Q4 2019 Earnings Call
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Now I'd like to turn the call over to Georgia, low Investor Relations firm Cathay General Bancorp.
Thank you achieve and good afternoon here to discuss the financial results today are Mr., Peter Kelly, our Chief Executive Officer.
Mr. Hank Jones, 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 with the meaning of the applicable provisions of the private Securities Litigation Reform Act of 1995 concerning future results an event and that these statements are subject to certain risks and uncertainties that could cause.
Actual results could differ materially these results and uncertainties are further described in the Companys annual report on Form 10-K for the year ended December 31st 22 at I'm wondering in particular any other reports and filings with the Securities Exchange Commission from time to time as such we caution you not to place undue reliance on such forward looking statement.
We're speaks only as of the data. This presentation, we undertake no obligation to update any forward looking statements or to publicly announce any revision of any forward looking statements to reflect future development the way that except as required by law.
This afternoon, Cathay General Bancorp issuing earnings release outlining its fourth quarter and year end 2019 result.
To obtain a copy please visit our website at Www Dot Cathay General Bancorp Dotcom after comments by management today, we will open up it's called the question I will now turn the call Overcharge, Chief Executive Officer Mr. can tie.
Got Ya.
Hello and welcome.
Welcome to out 2019 for Florida, Andy Conference call.
Good afternoon lead we posted net income 67.4 million wonderful quartile couldn't Nike.
Once we typically.
Compared to net income was 64.6 million.
Before I walk a tricky.
I do the funding and she has decreased by 5% <unk>, Okay, well the fourth quartile I'd be Nike compared to 80 cents because she huh.
Well that he had a goal.
Well talk about 29 <unk> gross.
By 346 or nine needed to 15.1 billion.
Well I'm grateful I put my finger on an annualized basis.
Yeah, no for the full Walter I'll turn the Nike well I never interesting by the growth in commercial real estate loans.
Hi, Good 39.7 million <unk>, 3% and your life.
I'm not sure known Huntington pen kinda needed.
People, unless it's can advise and residential mortgage loans of 77.8 million.
Well, it's 4% anyway.
We anticipate don't go in 2020 of between six and 7%.
Well the fourth quartile shouldn't Nike coupled with the policy most likely by 34 million a 1% anyway.
Im confident began.
During the fourth well that's a penny Nike.
The market deposits grew by 165.4 meter.
32.6% ended I.
Now people, who by 75 point I Union I'm trying to 2% anyway.
What kind of deposits increased by 160 70.
2 million.
With respect to the know how should leave you saw safety between the U.S. in China, we continue to monitor and they need it tends to impact on the computing Harris.
What do you.
All right that we believe could be as nice impact.
Kevin Kevin <unk>, Okay.
No.
That doesn't fall off a lot of executive Vice President and Chief Financial Officer, NK, He's got the fourth quarter and Nike financials in more detail.
Thank you Karen and good afternoon, everyone.
For the fourth quarter, we now have income by 67.4 million or 84 cents.
Diluted earnings per share our net interest margin was 3.34 in the fourth quarter of 20 my team that's compared to 3.77 in the fourth quarter 2018, and 3.56 for the third quarter appointing Nike.
Excess liquidity during the fourth quarter.
Reduce the NIM by two basis points.
In the fourth quarter, appointing 19 interest recoveries and prepayment penalties.
That's what bases points to the net interest margin compared to three basis points for the fourth quarter of quality team.
And 12 basis points for the third quarter of 29.
We expect our net interest margin for 2020 to be between 3.35, and 3.4 or 5%.
Non interest income during the fourth quarter 20, like <unk> decreased by 2.1 million for 8.7 million.
When compared to the fourth quarter 20, Pete.
This decrease was primarily due to 1 million decrease in net gains from equity securities.
Partially offset by a 1.3 million increase in wealth management fees.
Non interest expense decreased by 3.2 million or 4.3% to 71.2 million in the fourth quarter 20, like 18, when compared to 74.4 million.
In the same quarter a year ago. This decrease was primarily due to a 5.7 million decrease.
In the amortization of the investment.
And low income housing and alternative energy partnerships, partially offset by a 1.2 million increase.
FDIC and state assessments [noise].
The effective tax rate for the fourth quarter 20 linking.
Was 19.5%.
And 20.1% for the full year of 29.
