Q2 2022 Cathay General Bancorp Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Yeah.
Good afternoon, ladies and gentlemen, and welcome to Cathay General.
Corp, second quarter 2022 earnings conference call.
My name is Andrew and I'll be your coordinator for today at this time all participants are in a listen only mode.
Following the prepared remarks, there will be a question and answer session.
If you would like to participate in this portion of the call. Please press star one one at any time during the conference.
Today's call is being recorded and will be available for replay at www Dot Cathay General Bancorp Dot com.
Now I would like to turn the call over to Georgia Lo Investor Relations of Quebec.
Hey, Ben General Bancorp.
Thank you Andrew and good afternoon here to discuss the financial results today are Mr. Chengdu, 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 speakers on this call may make forward looking statements within the meaning of the applicable provisions of the private Securities Litigation Reform Act of 1095 concerning future results and events and that these statements are subject to certain risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are further described in the Companys <unk>.
Annual report on Form 10-K for the year ended December 31, 2021 and item one a 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 statements speaks only as of the date of which it is made and except as required by.
We undertake no obligation to update or review any forward looking statements to reflect future circumstances developments or events or your current unanticipated events.
Afternoon, Cathay General Bancorp issued an earnings release outlining its second quarter 2022 results to obtain a copy of our earnings release as well as our earnings presentation. Please visit our website at Www Dot Cathay General Bancorp Dot 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. Chengdu, Thank you, Georgia and good afternoon, everyone. Welcome to our 2022 second quarter earnings Conference call.
This afternoon, we reported net income of $89 million for the second quarter of 2022.
A 15, 3% decrease as compared to a net income of $77 2 million for the second quarter of 2021.
Diluted earnings per share increased 21, 6% to $1 18 per share for the second quarter of 2022 compared to 97 per share for the same quarter a year ago.
In the second quarter of 2022, a gross loans increased $389 5 million or nine 5%.
Annualized.
Increasing loans for the second quarter of 2022 was primarily driven by increases of $94 6 million or.
13, 1% annualized and commercial loans, excluding PPP loans, $161 3 million or seven 9% annualized in commercial real estate loans.
$210 6 million or 21% annualized and residential mortgage loans.
For our loan growth for 2022 is expected to range between 10% to 12%, including approximately $646 1 million of loans from the acquisition of certain HSBC West coast branches.
Excluding the HSBC acquisition, we project loan growth to be between 6% and 8% in 2022.
During the second quarter of 2020 to $25 $3 million of PPP loans for Kevin.
We continue to monitor our commercial real estate loans, turning to slide eight of our earnings presentation as of June 32022 average loan to value of our CRE loans was 52%.
As of June 32022, our retail property loan portfolio comprises 23% of our total commercial real estate loan portfolio and 9% of our total loan portfolio the.
The majority 90% of the $1 $94 billion in retail loans are secured by retail store building neighborhood mixed use or strip centers and only 9% are secured by shopping centers.
For the second quarter of 2022, we reported net recoveries of zero point $2 million compared to net recoveries of $3 million in the first quarter of 2022 are.
Our nonaccrual loans were <unk>, 35% of total loans as of June 32022 increased by $25 7 million to $60 6 million as compared to the end of first quarter of 2022.
Turning to slide 11 classified loans increased slightly during the quarter from $219 million with $244 million as of June 32022, and our special mentioned loans increased during the quarter from 389 million to $295 million as of June 32022.
Provision for credit loss of $2 5 million in the second quarter of 2022 as compared to an $8 6 million provision for credit losses in the first quarter of 2022, and a 9 million reversal of provision for credit losses in the second quarter of 'twenty one.
Total deposits increased by $227 1 million or 5% annualized during the second quarter of 2022.
Slide 12 average money market deposits increased $465 million or 38, 6% annualized.
Annualized during the second quarter of 2022 compared to the first quarter of 2022.
Average time deposit decreased by $408 million or 39% annualized due to migration of Cds to money market deposits and deposit run off.
For 2022, the overall deposit growth is expected to range between 9% and 12%, which includes approximately zero point $6 billion of low cost deposits from the HSBC acquisition.
Excluding the acquired deposits from HSBC, we project deposit growth to be between 5% and 8% in 2022.
In May 2022, the board of directors adopted a $125 million new share repurchasing program.
We repurchased 750000 shares of our stock at an average cost of $40 78 per share totaling $36 million in the second quarter of 2022 with $94 4 million remaining in the May 2022 stock repurchase program.
I will now turn the forward to our executive Vice President and Chief Financial Officer, Mr. Heng Chen to discuss the first quarter the second quarter 'twenty two financial results in more detail.
Thank you Chang and good afternoon, everyone.
Second quarter of 2022.
Net income increased by 11 million.
