Q2 2021 Cathay General Bancorp Earnings Call
<unk>, the same quarter, a year ago and.
And the second quarter of 2021, our gross loans, excluding PPP loans increased by $134.4 million to $15.5 billion, which represents an annualized growth rate of 3.4%.
And the increasing loans for the second quarter of 2021 was primarily driven.
Increases of $72.3 million or 11, 1% and annualized and commercial loans, excluding PPP loans, and $65.6 million or 3.5% annualized in commercial real estate loans.
We continue to expect full year loan growth, excluding PPP loans.
By and between 3% and 5%.
During the second quarter of 2021.
$118.5 million of PPP loans were forgiven as of June 32021, our deferred PPP loan fees were $8.8 million.
We continue to monitor our commercial real estate loans.
Turning to slide 7 of our earnings presentation as of June 32021, the average loan to value of our CRE loans was 51%.
As of June 32021, CRE loans, with an aggregate balance of $92 million or approximately 1.2% of our CRE loan portfolio remain on.
And loan modifications to provide relief on repayment terms all loans under loan modification or continue to make interest payments.
As of June 32021, our retail property loan portfolio comprises 23% of our total commercial real estate loan portfolio and 11% of our total loan portfolio.
Surety, 61% of the $1.72 billion and retail loans is secured by neighborhood mixed use or strip centers and only 10% secured by shopping centers.
For the second quarter of 2021, we reported net charge offs of $7.3 million compared to net charge offs of $7.8 million and the first.
The middle of 2021.
Our second quarter charge offs included and oil and gas loan charge offs of $4.4 million and a commercial loan charge offs of $1.7 million from our Hong Kong office.
Nonaccrual loans were <unk>, 42% of total loans as of June 32021 decreased by 26.
Core revenue to $67.8 million as compared to the end of the first quarter of 2021.
The decrease is primarily due to a sale of that $18.8 million oil and gas loans at a discount of $4.4 million and a payoff of a $10.1 million and commercial real estate loan in April 2021.
Our total oil and gas.
Some portfolio was $113 million as of June 32021, and no loan was rated sub standard.
Please see page 11 of our earnings presentation.
We recognized the reversal for credit loss of $9 million and the second quarter of 2021 as compared to $13.6 million reversal of provision.
Gas liquid of losses, and the first quarter of 2021.
The reversal for credit losses of 9 million and reflected the continuing improvement and economic forecast made in June 2021, compared to the forecast made in March 2021 by the economic forecasts are using our seasonal process.
Turning to slide 12.
<unk> total average deposits increased by $348.7 million or 8.7% during the second quarter of 2021.
Average time deposits decreased by $369.5 million or 23, 1% due mainly to the run off of.
Broker Cds.
Under the company's 70.
And April 1.2021 buyback program, we repurchased 1.5 million shares of our stocks at an average cost of 40, 146 totaling $63.5 million and the second quarter of 2021.
We continue to work on the integration and conversion plan for our purchase of the 10 branches and select.
5 net close loans and deposits from HSBC.
Transaction will broaden the reach of our northern and Southern California Branch Network. In addition to acquiring $1 billion and low cost deposits and <unk> 8 billion and residential loans.
The transaction is expected to be completed during the first quarter of 2022.
I will now.
And what flow over to our executive Vice President and Chief Financial Officer Heng Chen to discuss the second quarter 2021 financial results in more detail.
Thank you Chang and good afternoon, everyone.
For the second quarter of 2021 net.
Income increased by $3.8 million or 5.2% to.
Now turn to $7.2 million.
Compared to the first quarter of 2021.
This increase was primarily attributable to reversal of provision for credit losses, and higher net interest income.
Our net interest margin was 324%.
And the second.
70, Consequently, 1 as compared to 3.2% from the first quarter of 2021.
And the second quarter of 2021.
Interest recoveries and.
Penalties.
And 3 basis points.
The net interest margin as compared to 2 basis points.
Quarter was the first quarter of 2021.
And with $2.9 billion of loans flow rate as of June 32021.
Approximately 1.6 billion and.
And 1.4 billion of our Cds.
Mature during the third and fourth quarter of 2020.
