CATY - Earnings call transcript Q3 2020

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Operator

Ladies and gentlemen, thank you for standing by. And welcome to the Cathay General Bancorp's Third Quarter 2020 Earnings Conference Call. My name is Val, I'll be a 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. is www.cathaygeneralbancorp.com. and call for be Today's at replay Instructions] being will recorded available [Operator

like turn I'd Relations Now, to of Cheung, to Cathay Investor Megan General Bancorp. the call over

Megan Cheung

and afternoon. Valerie, you, Thank good

financial results Chief Vice and and President Here to Chief Officer, discuss today Mr. Officer. our Executive our Chang Chen, Heng Financial are Mr. and President Liu, Executive the

materially. XX, in applicable other could XA Private statements Before uncertainties XX-K this call on on Litigation Securities that the uncertainties risks within meaning and of Form future and we described the speakers XXXX XXXX begin, in Commission the the particular, risks filings statements Annual we and time. results wish to and cause subject provisions and of to Act Reform time and are ended and year at the Exchange make Report actual to from for differ certain Item Securities that remind December These the with in forward-looking results reports of are you concerning further the that may company's to these events,

well this Chang our we by www.cathaygeneralbancorp.com. Mr. third occurrence earnings questions. our today, quarter over turn As as statements. will future comments To well forward-looking our is undertake Chief the will speaks developments not XXXX now undue release, as obtain to for such, unanticipated our reflect results. circumstances, update call forward-looking Bancorp a management to open an which quarter as issued of only This of on the the no required events. except earnings earnings or or Any by of visit After release to afternoon, up date I law, made, to Cathay statements obligation website its such on and we and it President caution Officer, events, copy any statements as reliance call General you forward-looking Executive place we or presentation, please Liu. at third outlining review as

Chang Liu

everyone. afternoon, to quarter conference Thank earnings call. Welcome third XXXX our you, good Megan, and

quarter operating when afternoon, $X.XX third focus continuing a or While year X.X% from quarter This new decrease loans a per the communities borrowers a resulting the loans our result team ago. COVID-XX decrease XXXX, third of high in third decreased of to pay $X.XX compared the the estate downs quarter $XX.X a reported by pandemic. gross clients, of by for for XXXX income construction $XX.X to cash billion. to was loans million Diluted of $XX.X drawdowns. income loans to million we of during to as net of members the acknowledge our is loans, by X% or flows. commercial decreased primarily for construction of our we a compared $XXX XXXX, of earnings today and million third and commitment loans Commercial support in third million our commercial $XX.X X.X% origination on driven The the result million per the $XX.X strong results, or $XX.X In increased as a of our million from XXXX, quarter quarter third quarter of XX% same for due decrease increased XX% XXXX. by their of share net real unusually to per the share share for quarter and

by impact in conducted third the the reviews particularly During we pandemic. impacted the quarter, industries credit of our economic of again borrowers

reporting of of have returned levels September payment are our to higher quarter. because many that many borrowers borrowers flows during reporting encouraged status are Also payment XX.X% of commercial XXXX. mortgages cash schedule improved are real as the and our on XX, were of estate We occupancy in single-family full third our deferral hotel

We reviewed support held used of outside is the loans these liquidity loan-to-value these of guarantors the encouraged these are loans. for that be low expect by to could and also loans, the by which we

XX, $XX.X -- of were commercial as with XX, an September modifications X.X% C&I XXXX, of or of terms. COVID-XX provide XX our as aggregate repayment balance relief to million follows. still are loans approximately XXXX, on loan As portfolio, loan September our of payment modified on

Slide Turning earnings to of presentation. X our

CRE X.X% XX, of are As loan-to-value on to with relief an provide On loan XX, portfolio. loan for of portfolio, was origination of or at under million, $XXX aggregate CRE of XX only loans October million, these or of loan further still our decrease X% loan CRE repayment The balance XXXX, still XXXX, September modifications to balance the $XXX average ratio CRE loans on our XX%. terms. loans approximately have approximately modifications

some Cathay's by portfolios impacted downturn. more the provide will specifics We and the retail about loan segments hotel two of

of As of hotel including SBA September million XX, that XXXX, had million, totaled $XX.X Cathay loans loans. $XXX.X XX

mods and California XX, loan September at full Texas. service, XX% the of in of portfolio. and are total XX were two loans, in five or limited with remaining loans are million three the service XXXX, hotel the As Among hotel $XXX XX Southern