Million 13, 3% to $89 million compared to the second quarter of 2021.
Increase was primarily attributable.
The net interest margin expansion continues strong loan growth.
Second quarter of 2022.
Our net interest margin was 352% and the.
Second quarter of 2022.
As compared to $3 two 4% for.
For the second quarter of 2021.
In the second quarter of 2020 through interest recoveries and prepayment penalties added two basis points.
Net interest margin.
Compared to four basis points for the first quarter of 2022 and.
And three basis points in the same quarter a year ago.
Based on our year end fed funds target range.
$3, two 5% and three 5%.
<unk> increased our net interest margin expectation.
For full year 2020 to be between three 5% to three.
5%.
Noninterest income during the second quarter of 2022 increased by 2 million to $14 6 million when compared to the second quarter of 2021.
Primarily due to <unk>.
Increases.
$9 million in loan fee.
Non interest expense increased by $4 4 million or six 3% to $74 1 million in the second quarter of 2022.
When compared to $69 7 million in the second quarter of 2021.
Increase was primarily merely due to <unk>.
$4 5 million in higher salaries and bonuses.
In part to the acquisition of <unk>.
So HSBC is west coast branches.
One 9 million higher professional and legal expenses.
Partially offset by $3 4 million decrease in amortization of solar tax credit.
Investments.
The effective tax rate for the second quarter of 2022.
21, 4%.
Compared to 22, 7% for the second quarter of 2021.
For the second half of 2022, we expect an effective tax rate of between 21, 5% and 22.
5%.
We expect solar tax credit amortization of $1 5 million in the third quarter of 2022.
Seven.
In the fourth quarter of 2022.
As of June 32022.
Our tier one leverage capital ratio increase.
10, 5% as compared to 10, 1%.
<unk> 31 2022.
Our tier one leverage.
Our tier one risk based capital ratio decreased to 12, 8%.
Three 7% as of March 31.
On the 22 and.
And our total risk based capital ratio decreased to $13 seven 4% from 13, 97% as of March 31 2022. Thank.
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 star one one on your telephone.
Ask that you please limit yourself to one question and one follow up question.
You May then return to the queue.
To prevent any background noise.
On mute once your question has been stated please standby, while we compile the Q&A roster.
And our first question comes from the line of.
Matthew Clark with Piper Sandler.
Hello, Matt.
Hey, good afternoon.
All right.
Yeah.
Maybe first on the <unk>.
Fee income.
Core.
Fee income.
The other non interest income can you give us a sense for what drove the increase from last quarter and other other noninterest income.
It's very low.
It's 900000 in loan fee.
That include.
Got some regular loan fees and we.
We collected $350000 from that.
Our east National.
Hello.
We booked that in.
Other income category.
Okay, I'm, just making sure because I thought the comparison from a year ago.
Matthew are you all.
Turning it to them.
The last year or the first quarter.
The first quarter.
Oh, Yes, we also had a fully death benefit.
Here in the us.
In the second quarter.
So that was.
Okay.
Yes, I'm sorry.
Yeah.
On a linked quarter basis that was about $1 five.
Okay.
Great.
And then.
I guess a similar question.
And expenses linked quarter the increase in other.
Operating expense.
Again from last quarter.
Yeah.
We had a few one time items.
Our marketing expense was a little bit higher.
That's <unk>.
It was higher by about.
800000.
It gets lumpy.
Between the quarters.
And then we also had in all other.
We have the annual director fees retainer, which.
For the director group.
That's about it.
700 800000.
Okay.
Great.
Sounds good and then.
Yes.
Shifting.
So within expenses you gave the guidance on solar.
Tax credit amortization.
Can you just fine tune what you expect for low income housing in the third and fourth quarter.
Hi.
We keep on making new investments, though.
Robley.
Probably $7 5 million.
Per quarter would be good for low income housing.
Okay great.
Great.
And then the.
Chip I don't have the spot rate on interest bearing deposits at the end of that.
As of June 30.
It's not precise.
Here's a quick calculation because.
Before.
Could be asking for it.
Yeah.
Hold on let me try to find that.
Once again.
We normally don't produces I, just got us out of it.
Okay.
Thank you.
I think the June .
In contrast, 46 basis points.
Okay.
Okay, and then last one from me on the buyback.
Appetite to continue.
Purchasing stock in.
And potentially re up another program just given.
The increased.
Uncertainty.
Hi.
We still intend to do.
<unk>.
You are about the same amount in the third quarter.
Our authorization is.
Goes into the first quarter of 2023, and we have $94 million left so.
It can property cycles, maybe $35 million a quarter about.
Okay.
Okay, great. Thank you.
Thank you.
Thank you.
And our next question comes from the line of Brandon King with truth financials.
