Q3 2023 Cathay General Bancorp Earnings Call
Yeah.
Good afternoon, ladies and gentlemen.
Welcome to Cathay General Bancorp's third quarter of 2023 earnings Conference call.
My name is Rocco and I will be your coordinator for today.
At this time, all participants are in 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 followed by one at any time during the conference.
If assistance is needed at any time during the call. Please press star followed by zero and a coordinator will be happy to assist you.
Today's call is being recorded and will be available for replay at www Dot Cathay General Bancorp dotcom.
I would now like to turn the call over to Georgia Lo Investor Relations of Cathay General Bancorp. Please go ahead.
Thank you Rocco 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 company's annual report on Form 10-K for the year ended December 31st 2022 and 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 statement speaks only as of the date on which it is made and except as required by law. We undertake no obligation to update or review any forward looking statements to reflect future circumstances.
Stances, due well developments or events or the occurrence of unanticipated events.
This afternoon, Cathay General Bancorp issued an earnings release outlining its third quarter 2023 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 up this call 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 2023 third quarter earnings Conference call.
This afternoon, we reported net income of $82 4 million for the third quarter of 2023.
11, 6% decrease as compared to a net income of $93 2 million for the second quarter of 2023.
Diluted earnings per share decreased 11, 8% to 1.13.
For sure for the third quarter of 2023 compared to $1 28 per share for the second quarter of 2023.
In the third quarter of 2023, our gross loans increased $71 million or one 6% annualized primarily driven by increases of $218 million or 9.9% annualized in commercial real estate loans, and 143 million or 10, 9% annualized and residential mortgage loans offset by a <unk>.
Decrease of $227 million or 27, 4% annualized and commercial loans.
Loan growth during the third quarter resulted in part from Paydown of several large commercial loans originated in the second quarter of 2023.
We continue to monitor all commercial real estate loans, turning to slide seven of our earnings presentation as of September 32023, the average loan to value of our commercial real estate loans was 50%.
As of September 30th 2023, our retail property loan portfolio S. Fly eight comprises 23% of our total commercial real estate loan portfolio, what your 11% of our total loan portfolio.
89% of the $2 2 billion in Gucci retail loans are secured by retail store building neighborhood mixed use or strip centers and only 10% are secured by shopping centers.
That's why nine office property loans represent 16% of our total commercial real estate loan portfolio was 8% of total loan portfolio.
Only 34% of the 1.5 billion office property loans are collateralized by pure office buildings, and only 4% of the office property loans are in central business.
Districts.
Another 25% of office property loans are collateralized by office retail stores office mixed use in medical offices.
The remaining 28% of office popular loans are collateralized by office condos.
For the third quarter of 2023, we reported net charge offs of $6 6 million of which $4 3 million had been reserved for in prior quarters compared to net charge offs of $2 million in the second quarter of 2023.
Our nonaccrual loans were 0.41% of total loans as of September 30th 2023, which increased by $8 3 million to 77.3 million as compared to the end of the second quarter of 2023.
Turning to slide 12 as of September 30th 2023 classified loans increased slightly to $202 million from 193 million as of June 30th 2023.
In our special mention loans also increased slightly to $278 million from $260 million as of June 30 of 2023.
We recorded a provision for credit loss of 7 million in the third quarter of 2023 as compared to a $9 2 million in provision for credit losses for the second quarter of 2023.
We're pleased that total deposits increased by $539 million or 11, 6% and annualized during the third quarter of 2023.
As a result, we were able to reduce our borrowings from the federal home loan bank by $800 million during the quarter to $15 million as of September 30th 2023.
Total uninsured deposits were 9 billion, but excluding 0.8 billion and collateralized deposits the uninsured and uncollateralized deposits were reduced to $8 2 billion or 41, 7% of total deposits as of September 30th 2023.
Unused borrowing capacity from the federal home loan Bank was $7 2 billion in Unpledged Securities was one 4 billion you sources of available liquidity, where more than 100% of uninsured and uncollateralized deposits as of September 30th 2023.
Total time deposits increased 237 million or 31.2% annualized.
Annualized during the third quarter of 2023 compared to the second quarter of 2023.
Core deposits increased by $301 million or 10, 5%.
Annualized primarily due to organic growth and seasonal increases.
I will now turn the floor over to our executive Vice President and Chief Financial Officer, Mr. Haisheng to discuss the third quarter 2023 financial results in more detail.
Thank you Chang and good afternoon, everyone.
What's the third quarter of 2023.
Income decreased by 10 8 million or 11, 6%.
Two 4 million compared to $93 2 million was a second quarter only 23, primarily due to a $6 2 million unrealized loss on equity securities are six cents per share in the third quarter of 2023 as compared to a 10 point.
