Q1 2020 Earnings Call

April 27, 2020

Good day, ladies and gentlemen, and welcome to the Cafe General Bancorps first quarter 2020 earnings Conference call. My name is just in the now that you coordinator for today.

This time, a participant lines are in listen only mode. Following to prepare for March there'll be a question and answer session. If he would like to participate in this portion of the call. Please press star followed by one at anytime during the conference.

Yes assistance is needed anytime during the call. Please press star followed by zero and a coordinated we'll be happy to assist you today's call is being recorded and will be available for replay at www dot 'cause They general Bancorp Dot com now I would like to turn call over to Georgia, low Investor Relations.

Not that they generally bancorp ma'am please begin.

Thank you Justin and good afternoon huge you just got to find out results today are Mr. Pinto <unk>, our Chief Executive Officer, Mr. Chang, New Cathay Bank, President and Chief Officer, operating Officer, and Mr. Hang 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.

Good evening within the meaning of the applicable provisions other private Securities Litigation Reform Act of 1995 concerning future results and event and that these statements are subject to certain risk and uncertainties that could cause actual results to differ materially.

These results in uncertainties are further describing the companys I knew report on form 10-K for the year ended December 31st when you 19th and item one in particular and in 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 statements any forward looking statements speak.

As of the date of which it didnt meet and except as required by law.

We make we undertake no obligation to update or have you any forward looking statements to reflect future circumstances developments. We then what do you occurrence of unanticipated events. This afternoon, Cathay General Bancorp <unk> earnings release outlining its first where 2020 results to obtain a copy please visit our website.

Www Dot Cathay General Bancorp Dot Com after comments my management today, we will open up this call for questions.

I'll now turn the call over to our Chief Executive Officer, Mr., Tim I think your Julia and good afternoon.

Welcome to all trying to 24th quarter earnings Conference call.

I will not age well first quarter operating b cells.

Oh commitment and focus today you go in supporting hope crimes, she mendez and committed <unk> going to cope with Nike pandemic.

He something to one we've reported net income of 46.9 million, what does well well drilled 2020, a 29.7% decrease when compared to a net income of 66.7 million for the first well till 2019.

I do the earnings per share increased 29% to 59 cents. This year well the first well built 2020 compared to 83 cents this year.

The same quarter a year ago.

The first quarter 2023, so in cool, especially the loan loss provision trade tool needed.

For loan losses, you to deterioration economic conditions in the closing.

Okay quarter behavior to cope with my team.

He special publishing view early this year by night insane.

In a book well go 2020 gross loans grew by 458.7 million to 15.5 billion.

An increase of Copeland two person on an annualized basis.

The increase in loans for the fourth quartile 2020 was primarily driven by the gross income not too long.

Hundred 90 pool once we need it you, even Pos too high a draw down by a bottle Oh, 20% annualized.

I'm Lucky mortgage loans of 147.3 million, well, 8.1% annualized and they said that your mortgage loan, so 85.3 million or 8.3% annualized.

For the first well they'll 2020, a totally policies increased 397.8 million.

Pinpoint it is an annualized.

To 15.1 Peter.

Larry it's suddenly so you'll be positive and additional wholesale deposits.

We continue all stock buyback program and be poetry 400000 shares of us all.

If they close up 32 dogs any sense this year.

Well, it's held 2020.

We will not be buying back any additional Shia until further notice.

We will continue to monitor the impact of the Colby 19 pandemic well no financial results.

So I see many well known it policies services and products swing to second quarter 2020 and beyond.

With that outside the pool, but to the bank President and Chief operating officer can deal with these cuts I'll first quarter as a quality in more detail and now called igniting initiative, well I'll Baltimore.

Thank you Pat and good afternoon, everyone with respect to be Coburn 19 endemic we have implemented several lending initiatives to assist borrowers that are impacted by dependent.

We launched the mortgage assistant program on April 1st for residential mortgage borrowers who are experiencing financial hardship as a result of Copel 19 to provide short term pain relief for up to.

90 days.

As of April 24, 2020, we have approved 987 payment deferment request with an aggregate balance of 434.7 million or approximately 9.8% of our residential mortgage loan portfolio.

With weighted average current loan to value ratio of approximately 53%.