Hey, good afternoon.
Okay.
Okay.
I wanted to touch on deposits we.
We were able to generate deposit growth quarter.
I noticed you didn't change your guidance for the year.
Now relative to peers I, just wanted to get a sense of what gives you the confidence.
Generating deposits along with loan growth.
In the back half.
Well first yes.
We think our loan growth in the second quarter second half of the year.
It's in our guidance in.
The implied guidance.
Probably a trough.
5% annualized in the second half and then we would match deposit flow to that.
Including using brokerage Cds.
As needed.
Brendan.
Okay.
Oh, sorry.
Sorry.
So say using brokered Cds to fund that.
I agree and that's included in I guess in that incorporated in the.
Guidance as well.
Yes.
Small weird.
Pete.
Increasing.
Right.
Okay.
Thank you Matt.
Yes.
We have a pretty good increase from Q1 to Q2.
And not only has it all.
The month of June 75 basis points. So.
Momentum.
We will continue in the second half.
Yes.
No.
Three rapid interest rate increases.
Unprecedented in recent history.
We do think.
NIM for the full year is going to be.
Better than our prior guidance.
Okay.
Do you happen to have on bandwidth.
Just margin wise.
Jim.
Yes.
Some of his effective bye bye.
Okay.
Okay.
I think it was.
366.
Okay.
Right.
Lastly on loan growth.
Great.
On the back half of the year.
Are there any categories that.
<unk>.
Thank you.
<unk>.
We're not expecting I mean, if anything the residential mortgage.
Slow down a little bit given where rates are I think we've booked the first half all of the applications.
Applications that within the pipeline as a result of the sales activities, but I think now the interest rate impact will kind of slow down that segment, a little bit going forward.
Okay. Thanks for all the answers.
Thank you. Thank you.
And our next question.
<unk> with Stephens.
Hey, good afternoon.
Hi.
Hey, just wanted to follow up on the on the last point I was curious.
What are you seeing kind of a similar slowdown in commercial real estate volumes as we've worked into the third quarter of this year.
We're seeing slower slower refinance activity is of course because of the higher rates.
There are still people, who for example are kind of flipping from a fixed to float that they don't want to see the floating rates. So they are worried about that given where the short term rates are so there is still some activity. It is not completely dead.
Purchase activity has slowed as well given where the rates are particularly on some of the apartment acquisitions.
But we're still seeing a fairly healthy pipeline and we're being selective about careful about our current relationships in our current clients.
I think we're definitely more careful going forward about kind of what kind of commercial real estate deals that we're doing.
Okay.
Got it.
And I wanted to ask on just the deposit growth that we saw this quarter I didn't see it anywhere in the release, but I was curious was any of the any of the money market growth.
Was any of that brokered.
Yes.
It.
It was $100 million out of that.
Total growth.
Okay.
Period end to period end, yes.
Okay got it thank you.
And then one last one for me I think last quarter, we talked a little bit about I guess around a $14 million commercial credit that was placed on non accrual I was just curious any any kind of status update you can share on this one.
We don't like to talk about.
Customers, but I understand.
Public knowledge.
<unk> appointed.
So.
So we feel we have better controls that credit and.
Ultimately yes.
Well get some collection from the assets of the business and then the rest will come from.
Yes.
The.
House on the West side.
Year on year, and then we have also reserved.
For the loan.
Or a reasonable amount.
Okay.
Understood I appreciate you taking my questions.
Yes. Thank you.
Thank you.
Your next question comes from the line of Chris Mcgratty with <unk>.
Great good afternoon.
Thank you Jamie.
Last quarter, you talked about I think a 30% through the cycle beta.
Do you feel any different about this given the speed at which the fed is now moving.
Is that number.
Is that.
Moving higher.
We don't know, we still think it's 30% in the second quarter it was much less than that.
In part because we had a shift in our deposit mix where.
Our customers are also uncertain as to.
Whether they should.
<unk> four.
One your CD switches for additional term.
Versus the.
Staying in money market.
We did get Shanghai was about 90%.
Retention retention.
Of maturing Cds.
I thought I heard it was a one year CD renewal rate was around 1%.
So that is much better.
Our deposit beta.
Of that 30%, we assume for CD beta would be 100%.
So.
Yes, yes.
This is.
This rate hikes.
Very unusual, but so far we're doing better than our deposit beta has been.
Okay.
Okay.
Yes for sure.
On the expenses I'll make sure I fully understand the expense guide, which Hasnt change can you just provide what the.
What the starting level of expenses are for 2021 does that is that you reported expenses is that reported ex amortization just wanted make sure I got it right yes.
Yes.
It's reported full year 2021.
Ex amortization.
Great.
Thank you.
Thank you.
Thank you.