With average price of 8.2% and 6% respectively.
We are targeting renewing and retail Cds and the 40% to 50 basis point range.
Given the results from the second quarter of 2021.
We are maintaining our expectations.
Net interest margin from 2021.
Between 3.2% to 3.3%.
Net interest income during the second quarter of 2021 inch.
Increased by 2 points.
And the $12.
1 <unk> compared to the first quarter of 2021.
Primarily due to reduce losses and equity securities.
And a onetime bully.
Benefit of $1.2 million.
Non interest expense decreased by $1.7 million or 2.4%.
And the $69.7 million and the second quarter 121.
When compared to 71.4.
$4 million and the first quarter of 2021.
The decrease was primarily due to a decrease there.
9 million and.
And amortization of loan from housing and solve those tax.
6 month loans and $7 million.
And costs associated with that redemption.
The effective tax rate for the second quarter of 2021 was.
It was 22, 7% as compared to 21, 9% for the first quarter.
<unk> thousand 21.
We expect the full year 2021 effective tax rate.
And 22% and 22, 5%.
Solar tax credit amortization was.
And 3.8 million and our second quarter of 2021 and is expected.
And at $53 million and the second half of 2021.
At June 32021, our tier 1 leverage capital ratio decreased.
10, 8.5% as compared to 11, 6% as of March 31.
2021.
Our tier 1 risk based capital ratio.
Kris 13, 77% from $13, 94%.
As of March 31, 2021, and a <unk>.
Total risk based capital ratio.
A decrease of 15, 47%.
And from <unk>.
$15, a 4% cash.
And so on March 31, 2021.
Thank you Heng, we will now proceed to the question and answer portion of the call.
Ladies and gentlemen, if you have a question at this time. Please press. The Star then 1 key on your Touchtone telephone we ask that.
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Stated.
Your first question comes from Matthew Clark with Piper Sandler.
Hey, good afternoon.
Hi.
First question on the other noninterest income I think it was up to 10.3.
And this quarter from <unk>.
<unk> 8.8 million last quarter anything unusual there or is that is that a good run rate.
We have.
And $1.2 million moly.
Death benefits.
And so that should.
It should be nonrecurring.
Okay.
Free.
Okay, and then net contribution from PPP revenue and net interest income this quarter.
Yes.
<unk>.
And stimulus.
Yes relief.
Okay.
And I'll find it.
Okay and then.
On the.
From a buyback.
Good to see you guys are pretty proactive this quarter what are your what's your appetite for re upping and another another buyback assuming.
Got it and the latest 1 this quarter.
Well.
What probably.
This test.
Request credit approval given the.
The fact that our capital ratio among our relatively high.
And loan growth.
And when you can.
Is.
Yes.
And we think buybacks and use of our excess capital.
Okay.
And then just on the.
The reserve ex PPP.
<unk>.
I think we're down to.
90, 90 basis points.
Looking at our 84, yes.
Yes, I guess I'm excluding PPP.
But looking back to.
Pre Covid you guys are and the <unk>.
And of the low Eighty's, where do you think it'll probably.
Do you think you can get below that.
I think for now that's probably.
And number the range for us.
To the extent back.
Sub standard loans.
New loans dropped significantly.
We would.
With FIFA.
Stable and a model for the model in SaaS.
Okay. Thank you.
Your next question comes from Gary Tenner with D. A Davidson your line is open.
Thanks, good afternoon and out.
Just wanted to ask about commercial real estate growth I know you've guided to the full year loan growth range of 3% to 5% so unchanged, but in terms of the CRE segment and can you talk about specifically, where you saw the growth this quarter and if there were any particular geographic.
Areas that we're driving.
Sure Gary.
We saw us I think some activities increased activities.
With mixed use and apartment and.
Lot of that with kind of transitional and.
Reposition place.
Geographically, we saw most of that and California, we saw some.
Growth was coast.
But most of that came from the from the West Coast.
Okay. Thank you and then just to go back on PPP for a second.
And just to.
Kind of put a fine point on it in terms of average PPP balances for the second quarter and terms, they are saying and loan balances and saying.
And the EBIT number.
Yes.
This is based on a month and balance.
$204 million.
