Q2 2024 Cathay General Bancorp Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the Cafe General Bancorp second quarter of 2024 earnings Conference call. My name is Colin 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 followed by one at any time during the conference.
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Today's call is being recorded and will be available for replay at www ducking any general Bancorp Dot Com I would now like to turn the call over to Georgia Lo Investor Relations with Cathay.
General Bancorp. Please go ahead.
Speaker Change: Thank you Paul and good afternoon here to discuss the financial results today are Mr. Chengdu, Our president and Chief Executive Officer, and Mr. Hank 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.
Speaker Change: 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 results and uncertainties are further described in the company's annual report on Form 10-K for the year ended December 31st 2023 and item one a in particular and in other reports and filings with the.
Securities and Exchange Commission from time to time.
We caution you not to place undue reliance on such forward looking statements any forward looking statements speaks only as of the date on which it is made unaccepted as required by law, we undertake no obligations to update or review any forward looking statements to reflect future circumstances developments or events, where the occurrence of unanticipated events. This afternoon Cathay General <unk>.
Speaker Change: Court issued an earnings release outlining its second quarter 2024 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.
Sir Mr. Chang Lu Thank you, Georgia and good afternoon, welcome to our 2024 second quarter earnings Conference call.
Afternoon, we reported net income of $66 8 million for Q2 2020 for a $6 40 per cent decrease as compared to 71 4 million in Q1.
Speaker Change: Earnings per share decreased by six 1% to 92 per share for the second quarter of 2024 as compared to 98 cents per share in the prior quarter.
During Q2, 2024, we repurchased 689470 shares of our common stock at an average cost of $36 37.
Or $25 1 million under our May 2020, 425 million stock buyback.
Speaker Change: Buyback program.
Under the May 2020 for stock repurchase program, we anticipate repurchasing around $35 million in stock per quarter in Q3, and Q4, depending on market conditions.
In Q2 2020 for total gross loans decreased $72 million or one 5% annualized primarily driven by decreases of $42 million or five 1% and annualized.
Speaker Change: Annualized in commercial loans 60.
69 million or four 6% annualized in residential mortgages and HELOC and.
Speaker Change: 25 million or 24, 4% annualized in construction loans offset by an increase of $64 million or two 6% and annualized in commercial real estate loans.
Due to slower than expected loan growth in the first half of 2024, we have revised our overall loan growth guidance for 2024 to range between zero percent and 2%.
Slide six shows the percentage of loans in each major loan portfolio.
Either fixed rate or hybrid loans in their fixed rate period.
Our loan portfolio consists of 64% fixed rate and hybrid loans, excluding fixed to floating interest rate swaps on 4% of total loans.
Fixed rate loans comprised 30% of total loans and hybrid and fixed rate periods comprised 34% of total loans.
We continue to monitor our commercial real estate loans, turning to slide eight of our earnings presentation.
June 30 of 2024, the average loan to value of our CRE loans was 50%.
As of June 32020 for a retail property loan portfolio as shown on slide nine comprised of 24% of our total CRE loan portfolio or 12% of our total loan portfolio.
89% of the $2 4 billion retail property loan is secured by retail building.
Nick on a neighborhood mixed use or strip centers and only 10% are secured by shopping centers.
On Slide 10 office property loans represent 15% of our total commercial real estate loan portfolio or 8% of our total loan portfolio.
Only 35% of the $1 5 billion office property loans, all collateral collateralized by pure office buildings, and only 3% are in central.
The central business.
Districts, 37% of office property loans are collateralized by office retail stores office mixed use in medical offices, and the remainder of 28% of collateralized by office condos.
Condos.
Q2, 'twenty 'twenty four we reported net charge offs of 8 million of which $5 1 million was reserved as of March 31st 2024, as compared to $1 1 million in Q1.
Nonaccrual loans were 0.55% of total loans as of June 30th 'twenty, 'twenty, four which increased $9 2 million 207.3 million as compared to Q1 the.
The increase in non accrual loans. During Q2 2024 came mainly from one office CRE loan and one retail condo CRE loans totaling $8 3 million with no projected losses based on recent appraisals.