To ask a question you will need to press star one one on your telephone.
Once again to ask a question you will need to press star one one.
Our next question comes from the line of tender with da Davidson.
Thanks, Good afternoon.
Hey, I just wanted to kind of go back over that loan and deposit guide you kind of mentioned in your.
Answer to your question that you were looking to sort of match loan growth with deposit growth but.
Even at the low end of that deposit.
<unk> of 9%.
Would suggest I think second half of the year deposit growth that far outstrips the projected loan growth based on your guidance So is that.
Is that accurate or am I misunderstanding something in your comments.
Yes.
<unk>.
We try to keep the.
Yes, you will see our loan to deposit ratio was 96% for the last few quarters. So we're trying to maintain that.
At quarter end, if we have to we'll go to the wholesale.
Brokered CD.
Money market.
Maintaining that.
<unk>.
Our intention is.
Two.
Keep up with the loan growth.
For the rest of that.
Rest of the year is that and try to keep that.
That loan to deposit ratio right around 96, it might drift up a little bit.
Hopefully not too much.
Okay Alright. Thank you and then in terms of just overall balance sheet management, you're down to $1 billion or so.
Liquidity versus $2 5 billion at the end of 2021.
So.
Is that a level that you'd like to maintain from a balance sheet liquidity perspective.
Or would you run it tighter than that in <unk> and <unk>.
Some of that cash to loans or securities at this point.
Hi.
It should be right around the $1 billion.
We have about $120 million in treasuries, which are less.
The final maturity of less than one year.
Load count as cash equivalents for the regulatory ratios.
But we may.
Yes.
$1 billion cash.
It's because we quite some into treasury.
But overall.
We're.
Jamie.
With that I'll run that balance down much.
Much slower.
Youre going to run the short term investment balance then it's $1 billion.
No no so thats why youre not going to you're going to keep it there.
Yes, Sir.
Okay.
Thank you.
Thank you.
Thank you.
And our next question comes from David <unk>.
Arnie.
Hi, Thanks, I wanted to follow up on the brokered CD <unk>.
Topic I was curious what's the rate on the brokerage Cds versus your core CD portfolio rate.
Oh well.
<unk>.
That's number one.
This month.
For three months brokerage CD that.
Yes.
Two in a quarter or two and three eighths and then.
Are.
This was June the weight on core.
Time deposits.
For June .
Most of about 45 basis points.
And can you talk about the competitiveness in the market for for core Cds are you seeing some competitors pushed that up do you guys plan on doing any kind of specials, because it seems like youll get a better sort of deal with your core Cds versus the brokerage Cds can you talk.
About that a bit.
Yes, well one we're.
We don't think we need to do.
Any sort of SCE.
Specials.
We don't see anybody in the marketplace.
Doing that because banks in general have a lot of them.
You'll have a lot of excess liquidity.
In terms of.
Earlier in the second quarter.
We lost some.
Larger.
Okay.
Hi.
Deposit customers.
We're leaving for deposits in the low twos.
Alex.
You said early June today, if those same customers came to us.
And said they would.
One 2%.
One year CD.
We would we would take that so.
But it's very.
We.
We have we.
We have a service.
<unk>.
The published rates for.
All of our northern California peers.
Nobody has raised.
Any rates and any product.
That increase so.
My assumption is everybody.
Customizing.
Larger depositors.
Hi.
Got it thanks for that and then shifting to credit quality can you talk about.
The health of your borrowers clearly your Ltvs are very very low, but I'm curious about the health of your borrowers and then related to that can you talk about the what you're seeing based on talking to customers the economic outlook and if youre seeing anything recessionary.
In your outlook.
So David I'll take that first.
CRE side, we've done a deeper dive into not just the LTV side, but into the cash flow side and the debt service side.
Assuming higher interest rates and higher debt service payments.
The portfolio will look like when would that cover standpoint so.
We've done a pretty significant review of that and we feel pretty good pretty comfortable about those.
On the on sort of the economic recession side.
I mean, that's.
I think the <unk>.
GDP numbers I think later in the week will kind of tell us a little bit more but the unemployment numbers are still very low.
The last I think hiring report was something about 400000.
Was that a total of $1 1 million over three quarters.
And so those are all strong numbers that I think we've seen.
In addition to that our C&I customers I think there. We're also looking at them and looking at their balance sheet and their agents more carefully you kind of looking at some of their inventory just to make sure that their numbers are strong we don't have any concerns there at this point so.
If there is one there is probably a myer one there was I think our viewpoint on wall Street about how there was an expectation for fed cuts that may come as quickly as the next 12 months.
Great. Thanks very much.
Yes.
Thank you for your participation I will now turn the call back over to Cathay General Bancorp's management for closing remarks.
I want 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 disconnect good day.