We began working with RCR you can see an eye borrowers that have been adversely impacted by Copel 19 to provide relief.

Well, we can do so prudently.

Through a modification of repayment and war.

Covenant terms.

21st 2020, hundreds aging see all you loans with an aggregate balance of 435.5 million as of March 31st 2020, or approximately 6% of RCR you'd loan portfolio and 2.8% of our total loan portfolio happened modified to provide relief on repayment terms.

The average loan to valuation, which a nation for these loans was 50%.

In addition to see an Io loans with an aggregate balance a 50 50.4 million as of March 31st 2020, or approximately 1.7% of course, you and I won't portfolio and 0.32% of our total loan portfolio up and modified to provide relief on repayment terms.

We launch or S.P.A. payment protection program on April six.

April 27, 2020, we are in the process of submitting over 900, P.P.P. loans with an aggregate balance of approximately 220 million to the U.S.P.A. portal.

We also launched a microphone program the smart relief loan program, which is independent and separate from any SB eight what government back when we leave programs. The purpose of the program is to help small business owners affected by they called the 19th endemic no nine state footprint with loans between 5000 210000.

As of April 2024, 2020, we're processing over 100 applications with an aggregate balance a little over 1 million.

For the first quarter of 2020.

Reported net recoveries, a 49000 compared to net recoveries of 2.3 million in the fourth quarter of 29 team and net recoveries of 200000 in the first quarter of 2019.

Our non accrual loans increased by 13.2 million to 53.7.

Or 0.35% of period end loans as compared to the end of the fourth quarter up 29 team.

The increase was due to one bone switching of tighter stores, which is secured by real estate.

We recognized a 25 million loan loss provision in the first quarter of 2020 compared to a loan loss reversal of 5 million in the fourth quarter up 29 team and no no loan loss provision in the first quarter of 2019.

So 25 million loan loss provision in the first quarter of 2020 include a qualitative adjustments under the incurred loss model due to the impact of you couldn't 19 can dynamic of 22 men.

We have elected to defer the implementation of the Cecil standard for recognizing quit on losses as permitted under the recently enacted Cures Act, which based on preliminary results would have resulted in additional loan loss provision in the range of 5 million to 15 million in the first quarter of 2020, if cease all happened the top.

Good.

We also continue to monitor and evaluate the potential impact of you continuing tariffs from deep partially resolved treat dispute between the U.S. and try not to our loan portfolio.

Hours that we believe could be adversely impacted by the current tariffs hold approximately 2.9% of our total loan portfolio.

With that I'll turn the fall over to our executive Vice President and Chief Financial Officer think chain to discuss the first quarter 2020 financial results in more detail.

Thank you Jane and good afternoon, everyone.

For the first quarter 20, Twond your income decreased by 19.8 million or 29.7% to 46.9 million can present first quarter 2019.

Diluted earnings per share was 59 cents for the first quarter 2020, a decrease of 24 cents.

Or 29% compared for the first quarter 2019.

Which was reduced by 19 cents for sure.

Turning to moving especially a loan loss provision.

Ladies and so coping night.

3.34 in the first quarter 2020.

Compared to 3.7 in the first quarter 2019, and 3.34 for the fourth quarter 29.

There were 2.1 billion of loan yeah, that's the alone.

There are long already.

As of March 31, 2020, compared to 822 million of loans that their floor rates as of December 31 claim he.

And the first quarter 2020.

[noise] interest recoveries and prepayment penalty and only one basis point to the net interest margin compared to two basis points for the first quarter 2019, and four basis points for the fourth quarter of 29.

Approximately 1.2 billion and 1.7.

Again about Cds mature dreams. This.

Second and third quarter's a 2020.

Average rates of 1.9% and 1.8%.

Non interest income during the first quoting 2020 DC.

I 7.1 million to 5.8 million when compared to the first quarter.

<unk>.

The decrease was primarily attributable to <unk> 10.3 million swing.

In the valuation of equity Securities.

Partially offset by a 1.1 million increase in wealth management.

And the net change of 1.3 million.

From a valuation.

Interest rates swaps.

Non interest expense decreased by 5.8 million or 8.2% to 65.2 million in the first quarter 21.

When compared to 71 million in the first quarter a year ago.

Well the first quarter 2020, <unk> decrease in non interest expense.

