03/31/2025, the average loan to value of our CRE loans remained at 49%.

Chang Liu
Chang Liu
CEO, President & Director at Cathay General Bancorp

As of 03/31/2025, our retail property loan portfolio, as shown on slide nine, comprises 25% of our total CRE loan portfolio or 13% of our total loan portfolio. 90% of the 2,500,000,000 in retail property loans are secured by retail store, building, mixed use or strip centers, and only 9% secured by shopping centers. On slide 10, office property loans represent 15% of our total CRE 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, and only 3.4% are in CBDs. 38% of office property loans are collateralized by office retail stores, office mixed use and medical offices.

Chang Liu
Chang Liu
CEO, President & Director at Cathay General Bancorp

The remainder, 27%, are collateralized by office condos. For Q1 twenty twenty five, we reported net charge off of $2,000,000 as compared to $16,300,000 in Q4 twenty twenty four. Our non accrual loans were 0.8% of total loans as of 03/31/2025, which decreased $14,500,000 to $154,600,000 as compared to Q4 twenty twenty four, primarily due to the transfer of a loan to loans held for sale and pay down in Q1 twenty twenty five. Turning to slide 12. As of 03/31/2025, classified loans remained at $380,000,000 the same as in Q4 twenty twenty four.

Chang Liu
Chang Liu
CEO, President & Director at Cathay General Bancorp

And our special mention loans increased slightly to $300,000,000 from $293,000,000 in Q4 twenty twenty four. We recorded a provision for credit loss of $15,500,000 in Q1 twenty twenty five as compared to $14,500,000 for Q4 twenty twenty four. Most of the provisions were to cover possible losses from one commercial client. The reserve to loan ratio increased from 0.83% for Q4 twenty twenty four to 0.91% for Q1 twenty twenty five. However, excluding our residential mortgage portfolio, the total reserve to loan ratio would be 1.17%.

Chang Liu
Chang Liu
CEO, President & Director at Cathay General Bancorp

Total deposits increased by 131,000,000 or 2.7% annualized during Q1 twenty twenty five, primarily due to a net increase of $67,000,000 in core deposits and an increase of $64,000,000 in time deposits. Total core deposits increased $67,000,000 due to seasonal factors and marketing activities. Total time deposits, excluding brokered deposits, increased $41,000,000 during Q1 twenty twenty five due to promotional campaign in the first month of the year. As of 03/31/2025, total uninsured deposits were $8,500,000,000 net of $800,000,000 in collateralized deposits or 42.7% of total deposits. We have an unused borrowing capacity from the Federal Home Loan Bank of $7,000,000,000 and the Federal Reserve Bank of $343,000,000 and unpledged securities of 1,500,000,000 as of 03/31/2025.

Chang Liu
Chang Liu
CEO, President & Director at Cathay General Bancorp

These sources of available liquidity more than cover 100% of uninsured and uncollateralized deposits as of 03/31/2025. I will now turn the floor over to our Executive Vice President and Chief Financial Officer, Mr. Heng Cheng, to discuss quarterly financial results in more detail.

Heng Chen
Heng Chen
Executive VP, CFO & Treasurer at Cathay General Bancorp

Thank you, Cheng, and good afternoon, everyone. For Q1 twenty twenty five, net income decreased $10,700,000 or 13.3% to $69,500,000 compared to $80,200,000 for Q4 twenty twenty four, primarily due to an increase of $10,700,000 and provision for income taxes due to an increase in the effective tax rate resulting from no investment in solar tax credit funds in 2025. Net interest margin increased to 3.25% for Q1 twenty twenty five from 3.07% for Q4 twenty twenty four. In Q1 twenty twenty five, interest recoveries and prepayment penalties added six basis points to the net interest margin as compared to adding four basis points in net interest margin for Q4 twenty twenty four. Based on the first quarter net interest margin, we have increased our 2025 guidance to 3.25% to 3.35% for NIM from the previous 3.1% to 3.2%.

Heng Chen
Heng Chen
Executive VP, CFO & Treasurer at Cathay General Bancorp

Non interest income for Q1 decreased $4,300,000 to $11,200,000 when compared to $15,500,000 in Q4 twenty twenty four. The decrease was primarily due to a $2,900,000 mark to market unrealized loss on equity securities and a $1,500,000 decrease in other operating income due to lower foreign exchange income, loan and derivative fees and interest interest rate swap loss. Non interest expense increased by 500,000.0 or 0.6% to $85,700,000 in Q1 twenty twenty five when compared to $85,200,000 in Q4 twenty twenty four. The increase was primarily due to $2,200,000 higher FDIC assessment this quarter compared to Q4 twenty twenty four, which was lower because of the reversal of an over accrual of the FDA assessment. And $1,100,000 increase in computer equipment expense offset by $1,700,000 in lower solar tax credit fund amortization and $1,300,000 in lower professional expense.