7 million unrealized gain on equity securities of <unk> 10 per share in the second quarter 2023.
Our net interest margin was 3.38% in third quarter of 2023 as compared to 3.44%.
Second quarter of 2023.
The third quarter of 2023 interest recoveries and prepayment penalties.
Added six basis points to the net interest margin.
Compared to two basis points for the second quarter of 2023.
We have revised our net interest margin expectations for 2023 to be between 3.45%.
3.51%.
Noninterest income during the third quarter of 2023 decreased by $15 3 million $7 8 million when compared to $23 1 million in the second quarter 2023 a.
The decrease was primarily due to a $16 9 million decrease.
And unrealized gains on equity securities.
That in part.
$1 5 million increase in commissions from wealth management.
Compared to the second Cologuard on a 23.
Non interest expenses increased by $1 2 million or one 2% 94 million in the third quarter of 2023.
When compared to $92 8 million in the second quarter of 2023.
The increase was primarily due to $1 7 million in higher salaries and benefits.
One 4 million and higher amortization of new solar tax credit investments.
Offset by a 1 million in lower professional expenses.
As a result.
<unk> expenses incurred in 2023 to strengthen.
The bank's information security infrastructure.
And enterprise risk management.
And.
From higher FDIC insurance premiums.
We expect core non interest expense excluding.
Excluding tax credit and core deposit intangible amortization and Oreo expense.
Increase.
Between eight five to nine 5% from 'twenty to 'twenty, two and 2023.
This excludes the impact of any special FDIC assessment for bank failures.
Expected to be finalized during the fourth quarter.
2023.
During the first nine months approximately $3 million in nonrecurring professional expenses related to informational security.
Price risk management.
Internal control processes were incurred.
In addition, we.
We're taking a hard look.
Other expenses during the fourth order of 2023.
To reduce the rate of non interest expense growth.
In 2024.
The effective tax rate for the third quarter of 2023 was 11% as.
As compared to nine 2% for the second quarter of 2023.
For full year 2023, we expected effective tax rate of between 12% and 13%.
We expect solar tax credit investment amortization of $12 million in Q4 of 'twenty.
As of September 30th 23, our tier one leverage capital ratio.
Operator: Good afternoon, ladies and gentlemen, and welcome to Cathay General Bancorp's third quarter of 2023 earnings conference call. My name is Rocco, and I will be your coordinator for today. At this time, all participants are in listen only mode.
So $10 or 4% as compared to 10.45%.
As of June 30.
<unk> three <unk>.
Tier one risk based capital ratio.
Increased to 12, 7% from $12 three 8% as of June 30, only point.
Operator: 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 followed by one at any time during the conference. If assistance is needed any time during the call, please press star followed by zero, and a coordinator will be happy to assist you. Today's call is being recorded and will be available for replay at www. Cathay General Bancorp.com.
And our total risk based capital ratio increase.
14, two 1% from 13.88% as of June 30th 2023.
Thank you Heng, we will now proceed to the question and answer portion of the call.
Uh huh.
Thank you.
Ladies and gentlemen, if you have a question at this time. Please press Star then one on your Touchtone telephone.
Georgia Lo: I would now like to turn the call over to Georgia Lo. In my surrelations of Cathay General Bancorp, please go ahead. Thank you, Rocco, and good afternoon.
We ask that you please limit yourself to one question and one follow up question.
You May then return to the queue.
Georgia Lo: Here to discuss the financial results today are Mr. Chang Liu, our president and chief executive 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 for 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.
If your question has been answered or you wish to remove yourself from the queue. Please press Star then two.
To prevent any background noise. We ask you. Please place your cell phone mute once your question as I stated.
Georgia Lo: These risks and uncertainties are further described in the company's annual report on form 10K for the year ended December 31st, 2022 at item 1A 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 and do reliance on such for looking statements. Any for looking statements speaks only as of the date on which it is made, and except as required by law, we undertake no obligation to update or review any for looking statements to reflect future circumstances, development or events or the occurrence of unanticipated events.
Your first question today comes from Matthew Clark of Piper Sandler. Please go ahead.
Hey, good afternoon.
Hi.
Questions around the margin.
Did you have any I guess I was looking to quantify the prepaid prepaid fees in any recoveries in the loan yield it looked like colonial was up a little more.
About 20 basis points.
This quarter, just wondering if anything was kind of elevated on that front.
Well, we had about 2 million.
Interest recoveries.
Yeah as I mentioned, it was six basis points of NIM.
But.
The rest of it.
What the just improved pricing for auto.
