Q1 2025 Cathay General Bancorp Earnings Call
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Rocco: Good afternoon ladies and gentlemen, and welcome to the Cathay General Bancorp's first quarter of 2025 earnings conference call. My name is Renato, and I will be your coordinator for today.
Rocco: After assignment, participants are in listening 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.
Rocco: If assistance is needed at any time during the call, please press star followed by zero and the coordinator will be happy to assist you.
Rocco: Today's call is being recorded and will be available for replay at www. Cathay General Bancorp.com
Georgia Lo: I would now like to turn the call over to Georgia Lo. It was the releases of Cathay General Bancorp. Please go ahead.
Speaker Change: Thank you, Rocco, and good afternoon. Here to discuss the financial results today are Mr. Chang Liu, our President and Chief Executive Officer and Mr. Heng Chen, our Executive Vice President and Chief Financial Officer.
Speaker Change: Before we begin, we wish you mind you that the speaker on this call may make for looking statements with the meaning of the applicable provisions of the Private Security's 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 of different materially.
Speaker Change: and in other reports and filing with Securities Exchange Commission from time to time.
Speaker Change: As such, we caution you not to place undue reliance on such four-looking statements. Any four-looking statement speaks only as of the date of which it is made, except as inquired by law, we undertake no obligation to update or review any four-looking statements to reflect future circumstances, developments, or events, or the occurrence of an anticipated event.
Speaker Change: This afternoon, Cathay General Bancorp issued an earnings release outlining its first quarter 2025 results. To obtain a copy of our earnings release as well as our earnings presentation, please visit our website at www. CathayGeneralBancorp.com.
Speaker Change: After comments by management today, we will open this call-up for questions.
Speaker Change: I will now turn the call over to our president and chief executive officer, Mr. Chang Liu. Thank you, Georgia, and good afternoon. Before we discuss our 2025 first quarter earnings, I want to address the current terrorist between the U.S. and China.
Speaker Change: Based on our survey, customers have moved their sourcing away from China since 2018 to other countries, including some to Mexico.
Speaker Change: Our borrowers have told us that for the most part, they can move their sourcing to other countries or pause importing from China until the terrorists are more...
Reasonable.
Speaker Change: We estimate that about 1.4% of total loans could be adversely impacted by the proposed
Speaker Change: Terrell. We are closely monitoring the impact of the evolving Terrell situation on our powers and our long portfolio.
Speaker Change: This afternoon, we reported net income of $69.5 million for Q1 2025 by 13.3 percent decrease as compared to $80.2 million for Q4 2024.
Speaker Change: The Lula earnings per share decreased 12.5% to 98 cents for Q1 2025, as compared to $1.12 in Q4 2024.
Speaker Change: During Q1 2025, we repurchased 876,906 shares of our common stock at an average cost of $46.83 per share for $41.1 million.
Completing our May 2024-125 million stock repurchase.
Speaker Change: In Q1 2025, total gross loans decreased 23 million, or 0.5% annualized, primarily driven by decreases of 100 million in commercial loans, and 65 million in residential loans.
Speaker Change: All set by increases of 127 million in CRU loans and 13 million in construction loans.
Speaker Change: Given the uncertainties in the economy, we have widened our 2025 loan growth guidance to 1% to 4% from the previous guidance of 3% to 4%.
Speaker Change: By six shows the percentage of loans in each major loan portfolio that are either at a fixed rate or hybrid loans in their fixed rate period.
Speaker Change: Our loan portfolio consists of 62% fixed rate and hyperlone's excluding fixed-to-flow interest rate swaps of 4.1% of total loans.
Speaker Change: 6-rate loans comprise 30% of total loans, and high burning 6-rate period comprise 32% of total loans.
Speaker Change: We expect these fixed rate loans to support our loan yields as market rates are expected to decline.
We continue to monitor our commercial real estate loans.
Speaker Change: As of March 31, 2025, our retail property loan portfolio is shown on slide 9 comprises 25% of our total CLU loan portfolio or 13% of our total loan portfolio.
Speaker Change: 90% of the 2.5 billion in retail property loans are secured by retail store, building, mix use, or strip centers, and only 9% are secured by shopping centers.