Yeah.
Okay.
The conference will begin shortly to raise Johan during Q&A, you can dial star one one.
[music].
Okay.
Yes.
[music].
Yeah.
Yes.
[music].
[music].
[music].
Good afternoon, ladies and gentlemen, and welcome to Cathay General Bancorp's second quarter 2022 earnings Conference call.
My name is Andrew and I'll be your coordinator for today at this time all participants are in a listen only mode.
Following the prepared remarks, there will be a question and answer session.
If you'd like to participate in this portion of the call. Please press star one one at any time during the conference.
Today's call is being recorded and will be available for replay at www Dot Cathay General Bancorp Dot com.
Now I would like to turn the call over to Georgia Lo Investor Relations of Cathay.
Hey, Ben General Bancorp.
Thank you Andrew and good afternoon here to discuss the financial results today are Mr. Chengdu, 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 speakers on this call may make forward looking statements within the meaning of the 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. These risks and uncertainties are further described in the Companys <unk>.
Annual report on Form 10-K for the year ended December 31, 2021.
Item one a 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 speaks only as of the date of which it is made and except as required by law. We undertake no obligation to update or review any forward looking statements to reflect.
Circumstances developments or events or your current unanticipated events.
Afternoon, Cathay General Bancorp issued an earnings release outlining its second quarter 2022 results to obtain a copy of our earnings release as well as our earnings presentation. Please visit our website at Www Dot Cathay General Bancorp Dotcom 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. Chengdu. Thank you George and good afternoon, everyone. Welcome to our 2022 second quarter earnings Conference call.
This afternoon, we reported net income of 89 million for the second quarter of 2022, a 15, 3% increase as compared to a net income of $77 2 million for the second quarter of 2021.
Diluted earnings per share increased 21, 6% to $1 18 per share for the second quarter of 2022.
<unk> hundred 97 per share for the same quarter a year ago.
In the second quarter of 2022, a gross loans increased $389 5 million or nine 5% annualized.
Annualized.
The increase in loans for the second quarter of 2022 was primarily driven by increases of $94 6 million.
13, 1% annualized and commercial loans, excluding PPP loans, $161 3 million or seven 9% annualized in commercial real estate loans.
$210 6 million or 21% annualized and residential mortgage loans.
The overall loan growth for 2022 is expected to range between 10% to 4%, including approximately $646 1 million of loans from the acquisition of certain HSBC West coast branches.
Excluding the HSBC acquisition, we project loan growth to be between 6% and 8% in 2022.
During the second quarter of 2020 to $25 3 million of PPP loans for Kevin.
We continue to monitor our commercial real estate loans, turning to slide eight of our earnings presentation as of June 32022 average loan to value of our CRE loans was 52%.
As of June 32022, our retail property loan portfolio comprises 23% of our total commercial real estate loan portfolio and 9% of our total loan portfolio.
The majority 90% of the $1 94 billion retail loans are secured by retail store buildings neighborhood mixed use or strip centers and only 9% are secured by shopping centers.
For the second quarter of 2022, we reported net recoveries of 0.2 million compared to net recoveries of $3 million in the first quarter of 2022.
Nonaccrual loans were <unk>, 35% of total loans as of June 32022.
Greece by $25 7 million to $60 6 million as compared to the end of first quarter of 2022.
Turning to slide 11 classified loans increased slightly during the quarter from $219 million to $244 million as of June 32022, and our special mention loans decreased during the quarter from $389 million to $295 million as of June 32022.
We recorded a provision for credit loss of $2 5 million in the second quarter of 2022 as compared to $8 6 million provision for credit losses in the first quarter of 2022, and a $9 million reversal of provision for credit losses in the second quarter of 2021.
Total deposits increased by $227 1 million or 5% annualized during the second quarter of 2022.
12 average money market deposits increased $465 million or 38, 6%.
Annualized during the second quarter of 2022 compared to the first quarter of 2022.
Average time deposit decreased by $408 million or 39% annualized due to migration of Cds to money market deposits and deposit run off.
For 2022, the overall deposit growth is expected to range between 9% and 12%, which includes approximately zero point $6 billion of low cost deposits from the HSBC acquisition.
Excluding the acquired deposits from HSBC, we protect deposit growth to be between 5% and 8% in 2022.
In May 2022, the board of directors adopted a $125 million new share repurchasing program.
We repurchased 750000 shares of our stock at an average cost of $40 78 per share totaling $30 6 million in the second quarter of 2022 with $94 4 million remaining in the May 2022 stock repurchase program.
I will now turn the forward to our executive Vice President and Chief Financial Officer, Mr. Heng Chen to discuss the first quarter the second quarter 'twenty two financial results in more detail.
Thank you Chang and good afternoon, everyone.