Georgia Lo: This afternoon, Cathay General Bancorp issued an earnings release outlining its third quarter 2023 results. To obtain a copy of our earnings release as well as our earnings presentation, please visit our website at www. Cathay General Bancorp.com.
Loans.
Got it and I think you had about $1 million last quarter is that right.
A little later than that yes.
Okay I can come back to that later.
Georgia Lo: After comments by management today, we will open up this call for questions.
And then if you have the spot rate on the spot rate on deposits interest bearing or total and the average margin in the month of September .
Chang Liu: I will now turn the call over to our president and chief executive officer, Mr. Chang Liu. Thank you, Georgia, and good afternoon, everyone. Welcome to our 2023 third quarter earnings conference call. This afternoon, we reported net income of 82.4 million for the third quarter of 2023, and 11.6% decrease as compared to a net income of 93.2 million for the second quarter of 2023. The due to earnings per share decreased 11.8% to 1.13 per share for the third quarter of 2023, compared to $1.28 per share for the second quarter of 2023.
Yeah, let me.
Let me go through.
So the spot rate at September 30th.
And total interest bearing deposits.
At the end of the month was 328.
Uh huh.
What was the next part of your question Matt.
If you had the average average margin in September I'd take it.
Yeah the average.
It's a little bit noisy because.
We had interest recoveries.
Chang Liu: In the third quarter of 2023, our growth loans increase 71 million, or 1.6% annualized, primarily driven by increases of 218 million, or 9.9% annualized in commercial rule of state loans. 143 million, or 10.9% annualized in residential mortgage loans. I'll set by a decrease of 227 million, or 27.4% annualized in commercial loans. Lones. The solo loan growth during the third quarter resulted in part from pay down of several large commercial loans originating the second quarter of 2023.
Out of the quarter, but it was a 3.42.
Okay understood cause of months September yes.
Okay great.
And then just maybe one more housekeeping item and then I'll get back in the queue. The low income housing amortization for the year I know you gave solar but.
Is it still about $41 million.
Uh huh.
Let's see yes.
Yes, yes.
Chang Liu: We continue to monitor our commercial roll-as-day loans, turning to size 7 of our earnings presentation. As of September 30, 2023, the average loan to value of our commercial roll-as-day loans was 50%. As of September 30, 2023, our retail property loan portfolio as by eight comprises 23% of our total commercial roll-as-day loan portfolio or 11% of our total loan portfolio. 89% of the 2.2 billion in retail loans is secured by retail store, building, neighborhood, mix use or strip centers and only 10% is secured by shopping centers.
Okay. Thank you.
Thank you.
Our next question today comes from Gary Tenner of D. A Davidson. Please go ahead.
Thanks.
First I had a question on expenses.
I may have misheard, what you were saying in terms of the expected core <unk>.
Expense run rate I heard eight and a half to nine 5%, which I thought you were saying for 2023, but you said it excluded any.
Any potential FDIC special assessment Shithouse confused if youre talking about 'twenty three 'twenty four.
Now we're talking about 23.
As you know are there is a proposal that's.
Chang Liu: As by nine, office property loans represent 16% of our total commercial roll-as-day loan portfolio or 8% of total loan portfolio. Only 34% of the 1.5 billion in office property loans are collateralized by pure office buildings and only 4% of the office property loans are in central business districts. Another 25% of office property loans are collateralized by office retail stores, office mix use and medical offices. The remaining 28% of office property loans are collateralized by office condos.
That's not final.
And Andrew gap whenever it's finalized.
Thanks are expected.
So cool.
Okay, Alright. Thank you I just wanted to clarify that.
In terms of.
<unk>.
The loan pipeline at your guidance. So I wish I could suggest you know still a solid level of loan growth for the fourth quarter. I was just wondering if you could give any.
Kind of updates in terms of kind of where the pipeline strength is coming from areas that you would expect loan growth to kind of continue through the fourth quarter.
Chang Liu: For the third quarter of 2023, we reported net charge-offs of 6.6 million of which 4.3 million have been reserved for in prior quarters compared to net charge-offs of 2 million in the second quarter of 2023. Our non-accrual loans were 0.41% of total loans as of September 30, 2023 which increased by 8.3 million to 77.3 million as compared to the end of the second quarter of 2023. Turning to slide 12, as of September 30, 2023, classified loans increased slightly to 202 million from 193 million as of June 30, 2023.
Sure Gary.
I think we're still seeing some strength surprisingly the residential mortgage market Ah that pipeline is holding up pretty well and about 90% of that organic pipeline is about purchases actually so that kind of makes sense given today's market.
So the activity there is still fairly strong across the state that we're in.
Commercial real estate as you know that's.