The effective tax rate.
For the first quarter of 2020 is expected to be approximately 20%.
The full year 2020 effective tax rate.
To be between 18% to 18.5%.
I mean, the closing of another solar tax credit investment in the second quarter of 2020.
So look that's where the amortization.
Was 6 million in the fourth quarter of 20 liking and 17.1 million for the for full year 20 like <unk>.
Okay. That's the amortization is expected to be up approximately 24 million in 2020.
Including.
10 million up amortization.
From the proposed new investment.
Which we expect to close in the second quarter.
The amortization expense.
It's expected to be 8 million in the first quarter 2020.
And five point Threemillion in the lab in each of the last three quarters of 2020.
At December 30, 120, linking our tier one leverage capital ratio was 10.83%.
Painless at December 20, 120 team, our tier one risk based capital official increase its 12.51%.
12.43% at December 30, 120 team not total risk based capital ratio decreased 14.11%.
14.15% at December 31, 2080.
Net recovery through the fourth quarter 2019 were 2.3 million compared to net recoveries of 5.3 million in the third quarter of 29 pm.
Net charge offs for 1.1 million in the fourth quarter of 28.
That was a loss reversal of 5 million for the fourth quarter 2019, compared to a loan loss reversal, a 2 million in the third quarter 2019.
And no loan loss.
Provision or reversal in the fourth quarter of 20 Pete.
Non accrual loans decreased.
By 6.7 million to 40.7 40.5 million <unk>, 0.27% pure again.
As compared to the end of quarter.
20 lighting a pin please.
Continue I think you have now for the question and answer a portion of the call.
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Your first question comes.
Comes from Chris Mecray.
Of KBW your.
Your line is open.
Great. Thanks for the question.
Hi, I'm interested in the assumptions behind the 2020 margin of 335 to 345, I'm, especially related to where we're starting in Q4 did you provide kind of your rate interest rate assumptions and weather.
This will be primarily a function of dropping the deposit costs further or or maybe the factors that go into that thanks.
Of course, we are assuming no further no changes in the prime rate in 20 Twond.
And I.
I think the biggest stature for would be.
For our guidance is that in the first although we have $2.6 billion.
A relatively higher costs that C D a b the car.
Is that.
The average cost of east maturing Cds is 2.2%.
And we expect.
To renew them that.
At no higher than 1.8%.
These represent.
Roughly 34% of our total CD portfolio.
In this first quarter, we know should by itself add eight basis points.
Improved a NIM by eight basis points.
And then secondarily I mentioned in my remarks that we had two basis points up excess liquidity. So.
So I you know offsetting by all that would be.
Some ah.
Some oh loss of rate as loans mature you know from our existing.
Portfolio.
Okay, great. Thanks for that and then maybe a question on provisioning given implementation of Cecil.
In light of your 6% to 7% loan growth.
How do you how do you view the provision expense for 2020, given the change in accounting and given the pipeline a recovery.
Well, we think.
Well I'd now like we're still working on C.. So we've had a.
One on behalf of dry runs a word work yeah.
And.
So we're learning about that I think are.
We have not give the guidance on that day, one a adjustment which.
Would be a for a Uh huh.
A moderate increase in the all but.
We think in terms of provisioning that he would be.
You know just little bit less than a 1% of net loan growth.
And that's.
In terms of bar.
Thinking on that 6% to 7% loan growth.
Well a portion that is residential mortgage so that would be a reserve death.
Yeah, Yeah at a lower rate and the rest of our loan portfolio and then lastly.
You know we had recoveries for several quarters the sure.
Huh.
Undersea slowed we have to oh or companies have to book an asset for any.
Mobile.
Recoveries have.
Loans that were charged off before December 30, 129 pm, but based on.
Our pending litigation collection litigation outflows, we think will.
We have a a couple prospects for see an eye recoveries in 2020.
So and then you know credit wise I'd like now it looks pretty benign to us.
So.
That's that's sort of our outlook, we're not going to we're not going to give you know more detailed guidance than that because no nobody a crystal ball [laughter].
As I never perfect.
That's helpful. Thanks, and just one more enough that back the.
The low income housing tax credits could you provide what that might be in 2020 as well.
Uh huh.
The amortization.
Should be.
Slightly are about the same as in 29 team that would be about a five and a half no yen.
