Q2 2020 Cathay General Bancorp Earnings Call
Oh, the dash and dashed count.
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Good afternoon, ladies and gentlemen, welcome to the Cathay General Bancorp second quarter 2020 earnings Conference call.
It was down and I'll be your coordinator for today.
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Today's call airframe accord and will be available weekly www Dot Cathay General Bancorp Dot com.
Now, let's turn the call over to Georgia, low and that's relationship Cathay General Bancorp you may begin.
Thank you gallery and good afternoon here to discuss the financial results today are Mr. Pinto <unk>, our Chief Executive Officer, Mr. Chengdu, Kathy, Thanks, President and Chief operating Officer, and Mr. Han Chen our executive Vice President and Chief Financial Officer before we begin we wish remind you that the speakers on this call may make for.
Looking statements within the meaning of the applicable versions of the private Securities Litigation Reform Act of 1995 concerning future results any event and that these statements are subject to certain risks and uncertainties that could cause actual results could differ materially. These risks and uncertainties are further describing the company's annual report on form 10-K for the year ended.
At December 31st 2019th and I'm wondering in particular and another reports and filings with the Securities and Exchange Commission from time to time.
Such we caution you not to place undue reliance on such forward looking statements any forward looking statements speak only as of the date when would you just me and except as required by law. We undertake no obligation to update we view any forward looking statements to reflect future circumstances development or events or do you currently have an end to the.
<unk> event.
This afternoon, Cathay General Bancorp issued an earnings release outlining a second quarter 2020 results.
To obtain a copy of our earnings release as was our second quarter earnings presentation. Please visit our website at Kathy Bank Cathay General Bancorp Dotcom after comments from management today, We will open this call up for questions I will now turn the call Overcharge, Chief Executive Officer, Mr. pretty tight thank you Doug and good afternoon.
Welcome to our 2022nd quarter earnings Conference call.
Well, we are knowledge of second quarter, hopefully seem to be so.
Oh commitment and focus today on continuing to somewhat right.
He invented in committed is going to covert Nike Debbie.
Absolutely we bought the net income.
Well for the needed.
Well the second quartile kind he said.
24.
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We need to.
Second quartile 20 Nike.
But I do the early this year.
At least 24 point bolt said 60 cents this year, what a second quarter 20 trends.
Yes, I do censorship policy holder vehicle.
In the second small dogs and he said he both loans grew by 74.1 needed to 15.6 either.
<unk> increased a wonderful nice it said that annualized basis.
Increase in low for the second quarter looks pretty.
Well I know restricted by the old origination trends, one just 61.7 needed.
HM Okay actually who can do.
It's 47 needed or the throughput positive <unk> conception, though.
So gold though.
Nick changes in the remaining don't portfolio was relatively easier.
At the food.
20, tricky we have originated.
Adult since we had to 81 TPP, though.
It could be better well somebody.
Hi, this is the 1.7.
We will continue to monitor the impact of the cobot, 19th and they make on a fund easily so it's all its events logical people.
So this is unfolding so thats the four build for any crazy.
During the second quarter, you called bucket, but if you have a bolus industry, that's acuity impacted by the economic.
We are encouraged.
I, just generally low loan to values, what do you feel though.
An overview of the outside liquidity Eddie helped by the scattered all seasonal.
Which we expect could be used to support.
With that I tend to fall to the base, President and Chief operating Officer, Chen deal for fiscal second quarter asset quality in more detail.
Cool with Nike initiatives Walpole.
Thank you Pat and good afternoon, everyone with respect to be Colby 19, pandemic, we have implemented several banking initiatives to assist borrowers that are impacted by the continent.
41, see an iPhone with an aggregate that went to 43.2 million as of June Thirtyth 2020, or approximately 1.6% of our commercial bank portfolio at the modified to provide relief on the payment terms based on request from ball.
Turning to slide seven of our earnings presentation.
At June Thirtyth 2020, 430, once you launch with an aggregate balance of 1.269 billion or approximately 17.2% of RCR <unk> loan portfolio and 8.1% of our total loan portfolio have been modified to provide relief on the payment terms.
The average loan to valuation Apple, which a nation for these loans was 52%.
<unk> that mature during the month of June 2020, 81% went back to break it a payment terms.
At June Thirtyth 2020, Kathy has 64 hotel loans totaled 296 million.
We have process loan loss of 51% 451 million.
Oh, the 64 whole killed owns 60 or limited service and fourth full service three in southern California, and one in Texas.