Well, it's primarily between 4.5 million game.

Recognized from the sale of foreclosed real estate.

A 1.2 million <unk> and salaries and employee benefit expense.

2.4 million change in the provision for unfunded commitment.

Partially offset by a 3.1 million increase.

In amortization of investments and long term housing and alternative energy partnerships.

The effective tax rate for the first quarter 2020 was 16.2%.

I'm parents or 21.8% the first quarter one.

We completed an investment in the solar tax credit fund last week.

Once we project would lower our full year.

That's right.

To approximately 12% to 13%.

So low tax credit amortization was 7.9 million in the first quarter 2020.

And is expected to be 7 million in the second quarter.

<unk> point 5 million <unk> quarter in each of the last two quarters of 20 Twond.

At March 31 2020.

Till one leverage capital ratio decreased to 10.2% as compared to 10.83% at December 21 29.

Our tier one risk based capital ratio decreased to 12.38% from 12.51% at December 31 HM.

Total risk based capital income.

A 14.12%.

14.11.

At December 31, 29 pm.

Okay, we will now who seek to the questions and onset portion of the call.

And thank you.

Ladies and gentlemen, if you have a question at this time. Please press star keep them one on your telephone asked a question. We ask that you. Please limit yourself to one question and one follow up you May then returned to the Q. If your question has been answered all your wish for move yourself from the Q. Please press county.

Prevent any background noise, we ask that you. Please place yourself on mute. Once your question has been stated and again, ladies and gentleman that is star one if you like to ask a question and I first question comes from Chris Mcgrady from KBW. Your line is now open.

Great good afternoon.

Hi, Chris <unk>.

Hank maybe I could start on the expenses just for a moment.

Could you help us with you kind of a reasonable run rate that we should be thinking about the core expenses, excluding the amortization.

For the next several quarters, given given the environment turned a little bit more challenging from a revenue perspective.

Ah well I.

You know we have our annual merit increases for office worsen.

People that wasn't about.

Typically a 3% that's true it's about two and that's more or less offset by cost that we have in Q1.

So.

Yeah, I think are adjusted Q1 would probably be a good run rate for the rest of your.

Okay.

Got it.

And then on the amortization did you have the I think you provided the so where do you <unk> you have to low income housing.

I was you might you would <unk>.

It's about 6 million a corner.

Okay great.

Maybe just a follow up my second question would be yeah, there's a lot of lot of.

Discussion this quarter about some of the portfolios the banks that have that might be perceived that riskier given given the environment. We're in could you or could you remind us your exposure to several these.

Portfolios, you know hotel restaurants energy just the proportion of loans that would be helpful or any others that you see is kind of the higher risk today.

Yeah I think.

I haven't mentioned to investors our hotel motel portfolio as.

Roughly 300 million.

So if it's 4.1% of CRT loans were 1.9% of our total loans.

We feel that's a 1.76 billion.

It's 24.

Percent offs of RCR, you loans and.

11.3%.

Of our.

Total alone. So we feel yeah, I think we mentioned in the past couple of you.

Sure when that was interest in retail.

Lpvs are very low and ER and the debt service coverage ratios are pretty strong.

For restaurants.

We have about a 170 million.

That's 2.4% Oh, sorry.

1.1%.

Total loans most of that is to.

Fast service Chinese restaurants.

Uh huh.

It's a well yeah anyway is that.

And then.

I think I think those are the categories. Oh anyone you also have oh hunting for media and also oil and gas, which is a bolt ons said then the said, although total loan portfolio and all of them nod to sustain lending.

That's great color. Thank you very much.

Thank you.

And our next question comes from Gary Tenner.

<unk> Davidson.

Your line is now open.

Thank you Oh, just wondering if you could go into what the ultimate decision was for you guys in terms of deciding to defer the adoption of seasonal.

Oh, Yeah, Jerry I think.

You know we.

We feel that we were somewhat unique in that.

We've been in net recoveries for five years or so you haven't had a loan loss provisions.

For a.

For <unk> for those years.

And so.

What we have to do as.

We have to take losses, Oh charge offs 1009 2009.

Recession.

And.

So at the was that they want an adjustment.

He had.

The increase in all of which will mention I can.

In Q, a we didn't mention our 10-K it was little below 10%.