Speaker Change: On slide 10, office property loans represent 15% of our total CRE loan portfolio or 8% of our total loan portfolio.
Speaker Change: Only 35% of the 1.5 billion office property loans are collateralized by pure office buildings, and only 3.4% are in CBCBDs.
Speaker Change: 38% of office property loans are collateralized by office retail stores, office mix shoes, and medical offices and the remainder 27% are collateralized by office condos.
Speaker Change: For Q1 2025, we reported net charge off of 2 million as compared to 16.3 million in Q4 2024.
Speaker Change: Arnonokruolones were 0.8% of total loans as of March 31, 2025, which decreased 14.5 million to 154.6 million as compared to Q4 2024.
Speaker Change: Primarily due to the transfer of it loaned to Loan's Health for Sale and paid out in Q1 2025.
Speaker Change: Turning to Slide 12. As of March 31st, 2025, classified loans remain at 380 million, the same as in Q4 2024. And our special mention loans increase slightly to 300 million from 293 million in Q4 2024.
Speaker Change: We recorded provision for credit loss of 15.5 million in Q1 2025 as compared to 14.5 million for Q4 2024. Most of the provisions were to cover possible losses from one commercial
Speaker Change: A reserve-to-long ratio increased from 0.83% for Q4 2024 to 0.91% for Q1 2025. However, excluding our residential mortgage portfolio, the total reserve-to-long ratio would be 1.17%.
Speaker Change: Total deposits increased by 131 million, or 2.7% annualized during Q1 2025, primarily due to a net increase of 67 million core deposits and an increase of 64 million in time deposits.
Speaker Change: Total court deposits increased $67 million due to seasonal factors and marketing activities.
Total time deposits, excluding brokerage deposits, increased $41 million during Q1 2025 due to promotional
in the first month of the year.
Speaker Change: As of March 31, 2025, total uninsured deposits were $8.5 billion, net of $0.8 billion in collateralized deposits.
or 42.7% of total deposits.
Speaker Change: We have an unused barring capacity from the Federal Home on Bank of $7 billion in the Federal Reserve Bank of $343 million in unplaced securities of $1.5 billion as of March 31, 2025.
Speaker Change: The sources of available liquidity more than cover 100% of uninsured and uncollarized deposits as of March 34, 2025.
Speaker Change: I will now turn the floor over to our Executive Vice President and Chief Financial Officer, Mr. Heng Chen, to discuss quarterly financial results in more detail.
Thank you, Chan, and good afternoon, everyone.
for Q1 2025.
Speaker Change: Net income decreased $10.7 million or 13.3% to $69.5 million compared to $8.2 million for Q4 2024.
Speaker Change: Primarily do an increase of 10.7 million in provision for income taxes.
Speaker Change: due to an increase in the effective tax rate resulting from no investment in solo tax credit funds in 2025.
Speaker Change: That interest margin increased to 3.25% for Q1 2025 from 3.07% for Q4 2024.
in Q1 2025, interest recovery and prepayment penalties.
at at six basis points to in that inter-smartion.
Yeah.
Speaker Change: as compared to adding four basis points in net interest margin for Q4 2024.
B. S. On the 4th, 1st quarter, net interest margin.
We have increased our 2025.
Urghh.
from the previous 3.10% to 3.2%.
Speaker Change: An interest income for Q1 decreased $4.3 million to $11.2 million, compared to $15.5 million in Q4 2024.
The decrease was primarily due to
Lone and Duveteer Fees, Ed Hatt [inaudible]
and Itris Swap.
Non-interest expense increased by 0.5 million or 0.6%.
to $85.7 million in Q1 2025.
when compared to $85.2 million in Q4 2024.
The increase was primarily due to—
2.2 million
Higher FDIC assessment with this quarter.
Speaker Change: Q4 2024, which was lower because of the reversal of an overrule of...
of Diary Assessment.
and 1.1 million in recent computer equipment expense.
I'll say bye.
1.7 million in lower solar tax credit fund amazation.
and 1.3 million in lower professionals.
The effective tax rate for Q1 2025 was 19.82%
is compared to 7.57% for Q4 2024.
Speaker Change: The increase in the effective tax rate was due to a decrease in solar tax credit fund investment.
because of limitations.