Heng Chen
Heng Chen
Executive VP, CFO & Treasurer at Cathay General Bancorp

The effective tax rate for Q1 twenty twenty five was 19.82 as compared to 7.57% for Q4 twenty twenty four. The increase in the effective tax rate was due to decrease in solar tax credit fund investment because of limitations on tax credits. As of 03/31/2025, our Tier one leverage capital ratio increased to 11.06% as compared to 10.97% as of 12/31/2024. Our Tier one risk based capital ratio increased to 13.57% from 13.55% as of 12/31/2024. And our total risk based capital ratio increased to 15.19% from 15.09% as of 12/31/2024.

Chang Liu
Chang Liu
CEO, President & Director at Cathay General Bancorp

Thank you, Heng. We will now proceed to the question and answer portion of the call.

Operator

Thank you. Today's first question comes from Chris McGratty at KBW. Please go ahead.

Andrew Leischner
Assistant Vice President - Equity Research at Keefe, Bruyette & Woods (KBW)

Hey, this is Andrew Eisner on for Chris McGratty. How's it going? So just looking at the margin, can you provide what the sensitivity would be to the margin guide and maybe NII levels if we were to get more than the one interest rate cut in July?

Heng Chen
Heng Chen
Executive VP, CFO & Treasurer at Cathay General Bancorp

Well, on a full year basis, it'd be about four basis points for every rate cut. So if it happens in July, it's only two.

Andrew Leischner
Assistant Vice President - Equity Research at Keefe, Bruyette & Woods (KBW)

Okay. Great. Thank you. And then Yeah.

Heng Chen
Heng Chen
Executive VP, CFO & Treasurer at Cathay General Bancorp

Go ahead. Go ahead.

Andrew Leischner
Assistant Vice President - Equity Research at Keefe, Bruyette & Woods (KBW)

No. Sorry. Was gonna switch gears there. All right. And then can you just provide the spot deposit costs at the end of the quarter?

Andrew Leischner
Assistant Vice President - Equity Research at Keefe, Bruyette & Woods (KBW)

And also, if you have the average margin for the month of March?

Heng Chen
Heng Chen
Executive VP, CFO & Treasurer at Cathay General Bancorp

Yes. The average margin for the month of March was 3.39%. It had the bulk of the interest recoveries for the first quarter. So excluding the interest recoveries, the net margin was 3.21. And then you like the rates on deposits, the spot rates?

Andrew Leischner
Assistant Vice President - Equity Research at Keefe, Bruyette & Woods (KBW)

Yes. Yes, please.

Heng Chen
Heng Chen
Executive VP, CFO & Treasurer at Cathay General Bancorp

Okay. So, the spot rate for total interest bearing deposits at 03/31/2025 was 3.36.

Andrew Leischner
Assistant Vice President - Equity Research at Keefe, Bruyette & Woods (KBW)

Okay, great. Thank you.

Operator

Thank you. And our next question today comes from Gary Tenner at D. A. Davidson. Please go ahead.

Gary Tenner
MD & Senior Research Analyst at D.A. Davidson Companies

Thanks. Good afternoon. I appreciate the change you made to your loan growth guide for the year, lowering it from 3% to 4% to 1% to 4%. Could you talk about kind of what you're seeing in your pipelines and customer behavior today compared to thirty, sixty days ago that kind of drove that decline?

Chang Liu
Chang Liu
CEO, President & Director at Cathay General Bancorp

Sure, Gary. I think for us, the pipeline in the commercial real estate side is still relatively strong compared to the last two years at the same time from a relative perspective. And then I think the guidance is really just to given the current uncertainty and what we're seeing on the tariff side, particularly on the C and I clients that we're concerned about sort of the growth prospect in that particular side of the business. And even the residential mortgage, while we've seen some slight uptick recently, I think there was a recent article in the Wall Street about how it's now not the seller's market and a little bit shifting a little bit. So, we're seeing a little bit of pickup there.

Chang Liu
Chang Liu
CEO, President & Director at Cathay General Bancorp

So, that's the reason for the sort of revision to the guidance.

Gary Tenner
MD & Senior Research Analyst at D.A. Davidson Companies

So, just as a follow-up to that, are you seeing projects being delayed or C and customers talking about just not investing or undertaking any investment in their companies? What are you hearing, I guess, more specifically on the C and I side?