And then when we tried to.

Ah yes apply.

These firms.

Ah drastic measures are.

Yeah, that's how we're.

That were ER economic measures at the end of March.

Yeah, we felt that a seasonal for us.

Was that.

Probably overstate the loan loss provisions given how.

Our overall no low LTV, so like about 15% of the Midcap banks, we chose to defer and then no that whenever.

Non agency is.

Overall or something probably one of the sure.

We were hassle and we see all of the quarters in 2020, but.

That's more or less thinking that we have the choice.

Need more time to view.

Validate our model because.

Because.

Because of our lack thereof.

Recent charge offs and so Oh, we felt we felt strongly.

That.

We incurred loss model.

As we have adjusted to.

Captures the Kogut 19.

What presents a a fair that's true.

Okay I appreciate the color on that and then just to confirm a when you mentioned before the.

Maturing Cds and.

The next couple of quarters was at 1.1 billion per quarter.

Uh huh.

Oh that it is.

Oh I got here.

Yeah.

So lumpy it was 1.2 himself in the a second quarter 1.7 in the third quarter [noise].

Okay, and what's your current 12 months Europe.

It's about 1%.

Ah, we hope to get a little bit lower.

Yeah.

Once a one time goes down.

Just a you know it's it's not last.

Six weeks themselves out, but the market.

The wholesale brokered CD market has.

That's been a.

The rates have been pretty high but as the stimulus.

Proceeds that come into the banking system, including.

Caffeine like today, our loan to deposit ratios under a hunter.

And so.

Now.

I tried to.

Be more efficient trends so yeah.

Next we offer to up for one year seating.

Great. Thank you.

Sure.

Thank you.

And our next question comes from laying a chain from BMO capital markets.

Your line is now open.

Hi, Thank you couple of questions one the loan loss provision this quarter of 25 million that how much of that was for potential losses on that one can I credit that you highlighted.

Yeah, I would not not not the from me Scott that that was well secured or.

<unk>.

Let's get some work outside.

Oh, we have its collateralized set up a realistic. So it's just that he was passed 90 days to show.

Okay.

And and other de I'm willing to take you mentioned, we're in modification this quarter or modified and to see every and seen I could you give us a same for what segments I'm industry enabler and even more retail on D.C. RV sites.

[noise] [noise] [noise] [noise], yeah, that's right.

Sure, there's probably a segment of Ah hotels in hotels, and then retail was well those are the two biggest categories I'm of the numbers that we talked about.

Okay.

I guess when you look across your CRB portfolio, especially in the retail and a hotel motel sectors, a and actually is restaurants I mean.

How much you know liquidity do you know some of your borrowers have to sustain.

A pretty significant drop in revenue over the next couple of months.

I mean for US we were looking at not just the properties Kasler. We're also looking at the sponsors their liquidity under the entire global cash for the same time b. The three sector. The three sectors, you mention hotel motel retail and even restaurants collectively.

The items that we that loans that we have actually been working on from a mock standpoint, they make up for just about 2% all the of the entire loan portfolio.

Oh, the Ed that the fall hotel motel portfolio.

Let's see a LTV is about 45.6%.

And Bobby Kelly's about 56%.

Okay. Thank you.

Yeah. Thank you. Thank you.

And again, ladies and gentlemen, if you have a question that was gonna be star. One again, if you have a question that's gonna be star one.

And our next question is gonna come from David <unk> Vonnie from Wedbush Securities. Your line is now open.

Hi, Thanks, a couple of questions first.

On the provision as we look out to the second quarter do you have any sense as to based on how borrowers are performing thus far in the quarter do you have any sense whatsoever as to you know what level of provisioning could occur in the second quarter.

Oh, Yeah I think.

You know, it's gonna be a more on the economic forecasts.

So yes.

Yes, let's say many more saying you know at June Thirtyth, yes.

Yes.

If the majority of the states that were again, we opened.

Unemployment or.

Yes Pete.

Ah yes under.

Under Cecil.

You would need less of a provision when things are improving and.

As far as a.

You know because.

Our bonds that don't.

Have we cash flow now I'm going to do from it.

I'm door incurred loss model, we wouldn't that we don't count those that's trouble.

That's in the Gulf, the regulatory guidance and Nvidia actually see guidance. So it would not a constant provisioning by itself.