That's definitely slowing down, but we're still seeing continued activity both from mostly from our current client base, some new new relationships, but that we're betting very carefully and then on the C&I side were.
Chang Liu: And our special mention loans also increased slightly to 278 million from 260 million as of June 30, 2023. We recorded a provision for quite a loss of 7 million in the third quarter of 2023, as compared to a 9.2 million in provision for credit losses for the second quarter of 2023. We're pleased that total deposits increased by 539 million or 11.6% and annualized during the third quarter of 2023. As a result, we were able to reduce our borrowings from federal home loan bank by 800 million during the quarter to 15 million as of September 30, 2023.
We're looking for a kind of really supporting our clients in.
And looking at their credit metrics and make sure. They are prepared going forward into 2024 and are not a lot of new activity coming out of that or new new business coming in but to the extent that we find some good prospects, we're definitely continuing on with that path.
Thanks, I appreciate that and just one last question I think in the prepared remarks.
There was a note of some larger commercial loans that were originated in second quarter paid off.
Chang Liu: Total uninsured deposits were 9 billion but excluding 0.8 billion in collateralized deposits, the uninsured and uncollarized deposits were reduced to 8.2 billion or 41.7% of total deposits as of September 30, 2023. Our unused borrowing capacity from the federal home loan bank was 7.2 billion and on-play securities was 1.4 billion. These sources of available liquidity were more than 100% of uninsured and uncollarized deposits as of September 30, 2023. Total time deposits increased 237 million or 31.2% annualized during the third quarter of 2023, compared to the second quarter of 2023. Total court deposits increased by 301 million or 10.5% Analyze, primarily due to organic growth and seasonal increases.
During the third quarter were those anticipated pay offs forgive me if I. If you think about it previously and I don't recall.
They were a commercial lines of credits that were drawn down during the second quarter and we got some paydowns not payoffs, but paydowns during the third quarter.
Yeah, and bonobos borrowers.
Oh again here in.
Actual.
Okay. Thanks very much.
Yeah.
Thank you and our next question comes from Brandon King <unk> Securities. Please go ahead.
Hey, good evening.
Hi.
So just wanted to forget how are you thinking about deposit growth near term in the fourth quarter and also could you give some context around the growth you saw in DDA and how you expect DDA trends, a nice spring deposit trends to play out in the fourth quarter.
Heng Chen: I will now turn the floor over to our Executive Vice President and Chief Financial Officer, Mr. Heng Chen, to discuss the third quarter of 2023 financial results in more detail. Thank you, Chang, and to the afternoon everyone. For the third quarter of 2023, the income decreased by 10.8 million or 11.6% to 18.4 million compared to 93.2 million for the second quarter of 2023, primarily due to a 6.2 million unrealized loss on equity securities or 6 cents per share in a third quarter of 2023 is compared to a 10.7 million unrealized gain on equity securities or 10 cents per share in the second quarter of 2023.
Yeah.
Oh yeah.
We were pleasantly surprised at the amount of the.
Deposit growth.
In the third quarter.
Yeah.
Maybe there's a small amount that was.
Temporary.
We had a bar.
Casper is that positive to once again.
Yeah.
The money in.
Pending.
Pending a real estate purchase.
Deposit its a money market that will go out in.
Heng Chen: Our net interest margin was 3.38% in the third quarter of 2023 as compared to 3.44% for the second quarter of 2023. In the third quarter of 2023 interest recoveries and prepayment penalties added six basis points to the net interest margin as compared to two basis points for the second quarter of 2023. We have revised our net interest margin expectations for 2023 to be between 3.45% to 3.50%. Nine interest income during the third quarter of 2023 decreased by 15.3 million to 7.8 million on compared to 23.1 million in the second quarter of 2023.
October late October , but I think that DBA Cheng.
There's nothing special there, it's really a collective effort I think of the of our kind of network retail network and they know that.
Yeah.
Bringing in Cds, and retaining them, that's part of the job, but really the key is driving the DDA deposits and we're getting hit enough as it is on the cost of funds on the Cds, even the money markets, but the DDA growth is really where we need to concentrate and to in order to offset some of that cost increase.
Inquiries just on our funds.
Got it and pull that outflow.
How much of that are you expecting to outflow in the fourth quarter.
On that one.
Uh huh.
16 $65 million.
Okay.
Okay. So that was a money market.
Heng Chen: The decrease was primarily due to a 16.9 million decrease in unrealized gains at equity securities offset in part by 1.5 million increase in commissions from wealth management when compared to the second quarter of 2023. Now interest expenses increased by 1.2 million or 1.2% to 94 million in the third quarter of 2023 when compared to 92.8 million in the second quarter of 2023. The increase was primarily due to 1.7 million in higher salaries and benefits and 1.4 million in higher amortization of new solar tax credit investments offset by 1 million in lower professional expenses.