Second quarter of 2022.
Net income increased by 11 million.
A 13, 3% to $89 million compared to the second quarter 2021.
Increase was primarily attributable.
The net interest margin expansion and continues strong loan growth.
Second quarter of 2022.
Our net interest margin was 352% and the.
The second quarter of 2022.
As compared to $3 two 4% for the <unk>.
Second quarter of 2021.
And our second quarter, 2022 interest recoveries and prepayment penalties added two basis points.
The net interest margin.
Compared to four basis points for the first quarter of 2022.
And three basis points in the same quarter a year ago.
Based on our year end fed funds target range.
Between.
3% to 5% and three 5%.
We have increased our net interest margin expectation.
For full year 2020 to be between three 5% to 365%.
Noninterest income during the second quarter of 2022 increased by 2 million to $14 6 million when compared to the second quarter of 2021.
Due to.
Increases.
$9 million in loan fee.
Non interest expense increased by $4 4 million or six 3%.
$74 1 million in the second quarter of 2022.
<unk> to $69 7 million in the second quarter of 2021.
The increase was primarily due to.
$4 5 million in higher salaries and bonuses.
In part to the acquisition of <unk>.
So HSBC is west coast benches.
$1 9 million.
<unk> on legal expenses.
Partially offset by $3 4 million decrease in amortization of solar tax credit investor.
Investments.
The effective tax rate for the second quarter of 2022.
21, 4%.
Compared to 22, 7% for the second quarter of 2021.
For the second half of 2022, we expect the effective tax rate of.
Between 'twenty, one and 5% in 'twenty two.
5%.
We expect solar tax credit amortization of $1 5 million in the third quarter of 2022.
Seven.
In the fourth quarter of 2022.
As of June 32022.
Tier one leverage capital ratio increased to 10, 5% as compared to 10, 1% at March 31 2022.
Our tier one leverage.
Our tier one risk based capital ratio decreased to <unk>.
<unk>, 8% from 12, 37% as of March 31, 2022.
Total risk based capital ratio decreased to $13 seven 4% from 13, 97% as of March 31 2022.
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 star one one on your telephone.
We ask that you. Please limit yourself to one question and one follow up question. You May then return to the queue.
To prevent any background noise.
Okay.
Once your question has been stated please standby, while we compile the Q&A roster.
And our first question comes from the line of.
Matthew Clark with Piper Sandler.
Hello, Matt.
Hey, good afternoon.
Hi, Catherine.
Yeah.
Maybe first on the on the fee income.
Core fee.
Fee income.
The other non interest income can you give us a sense for what drove the increase from last quarter and other other noninterest income.
It's very low.
It's 900000 in loan fee.
That include.
Now some regular loan fees.
We collected $350000 from that.
National.
Hello.
And we booked that.
Other income category.
Okay, I'm, just making sure because I thought the comparison from a year ago.
Matthew are you youre comparing it to them.
Last year or the first quarter.
First quarter.
Oh, Yes, we also had a <unk> death benefit.
Here in the us.
In the second quarter.
So that was.
Okay.
Yes, I'm sorry.
On a linked quarter basis that was about $1 five.
Okay great.
Great.
And then.
I guess a similar question.
And expenses linked quarter the increase in other.
Operating expense.
Again from last quarter.
Yeah.
We had a few one time items.
Our marketing expense, which will go a bit higher.
So that's it.
Was higher by about.
800000.
It gets lumpy.
Between the quarters.
And then we also had in <unk>.
All other.
We have the annual director fees retainer, which.
The director group, so that's about it.
700 800000.
Okay.
Great.
Sounds good and then.
Shifting also within expenses you gave the guidance on solar.
Tax credit amortization.
Can you just fine tune what do you expect for low income housing in the third and fourth quarter.
Hi.
We keep on making new investments so.
Probably.
Probably $7 5 million.
Sure.
Per quarter would be good for low income housing.
Okay great.
Great.
And then the.
Jeff and I have the spot rate on interest bearing deposits at the end of this.
As of June 30.
It's not precise.
Here's a quick calculation because so many people.
It could be asking for it.
Yeah.
Hold on let me try to find that.
Once again.
We normally don't produce this ive just got us out of that.
Okay.
Thank you.
I think the June .
In contrast, 46 basis points.
Okay.
Okay, and then last one from me on the buyback.
Appetite to continue.
Purchasing stock in.
And potentially re up another program just given.
The increased.
Uncertainty.
Tony.
Oh.
We still intend to do.
<unk>.
Do about the same amount in the third quarter.
Our authorization is.
Goes into the first quarter of 'twenty.
'twenty three and we have $94 million left so.
Property cycles, maybe $35 million in the quarter about.
Okay.
Okay, great. Thank you.
