Q2 2019 Earnings Call
Last name.
Aaron him.
Your last name.
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Era A.I.E.R.A.
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Good afternoon, ladies and gentlemen, and welcome to Cathay General Bancorp second quarter 2019 earnings Conference call. My name is Sherry and I'll 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.
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Today's call is being recorded and will be available for replay at www Dot Cathay General Bancorp dotcom.
Now I would like to turn the call over to Georgia Lo Investor Relations of Cathay General Bancorp.
Thank you Terry and good afternoon here to discuss the financial results today are Mr. pin Tai Chief Executive Officer, and President and Mr. Heng, Chen 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 30, Onest 2018, and Adam one 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, which speak only as of the date of this presentation. We undertake no obligation to update any forward looking statements or to publicly announce any revision of any forward looking statements to reflect future developments or events, except as required by law.
This afternoon, Cathay General Bancorp issued an earnings release outlining its second quarter 2019 results to obtain a copy please visit us at 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 Chief Executive Officer, Mr. pin Tai.
Thank you Julia and good afternoon.
Welcome to our 2009, two second quarter earnings Conference call.
Good afternoon, we reported net income of 72.2 million.
For the second quarter trendy Nike.
Who puts a decrease when compared to a net income of 73.7 million was second quarter.
2018.
You are earning per share was 97 for both the second quartile who doesn't.
And 2018.
In the second quarter of 2019 of gross loans.
By $116.1 million.
14.6 billion.
Or increase of 9% on an annualized basis.
The increase.
In loans for the second quarter of trendy Nike.
Hi, Mary is implied growth in residential mortgage loans.
Hi, Vincent.
$4 million or 17.7% annualized.
Commercial real estate loans of 56.7 million.
3.4% annualized and commercial loans of 36.8 million or 5.4% annualized.
We anticipate loan growth in 2019 of between seven.
Person.
For the second quarter of 2019.
Total deposits increased 276.6 million.
On Wednesday, and then you like.
14.4 million.
The increase in deposit for the second quarter of 2019 was primary driven by the growth in copy policy, so $204.6 million or 12.2% annualized and money market deposits of 69.6 million.
13.7% annualized.
We continue our stock buyback program and purchased.
641894 shares of our stock and as these costs will be to fall.
84 cents.
Hi, Sheila.
In the third quarter in the second quarter of 2019.
We made poses additional shares in the second quarter second half of 2019, depending upon stock price.
General business and market conditions and other pertinent ventas.
With respect to the ongoing trade dispute between us and China, we continue to monitor and evaluate the potential impact loan portfolio.
All of US that we believe could be adversely impacted by the current tennis would hold approximately 82% of our total.
With that I will turn the floor over to 60, Vice President and Chief Financial Officer Heng Chen to discuss the second quarter 2019 financials in more detail.
Thank you Perry and good afternoon, everyone.
For the second quarter, we announced net income of $72.2 million.
Or 90 cents.
Alluded for sure.
Our net interest margin was 3.58% in the second quarter 2019.
As compared to.
3.3% in the second quarter, 2018, and 3.7% for the first quarter of 2019.
In the second quarter of 2018 interest recoveries and prepayment penalty.
As a three basis points.
Because the net interest margin.
Compared to four basis points for the second quarter of 2018.
And two basis points for the first quarter Accordingly.
We expect our net interest margin for the remainder of 2019.
To be between 3.53.
And 3.60%.
Based on the assumption of a 25 basis point cost in the fed.
On this rate at the end of July .
Net interest income during the second quarter of 2019.
Increased by $5 million to $12.8 million.
When compared to second quarter of 2013.
This increase was primarily due to higher gains from equity securities of 4.4 million.
Non interest expense increased by 6.4 million.
10.1% to $69.5 million in the second quarter 2019.
When compared to 63.1 million for the same quarter.
A year ago.
For the second quarter of 2019, the increase in non interest expense was primarily due to a $4 million increase.
Amortization expense of investments in loan come housing and alternative energy partnerships.
$2.6 million increase in salaries and employee benefits expense.
And then the 2.2 million increase in the provision for unfunded commitments.
Partially offset by a $2.4 million decrease.
Marketing expense.
The effective tax rate for the second quarter of 2019 was 16.6%.
We completed an investment in the solar tax credit fund during the second quarter.