Turning to slide eight we note that we'd be 83% of the launching our retail loan portfolio, which comprises 24% up our total commercial real estate loan portfolio and 11% of our total loan portfolio as of June Thirtyth 2020.
The majority, 62% off the 1.46 billion in retail loans, we viewed as secure Biden neighborhood community, what strip centers, and only 12% to secure by regional malls power or lifestyle or factory older properties.
The 676 million of CR you'd be told on the loan modifications approximately 37% or paying interest on me.
Turning to slide knowing.
As of June Thirtyth 2020, we have approved 1190, a payment before many requests for 90 days with an aggregate balance of 518.1 million or approximately 12.4% off our residential mortgage portfolio.
To do like 24, 2020, 37% of the 140.4 million of July maturing loans deferments have requested an additional different.
We also launched a micro loan program the smart relieve loan program, which is independent separate them and U.S.P.A. won't come back lumpy leaf.
<unk> programs. The purpose of the program is to help small business owners affected by the coping 19 condemning nine state footprint the loans between 5000 210000.
For the second quarter of 2020, we reported net charge offs of 3.6 million compared to net recoveries of 49000 in the first quarter of 2020 and not recoveries of 96000 in the second quarter up about 29 team.
Our non accrual loans increased by 2.7 million to 56.5 million or 0.36% a period end loans as compared to the end of the first quarter of 2020.
Accruing loans past due 90 days were more at June Thirtyth 2020 have been reduced from 21.4 million to 3.1 million as of July 24th 2020, that's renewals for these past few loans were completed.
You recognize a 25 million loan loss provision in the second quarter of 2020, the same amount that's in the first quarter of 2020.
The 25 million Bumbles provision in the second quarter of 2020 included qualitative adjustments under the incredible under the incurred loss model due to the impact of the cold in 19 condemning.
We have elected to before the implementation of the Cecil standard for recognizing credit losses as permitted under the recent leading after two years that.
We continue to work on the loan loss reserve under seasonal and what the schools the estimate arrange nor second quarter form 10-Q.
We also continue to monitor evaluate potential impact of the continuing tariffs from the portion we resolved trade dispute between the U.S. in China to our loan portfolio.
Always, though we believe could be adversely impacted by the current chairs hold approximately 2.5% of our total loans.
Turning to slide 12.
Total deposits increased by 1.2 billion for 32% annualized during the second quarter.
D.A. balances increased by 438 million or 61% annualized due primarily to and spend PPP funds on deposit with cafe and customers increasing liquidity during these uncertain times.
Money market deposits increased by 499 million 80%.
Your life in part as a result of marketing efforts to large corporate depositors.
Plant to address the excess liquidity brought by the growth in core deposits by reducing brokered and wholesale deposits during the second half of 2020.
With that I'll turn to forward for executive Vice President and Chief Financial Officer thing Chang to discuss the second quarter 2020 financial results in more detail.
Thank you Chang and good afternoon, everyone.
The second quarter 2020.
Net income decreased by 17.9 million or 24.8%.
To 54.3 million compared to second quarter loved one.
Which was primarily attributable to 25 million loan loss provision.
Due to coping 18.
As mentioned earlier.
Our net interest margin was 3.2% in the second quarter 2020 as compared to 3.34%.
For the first quarter 2020.
There were 2.4 billion of loans.
At the floor at their floor.
As of June 30, 2020.
Compared to 2.1 billion or loans after flow rates as at March 31, 2020.
In the second quarter, probably 20 interest recoveries of prepayment penalties added three basis points.
'cause net interest margin compared one basis point.
I was quoting 2020.
Approximately 1.8 billion 1.5 billion 2.5 billion up our Cds mature.
During the third and fourth quarters of 2020, and the first quarters 2021.
Average rates of 1.7%.
1.47% and 1.55 person.
Secondly.
We are targeting really huge plcb.
In the 50 to 60 basis point range.
Non interest income during the second pulling 2020 increased by 2.8 million to 15.6 million when compared to the second quarter of 2019.
Increase was primarily attributable to a 2.5 million increase.
In the valuation of equity Securities.
Non interest expense decreased by 2.2 million or 3.2%.
67.3 million in the second quoted 2021.
When compared to 69.5 million in same quoted a year ago.
For the second quarter 2020, the decrease in noninterest expense was primarily due to a.
5 million increase in salaries and employee benefits expense.
Resulting from lower bonus accrual.
And the increase in salaries capitalize for loan originations.
The effective tax rate for the second quarter of 2020.
What 6%.
Compared to 16.6% for the second quarter 2019.