Yeah.
Okay. There was some money market yes.
It's a long time deposits of it yeah.
Okay. Okay.
And then.
Going back to the.
A question on loan yields how you're expecting that to trend near term are you expecting kind of a similar sort of increase in the fourth quarter.
What are you what are your expectations.
We think so I mean, one thing that we see is in residential mortgage yeah, that's a very large.
Sorry.
Residential mortgage its.
Almost $6 billion and it's been.
For each of the three quarters in 2023 that cool.
Ooh lungs that.
Has gone up 20 basis points every quarter.
So in the third quarter residential mortgages or 96%.
Heng Chen: As a result of excesses incurred in 2023 to strengthen the banks information security infrastructure and enterprise risk management and from higher FPIC insurance premiums we expect core non-interest expense excluding tax credit and core deposits in tangible amortizations in RIOs, to increase between 8.5% to 9.5% from 2022 to 2023. This excludes the impact of any special FDIC assessment for bank failures expected to be finalized during the fourth quarter of 2023. During the first nine months, approximately 3 million in non-recurring professional expenses related to informational security, enterprise risk management, and internal control processes were incurred.
We're banking.
A couple of hundred million of loans every quarter.
The $2 50, or so in the almost 7% range, so that pulls that up and we continue to see prepayments.
From a.
Three one in five one arms they tend to.
Pay offs when they get.
When they are finished.
Yeah.
Initial fixed rate.
And then Jen I mean on CRE, what we're trying to get in the Sevens right CRE, we're pricing them at about $2 50, plus if we can get them over the five year with a three year.
So that's kind of the right range that were looking at were still seeing some activity some purchases.
Some refinance from floating rate, but so we're seeing some steady.
Got it got it.
And then just kind of similar but you're still kind of a similar increase in the fourth quarter is that did I hear that correctly.
Heng Chen: In addition, we are taking a hard look in our other expenses during the fourth quarter of 2023 to reduce the rate of non-interest expense growth in 2024. The effective tax rate for the third quarter of 2023 was 11%, as compared to 9.2% from the second quarter of 2023. For a four-year 2023, we expected effective tax rate at between 12.5% and 13%. We expect solar tax credit investment ammosation of 12 million in Q4 of 2023.
Uh huh.
Probably pretty close to what we had in the third quarter, yes, yeah. Okay. Okay, great. Okay, I'll hop back in queue. Thanks for taking my questions.
Okay.
Thank you and our next question today comes from Andrew Shapiro with Stephens. Please go ahead.
Hey, good afternoon.
Hi, Andrew.
I'm, just maybe just square out the discussion on the loan yields up 20 basis points. This quarter, but that did include the impact from the <unk>.
Interest recovery or prepay man.
Just two basis points to the NIM last quarter six basis points. This quarter I guess are you assuming that the prepay your interest recovery continues it.
Heng Chen: As of September 30th, 2023, our tier 1 leverage capital ratio decreased to 10.44%, as compared to 10.45%, as of June 30th, 2023. Our tier 1 risk-based capital ratio increased to 12.7%, from 12.38% as of June 30th, 2020. Our total risk-based capital ratio increased to 14.21% from 13.88% as of June 30th, 2023.
Six basis points to the margin whenever you you talk about loan yields going up a similar amount in <unk> or should that normalize lower going forward.
Yeah.
We don't see any.
A big non accruals paying off so.
So you just subtract yeah, maybe <unk> five from that.
Yeah.
The one time non accrual.
Understood Okay.
I appreciate it and then on credit quality I'm Ashwin asked around the construction non accruals went up from zero to I think right around $17 million or so can you just talk about the the underlying credit or credits that drove that increase this quarter and then similar question for the the Oreo.
Operator: Thank you, Hang. We will now proceed to the question and answer portion of the call. Thank you. Ladies and gentlemen, if you have a question at this time, please press star number one on your touchdown telephone. We ask you, please limit yourself to one question and one follow-up question. You may then return to the queue. If your question has been answered or you wish to remove yourself from the queue, please press star number two. To prevent any background noise, we ask you, please place yourself on mute once your question has been stated.
Addition, this quarter it looks like about $10 million addition to the Oreo asset.
Sure on the construction portfolio side I can talk about that a little bit one of them was a southern California inland Empire hospitality.
It was an existing asset with a reflag reposition with with some some significant renovation to the property were at plus 90% are to completion. There is some as a result of some significant delays are theres a partner dispute between the partnership.