XXXX. as our Slide by are that and We regional loan properties. loan secured Among is portfolio community retail September malls, of neighborhood, majority, of approximately paying centers, retail total lifestyle or X% note our is $XXX portfolio commercial as XX, factory outlet only the loans interest-only. or XX% X. neighborhood, our secured still we million billion CRE strip to reviewed the loan loans under loan by portfolio, XX, XX% modifications -- of XXXX, or comprises of reviewed power, loans community September XX% the which in Turning The XX% and $X.XX real of of XX% in total of estate retail

Turning to Slide X.

balance X.X% $XXX.X of status. As with loan of on XX, remain requests our approximately payment portfolio deferment payment September XXXX, XXX an million residential or aggregate mortgage of deferral

mortgage million October or approximately of modifications $XXX residential X.X% mortgage to balance loan loans under decreased XXXX, residential XX, As of the our portfolio. our of still had loan

million reported $X.X charge-offs $X.X of we net of in of quarter XXXX. For compared charge-offs second net million the of quarter to the third XXXX,

impact of Our the increase acquisition or placement $XX.X the the the XXXX. quarter $XX quarter quarter provision of compared of a million loans by in under or quarter third East loss model incurred recognized $XX.X compared our acquired of non-accrual the loss end is of qualitative provision non-accrual result quarter The the million, period-end second The the second COVID-XX pandemic. due XXXX. million as the X.X% only-two million of the adjustments loan $XX.X National loss the XXXX. of XXXX, We $XX.X third of Far of in the during loans of status included movie to loan through going XXXX loans to third increased million theater of -- Bank to in to

defer million in baseline million case to $XX the for of the as The losses recognizing baseline approximately improvement the to elected is less provision of preliminary than CECL loss the ACL of Moody's incurred forecast. $XX.X permitted forecast economic We the credit will recently enacted the on implementation CECL result primarily for loan for third million have Moody's credit in June's the a allowance Based to standard lower under factors, calculations, CARES shown be the XXXX losses quarter September Act. compared $XX forecasted provisions. the

Borrowers the by the evaluate could the our total current the impacted monitor US X.X% loan also China portfolio. we approximately from tariffs continue be tariffs that to of loans. potential dispute to and partially-resolved adversely constitute of impact We believe and between our the continuing trade

address growth more our Financial brokered excess deposits that, the large or $XXX over in core average Turning to million depositors. the by or $XXX market the corporate Average liquidity quarter. XX. million increased of $XXX by Vice Executive turn deposit to discuss to and during million Total quarter the Slide during quarter deposits Officer, reducing wholesale by time to XXXX Chen, X.X% deposits as in of the of results President brought the or result part decreased floor I'll to XXXX. X.X% deposits XX.X% detail. due plan We Heng money to increased further a third runoff fourth Chief efforts Average the marketing financial deposits. third With by by in

Heng Chen

Thank and afternoon, everyone. you, good Chang,

For to million prepayment was quarter were $X.X There income earlier. XXXX, the compared X.XX% respectively. quarter compared of second $XX the million, XXXX, XXXX, $XX.X second of of points was of third due in to loan and margin COVID third interest and net mature loss will provision attributable quarter XXXX. compared of to and floor [ph] which XXXX. recoveries points quarter and added X by at interest of interest average the In XX% margin the decreased X quarter $XX.X X.XX%, of as third to XX, XXXX, million fourth $X.X to first primarily the or with the quarters of and billion loans Net CDs quarter billion, of for of the billion net basis basis the $X.X mentioned of second billion penalties X.XX% of quarter September $X.X X.XX% in to during as rates XXXX, X.XX% third Approximately rate the XXXX. XXXX, the our

the $XX renewing basis XXXX the XX during Non-interest to compared million are million $X.X decreased targeting to We in when retail XX income range. third to CDs of point by quarter ago. XX.X% $XX.X a quarter same third XXXX, $XX expense third million increased Non-interest to the quarter of million in $XX year million or to when XXXX. by compared in of quarter

million alternative low X% partnerships, energy of expense of the or of increased when third and Excluding $X.X through XXXX. XXXX the the compared amortization non-interest income quarter by housing quarter third to only

compared of a increase which quarter energy quarter in approximately a increase in alternative project reserve We effective the full-year to The third in investment the benefits, amortization and completed $X.X the second million in $X housing tax non-interest and due tax for in rate was investments million our unfunded we a $X.X XXXX, of primarily was will of commitments. for solar lower XXXX. the to the in low-income X%. million increase quarter, XXXX for tax our the rate increase to in and For X.X%, effective XX.X% salaries third partnerships, of credit quarter third fund expense

to credit the in quarter is of the quarter million XXXX. was $XX.X amortization fourth in $XX Solar million XXXX third and tax of expected be