Which will we project will reduce our full year 2019, the appropriate trust rates.
To approximately 19% to 19.5%.
A second quarter effective tax rate reflects a year to date adjustment.
Revenue.
Full year effective tax rate.
Solar tax credit amortization was $3.5 million in the second quarter of 2019.
We project solar tax credit amortization.
Of approximately 18 million and 20 $19.5 million.
A quarter for the.
Remainder of 2019.
At June 30 of 2019, our tier one leverage capital ratio decreased to 10.73%.
As compared to 10.3% of December 31, 2018.
Our tier one risk based capital ratio decreased 12.26%.
From 12.43% at December 31, 2018.
Kim of total risk based capital ratio decreased to 13.92%.
14.15% at December 31.8.
Net recoveries for the second quarter of 2019 or point $1 million compared to a net recoveries point $2 million.
In the first quarter of 2019, and net charge offs point $2 million in the second quarter of 2018.
There was no loan loss provision in the second quarter of 2019.
First quarter 2019, and second quarter of 2018.
Our non accrual loans decreased by $2 million.
To $54.7 million or <unk>, 0.38% of period end loans.
As compared to.
To the end of the first quarter of 2019.
Thank you Hank.
We will now proceed to the question and answer portion of the call.
Ladies and gentlemen, if you have a question at this time. Please press. The Star then one key on your Touchtone telephone we ask that 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 the pound key.
To prevent any background noise, we ask that you. Please place yourself on mute. Once your question has been stated our first question comes from Lana Chan with BMO capital markets.
Good afternoon.
Hi.
I want to start with loan growth first of all.
Had really you guys had continued very strong growth on the resin mortgage side.
We're hearing and reading stories about a slowdown.
On housing, especially on the West Coast is foreign buyers from China are you seeing any of that.
Sex yet in terms of your demand.
Okay. I think you are going to demand component that we have right now is still pretty strong.
This a slowdown in Biovance, however, I think that local buyer picking up.
Thats flowed out has been here for about a year and a half so the.
But non resident alien purchases are around 20% of our originations.
Since the beginning of 2018.
Okay.
So right now the pipeline is still strong for your resi mortgage.
Yes.
Okay.
And Hank can I, just clarify what that guidance range you gave for the margin did you say 353 to 360.
Yes, yes, okay.
What do you have embedded in terms of deposit costs in that margin guidance.
You had an increase in deposit cost this quarter, a little bit more than I'd expected.
Yeah, but you do have some Cds that are repricing downward.
Can you talk about what your expectations are.
Yes. So in Q3, we have about 24% of our Cds maturing.
So it's by 1 billion eight.
And.
The.
In August and September going into the first week in October .
Is our traditional summer CV program so.
The rate last year was 2.25%.
We think.
The rate pressure would be.
Let's say about 1.9.
And we may have more tools than we have in the past for some of the smaller CD itself. So there's 35 basis points.
For for those freebies.
That's better maturing in Q3.
Okay.
And.
So the pressure on the margin from the second quarter going forward.
More on the.
Loan yields side I assume in terms of some of your.
Double rate loans could you remind us how that reprices with certificates.
Yes.
You know I think.
Probably the biggest factor in that is the.
Our Chinese new year promotion.
Having the full quarter impact.
So two quarters from now in Q1 next year, we have.
Two and a half billion of our Cds repricing or 34% of our CD book.
And those rates on average about.
Maybe 225, so I think by that time, we could probably reprice slows too.
About 180, if not lower than in terms of.
Floating rates and so forth so.
Commercial and construction loans or 23% of our loan portfolio and.
Almost all ferrovial rate.
And then.
Another.
33% of our loan portfolio is variable rate CRD loans.
So.
So I guess.
There is not that much is less variable anatomies.
Another way I like to look at it as from I'll call report.
We we give.
The weak pricing within the next three months.
So 3 billion.
Or 21% of our total loans when we price.
Okay.
That's very helpful. Thanks.
Yeah sure. Thank you.
Thank you and our next question comes from Chris Mcgratty with KBW.
Okay, great. Thanks for the question.
Hey, guys sort of come back to the margin for SEC.
The 353 to 360.
Well the two occurred to to get to the high end of that range for the back half of the year.
Oh.
I think if we have some.