Matthew Park: Your first question today comes from Matthew Park at Piper Sandler. Please go ahead. Hey, good afternoon. Hi. There are a couple of questions around the margin. Did you have any, I guess I was looking to quantify the pre-pay fees in any recoveries in the loan yield? It looked like the loan yield was up a little more, about 20 basis points. This quarter just wondering if anything was elevated on that front? Well, we had about 2 million of interest recovery, as I mentioned, it was six basis points to them, but the rest of it would be just improve pricing for loans. Got it. And I think you had about one million last quarters, right? A little less than that, yes.
We're pretty comfortable with the asset it's got a pretty low low LTV its well located its got a good operating history.
Unfortunately that partnership this view has led us to where we are because that.
Loans 90.
In 90 days.
Past sure Alright.
Alright.
Cool.
And the other is a norcal office building.
We've got a buyer that's been identified and that we've got some reserve set against it and that one was also a sort of a reposition play there as well.
And then Oh, Yeah, Oh, yeah.
Yes.
Okay.
Single family House.
Yeah.
Palisades It came out of the amount of coal right.
Matthew Park: Okay, then come back to that later. And then if you have the spot rate on deposit, interest sparing or total, then the average margin in the month of September. Yeah, let me go through. So the spot rate at September 30th on total interest sparing deposits at the end of the month was 3.28. What was the next part of the question, Matthew? If you had the average, average margin in September and take it. Yeah, the average, you know, it's a little bit noisy because we had interest recoveries without the quarter, but it was 3.42. Okay, understood. For the month of September, yes. Okay, great.
Okay understood I appreciate all the color there and then if I could sneak one more in there that the wealth management fee income. This quarter was really strong can you just talk about what drove the left this quarter and then is that low 5 million dollar a quarter number kind of a good run rate to think about the wealth management fees.
Moving forward.
They're still I'll take a stab at it theres still kind of on budget for this year I think the first half of the year and Andrew They were kind of behind budget. So effectively it was kind of a third quarter catch up on some of their business and volume and in their backlog of the pipeline and.
So I think that's really where we saw that pick up.
Yeah.
<unk>.
There's a lot of deals that close in the third and fourth.
Quarter.
Okay. So maybe a fair way to think about it is it's more on an annual basis around like an $18 million number.
Matthew Park: And then just maybe one more house keeping item, and I'll get back in the queue. The loan income housing amortization for the year. I know you gave solar, but is it still about 41 million? Yes. Okay, thank you. Thank you.
Hum.
Yeah, Yeah yeah.
Yes.
Okay, well, thank you for taking the questions I appreciate it.
Thanks.
As a reminder, if you'd like to ask a question. Please press Star then one today's next question comes from Chris Mcgratty actually VW. Please go ahead.
Gary Tenner: All right, next question today. I'll show Gary Tenor at the A Davidson. Please go ahead. Thanks.
Yeah.
Hi, This is Nick topic is on for Chris.
Oh, Hi, Vic.
Gary Tenner: Hang, first I had a question on expenses. I may have misheard what you were saying in terms of the expected core expense run rate. I heard eight and a half to nine and a half percent, which I thought you were saying for 2023. Please set it excluded. Any potential up to I see special assessment. So now I was confused if you were talking about 23 or 24. We'll talk about 23. As you know, there's a proposal that's, that's not final. And under gap whenever it's finalized, banks are expected to accrue it. All right. Thank you. I just wanted to clarify that.
Maybe just a higher level, just given where our capital levels are at and and your stock price any appetite at all for a buyback in the near term in the next 12 months or so.
Absolutely.
We talked about it easily.
Second quarter conference call.
The approval process takes a little bit longer then compare to the past.
In the next few months.
We'll get going on that and.
Once it's approved by the fed.
We'll put out a press release.
Yeah.
The way I look at it.
Gary Tenner: In terms of the loan pipeline, your guidance still looks like it suggests, you know, still a solid level of longer to the fourth quarter. I just wondered if you could give any kind of updates in terms of kind of where the pipeline strength is coming from. You know, areas that you'd expect longer to kind of continue through the fourth quarter. Sure, Gary. I think we're still seeing some strengths, surprisingly, the residential mortgage market that pipeline is holding up pretty well.
Yeah.
Our capital builds up over there so.
Yeah.
We can catch up with buybacks.
Thanks, a lot Sir.
Okay.
And then maybe just on on the tax rate as well.
If you look out longer term into 2024.
Did the 12% to 13% tax rate for next year is a good run rate as well.