Turning to slide 12 as of June 30 of 2020 for classified loans increased to $224 million from 244 million in Q1, and our special mention loans decreased to $201 million from $249 million in Q1.
Recorded a provision for credit loss of $6 6 million in Q2, 'twenty 'twenty four as compared to about $1.9 million in provisions for credit losses for Q1.
Total deposits decreased by $73 million or one 5% annualized during Q2 2024 with now deposits decreased 186 million in Q2 due to the run off of brokered deposits.
Little quotes about core deposits decreased.
$274 million or 11% and annualized in total time deposits increased $201 million or eight 6% annualized during Q2, 'twenty 'twenty four due to a shift from core deposits to time deposit with higher rates. We expect the overall deposit growth to continue and estimate a range between 3% and 4%.
As of June 30 of 2024 total uninsured deposits were $8 2 billion net of 0.8 billion and collateralized deposits or 41, 5% of total deposits. We have an unused used borrowing capacity from the federal home loan bank of 7.1 billion and the Federal Reserve Bank of 174.
And Unpledged Securities up 1.7 billion as of June 30th 'twenty 'twenty four.
These sources of available liquidity more than cover 100% of uninsured and uncollateralized deposits as of June 30 of 2024.
I will now turn the floor over to our executive Vice President Chief Financial Officer, Mr. Heng Chen to discuss the quarterly financial results in more detail. Thank.
Thank you Chang and good afternoon, everyone.
Heng W. Chen: For Q2, 'twenty 'twenty four.
Heng W. Chen: Income decrease by $4 6 million.
Six 4% to $66 8 million compared to $71 4 million from Q1.
Heng W. Chen: Primarily due to a 4.7 million increase in.
And the provision for credit losses for Q2 2024.
Heng W. Chen: And partially due to 4.1 million.
Our four cent.
Sure.
From accelerated.
Amortization of solar tax credit investments.
Which were previewed previously forecasted.
To be amortized in the second half of 2024.
Q2, 2024, net interest margin was three point of 1%.
Heng W. Chen: Compared to a 3.0 y.
Heng W. Chen: Three 5% from Q1.
Well, we are seeing signs.
Our net interest margin has begun to bottom out.
Since our NIM for the month of June was 3.06 consent.
Approximately 712 billion.
In high cost Cds will mature and reprice in the second half of 'twenty 'twenty four.
Heng W. Chen: And this will help lower our cost of deposits as they reprice.
Q2 interest recoveries and prepayment penalties.
Is it two basis points of interest income.
Oh I'm sorry.
Heng W. Chen: Interest margin.
Heng W. Chen: Compared to.
No cases points in net interest margin for Q1.
Non interest income for Q2, 2020, or increased $6 6 million and $13 2 million when compared to.
$6 6 million in Q1 2024.
The increase was primarily due to a 7.6 million decrease.
Mark to market unrealized loss.
Heng W. Chen: Equity Securities.
Offset by.
1.1 million decrease in realized gain on sale investment securities in.
Heng W. Chen: In Q1, 'twenty 'twenty four.
Non interest expense increased by $6 1 million or six 5%.
Heng W. Chen: So 99.3.
Heng W. Chen: Q2 2024.
When compared to $93 2 million in Q1.
This increase was primarily due to a $19 million.
Heng W. Chen: Huh.
And higher amortization of loan come housing and solar tax credit investments.
Point 2 million higher and professional expense.
And 1.2 Guy and higher.
Or you expense.
Expense.
Heng W. Chen: Offset by a decrease of 3 million in salaries and benefits.
Due to a 2 million true up for the 2023 bonuses in Q1.
And.
Heng W. Chen: 1.1 million.
Seasonally higher payroll expense in Q1.
And lastly, a decrease of $2 3 million.
And FDIC assessment.
Heng W. Chen: In Q1, 'twenty 'twenty four.
You build up the <unk>.
Heng W. Chen: Infrastructure of enterprise risk management.
And other control functions.