We completed a best friend and they solar tax credit fund.
The second quarter of 2020.
Which we project what a lower our full your effective tax rate.
Approximately.
11%.
So look to spread the amortization was 6.6 million in the second quarter 2020.
And is expected to be 8.5 million accordingly in each of the last two quarters of 2020.
At June 30, 2020, or tier one leverage capital ratio decreased 10.46% as compared to 10.83% at December 31 2019.
Q1 the space.
Canceling show increased 12.88%.
From 12.51% at December 31 told me, he and I total risk based capital and show.
Increased to 14.1%.
From 14.1 person at December 31 point.
Thank you. Okay. We'll also see through the question it onto close enough to call.
Thank you again, ladies and gentlemen, who like to ask questions. Please press Star then one.
On telecom.
Our first question comes from Michael Young of Suntrust. Your line is open.
Hey, good evening. Thanks for the question wanted to just start with outside of the classified assets could you provide a the levels of criticized and or special mention assets. It was fun.
Yeah, it's a.
You had actually been down at.
Watched Thirtys course, 20, Twond he was 505 million.
And it went down to 414 million.
Well there wasn't migration from special mention to substandard 20, the second quarter.
Okay. That's helpful and then.
I was just kind of bigger picture question I guess hain on the loan loss reserve. It just seems like maybe the level of reserve on the CRT book is low relative to peers I understand you guys have a low loan to value, but looks like it's about.
Sub 60 basis points of reserve on the $7.4 billion books. So just was trying to help parse that out a little bit better if you could help me with <unk>.
Yeah, let me make a stab at that.
I'm thinking.
And sat here, yes, we.
We did that's fine.
Yes, that's we try to mention.
And in all our loan portfolio started but.
Oh tell loan portfolio.
And.
Yeah, Yeah most of our.
Needless to say loans.
Almost all somehow hold for smoking.
So I'll leave you.
Looking at the outside quitting the borrowings.
Wallace.
The operating statistics of the hotel portfolio, so I'm not one.
We didn't mention that much Andy.
Our prepared remarks, but.
We calculate burn rate and as well that's.
Outside of liquidity and.
On the whole most of them can last.
A year or more.
Okay sounds accrue occupancy levels.
Got you go to the retail week is a similar analysis.
Looking at outside liquidity as well less than current TV.
Yeah, I think we we tried it isn't huh.
Comments.
No.
I mean, you have on.
Retail loans secured five.
Hi, <unk>.
Yes, a neighborhood center with a supermarket or drugs for us the include.
That's 20%.
Or neighborhood centers now.
Not type I and crude but you know there our neighborhood centers so.
We think they will hold up a pretty well so.
So I think all in all.
Our historical WAF.
For US you are you.
It is generally 15 basis points a year so.
And that's been our loan to values was typically in a 70 percents range.
So.
Chime with Uh Huh.
Yes I.
I think you covered it okay. Yeah. So I mean, that's kind of how we okay. I think I've been time will tell I think one of things is that.
Shane mentioned that 80%.
Yes.
No I had a.
Oh My God.
You know they went back to.
<unk> interest and principal repayments. This is for the true. So so leasable bonds are capable of.
<unk> property.
Okay. That's helpful and I did appreciate all the the breakout in the slide deck very helpful. Last one for me was just on PPP, just trying to understand how much.
Of the fee amortization and total impact there wasn't a margin and net interest income this quarter and if there's any offsetting it's been.
Yes.
The origination fees.
Were 8.8 million.
Which is 3.37%.
We were amortizing the straight line over the 24 month term.
I know some other banks are doing quicker.
And then we.
Capitalize about almost 2 million of.
Salary expense.
Related to the.
Illustration of <unk>.
Okay perfect. Thank you.
Yes.
Thank you. Our next question comes from Chris Mcgratty KBW. Your line is open.
Great. Thanks.
How should we think about a near term loan growth absent the impact of the PPP program a lot of banks sort of growth in the first quarter and then some moderation given line utilization rates in second quarter, how do we think about core loan demand into the back half healthier. Thanks.
I think we.
What about given you know.
Formal guidance, we are given the uncertainties, but I pipelines.
Lighter than normal and.
I think given the fact that we're in a recession in a fairly cautious.
About.
New loans.
Huh.
Residential mortgage.
That's continuing so we are Vicki maybe about a 80 million among a few residential mortgage and that so far has offset the p. payment.
And then.
I think I think the other is.
You know landscaping.
What we're proving classrooms arms.
He certainly on new loans.