Loan payoffs or loan loan recoveries that have some past non accrual interest.
So.
That's possible.
And.
I think thats.
We always like to give a range around where we are and so answer.
So the upside is only two basis points from Q2, yes.
Okay.
But that that would that would seemingly imply if waiting if we do here.
One or multiple cuts by the fed to get to the high end you would need to see kind of unusual.
Episodic.
Recovery versus sustainability, that's right that's right.
Can we.
Shifting to capital for a moment.
I think last quarter, you said you were going to be in the market for two to 300000 shares you do a little bit more because of them because of the market forward into two.
Can you remind us what's what's authorize and how you should how we should be thinking about the pace of buyback given give more banks Dr price.
Yes.
Well the authorization is $50 million and so we're about.
I think 20 million and low less than 20 million into that.
And so.
We think we'll probably buyback the same amount.
Maybe a little bit less than Q3.
And originally.
We tell our buyback would go with finishing Q1 of next year.
I think at these price levels and for our capital is.
We might finish from Q4, and then start a new one and going into next year.
Okay.
Great and maybe if I could slip one on on the expenses.
The bump up in and personnel costs. It could you just walk us through how you're thinking about the run rate of expenses.
I heard the solar credit wonder what the.
The other point would be on the amortization the back half of the year in just kind of core expenses. Thanks, Yes, yes salveen.
Amortization.
Would be 5 million in Q3 and $5 million in Q4.
And then in the second quarter.
We accrued bonus expense sort of base.
How strong the net income is so so we we probably have a million of extra bonus accrual in Q2.
Base because of the catch up in the.
And the tax rate. So I think the bonus expense for the second half of year would be.
$1 million quarter less than what we had in Q2.
Great. Thank you.
Okay. Thank you.
Thank you. Our next question comes from Aaron Deer, with Sandler O'neill.
Hi, good morning, or good afternoon, everyone.
Hank following up on your.
Commentary regarding the.
Pricing within the loan book you mentioned.
Most of them.
Okay.
And the.
The.
For that.
For that.
It sounds like the you sound pretty positive on the residential mortgage continues to be good how are the other pipelines and the other partial in Syria and other books shaping up.
The pipeline looks pretty good.
Hi, Andy.
And.
Thank you. Your next question comes from Matthew Clark with Piper Jaffray.
Hi, Matt.
Just on the amortization expense Im not sure if I caught it the low income housing expense that you expect here in.
Third and fourth.
The it might be it might be.
We do.
Impairment analysis in the fourth quarter and.
We will not reverse some in prior impairment expense, but for now.
That's fine.
Well defined nine I'm sorry.
Yes, and I knew that was a solar I just wasn't sure following too.
I think last quarter you gave us.
We're probably in the range, but it just wondered if you wanted to update that guidance I think it was previously to 70 to 75.
Yes, we are.
Well go ahead.
Confirm that guidance CLL, we closed three branches.
In the last couple of months.
Telephone contract from far East finally expire and.
For now we're going to hold to that.
Great and then.
On credit.
We had.
Loan that.
In the process being paid off it actually paid off.
And then.
We.
For the half million dollar.
CRT non accrual has been on the books for many years, it's it's scheduled or is supposed to.
But I think generally the trend is in the non accruals is theres some churn budgets.
In criticized classified.
That might be tied to the trade war.
There is something Thats why in his comments that we didnt make that.
The statement that we don't see any non accruals or charge offs fell.
Some in.
Very small borrower they import.
Athletic shoes and that yes, the tariffs.
Had impact on another bar low.
The weakening Chinese currency so.
Thank you again, ladies and gentlemen, if you have a question at this time. Please press. The Star then one can you and your Touchtone telephone. Our next question comes from David Chiaverini with Wedbush Securities.
Follow up on that.
Last question on credit quality, so when I look at the accruing loans past due 90 days or more of about 14, and a half million versus.
March 31st is that what you were just referring to with some of the pressure from the trade wars that what's causing that that uptick.
Well, we know that one is actually a CRD loan that was.
There were some.
Loan closing issues and.
Got it so that should reverse come during the quarter yes.
Thank you.
I'll now turn the call back over to Cathay General Bancorp's management for closing remarks.
Thank you for joining us for this call and we look forward to speaking with you at our next quarterly.
Hey.