Chang Liu
Chang Liu
CEO, President & Director at Cathay General Bancorp

Yeah, that's probably the bulk of it is if there were some growth plans or expansion plans or anything like that, I think there's some pause to that. I think they're more focused on managing their balance sheet and P and L, both sort of the top line side because the demand is going to slow down and as well as sort of the cost side, right? So their inventory side prices is unpredictable somewhat in the near future. So they're trying to manage the P and L side and the balance sheet rather than thinking about growth.

Heng Chen
Heng Chen
Executive VP, CFO & Treasurer at Cathay General Bancorp

Yeah, let me add. We also recently widened it as if there's a, if the terrorist situation doesn't improve, we expect some loan pay downs as some importers just stopped importing and sell out. Very few of the importers import primarily from China and they would just pause their imports for whatever, nine months or whatever until conditions improve. So that's another factor in widening the gap.

Chang Liu
Chang Liu
CEO, President & Director at Cathay General Bancorp

And I'll add one more. Some of our C and I customers have already told us that they've built up some excess inventory anywhere between three to nine months. So, the line usage on what they need is going to be flat.

Gary Tenner
MD & Senior Research Analyst at D.A. Davidson Companies

Great color. Thank you.

Operator

Thank you. And our next question comes from Andrew Terrell with Stephens. Please go ahead.

Andrew Terrell
Managing Director at Stephens Inc.

Hey, good afternoon. If I could just go back to the question that was asked a minute ago around the margin and the impact of rate cuts specifically on the forward guide. I appreciate the four basis points annualized for every cut. Just to clarify, is that if we go down 25 basis on rates, is that four basis points positive to the NIM on a full year basis or negative?

Heng Chen
Heng Chen
Executive VP, CFO & Treasurer at Cathay General Bancorp

Positive, positive. So you can see in the first quarter, our loans only decreased by two basis points and our deposits went down by 29. So this year I think we're going to be helped by the fact that about 60% of our loans are fixed or hybrids in the fixed period. So they're not going to go down that much.

Andrew Terrell
Managing Director at Stephens Inc.

100%. Yep, I get it. Just wanted to clarify that. Shifting over to the just the ACL, I think you called out that the provision this quarter, the allowance build was one specific C and I credit. I'm curious if that one specific commercial credit, was that a borrower that fell in that 1.4% of loans that you guys highlighted as could be impacted by tariffs?

Andrew Terrell
Managing Director at Stephens Inc.

And then just more broadly, as you did the work to kind of ring fence borrowers and exposure where you could be more impacted by tariffs, have you taken any incremental provisions or built allowances on those specific relationships?

Heng Chen
Heng Chen
Executive VP, CFO & Treasurer at Cathay General Bancorp

Yeah, that reserve, which was the majority of the Q1 reserve was for a domestic company. So they're not trade finance related at all. And then we did the rest of the buildup in the reserve was tariff related. We're hopeful that that covers most of the exposure. As I mentioned before, I think our importers they'll just they should be able to pass on the cost of tariffs if they're reasonable.

Heng Chen
Heng Chen
Executive VP, CFO & Treasurer at Cathay General Bancorp

If not, they'll stop importing that particular line of imports.

Andrew Terrell
Managing Director at Stephens Inc.

Yep. Do you have what the allowance is on that aggregate, 1.4% of loans?

Heng Chen
Heng Chen
Executive VP, CFO & Treasurer at Cathay General Bancorp

It's probably 2%.

Andrew Terrell
Managing Director at Stephens Inc.

Got it. Okay. And if I could ask just one more on the buyback. It looks like you I mean, it's good to see you guys completed the authorization in the quarter. It looks like the price bought back was around, I think it was $46.47 I didn't see I might have missed it, but I didn't see a new authorization in place.

Andrew Terrell
Managing Director at Stephens Inc.

I would assume you've given you've still got pretty strong capital, it seems like the growth could maybe be a little bit slower balance sheet wise. Would expectations be that we get another buyback at some point in the future? And just remind us kind of your interest in repurchasing going forward.

Heng Chen
Heng Chen
Executive VP, CFO & Treasurer at Cathay General Bancorp

We're waiting for regulatory approval. Once we get it, we'll announce our new buyback program.

Andrew Terrell
Managing Director at Stephens Inc.

Very good. Thank you for taking the questions.

Heng Chen
Heng Chen
Executive VP, CFO & Treasurer at Cathay General Bancorp

Yes. Thank you. Our

Operator

next question today comes from Adam Butler at Piper Sandler. Please go ahead.