We want to make sure that.
The occupancy rates on affirm before we make a new long.
Before we make alone to walk you bought.
[noise], okay. So so it sounds like the regular brook might stay stable and you put out a little bit of run down in the commercial book that's done based on the conservatism.
Yes.
Okay.
And then thank you for that and then in terms of de expenses.
Could you help us kind of risky run rate going into the back half of year.
It's about a half million on the solar I guess do you have the low income.
Well that we should be adding to that and then all through the salaries line you talked about the movement. There how do we think about just overall expenses I kept our Oh, we try to break it out on slide 15.
So the somehow thing was 6.3 million in Q2 and.
We think it'll be about cap rate.
So as I mentioned anything happening for corn.
Non interest expense.
Hi once.
All other noninterest expense I was 53.7 million.
We think.
You know in second half of your.
You might drift off a little bit Uh huh.
Yes, I'm to 55 million.
All right. So we're working real hard on.
On controlling the cost probably Q.
Okay, Great and then why last kind of housekeeping question, but the total modifications I think you provided the individual portfolios. That's trying to extract the total number of low Nox as of June Thirtyth.
Oh, I think it's enough comments, but so [noise].
Well done.
[noise] [noise] so for ER.
Fear and I, it's 43 million.
He is the billion to 69.
And then.
For a residential mortgage yeah. So.
[noise] 589.
Great. Thank you very much sure.
Thank you.
Our next question costs, a lot span a bit BMO capital markets. Your line is open.
Thank you I'm just a question on the margin given the continue to repricing of it. This is Cds downward do you think that that's going to be able to help offset or stabilize to margin on second half the year.
Hi.
Yes, yes.
I mentioned in my comments, we have a.
A billion eight Cds, that's maturing and that's sort of corridor.
Not read is that 1.7.
As for retail Cds.
The new OEM trivia 50 to 60 basis point range.
For wholesale Cds, which we have that's probably true true 200 million or so.
For the ones that were keeping those are weak pricing down to around 20 basis points.
And then on the loan side.
Oh, we're tracking of our yields by month.
The loans have been pretty pretty stable.
For each of the three months in Q2.
So we would yeah.
Yeah, well, what the loans on the floors gotten floors will primarily a fixed rate.
All right so that should continue into.
Into Q3, and then lastly residential mortgage surprisingly.
It was article in today's Wall Street Journal about jumbo rates.
Huh.
Now.
Not increasing and so.
That's the case for us.
Renewing our or were originating new loans.
At about a 12.3%.
Right average rate.
Yeah, and that's very close to the current portfolio.
Great. Thanks, and then my follow question is on D.C.N. eyesight did launch that had been modified on in commercial are there any specific industries or where you're seeing more stress.
I'm not particularly I think we have one loan in there in that population that accounted for about half of that.
That was really to do with Oh actually the long terms. It wasn't that payment model particular, it was just the that sort of the receivables being delayed as result of the coke over 900 situation. So then the rest of it is mostly small business and so because then the rest of it is you know on average five I'll 500.
600000.
Okay. Thank you.
Our next question comes from Matthew Clark with Piper Stanley. Your line is open.
Hi, good afternoon.
On the renewals I think you had mentioned.
One portion.
Were 81% of them I went back to normal payments do you have an overall number.
It relates to the deferrals that have expired so far for the overall deferral buckets, we get a.
Uh Huh bigger picture.
That's it's a small population so we looked at we tracked the.
Deferments for really April may and June that kind of expired in June.
And that number was.
Less than 200, <unk> between 160 to 200 million or so the big or population comes when it expires in July and wall track that number at that point in time something them in the month of August, but that certainly and for US. It's an indication of hopefully an indication of what the rest of the different populations will look like.
As they if the S evolve as they roll off of the de are different than period.
And how much of that is expiring here in July and.
Just trying to get a sense for how large that slug is and you know what might be a beyond that in August September.
The July number.
[noise] on Matthew I I think.
Well what caused you on that.
And we'll give you any along though yeah.
No worse.
Okay.
And then on the high risk exposures and retail series, obviously your largest bucket of concern but.
Hmm drops off after that but what about the office piece you've seen any.
Sure no changes there I'm sure it's much longer term in terms of the changes that will occur there but have you.
How's that portfolio looking up late.
[noise] our office portfolio is holding up pretty pretty strong I think we had a small we just have a small number of of.
Modifications there as a total percentage its total percentage is probably.
About a little over 10% of of the office portfolio that has asked remarks.
Okay great.