Thank you.
Thank you.
And our next question comes from the line of Brandon King with truth financials.
Hey, good afternoon.
Okay.
Okay.
On deposits we.
We're able to generate deposit growth quarter.
I noticed you didn't change your guidance for the year.
Relative to peers I, just wanted to get a sense of what gives you the confidence.
Generating deposits along with loan growth.
In the back half.
Well first yeah.
We think our loan growth in the second quarter second half of the year.
It's in our guidance implied guidance.
Probably a trough.
5% annualized in the second half and then we would match deposit growth to that.
Including using brokerage Cds.
As needed.
Brandon.
Oh.
Oh, sorry.
Sorry.
So <unk> been brokered Cds.
Great and thanks.
Included in net income.
<unk> guidance as well.
Yes.
Kind of a small base.
Let's see.
Increasing.
Spring.
T J P midnight.
Yes.
<unk> has a pretty good increase from Q1 to Q2.
And not only has it all.
Half a month of June 75 basis points. So.
Our momentum.
We'll continue in the second half.
Yes.
No.
Very rapid interest rate increases.
Unprecedented in recent history.
We do think our NIM for the full year.
Better than our prior guidance.
Okay.
Do you happen to have it.
And then just margin wise.
Jim.
Yes.
Some of it is affected by.
Okay.
Sure.
I think it was.
366.
Okay.
Right.
Lastly.
Group you are anticipating.
On the back half of the year.
Are there any categories that seem to be smooth.
Number two others you mentioned.
Students.
We're not expecting I mean, if anything the residential mortgage might kind of slow down a little bit given where rates are I think we've bought.
The first half all the apps.
Applications that within the pipeline as a result of the sales activities, but I think now the interest rate impact will kind of slow down that segment, a little bit going forward.
Okay. Thanks, Ron answers.
Thank you.
Yes.
And our next question.
And you can come to <unk> with Stephens.
Hey, good afternoon.
Hi.
Hey, just wanted to follow up on the on the last point I was curious.
What are you seeing kind of a similar slowdown in commercial real estate volumes.
We've worked into the third quarter of this year.
We're seeing slower slower refinance activity is of course because of the higher rates.
But there are still people who for example are kind of flipping from a fixed to float that they don't want to see the floating rate. So they're worried about that given where the short term rates are so there is still some activity if not completely dead.
Purchase activity has slowed as well given where the rates are particularly on some of the apartment acquisitions.
But we're still seeing a fairly healthy pipeline and we're being selective about careful about our current relationships in our current clients I.
I think we're definitely more careful going forward about kind of what kind of commercial real estate deals that we're doing.
Okay.
Got it.
And I wanted to ask on just the deposit growth that we saw this quarter I didn't see it anywhere in the release, but I was curious was any of the any of the money market growth.
Was any of that brokered.
Yes.
It.
It was $100 million out of that.
A lot of growth.
Okay.
Period end to period end, yes.
Okay got it thank you.
And then one one last one from me I think last quarter, we talked a little bit about.
I think it's around $14 million commercial credit that was placed on non accrual I was just curious any any kind of status update you can share on this loan.
We don't like to talk about.
Customers, but I understand.
Public knowledge.
<unk> appointed.
So.
So we feel we have better controls that credit and.
Ultimately yes.
Well get some collection from the assets the business and then the rest will come from.
Yes.
The house on the West side.
And then we have also reserved.
For the loan.
For a really small amount.
Okay.
Understood I appreciate you taking my questions.
Yes. Thank you.
Thank you.
Your next question comes from the line of Chris Mcgratty with <unk>.
Great good afternoon.
Thank you Jamie.
Last quarter, you talked about I think a 30% through the cycle beta.
Do you feel any different about this given the speed at which the fed is now moving.
Is that number.
Is that.
Moving higher.
We don't know, we still think it's 30% in the second quarter it was much less than that.
In part because we had a shift in our deposit mix where.
Our customers are also uncertain as to.
Whether they should.
Renew for.
One your CD switches traditional term.
Versus the.
Staying in money market.
We did get it was about 90%.
Retention retention.
Of maturing Cds.
I thought I heard it was a one year CD renewal rate was around 1%.
So that is much better.
Our deposit beta.
Of that 30%, we assume for CD Savannah will be 100%.
So.
Yes.
This is.
This rate hikes.
Very unusual so far we're doing better than our deposit beta has been.
Yeah.
Okay.
Yes for sure.
And just on the expenses I'm not sure I fully understand that the expense guide, which Hasnt change can you just provide what the.
What the starting level of expenses are for 2021 does that is that you reported expenses is that reported ex amortization just wanted make sure I got it right yes.
Yes.
It's reported full year 2021.
Ex amortization.
Great.
Thank you.