I'm, sorry, 200, and for now 304, 300 or 4 okay. Yes. So we had a lot of procurements and the month of June.
Okay.
Okay. Thank you.
Yes.
And do you have and Keith.
Your next question comes from Brandon King with tourists security.
Hey, good afternoon.
No.
Hi, Brian.
Right.
So.
The decline in residential mortgage loans so could.
Discuss what your expectations are for residential mortgage going forward and what type of activity, you're seeing in the market and from your customers.
In terms of mortgage loans for us.
We are continuing to see activities a lot of it is still on the sales side, although that has slowed down.
We're definitely getting hit.
The on the refi side of our portfolio seeing a higher rate of payoffs as we have seen from our prior year. So.
And so from a growth perspective, I think the contribution to the revenue and the loan growth overall from our mortgage portfolio is going to be.
Probably smaller than what we've seen in years past.
<unk>.
Okay.
And then and I saw loan yields are pretty stable are you seeing kantar.
Continued stability going into latter half of the year or are you still seeing potentially competitive pressures where loan yields have been bottom yet.
I think theres still competitive pressure, whether or not has bottomed or not I think that remains.
To be seen but we do what we can to <unk>.
Maintain current existing long relationships with our clients, even though we will have to suffer a little bit on the yield side and for new business.
We are as competitive and can be.
And obviously, keeping an eye on the overall net interest margin.
For the entire for the entire portfolio.
Okay.
And then lastly, with HSBC deposits coming online early next year.
Are you or this is the.
Plan to become more aggressive and running off time deposits or with pricing with customers as we get.
Get closer to that.
Gross.
I think you've talked about are and.
And HSBC.
Or.
Fairly robust deposit franchise.
And CD are only 10%.
And that.
<unk> block.
And.
And our side we would.
Between now and the end of the year.
We probably have.
5 or $600 million of Roku.
Broker deposits that we would run off.
And that would come out of our excess liquidity at the fed.
Okay, and just even for those time deposits that renew would you be more aggressive and pricing those.
Potentially.
Ah gradually from.
And the smaller and banks.
And im seeing.
No.
Promotions 1.
And your growth.
And <unk> at 60 basis points, so if I'm seeing it our customers are deposits and reserve.
And we're likely to see it so.
And that's from another.
Ethnics Chinese bank.
Okay. Thank you.
Thanks.
Your next question comes from Chris Mcgratty with K B W.
Hi, This is Chris O'connell filling in for Chris Mcgratty.
And I know, it's a difficult line.
To project and I appreciate the color on the solar tax credit, but is it fair to say that.
The total amortization tax credit line.
Holds going through year end with just coming down a bit.
And the solar tax credit that you mentioned and the opening comments.
Yeah.
Okay.
We send a copy of our investor slide.
Slides to Chris and he can also give it.
Thanks.
And on page 15 of.
And of our Investor slides.
<unk>.
We have a broken out by quarter.
For the last 5 quarters.
So the low income housing.
Has been in.
And the last 3 quarters, it averaged about 6 and $5 million and.
And then the solar it's running down and was $5 million and Q1.3.
And $3.8 million in Q2, and then we think and.
And $1.5 million and Q3 and.
The same and Q4.
Now what we're planning.
To get back into that.
Field next year.
<unk> gross.
More clarity as to the Baidu administration stance on.
Corporate minimum.
Tax.
So so.
So then so that expense will start to ramp up again in 2022.
Got it and I appreciate the color there. Thank you.
And then given the earlier commentary.
And the reserve and credit.
So it sounds like.
It's fair to say that.
Pending any major changes.
But the reserve levels sound like they'll hold from here.
Do you see any scenario, where the reserve begin to dropdown.
<unk>.
It was and <unk> thousand 19, and around that 82 basis point yourself level.
We mine.
And it.
Like it from those.
Mix change, where our residential mortgage loans become a higher percentage.
But more importantly, if our sub standard loans from.
To.
2 from me low levels and our non accruals from then that we would view that as justification.
To use the model number and so model is going to continue to pull us down and.
And every quarter.
Understood. Thank you.
Hey.
Your next question comes from David <unk> with Wedbush Securities.