Adam Butler
Adam Butler
Equity Research Analyst at Piper Sandler Companies

Good afternoon, everybody. This is Adam on for Matthew Clark. My first question is on non interest expense. I know that your guidance outlook is consistent quarter over quarter for 4.5% to 5.5% growth year over year. But I just noticed that there were some puts and takes within some of the expense lines.

Adam Butler
Adam Butler
Equity Research Analyst at Piper Sandler Companies

So, I was just curious if you could walk through some of the major expense lines and just kind of talk about how you expect them to grow or decline throughout the year? Thanks.

Heng Chen
Heng Chen
Executive VP, CFO & Treasurer at Cathay General Bancorp

Yes. Let me cover that. So, yeah, just on some of the major categories, on the salaries and benefits, we picked up about $2,500,000 from excess bonus accruals in 2024. So that offset the annual FICA yet. And We think our consulting expense should be lower in the second half of the year.

Heng Chen
Heng Chen
Executive VP, CFO & Treasurer at Cathay General Bancorp

I think that's pretty much it, looking at the income statement.

Adam Butler
Adam Butler
Equity Research Analyst at Piper Sandler Companies

Okay. That's helpful. And then just one other one for me. Most of my questions have been asked and answered. But just on the deposit growth during the quarter, it was robust.

Adam Butler
Adam Butler
Equity Research Analyst at Piper Sandler Companies

And I was just curious what to what degree is there seasonality involved in the deposit flows this quarter? And do you kind of what kind of trends are you seeing from the growth standpoint?

Heng Chen
Heng Chen
Executive VP, CFO & Treasurer at Cathay General Bancorp

Yes, I think the only seasonality is that our Lunar New Year promotion is in January and February so we picked up probably a net of about $200,000,000 and then we let some broker CDs run off given our increase in relationship deposits.

Adam Butler
Adam Butler
Equity Research Analyst at Piper Sandler Companies

Okay. And if I could just follow-up on the Lunar New Year deposit specials. What was the rate offered this year and how did it compare to last year's special?

Heng Chen
Heng Chen
Executive VP, CFO & Treasurer at Cathay General Bancorp

Yeah, it was for the six months. It was about $4.10 versus the $4.50 or so for the July renewals. Then the one year we actually did thirteen months this year. That was also $4.10.

Chang Liu
Chang Liu
CEO, President & Director at Cathay General Bancorp

It's about

Chang Liu
Chang Liu
CEO, President & Director at Cathay General Bancorp

$4.10 as well.

Heng Chen
Heng Chen
Executive VP, CFO & Treasurer at Cathay General Bancorp

And that's coming off of I think $5.40 or something, $5.30.

Adam Butler
Adam Butler
Equity Research Analyst at Piper Sandler Companies

Okay. That's very helpful. And that's all the questions that I had. Appreciate it and congrats on the quarter.

Heng Chen
Heng Chen
Executive VP, CFO & Treasurer at Cathay General Bancorp

Thank you.

Chang Liu
Chang Liu
CEO, President & Director at Cathay General Bancorp

Thank you.

Operator

Thank you for your participation. I will now turn the call back over to Cathay General Bancorp's management for closing remarks.

Chang Liu
Chang Liu
CEO, President & Director at Cathay General Bancorp

I want to thank everyone for joining us on our call, and we look forward to speaking to you next quarterly earnings release call.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.

Executives
    • Georgia Lo
      Georgia Lo
      FVP, Assistant Corp Secretary & LACA Officer
    • Chang Liu
      Chang Liu
      CEO, President & Director
    • Heng Chen
      Heng Chen
      Executive VP, CFO & Treasurer
Analysts
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Key Takeaways

  • Q1 net income fell 13.3% QoQ to $69.5 million ($0.98 EPS), but net interest margin rose to 3.25% and management raised full-year NIM guidance to 3.25–3.35%.
  • The bank widened its 2025 loan growth guidance to 1–4% (from 3–4%) given uncertainties around US-China tariffs, which could affect about 1.4% of its loan book, though borrowers can re-source or pause imports.
  • Credit quality improved as net charge-offs dropped to $2 million (from $16.3 million), nonaccrual loans declined to 0.8% of total loans, and the allowance-to-loan ratio increased to 0.91%.
  • Deposits grew 2.7% annualized (+$131 million), fueled by core and time deposit promotions, and available liquidity (Federal Home Loan Bank/Fed borrowings plus unpledged securities) covers over 100% of uninsured deposits.
  • The company completed a $41.1 million share repurchase under its May 2024 program and is awaiting regulatory approval for a new buyback authorization.
AI Generated. May Contain Errors.
Earnings Conference Call
Cathay General Bancorp Q1 2025
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