Oh, it's probably hard too.

Ralph where things are going to be a.

Two months from now.

Yeah, I can appreciate that and then shifting gears to.

Some of them more traditional category. So your net interest margin what are you expecting going forward over the next couple quarters.

We think.

You know it.

It varies I mean, I think one is the.

You know, it's a level at the PPV when you.

Because the rate and slow, but yes, there for you haven't.

Yes.

Two or three points.

Fee income, but.

I as I sat about it or.

On March.

Men was 3.12 I'm sorry.

That was April.

Watched me I'm works.

3.23.

And then preliminary.

I think about April when.

We booked cart fees on my last day of a month. So I think on April would be closer like 3.15 or little bit higher than that.

So and you.

Most of our loans have kicked the floors.

You know every month as our Cds free price, we get a lift.

From Stephens repricing so.

So no I think over time or.

If there are no.

Surge of non accruals and things like that Oh.

Our NIM should should stabilize but once again, we're not giving guidance system.

Exactly where where it goes.

I think one thing we Oh, we have increased our.

Our.

Slowly from new loans. So for example, new CRV loans to the extent yet.

Men nowadays.

The rate flipping a low four so very close to our average portfolio and we pushed up the ways for our residential mortgage loans, though.

We don't you won't have Oh, we don't expect much rate compression from <unk>.

That's helpful and then shifting over to loan growth you mentioned about how see an I saw elevated levels of drawdowns similar to what we've seen across the industry. Just looking forward to what type of loan growth or are you expecting in this type of environment.

We can't predict or for one because of the PDP, but aside from that.

So far in April the see an eye loan growth has been.

Very very muted.

And then also in the same.

Or residential mortgages.

Great. Thanks very much.

Thank you.

And next question comes from Gary Tenner from D.A. Davidson. Your line is now open.

Thanks.

Quick follow up on the P. P loans could you tell us what the average fee that you expect I'm not the weighted average basis.

Two.

Yeah, probably 2%.

Great. Thank you.

Yeah. So thank you.

Thank you.

And our next question comes from Michael Young from Suntrust Robinson Humphrey.

Your line is no. Thanks.

Thank you and just wanted to get an update maybe within the residential mortgage portfolio and then separately or maybe the commercial portfolios like series can you just tell us how much.

The loan balances are generally already in deferrals and are you guys granting those are you kind of forcing into a full modification an extension.

So at the moment the residential mortgage we mentioned on the call 987 of the loans have been account of loans have been granted approval for deferment, that's about 434.7 million and of that the actual agreement that's been signed and probably booked our system is about 143 points.

Snowing.

Okay, and [laughter] hang I think you said you know obviously you guys increase the rate on new resi mortgage I think before you you had kind of stayed in that portfolio may not grow much from here just given the size of it overall.

But in general you that is a safer category to grow at this point in the cycle or are you kind of just wanting to tamped down growth altogether and preserve capital just in case of credit losses et cetera.

It's certainly I think historically.

The safer category.

And then.

The risk weighting, it's only 50% compared to.

No 100% for US you already so its furrion, it's relative the labor on capital, but yeah.

I think.

For the last month from too.

We are staff have been really busy doing the right.

And so that's our focus right now is.

Servicing our customers that happened in passing by coping 19.

And then to well, we'll see what are you know.

So on June and July.

But the more normal months for <unk>.

Okay.

Maybe one last one just on geographic exposure.

If it's better the taco each bucket individually it was held motel retail and restaurant, but I would assume that for ponder into that is in southern California, but maybe you could provide some detail on if any of that.

New Yorker, Oh, Yeah, Dallas other cities.

Yeah.

In our investor slides.

Which is on a website <unk>, Georgia, Oh, but anyway then.

It's about 50% in southern California.

<unk>.

30, or 35% is New York, then about 10% northern.

And then like taxes.

Washington, or no it's about 2% of the total each of them. So it's it's predominantly.

Southern California, New York, and Northern California.

And I guess I was just trying to get out they do any of those specific categories have an outsize exposure to a different geography, other again, southern and northern California, like retail or hotel motel.

No I think.

In terms of a hotel motel that's.

More or less brought out in terms of geography.

Yeah Yeah.

Ah, we kill probably built in.

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