Hi, Thanks, a couple questions for.
For you.
Starting with the C&I loan growth can you talk about the demand environment and if possible utilization rates of your borrowers.
Yes, I think on the C&I side, we're seeing some.
<unk> activities from different industries.
Trees.
<unk> had as we mentioned in prior calls brought on a new team that has.
Attitude from new relationships to the bank as far as the utilization rates.
At the moment and I think through the first couple of quarters of the year they are modest but.
We've talked to some customers, where we believe that the utilization.
<unk> will move up and the third and fourth quarter.
Great and then on the deposit side can you talk about the deposit environment, you guys put up pretty decent cash.
Core deposit growth this quarter can you talk about the outlook on deposits.
The focus there is to reduce our reliance on Cds, and and try to focus more on business commercial accounts and transactional deposits and.
That's really and that's 1 that will increase our core deposits and 2 that will continue to hopefully drive down the cost of deposits.
Great and then looking at.
You guys have been unable to pay down your borrowings to a pretty low level and at the same time add to the securities portfolio and the most recent quarter.
So low should we expect securities purchases to pick up.
Hi.
I think bill.
Yes.
Hard to be a fixed income investor on the last call and what price.
The tenure was going to go too low.
2%, 2% and.
3 or 4 months now.
128.
So.
We're trying to every quarter bias or amount.
Yes.
But we're.
Bye.
And we're going to be cautious because.
Yeah.
I think.
I think this inflation debate.
There is merit for becoming embedded in that.
And People's expectations.
April cost so at some point.
The fed may have.
If they ever fall behind.
The ball and in terms of.
Controlling inflation local and they have to increase rates rapidly.
Keep keep inflation and check.
So.
We're looking at every quarter and.
Trying to by about the same amount and we have been and that was 2 quarter.
And if and I think I think last quarter you were talking about how you were getting I think it was $50 million or so of maturities per quarter, and you're purchasing maybe $75 million per quarter is that still it's still the case or is it really dependent on the rate environment.
It was.
We bought 150 million.
Ian.
And that's well that's what we said and.
The maturity of MBS and and maturity.
475 and.
And from the third quarter, that's still our plan.
Got it great color, thanks very much thank.
Thank you.
Once again, ladies and gentlemen, if you have a question or and then additional question. Please press star 1 on your Touchtone telephone and we ask that you limit yourself to 1 question 1 follow up.
Your next question comes from Gary.
And your tenure with D. A Davidson your line is open.
Thanks.
And I wanted to clarify on your deposit comments the broker deposits I think you mentioned and 5 to 600 million that runoff will ensure the back half of this year does that included and the $3 billion or so of time deposits and you've mentioned previously.
Mostly we have some broker money market.
So in that number is.
$150 million of brokered money market.
Okay and then.
Broker deposits, what's the rate on those.
The rate you gave us obviously.
Judy.
<unk>.
The brokered money market.
We are fortunate.
And.
We've got $100 million at 1 basis point.
And last December.
And then the other $50 million.
<unk>.
18 basis points.
And then the brokerage CD rates.
They tend to be and the $1.50 range.
And there were maybe a year ago.
Thank you.
Yes.
Your next question comes from Matthew Clark with Piper Sandler.
Hey, just wanted to follow up on the core expense run rate you guys have done a good job of holding.
And that run rate pretty flat.
And last year, just under 59.
Million.
What are your thoughts on that.
And that run rate going forward and.
Any kind of free investment needs or savings.
Yes.
Yeah.
We're trying.
And to maintain that.
And.
The.
We might get.
We map the big.
To increase our bonus accruals, particularly when we get to the fourth quarter.
When we see how we compared to budget.
But.
Aside from that.
We still have process improvement.
We did close 2.
Branches and June so.
Yes.
I think for 2022.
Replacement and 3%.
Probably be at 2 and a half or so.
Yes.
Got it okay. Thank you.
Thank you.
Thank you for your participation I will now turn the call back over to Cathay General Bancorp <unk> management for closing remarks.
Yes.
I wanted.
And to thank everyone for joining us on our call and we look forward to speaking with you at our next quarterly earnings release call.
Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation you may now.
Good day.
Yes.
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