We have increased the guidance for core noninterest expense.
Heng W. Chen: Excluding tax, whereas in and core deposit intangible amortization.
And Oreo expense to between 4% to 5%.
Heng W. Chen: For my previous guidance of three to three 5%.
Heng W. Chen: The effective tax rate.
For Q2, 2024 was seven 9%.
10.8% for Q1.
We expect.
Tax rate between 10 and half.
And 11 and a half for the second.
Half of 'twenty 'twenty four.
We now expect total.
'twenty 'twenty four solo tax credit investment amortization.
32 5 million.
With 10 million amortization in Q3, and 2 million amortization in Q4.
As of June.
'twenty 'twenty four.
Tier one leverage capital ratio increased to 10, 3%.
As compared to 10.71%.
At March 31, 'twenty 'twenty four.
Tier one risk based capital ratio.
Increased 13, 6%.
13, 8% as of March 31, 2024.
And our total risk based capital ratio.
Heng W. Chen: Increased 14, 7%.
And 14 five 5%.
As of March 31, 2024.
Thank you Heng 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 the Star then one key on your Touchtone telephone.
We ask that you. Please limit yourself to one question and one follow up questions. You may return to the queue. 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 that you. Please place yourself on mute. Once your question has been stated.
And our first question today will come from Matthew Clark with Piper Sandler. Please go ahead.
Hey, good afternoon, thanks for the questions.
Heng W. Chen: Yeah.
Maybe the first one just on your spot rate on deposits at the end of June you had that number either interest bearing or total.
Yeah, all that well.
We have it here.
<unk>.
So the spot rate of deposits.
Speaker Change: Our total interest bearing we point 92.
Okay.
Got it thank you.
And then just wondering your updated expense guide on a core basis it implies.
That core run rate of $74 2 million this quarter drops.
You know slightly below $72 million in the second half to get to the midpoint of the guide I guess, just trying to get a sense for what's going to drive that.
Reduction in the core expense rate.
Well, we continued to have some one time expenses in Q2.
Higher consulting.
Uh huh.
Hi, Mark.
Okay.
Higher charitable contributions.
And things like that.
And now we could be off a million a quarter here.
Right.
We think.
Expenses will moderate in the second half.
Okay and do you can you quantify I guess, how much of that was.
Unusual I guess around consulting marketing charitable.
Yeah.
I'd say, its not two and a half million.
Okay.
Got it.
Speaker Change: Okay. Thank you and then just a quick one low income housing.
Amortization expected in <unk> and <unk>.
Speaker Change: I stopped 10 million a quarter.
Order each for low income housing.
Speaker Change: Okay. Thank you.
Thank you.
And our next question will come from Andrew <unk> with Stephens. Please go ahead.
Andrew: Hey, good afternoon.
I wanted to ask on the I. Appreciate the 7.2 billion I think you said of Cds that mature in the back half of the year.
I was curious are those more heavily weighted to one quarter or is it is it fairly spread out between <unk> and <unk> and then just overall can you talk about kind of your expectations for for spread pick up there and what kind of deposit cost reduction, you're you're kind of aiming for.
Yeah, Yeah yeah.
It's.
Q3 is.
Speaker Change: Slightly higher than Q4, so it's three seven.
1 billion in Q3.
And then Q4 is.
About $3 5 billion yeah.
Uh huh.
Our.
Speaker Change: Six months Cds from that Chinese promotion.
Charter to renew in July or sell them.
The good news is we haven't seen.
Speaker Change: Any net run off.
So far.
And.
I think in general that that rate was 5.2.
Speaker Change: We've we've.
Speaker Change: We've toured the rates.
At this time.
And I think we're targeting.
Around five so that would be 20 basis points.
Okay perfect.
I appreciate it and I would assume that any of the kind of repricing benefit there is factored into your margin guidance Alrighty, Yeah, Yes, yes of course, yes.
Okay.
I was looking through the presentation on the classified loans looks like they stepped up a decent amount this quarter.
I think from.