XX, our September to X of to leverage XX.XX% As decreased of compared as Tier ratio XXXX, as XX, December capital XXXX. XX.XX%

XX, XX.XX% to XXXX. risk-based XXXX. December XX, as risk-based our X XX.XX% capital XX.XX% increased Tier as of December capital from XX.XX% to And Our ratio of ratio increased from total

the to buyback during We program our expect resume of XXXX. fourth quarter stock

Chang Liu

Thank you, Heng.

proceed portion call. will to questions-and-answer the of the now We

Operator

Young Truist Securities. Instructions] from first Our comes [Operator of question Michael

line Your open. is

Michael Young

us, remaining the would on Thanks think program, deploy? may a kind I and about question. standing lot on for given much commentary buyback taking appreciate you capital Could the how size that and that reinstatement. not your of and guys future programs there's the kind you for help the frame or share expectations how your be of to

Heng Chen

back the quarter, buying we stabilized, XXXX pace fact the that we complete the that would that for hopefully we million million to to call. is capital we at going remaining to maintain seems -- will go plan our and the in look our to $XX.X start now, that quality in QX. right a and XXXX, every could $XX.X we're based our -- January that quarter, fourth authorization We in higher hope credit new strong But announce we our it ratio. don't hope here then complete capital Michael, we excess so have that our generation in to on Yes than the hopefully, Board and at a in

Michael Young

any the you and Okay, guess be outlook equation or I that the that it factors on may other would organic on outlook of Can be growth. growth be expectation, contributing maybe makes pipelines, whether residential etc., would Any helpful. side commercial? And provide organic be sense.

Chang Liu

we economic no more our to of update the existing to fairly in and longer But some hopeful growth the current light XXXX guidance. with future able do loan Michael, CRE relationships. we're And current our we're have growth uncertainties more in love loan our see existing well some C&I with COVID-XX we that to portfolio. caused pandemic, Well, will growth and in customer continue recoveries by

Michael Young

be kind from but maybe you I -- the demand it's there. you point customers? kind in view are area? have of just a if any seeing not color like else Are XXXX, Okay. would any of Anything construction return of pipeline maybe you I overall, time, a seeing know building that helpful, for in guess,

Chang Liu

Yes.

previously-approved construction As in commitments. the is slight side the actual portfolio, of commitment. from saw increase far of the the a in actually a as the we The balance result decrease outstanding construction drawdowns

So that's that of in where numbers. we saw increase some those

Heng Chen

been Michael, a to... you adding we lenders. new Chang, of number have want team do

Chang Liu

team hire Valley an We got and and together decent put external -- and Yes. the -- they've a commercial team through a added team pipeline. team pretty banking small in San -- we're a Fernando area looking

that both some well for get XXXX. to looking closings pipeline into fourth by to and we're quarter So

Michael Young

Thanks. back. I'll Okay. step

Heng Chen

Thank you.

Operator

Our McGratty Chris next question of comes from KBW.

line open. Your is

Chris McGratty

the talk the Great, referenced can expense relative in in to question. about amortization for about the adjusted deck? now quarter, thanks growth the you we're -- you're how that excluding environment the Heng, we thinking the could in in you number that right

Heng Chen

Yes.

The third are. paydowns part or accruals, it? was I Could growth little because I a that's we loan because deferred lower had cost -- little because We also question, a -- quarter rephrase the had higher some weaker. you the bit we where had answered bonus of capitalize. higher was bit we loan But loan think

Chris McGratty

base to right see get your rate over core specifically? either either at the much sense If of of non-interest next the average past expense this year. into quarters, what trying and I'm QX several is of will quarter I'm looking How the off XX the growth two we just a into quarters, last the Slide on or trend of

Heng Chen

Yes.