Thank you.
Thank you.
To ask a question you will need to press star one one on your telephone.
Once again to ask a question you will need to press star one one.
Our next question comes from the line, Gary Tenner with D. A Davidson.
Thanks, Good afternoon.
Hey, I just wanted to kind of go back over that loan and deposit guide you kind of mentioned in your.
Answer to your question that you were looking to sort of match loan growth with deposit growth but.
Even at the low end of that deposit.
Guide of 9%.
Would suggest I think second half of the year deposit growth that far outstrips the projected loan growth based on your guidance So is that.
Is that accurate or am I misunderstanding something in your comments.
Yes.
<unk>.
We try to keep the.
Youll see our loans is pause ratio of 96% in the last few quarters. So we're trying to maintain that.
At quarter end, if we have to we'll go to the wholesale.
Brokered CD.
Money market.
Maintaining that.
<unk>.
Our intention is.
Two.
Keep up with the loan growth.
For the rest of that.
Rest of the year is that and try to keep that.
That loan to deposit ratio right around 96, it might drift up a little bit.
Hopefully not too much.
Okay Alright. Thank you and then in terms of just overall balance sheet management, you're down to $1 billion or so.
Liquidity versus $2 5 billion at the end of 2021.
So.
Is that a level that you'd like to maintain from a balance sheet liquidity perspective would.
Would you run it tighter than that and use and.
And deploy some of that cash to loans or securities at this point.
Hi.
It should be right around $1 billion.
We have about $120 million in treasuries, which are less.
The final maturity of less than one year.
Those count as cash equivalents.
The regulatory ratios.
We may.
Yes.
$1 billion cash.
Swaps, because we quite some into treasury.
But overall.
We're we're maintaining.
With that I'll run that balance down.
Much slower.
Youre going to run the short term investment balance then it's $1 billion.
No no no I thought you said thats why youre not going to you're going to keep it there.
Yes, Sir.
Okay.
Thank you.
Thank you.
Thank you.
And our next question comes from David <unk>.
Great.
Hi, Thanks, I wanted to follow up on the brokered CD <unk>.
Topic I was just curious what's the rate on the brokerage Cds versus your core CD portfolio rate.
Oh.
Well, we just got some.
This model.
For three months brokerage CD that.
Two in a quarter or two and three eighths and then.
<unk>.
This was June delayed on core.
Time deposits for June .
What's the math 45 basis points.
And can you talk about the competitiveness in the market for for core Cds are you seeing some competitors pushed that up do you guys plan on doing any kind of special because it seems like you'll get a better sort of deal with your core Cds versus the brokerage Cds can you talk.
About that a bit.
Yes, well one we're.
We don't think we need to do.
Any sort of SCE.
Special.
We don't see anybody in the marketplace.
Doing that because banks in general have a lot of them.
You'll have a lot of excess liquidity.
In terms of.
Earlier in the second quarter.
Lost some.
Larger.
Okay.
Deposit customers.
They were leaving for deposits in the low twos.
Alex.
Early June today, if those same customers came to us.
And said they would.
One 2%.
One year CD.
We would we would take that so.
But it's very.
We.
We have we.
We have a service.
<unk>.
The published rates for.
All of our northern California peers.
Nobody has.
Any rates and any product.
That increase.
My assumption is everybody.
Customizing.
Larger depositors.
Okay.
Got it thanks for that and then shifting to credit quality can you talk about.
The health of your borrowers clearly your Ltvs are very very low, but I'm curious about the health of your borrowers and then related to that can you talk about the what you're seeing based on talking to customers the economic outlook and if youre seeing anything recessionary.
In your outlook.
So David I'll take that first.
Our east side, we've done a deeper dive into not just the LTV side, but into the cash flow side and the debt service side.
Assuming higher interest rates and higher debt service payments.
Hopefully will look like when would that cover standpoint so.
We've done a pretty significant review of that and we feel pretty good pretty comfortable about those.
On the on sort of the economic recession side.
I mean, that's.
I think the.
GDP numbers I think later in the week will kind of tell us a little bit more but the unemployment numbers are still very low.
The last I think hiring report was something about 400000 was.
Was that a total of $1 1 million over three quarters.
And so those are all strong numbers that I think we've seen.
In addition to that our C&I customers I think we're also looking at them and looking at their balance sheet and their agents more carefully you kind of looking at some of their inventory just to make sure that their numbers are strong we don't have any concerns there at this point so.
If there is one there is probably a myer one there was I think a reporting to wall Street about how there was an expectation for fed cuts that may come as quickly as the next 12 months.
Great. Thanks very much.
Yes.
Thank you for your participation I will now turn the call back over to Cathay General Bancorp's management for closing remarks.
I want 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 disconnect good day.