244 last quarter up to 324 million. This quarter I was hoping you could maybe just talk about the step up in classifieds, a little more this quarter kind of any common threads, you're seeing in terms of what's driving the increase or just any color on the classified increase.
Theyre, mostly downgrades from I E. The E M class and they're all the most of the all real estate secure so we don't think theres any significant risk there.
Oh, Okay got it and then Jamie just quickly any can you maybe refresh us on your your interests for M&A currently.
Just like to get to kind of a strategy update on that point.
Yeah, we certainly have talked to you guys. All about this and until there is a viable candidate out there where a company out there that makes sense for us that's within our niche space.
Don't have anything on the boys right now.
Speaker Change: Okay. Thanks for the questions.
Worse.
And once again, if you would like to ask a question. Please press Star then one.
Our next question will come from Gary Tenner with D. A Davidson. Please go ahead.
Thanks, Good afternoon.
I just wanted to ask about the updated loan growth guidance are you know annualized loans through the first half they were down 4%. So you know a pretty solid second half just to get back to even you know if not above it so given the change in tone in terms of the full year loan growth could you talk about.
Kind of how the pipeline's looking various loan segments and where you expect.
Kind of the driver of that improvement to come from.
Yeah, Gary most of it probably will come from some of the commercial real estate growth as you saw in the first in the second quarter results are our residential mortgage application is down 40% ish from prior year.
Speaker Change: C&I businesses also down as well given the higher rates and because of the higher rates. Our clients are using their liquidity to pay down any of the outstanding balance balances as soon as they can we're trying to increase our both our loan side and the deposit side and trying to pick up more C&I business, but for the most part youll, probably see any of the increases deposit side on.
Speaker Change: The CRE side.
I appreciate that and then historically on <unk> had kind of a you know some positive fourth quarter seasonality do you think that that is a positive factor this year as well or given your comments.
Speaker Change: How about customers wanting to pay down those lines do you think that that's a little bit more tempered this year.
By more tempered this year, Gary I think given where the rates are even if there is a potential re cutting September that I think the balances will still kind of stay on the lower end utilization I think has been relatively flat around the 50 150 percentile. So we're not expecting or looking for a fourth quarter.
Positive impact during that period.
Thank you.
Thanks.
Speaker Change: And our next question will come from Chris Mcgratty with K B W. Please go ahead.
Hey, How's it going this is andrew lifestyle on for Chris Mcgratty.
I know you mentioned, you're starting to see the NIM stabilize and begin to bottom out here, but how should we be thinking about the NII trajectory from here. Thank you.
Well.
Well, we're going to keep the.
Earning asset number.
Flat yeah.
Up slightly so.
Uh huh.
So that should.
Co ops.
Speaker Change: With.
With the <unk>.
Now expected September right.
Second one.
Sure.
Speaker Change: Okay. Thank you and then just one more if I can.
CRE reserve is at 79 basis points and your content your CRE concentrations, 288% of total.
Hello RBC.
What's your comparability, there and just any thoughts on you know greater reserve builds from here. Thank you.
Yeah.
Well I think.
Or are we.
When you look at low Ltvs with current boxes.
Speaker Change: Which are about 50%.
And the fact that.
Almost all of our CRE loans have.
For personal care so.
Speaker Change: So we are.
So we just.
Usually what happens with non accrual loans.
Speaker Change: Is that they stay in non accrual for two or three quarters.
Speaker Change: Pending.
California, or New York.
Our bar soap can't pay they become or you're all well.
And then well.
Normally you are able to sell Oreo.
Speaker Change: Close to our work well so we don't think there's a hit.
And cafes and screen.
Speaker Change: Uh huh.
Economy still solid.
We think mobile carrier.
But you know we.
We want them.
We would want to have.
Solid.
Speaker Change: Quarterly loan loss provisions will make sure that.
We remain.
Adequately reserved.
Okay, great. Thank you for the color I'll step back.
Thank you.
And thank you for your participation I'll turn I'll now turn the call back over to Cathay General Bancorp's management for any 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 and have a good day.
Okay.
[music].
Okay.
Speaker Change: Yes.