Untaxed Credits
as of March 31, 2025.
Speaker Change: from 13.55% as of December 31, 2024 in a total risk-based capital ratio.
increased to 15.19 percent.
from 15.09% as of December 31, 2024.
Speaker Change: Thank you, Heng. We will now proceed to the question and answer portion of the call.
Speaker Change: Thank you. Ladies and gentlemen, if you have a question at this time, please press the star on one key on your touch on telephone.
Speaker Change: We ask you to please leave yourself to one question and one follow-up question. You may then rejoin the cube.
Speaker Change: If your question has been answered or you wish to remove yourself from the queue, please
Speaker Change: To prevent any background noise, we ask you to please place yourself on mute once your question has been stated.
Speaker Change: Today's first question comes from Chris McGratty at KBW. Please go ahead.
Speaker Change: Hey, this is Andrew Leischner on for Chris McGratty. How's it going?
Thank you. Thank you. Thank you.
Speaker Change: So just looking at the margin, can you provide what the sensitivity would be to the margin guide and maybe NII levels if we were to get more than the one interest rate cut in July ?
Speaker Change: We're on a full year basis in the four basis points.
So if it happens in July , it's only two.
Okay, great. Thank you.
Yeah, go ahead. Go ahead.
Oh no, sorry, I was going to...
Speaker Change: All right. Can you just provide the spot deposit costs at the end of the quarter and also if you have the average margin for the month of March.
Yeah, the average m- [inaudible]
It had the bulk of the interest recoveries.
for the first quarter.
Thank you. Bye.
Thank you.
The Net, Sir.
Margin was screenpoint 2-1
Do you like the rates?
on deposits, the SPARF rates.
Yes, yes, please.
Okay.
So, uh...
The Spot Rate
for total interest-sparing deposits.
Okay, great. Thank you.
Gary Tenor: Thank you, and our next question today comes from Gary Tenner at D.A. Davidson. Please go ahead.
Oh, thanks. Good afternoon.
Gary Tenor: Sure, Gary. I think for us, Pipeline and the commercial role that they side is still relatively strong compared to the last.
Gary Tenor: two years at the same time from a relative perspective. And then I think the guidance...
Gary Tenor: is really just to give in the current uncertainty in what we're seeing on the chair side, particularly on the CNI clients.
that were, you know, concerned about sort of the growth.
Gary Tenor: Prospect in that particular side of the business and even the residential mortgage while we've seen some slight uptick recently
Gary Tenor: I think there was a recent article in Wall Street about how it's now not the sellers market and a little bit shifting a little bit so we're seeing a little bit of pick up there so that's the reason for the sort of revision to the guidance.
So just as a follow-up to that, are you-
Gary Tenor: Seeing projects being delayed or seeing all customers talking about just not investing or undertaking any...
Gary Tenor: You know, investment in their companies. What, what, what are you hearing? I guess more specifically on the CNI, sir.
Gary Tenor: Yeah, that's probably the bulk of it is, you know, with there were some growth plans or expansion plans or anything like that I think there's some pause to that I think more they're more focused on managing their balance and P&L both sort of the top line side because the demand is going to slow down and as well as sort of the cost side right so their inventory side prices is unpredictable somewhat in the near future so they're trying to manage they're trying to manage their balance and P&L both sort of they're trying to manage their balance and P&L
Gary Tenor: the P&L side and the balance sheet rather than thinking about growth.
We also...
Read somebody, why did that guess?
if there's a-
SDS
if a terrorist situation doesn't improve.
We expect some loan paydowns as some importers.
Yes.
Gary Tenor: A very few of the importers import primarily from China, and they were just...
As their imports for whatever, nine months or whenever...
Hotel conditions. It proves so. Let's...
That's another factor in why we look at.
Gary Tenor: and I'll add one more, some of our CNI customers have already told us that they've built us some excess inventory anywhere between three to nine months.
Gary Tenor: So the line usage on what they need is going to be flat.
Greg Collar, thank you.
Speaker Change: Thank you, and our next question comes from Andrew Terrell with Stevens. Please go ahead.
Hey, good afternoon.
Speaker Change: and the impact of rate cuts specifically on the forward guide. I appreciate the four basis points annualized for every cut. Just to clarify, if we go down 25 on rates, is that four basis points positive to the number of four-year basis or negative?