Quarter.
Great.
Yes.
Thank you Sir your next question comes from Aaron Deer, Piper Sandler income.
Your line is open.
Hi, good afternoon, everyone.
Hi, Karen.
I'm, just curious with with phase one of the trade deal now complete them.
Well if you get your thoughts on you know what that means perspectively.
Forward for you and your clients and what that might mean for the for the loan mix heading into 2020.
Seems like a pretty strong growth in commercial real estate and CNR heading into year end and just wondering if you know how would that might be part of the mix relative to single family in in 2020.
Yeah, well, yeah, let me start in a pink and.
Get that more macro guidance in terms of looking at 2020, we think our residential mortgage growth.
We'll be a slower than in the past because our mortgage book is so high.
And then you might not have caught up but the.
That's a group of loans, so that will impact that might be impacted by the terrorists Chris.
I had dropped to 2% up our total loan portfolio. So.
So.
And then I think last thing in terms of Q4 loan growth there wasn't that much I seasonally it's a slow quarter for trade finance.
And you want to talk about 2020, the outlook for the outlook I think you know better than 90.
And then.
Competed assigning osha that's run off.
Uh huh.
Oh, yes or no.
The second Bobby I study I think hover yet.
Okay that's dependent.
Uh huh.
A fund you will follow a cousin might know Baghdad.
Handling last night at no additional tended to create a.
We have seen as we got a small deduction in the impact to do before Katrina.
Hi, Kevin.
Okay, and then but any thoughts on a on.
Capital deployment, I guess, specifically on share repurchase isn't how are you guys are thinking about that at this point.
Yes, Oh, you know we box or.
I would say a fair amount I think over a million shares in 2019 most of it wasn't the first Perry.
And.
We didn't buy back any shares in a fourth quarter or mainly due to a you know the relative price or bar stock.
It's certainly something we will look at hidden 2020, particularly now that we know.
The impact from C., so and.
It is being you know relatively modest for us and so.
So Ah yes, we're.
It's it's an item in our capital Twoq shared Uh huh.
But.
Yes, it will depend on.
Basically on the stock price.
Okay, great. Thanks for taking my question.
Yes, Thank you yeah.
Thank you next question comes from a lot of Chad.
Capital markets. Your question please.
Thanks, Good afternoon.
Hello.
I was wondering given the strong loan growth.
Your ranch your loan to deposit ratio.
Increased 203% what are the expectations for deposit growth and in 2020 versus your 67% loan growth.
Well I am asking is I'm just wondering how aggressive you can be with lower deposit cost given the.
Deposit ratio.
Yeah.
I think on the loan to possibly show we had a couple huh.
We have a couple of Oh.
Large outflows on the last two days for the year.
But in the fourth quarter as a whole we've had pretty pretty strong core deposit growth.
In terms of 2020 or the.
You know that the biggest challenge for us is getting a more core deposits so as far as our Chinese new year promotion that's out.
That's a six week sort of Bob.
Promotional periods, where we don't have sat rate, that's we didn't pass but.
The results for the first couple of days have been a pretty good in that.
We're lowering the rate from 220 actually but the rate and that promotion I was higher than I think whats does to 35.
And our current cargo wave is 165 to 170, but we.
We actually had a net increase in Cds.
For the first two days, that's really build cycle and then.
Lastly, we think we'll have good momentum and getting money market will continue to have momentum getting money market deposits as well.
Which are lower rate and then Cds on average.
Because.
Oh, the stabilization of the weight picture and then we have we hired a new cash manager manager.
Last summer and we believe that we'll be able to execute better on getting a.
Business deposits, so I think.
We.
It's a start up in New York, we feel pretty good like now and you know based on the results for the first three weeks a core deposit growth is.
It's decent.
Okay. Thank you hang and then.
Could you yes.
Talk about expectations for core expense growth.
Ah yes.
Yeah, we.
We finished so with our budget. Our 2020 budget was approved last week or a few maybe we can haskell and.
And we.
We think.
The increase on a excluding silver amortization, which is going be higher because we're investing a little bit more in 2020.
We think that.
Overall, the expenses core expenses would be flat, maybe up by 1%.
In terms of places.
Ah, we got pretty good savings from telecommunications.
Overall, that's in 2020.
We like most other banks, you know where yeah.
Pretty tough fund, how we expect 2020.