Gary Tenner: And about 90% of that organic pipeline is about purchases, actually. So that kind of makes sense given today's market. So the activity there is still fairly strong across the state that we're in commercial real estate is. You know, that's definitely slowing down, but we're still seeing continued activity, both from mostly from our current client base. Some new new relationships that that we're vetting very carefully. And then on the CNI side, you know, we're looking for, you know, kind of really supporting our clients and looking at their credit metrics and make sure they're prepared going forward into 2024.
It's probably a little low.
The.
We haven't we.
Had two solar tax credit fund that.
Overlap this sure.
And then next year.
Yeah.
We'll have some run off from the second fund that was good.
And I won't go into a new one.
Yeah.
Yeah.
It should go up a little bit we'll give guidance when we.
In January .
For 2024.
Gary Tenner: And not a lot of new activity coming out of that or new new business coming in, but to the extent that we find some good prospects were definitely continuing on with that path. Thank you. I appreciate that.
Okay.
If you are modeling.
Extend debt.
Tax rate is higher.
Our solar amortization is lower almost dollar for dollar.
Gary Tenner: And just one less question, I think in the program, March, there was a note of some larger commercial loans that were originally in the second quarter paid off during the third quarter. Were those anticipated payoffs? If you talk about a previously, I don't recall. There were commercial lines of credits that were drawn down during the second quarter and we got some paydowns, not payoffs, but paydowns during the third quarter. Yeah, and I'm going up those bars far out again here in in October. Okay, thanks very much. Thank you.
Okay. Thank you for taking my questions.
Thank you and our next question is a follow up from Matthew Clark with Piper Sandler. Please go ahead.
Okay. Thank you.
Can you remind us what your snick exposure is shared national credits.
It's less than 5% of our total loans.
Yes.
Okay.
Got it and then.
Hum.
Hum.
I guess, an update on office CRE and the related reserve in any amount that might be criticized I'm, assuming the reserve is consistent with the commercial real estate reserve, but not sure. If you guys tweaked anything this quarter, but again the reserve and the amount criticized.
Brandon King: Then our next question comes from Brandon King, I'm sure securities. Please go ahead. Hey, good evening. So just wanted to get how you thinking about deposit growth near a term in the fourth quarter. And also could you give some context around the growth you saw in DDA and how you expect DDA trends or 9th spring to part of trends to play out in the fourth quarter? Yeah. We were pleasantly surprised at the amount of deposit growth in the third quarter.
Well our office reserve is that.
We're we're reserving it at about.
85 basis points.
Well, what what was the other part of your question Oh with MLB have a couple.
The mouth that's criticized.
I don't have that handy I can tell you are in non accruals.
Brandon King: There may be, I mean, there's a small amount that was temporary. We had a bar of customer that deposit was going to, you know, the money and pending a real estate purchase and that deposit. It's a money market that will go out in October, late October. But I think the DDA, there's nothing special. It's really a collective effort. I think of our kind of network, retail network. And they know that bringing in cities and retaining them, that's part of the job.
Uh huh.
Think about $10 million in CRD.
Yes.
Yes.
Okay. Okay.
<unk>.
Thank you.
Thank you for your participation.
I'll now turn the call back over to Cathay General Bancorp's management for closing remarks.
I'd like 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.
Brandon King: But really the key is driving the DDA deposits and we're getting hit enough as it is on the cost of funds on the CDs, even the money markets. But the DDA growth is really where we need to concentrate and to in order to offset some of that cost increase just on our funds. Got it. And pull that outflow. How much of that are you expecting to outflow in the fourth quarter? That one, it was 65 million.
Brandon King: Okay. That was a money market. Yeah. Okay. It was a money market. Yes. It's a long time to pause. Yeah. Okay. And then going back to the question on loan yields, how are you expecting that to turn in near term? Are you expecting kind of a similar sort of increase in the fourth quarter? What are your expectations? We think so. I mean, one thing that we see is in residential mortgage. Yeah.
Brandon King: That's very large. It's our residential mortgage. It's almost six billion and it's been for each of the three quarters in 2023 that who alone said has gone up 20 basis points every quarter. So in the third quarter, residential mortgage, we're just 4.96 percent. We're banking a couple hundred million loans every quarter two, fifty or so in the almost seven percent range. So that pulls it up and we continue to see prepayments from our three one and five one arms.
Brandon King: They tend to pay off when they get when they finish the initial fixed rate period. And then I mean on CRE, we're trying to get in the sevens. Right. CRE were pricing them at about 250 plus if we can get them over the five year with the three year. So that's kind of the rate range that we're looking at. We're still seeing some activity, some purchases, some refinance, some floating rate. But so we're seeing some study.
Brandon King: Got it. And then just to kind of sum up, you spent kind of a similar increase in the fourth quarter. Did I get that correctly? You know, probably pretty close to what we had in the third quarter. Yes. Yeah. Okay. Great. Okay. I'll have back in the queue. Thanks for taking my questions.