Speaker Change: So you can see [inaudible]
Speaker Change: Our loans only decreased by two basis points that our deposits went down by 29.
Speaker Change: So this this year I think we're going to be held by the fact that
Speaker Change: About 60% of our loans are fixed or hybrids and the things curious, so they're not going to go down that much.
Not a percent. Yep, I get it. Just wanted to clarify that.
shifting over to the
Speaker Change: Just ACL, I think you called out that the provisionist quarter, the allowance bill was one specific to see an eye credit, I'm curious if...
Speaker Change: You know, that one specific commercial credit was at a bar where that, you know, fell in that 1.4% of loans that you guys highlighted as could be impacted by tariffs and then just more broadly, you know, as you did the work to get a ring fence.
Speaker Change: the borrowers and exposure where you know could be more impacted by tariffs. Have you taken any incremental provisions or built allowances on those specific relationships?
Yeah, that, that, uh...
Speaker Change: that reserve, which was the majority of the Q1 reserve, was for a domestic company. So they're not traceness related at all.
we did
Speaker Change: The rest of the build up in the resume was tear-free-laden [inaudible]
We're hopeful that.
That covers...
most of the exposure.
as I mentioned before, I think.
are importers.
Speaker Change: Yeah, do you have what the allowances on that aggregate 1.4% of loans?
It's probably uh...
Got it? Okay.
Speaker Change: if I could ask just one more on the buyback looks like you I mean it's good to see you guys completed the authorization in the quarter looks like the price bought back was around I think it was $46.47
Speaker Change: You know, what would expectations be that we get another buyback at some point in the future and just remind us kind of your interest in re-purchasing going forward?
Yeah.
We were waiting for regular shy approval.
Once we get it, what will announce our new by-back program?
Very good. Thank you for taking the questions.
Yeah, thank you.
Speaker Change: And as a reminder, ladies and gentlemen, if you'd like to ask a question, please press star than one. Our next question today comes from Adam Butler, I'd like to say a word. Please go ahead.
Good afternoon, everybody. This is Adam on from Matthew Clark.
Speaker Change: Just my first question is on non-interested expense. I know that your guys have outlooked.
as is consistent quarter of a quarter for-
4.5 to 5.5% growth year-over-year [inaudible]
Speaker Change: But I just noticed that there were some puts and takes within some of the expense lines so I was just curious that you could walk through some of the major expense lines and just kind of talk about how you expect.
them to grow or decline throughout the year. Thanks.
Yeah, let me, yeah.
Yeah, I'll be just on some of the major categories.
on the salary, some benefits. We picked up a...
from Access Bonus Approllals in 2024.
Speaker Change: We think our consulting expense should be lower in a second half of the year.
I think that's-
That's pretty much it.
Okay, that's the end of the statement.
Speaker Change: Okay, that's helpful. And then just one other one for me, most of my questions have been passed and answered, but just on the deposit growth during the quarter was
Speaker Change: Robust, and I was just curious to what degree is there seasonality involved in the deposit that flows this quarter and...
Speaker Change: What kind of trends are you seeing from the growth standpoint?
Speaker Change: Luna Near Promotion is in January February , so we picked up them.
Speaker Change: Probably a lot of about 200 million, and then we will have some.
Brooker CDs run off of Gibbon R.I.
increase in relationship deposits.
Speaker Change: Okay, and if I could just follow up on the Lunar New Year deposit specials, what was the rate offered this year, and how did it compare to last year's special?
Yeah, it was for the six months.
Speaker Change: It was about four ten versus the fourth, four fifty or so for the July renewals and then the one year we actually did thirteen months this year.
Speaker Change: Chang, that was also about 4.10 as well. And that's Kaby Arthur.
I think 540 or something, 530.
Okay, that was very helpful.
Speaker Change: And I, but that's all the questions that I had. I appreciate it and congrats on the quarter.
Thank you. Thank you.
Speaker Change: Thank you for your participation. I will now turn the call back over to Cathay General Bancorp's management for closing remarks.
Speaker Change: I want to thank everyone for joining us on our call and we look forward speaking to you next quarterly earnings release call.
Speaker Change: Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.