We million -- commitments. $X leverage loss But have restate is goal. provision goal what under-receive Chang's or tough it's going the it's provision that, With that that is in we [ph] know, line. expense for be loan When to all we our environment. a loan

So management of if staff layers span funds, -- we're having such of the control, think, leave, people replacing -- when [indiscernible]. fewer things I staff to they doing that certain trying many increasing as

have but to working So a as we're on position good guidance hard not expenses. a to in of history give we XXXX,

Chris McGratty

I margin, one, I maturity I Number but missed the the schedule? the you question. CDs the... maybe the majority could two-part rates, on of the in guess repeat And occur got that

Heng Chen

billion quarter, $X.X the will mature it's CDs $X.X quarter, Yes. $X.X and Yes, mature quarter. -- second billion will in mature the fourth in will the in billion of first

Chris McGratty

industry downward the just from think How on margins the like additional it next X.XX% or to margin, from here, obviously the as liabilities. it so? great the Loan level. relates And for the do you've not we seems repricing Okay. outlook got growth, at over level about quarter

Heng Chen

cash had to we that added We quarter, a optimistic. -- the fourth Well, -- X One, Fed, I'm we it. the excess slower just it Yes. in have had in added the basis deposit.

Fed the was billion $X.X Our that's average at about excess.

the is cash we Most of so, And brokered CDs to going And them that the $XXX maturing. at October. just have are that of reduce million in excess Fed.

have you which that's Federal borrowings, in that will expense, [indiscernible] year. also a assets. couple you earning strength the mature So next reducing not then million, the hundred only benefit have And the of in June CD we will of Bank some Home of Loan

So, a is we cost low. and banks, prepay portion may, the that like of many relatively

Chang Liu

are floating the or Chris, billion that XX% speak the floor We've our I And of rate loans got equation. loans asset could side of approximately $X.X of our if at total rates. their to

most fixed fixed and are fixed. rate, our also of XX% Our in residential period, mortgages, are generally still ARMs loans that are about their is loan which they or of rate portfolio, our hybrid CRE

the or So loans rates. of our are loans rate the floor at fixed either majority

Chris McGratty

Okay.

you're So here, sending to message hearing likely if from going margin -- margin is right? is, you the I'm expand

Chang Liu

We hope so.

Chris McGratty

the Thanks for Okay, got all it. color.

Operator

Thank you.

from comes Gary question next Tenner DA of Our Davidson.

is line open. Your

Gary Tenner

included A and Thanks, first, -- in that's that questions. the you that million over in billion? of above is good is afternoon. $X.X or guess, couple billion, brokered just $XXX that $X.X mentioned, the CDs included I in that the

Heng Chen

Yes, yes.

Gary Tenner

a think process is Okay, around the thanks. that stabilization [ph] credit you loans It mentioned was kind And thought NK classified part Heng, sequentially buyback. reinstating side. the And on I little then, of bit, higher. of up the

seeing you numbers the gives that what increased are, of what kind the curious behind comfort? you're markers Just

Heng Chen

of the XX% last reviewed retail couple our we've I We quarters. all we and mentioned of kind and loans, of personal hotel loans that guarantees. the our and -- of -- [indiscernible] for think we

Chang Liu

Yes.

beyond in deeper we and rates and addition kind and looked the of rent just try support dives came -- our the pretty feedback. So both can and the we long kind at, roll the retail go really service, are, to the rent the principal to continue last two to and some these of did looked positive burn collectability portfolios quarters at we of the their how financials -- looked and on away of at really measure debt and of what hotel and guarantors, also in with and liquidities properties

And that's so, some to for in of color terms been do you scenes. what behind able the we've

Gary Tenner

it actual this but Okay. fees And in your what just to terms get in some NII release, didn't we're I on background see PPP the of were net that created quarter? into PPP, press numbers

Heng Chen

million. $X.X about It's

to amortizing the want We talk you a [indiscernible]. two-year submission...? about fees Chang, are on

Chang Liu

submissions, forgiveness probably about we'd for loans into out PPP we have by the And books, about process. application the the be week, started forgiveness of the PPP terms on the XX% we X,XXX of our In process. that of will middle

Gary Tenner

thank you. Great,

Operator

you. Thank

Our next question Clark Matthew Sandler. from comes Piper with

line is Your open.

Matthew Clark

Good afternoon.

It sustainable? Just item. on uptick like to whether XQ. just by, was you line looks XQ the a driven what other and income decent that not quantify or Can from

Heng Chen

in mark-to-market have the for of partnership we low XXXX. housing that the we in income $X.X But equity quarter, back -- -- investment -- third exclude made booked terms in gain million Well, the from one, was to the the in securities. the

of that design to so partnerships, particularly stronger was -- it to gain And recurring. was one liquidation at a and bit low reason time out the be the primary at in close they the -- And Most we partnership. the little why income that that that's September. don't that's [indiscernible] expect housing no

Matthew Clark

XQ, on see amortization $XX that And piece? I just just Was million. for the think mentioned I'm now. Okay. it the you sorry, XX energy then on I Slide

Heng Chen

Yes.