Andrew Turole: Thank you. And our next question today comes from Andrew Turole with Stevens. Please go ahead. Hey, good afternoon. Just maybe just go out the discussion on the low yields up 20 basis points this quarter. But that did include the impact from the interest recovery or prepayment. That was two basis points to the name last quarter, six basis points this quarter. I guess are you assuming that the prepay or interest recovery continue the six basis points to the margin whenever you talk about low yields going up a similar mountain for a queue or should that normalize lower going forward?
Andrew Turole: Yeah, it should. We don't see any big nine of calls paying off. So you just subtract maybe a million five from that. Yeah. For the one time non-cruelty. I understand. Okay. I appreciate it. And then on credit quality, as you're going to ask around the construction non-accruals went up from zero to I think right around 17 million or so. Can you just talk about the underlying credit or credits that drove that increase this quarter?
Andrew Turole: And then similar question for the Oreo edition this quarter. It looks like about 10 million dollar edition of the Oreo asset. Sure. On the construction portfolio side, I can talk about that a little bit. One of them was a Southern California in an empire hospitality. It was an existing asset with a reflag reposition with some some significant renovation to the property. We're at plus 90% to completion. There's some as a result of some significant delays.
Andrew Turole: There's a partnered dispute between the partnership. We're pretty comfortable with the asset. It's got a pretty low low LTV. It's well located. It's got a good operating history. Unfortunately, that partnership dispute has led us to where we are. Yeah, that because we that loan became 90 days past maturity. The other is a North Carolina office building. We've got a buyer that's been identified and we've got some reserve that's set against it and that one was also sort of a reposition play there as well.
Andrew Turole: And let's go all yo, it's a single family house in civic power space. It came out a lot of cool. Okay. Understood. I appreciate all the color there and then if I could seek one more on the wealth management, the income this quarter was really strong. Can you just talk about what drove the lift this quarter and then is that low? So five million dollar a quarter number, kind of a good run rate to think about the wealth management fees moving forward.
Andrew Turole: They're still, I'll take a stab at it. They're still kind of on budget for this year. I think the first half of the year, Andrew, they were kind of behind budget. So effectively, it was kind of the third quarter catch up on some of their business and volume and their back lock of the pipeline. And so I think that's really where we saw that pick up. Yeah, I see. A lot of deals that close in the 34th quarter. Okay, so maybe fair way to think about it is more on an annual basis around like an 18 million dollar number. Yeah. Okay. Well, thank you for taking the questions. I appreciate it. Thanks.
Operator: As a reminder, if you'd like to ask a question, please press star than one.
Nick Utoficus: Today's next question comes from Chris McGratty at KVW. Please go ahead. Hi, this is Nick Utoficus on for Chris. Hi, Nick. Maybe just a higher level, just given where capital levels are at and your stock price, you know, any appetite at all for a buyback in the in a near term, the next 12 months or so. Oh, absolutely. We talked about it briefly in second quarter conference call. The approval process takes a little bit longer than compared to the past, but in the next few months, we'll get going on it. And once it's approved by the Fed, we'll put out a press release. But it's the way I look at it. It's a capital builds up over there.
Nick Utoficus: So we can catch on with buybacks when things are more certain. Okay. And then maybe just on the tax rate as well. If you look, look out longer term into 2024, the 12 and after 13% tax rate for next year is a good run rate as well. It's probably a little low the We had a bottom, we had two solar task credit funds that overlap this year and then next year we'll have some runoff from the second fund that we give and then we'll go into a new one but it it should go up a little bit.
Nick Utoficus: We'll give guidance when we are in January for 2024. Okay, then if you're modeling to the extent that the tax rate is higher, the solar amazation is lower, you know, almost dollar for dollar. Okay, thank you for taking my questions.
Matthew Clark: Thank you and our next question is a follow-up from Matthew Clark, could I present with her, please go ahead. Hey, thank you. Do you remind us what your SNCC exposure is? Is your initials critical? It's less than 5% of total loans. Matthew. Okay, got it.
Matthew Clark: And then I'm going to, I guess an update on office CRE and the related reserve and any amount that might be criticized. I'm assuming the reserve is consistent with the commercial real estate reserve but not sure if you guys tweaked anything this quarter but again the reserve[inaudible] I can tell you in nanocross we think about 10 million in CRE that's office. Okay, okay, thank you. Thank you. Thank you for your participation.
Operator: I will now turn the call back over to Kathleen General Bank course management for closing remarks. I'd like to thank everyone for joining us on a 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 includes the presentation. You may now disconnect.
Operator: Good day.