Hi.
Incentive bonus to be.
So we're budgeting for a lower amount and we also cut back on discretionary items such as.
Marketing and things like that so so.
So were you know a.
Well, we're going to try real hard to maintain a neutral operating leverage.
Thank you and just one last question, if I could and I look at your average securities you talked about the elevated excess liquidity in the quarter average securities where.
1.56 billion, which was much higher than the end of period.
Balance.
She that 1.56 billion come back down into the into first quarter.
Yeah, I think probably.
Most of the 1.4 or five or something like that.
We we because of our excess security liquidity, we kinda hundred million roughly 100 million.
In a three month treasuries.
Rather keep it all that the sad.
Okay, great. Thank you very much sure.
Thank you. Our next question comes from Gary Tenner of D.A. Davidson. Please go ahead.
Thanks, Good afternoon.
Fortunately were largely answered, but I just wanted to follow up on the CV refreshing talking about for the first quarter.
I would think that second quarter over the year might also have a decent delta in terms of the maturing rate versus the renewal rates I'm wondering if you could you tell any further into the year on TV regression.
Yeah, it's a good it's quite a bit less.
The average rate is.
1.93.
So and there was only 1.2 million.
Of Cds repricing. So that's that's going to contribute free with all the third quarter that the rate of 1.85.
And there was only 1.5 billion Cds maturing.
In the fourth quarter.
That.
That's why we renewed.
In the fourth quarter this year, the adweek greater Sally down to 1.72.
And there's only a billion too so most of it it's going be it the first quarter.
And hopefully what we've got the first quarter conference call I'll be able to give a favorable won't report.
On ours.
On our NIM.
Okay perfect. Thank you.
[noise]. Thank you again, ladies and gentlemen to ask a question. Please press star one thing you touched on telephone again, that's star one when you touched on telephone to ask a question. Our next question comes from David sheer Verine of Wedbush Securities. Your line is open.
Hi, Thanks, a couple of questions for you.
So first on the money market deposit rate it looks like it actually went up from the September quarter to the December quarter from 1.11% to 1.19% I was curious as to why why that increased.
We.
We put a bigger emphasis.
On a.
Attracting those.
And so for larger depositors that might have.
Multiple millions.
We would pay a higher rate and then second in the middle of a fourth quarter, we did start.
Uh huh.
Accepting.
Wholesale money markets and those are.
Basically enough.
1.8% range and in 2020 will also.
Be using those as the alternative brokered Cds.
Got it and and you've incorporated I'm, assuming that into your guidance, yes, the expected growth in your money market at the higher rate.
And then you know we.
In December we price.
Our exceptional money market relationship money market deposits.
Downward Oh Fig on average 20 basis points so.
So and then we'll we'll look at.
Well look at bad or at least once the quarter to make sure we're not paying above the market for for a large relationship money market balances.
Great that makes sense and then shifting over to credit quality I saw that accruing loans past due 90 days increased about 6 million what was the driver behind that.
He was one loan which weeks it's a.
It's cash secured we had to and we expect that to be paid off in a couple of weeks.
There was some difficulties getting out I guess contacts in the borrower who I.
I understand was my this might have been Alabama country, but.
There's no credit issue with that.
Particular, along.
Great and then the last one for me.
So the using you mentioned about how that using of about the easing of the terrorists tariffs and how it led to.
You know net recoveries of two and a half million in the fourth quarter.
Yeah.
Those are unrelated excuse me that Doug.
We were talking about the provisioning as some of that negative loan loss provision was related to the easy.
Oh, sorry go ahead.
And well I guess to just finish that thought would you expect you know as this easing and phase one is done and to the extent that we get additional progress or is there are there any loans that you could possibly see additional recoveries on related to the trade weren't using.
We have a general.
Oh, we have a general reserve for.
The trade war so.
To the extent as and it's not a huge number but to the extent there was further progress in 2020.
We could.
Reduce that general reserve and that reserve woods would carry over under Cecil.
Great. Thanks very much.
Thank you.
Thank you for your participation I would now turn the call back over to Cathay General Bancorp's management for closing remarks.
Thank you for joining us east call and we look forward to speaking with you.
Quantity and distinct.
Ladies and gentlemen, thank you for your participation in todays conference. This concludes the presentation. You may now disconnect good day.
[laughter].