And then just on the C., so timing and he is a desire to adopt it early in Threeq you and.
And I think you had mentioned, we'll see the estimated impact in the queue, but if you happen to have that number range, we'll take it now I'm sure.
Well.
What we're still working on it Matthew Oh, we'll put in Q.
By the hobby hopefully you know.
It's movies doesn't you know September forecast is.
Worse than what they had in June.
And there's seasonal if you're far.
So far a charge offs remain muted and loan loss provision should be for no.
Third and fourth quarters.
That's the whole.
Got it thank you.
Thank you. Our next question comes in Baby care Bernie of Wedbush Securities. Your line is open.
Hi, Thanks, so not to ask about.
Credit quality could you talk about the increase in the net net charge offs in the quarter, what with what's the driver was there and then the same question you mentioned about the migration from special mention to substandard could you talk about the credits there.
Yeah.
No I was a charge off was one credit for 4.9 million.
This was like president.
That's originate in our Hong Kong branch.
It had been on non accrual for a few quarters there.
It's really on the latency cold there will be.
Because there was unsecured.
Yes, we.
We have to charged off in the second quarter.
On the well what was the second on your question.
The migration from special mentioned to substandard the driver together.
Yeah I.
No I was Oh, there's one.
Loan that's over 10 million bass.
Mental wholesaler, so that went on non accrual.
The food second quarter also.
But from a.
Once a substandard a we had.
We had a mailing company that we made a PPP loan to.
Ah Ah you know that one substandard, we hear that chain juice bars that we also made the P to P loan too. So I think those those are really the ER.
The three largest ones.
Got it and then I had a follow up question on the net interest margin you mentioned about how the rates that you're originating at least on the resi mortgage side or close to the current portfolio and then you have so many loans that are at their floors. So it's behaving like a fixed rate portfolio as we move into the third call.
Order, but yet you mentioned about you know the repricing opportunity on the Cds, So would that translate into actual margin expansion or are you.
Thinking more stability rather than expansion from here.
Well, we hope for margin will will trend higher mainly from the scene, we pricing and we also have.
Several hundred million enough excess liquidity, which Uh huh.
Which we're going to used to.
Paid off brokered Cds so.
Those will also helped the margin.
And then lastly.
Probably in the fourth quarter will have you know well, we'll start to season forgiveness.
He lives, which will help.
Got it out at that makes sense and then [noise].
The last one for me is on.
The construction portfolio.
Increased slightly in the quarter and you mentioned about how there were some drawdown activity are there any new commitments that you guys are putting out in construction given that a lot of banks are pulling back can you see some opportunities or what's the solely due to draw downs that we saw the increase there yes, David This is chang.
It's that's primarily.
Due to draw down south our existing commitments, while we do see a lot of opportunities for construction thats coming into door, but we're being very very careful in very selective as not back I can't remember the last construction on the actually went through committee and got approval.
We we certainly recognize that there is opportunities for relationships out there, but we're looking to continue to expand and serve our current client base.
With the white credit quality missing the sponsorship in history that we have with them, but as far as any new potential relationships, we're being very selective.
Great. Thanks very much.
Thank you.
Our next question comes from Gary Tenner of D.A. Davidson Your line is open.
Thanks, So just a couple of questions on PPP I don't think you disclosed, but can you give us the average PPC loans outstanding for the quarter.
We just have to pure easier and.
I think the average or.
[noise] proper you'd be Q citizen there.
Okay.
And then relative to the net fees recognized in the quarter. I know you said, you're going recognized fuse and a net of the topic Spencer were 24 months.
Was it two months worth of.
Of that recognition in the quarter, Yeah, Yeah, alright, great. Thank you.
Yes. Thank you.
Thank you again really who's on me like that's a question. Please press Star then one when you touched on telephone.
I'm showing no further questions at this time like kinda call back over to Penn.
America for any closing remarks.
I wasn't thank everyone for joining us on our call.
I see you next challenging time, all country due to the pending.
Previously I love.
Well, we're trying to yes, I say LPV Thailin, Oh apathy at September Thirtyth 20 trending.
And with the Changyou will become the Neil I wish Shang all the fed <unk>, you will and and offices that that they are leaving legacy of strong commitment to customer 50 session.
And increasing stockholder study.
Thank you Lori under he is.
You had in and on the enough standards, so and that the company.
Kenyan hang Oh look lets me speaking with you and Nick quantity I mean these call.
Ladies and gentlemen, thank you participating in today's conference. This concludes the presentation. You may now disconnect have a good day.
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