Matthew Clark

from expect low-income housing? you -- the was do what So, what

Heng Chen

It should be the same.

a about we're $X million think quarter. I

Matthew Clark

some give estate Can of us types are? just those projects Okay. on color think of mention the I commercial in some properties. a the classified, you increase more couple And there was then of real

Chang Liu

Yes.

have a they we latest more recently acquisition. I on believe the now -- that capacity. certain is are we liquidated part well. of asset -- two have they to and but our as the the loans markets, as Bank that opened of XX% limited So They majority believe also liquidity Far the those, cash update were secondary them an National during acquired theater gave theaters was They East that

have I able more of power they continue to believe in support to their being So business. terms carrying

Heng Chen

was for that a $XX the other, downgrade branch. made we million then And loan Kong Hong had by C&I our a

Matthew Clark

Thank Okay, it. got you.

Chang Liu

Sure.

Operator

question Securities. Chiaverini Instructions] [Operator David of next from Wedbush comes Our

open. is line Your

David Chiaverini

Hi, thanks.

The first is the on portfolio. question residential mortgage

terms Low mortgage booming. has to In of refi. growth, the been loan leading downs market pay clearly rates are given

curious level to heavy you as is Just for the are resi what seeing if of mortgage, what guys mortgage you're in paydowns growth. and a experiencing and outlook resi

Chang Liu

be can to bit We're mortgage were pay be quarter seeing, the We period. of at however, at really question growth they time to higher The of to quicker the pace. and a will quicker, group more contribute able residential the in same well. year an turnaround right loans continue resource the prior to forward. that hopeful and about able the is definitely level uptick the fourth for demand seeing loan to of a a the We're applying to and the so sort slightly as resource the compared fund going that down to team --

David Chiaverini

come in coming when increase to. and case a recession, Okay, ultimately loan demand? could on out dip, would down in and in of lead view, package is distributed the thanks it going Clearly, that recession, being that's is of increase Would or the -- midst that an stimulus side? an And talk seeing your anything in for demand we're in into vaccine or commercial of on who see or your help, that. double a seeing a the there numbers depending to you're terms we really the you a markets,

Chang Liu

bit I of little think it's a both.

no is I the market there I -- points really certainty market up, are -- about yet. over COVID are vaccine is because no about look it's excuse if last there cases XXX today, cases you substantially vaccine the even me, think up the and certainty down is real checked, at the is

that substantial in both the back quite and it's has So book, I had, included parts to think C&I downturn, to got have to continue to you other noticed, well business confidence but more the sort as in -- it's paydowns -- of because this our medical a people combination of executing plan. economy to them get had think of during that of furniture, some segment-specific. supplies, some I been they've industry our that's some able We've do

terms on of it an I in both. So think recovery, it overall depends

David Chiaverini

the And me is on provision. one the last for

forecast? quarter. the clearly there, out So a out we and curious XQ, XQ clearly, given deferral neighborhood to we that would in it expectation nicely of Just look teens, same lot on the on When positive your this views your kind be but it tough came provision. the down or the low rates, of of there is really of and is trend this too to uncertainty

Heng Chen

Well, to $XX is hard loan in same But our the add think incurred provision adjustment predict transition months one, it's our of loss ahead. I ACL January. you terms after essentially in as million two or three the

are roughly $XXX That's the think non-accrual, properties fact -- cases, even be X/XX. that XX% of for the we're on more net the hope, and in -- just at guarantors ACL quarters. have we guarantees, the as charge-offs hopefully, we our I if LTVs we're personal So particularly downgrades Based have booking even we out-of-of-pocket. few in our next should many there's if into carrying seeing, million

to be any charge-offs low. because So [ph], when call are LTVs is they do there going not the on so go the

So that impact those will macro the provision. are some of QX factors our

David Chiaverini

$XX I $XX million, think it. $XX actually million implemented when $XX the could did that when I allowance previously you reminded bump to me about implemented CECL just about get said I does CECL your to wrong? a reserve, you is to assume And less. to come by Were million that say referring get heard you $XX million how but to or down that million Got guys

Heng Chen

Okay. That quarter. was third for the

have provision of instead million. we been So $XX negative $X would been a million $XX.X of million expense, booking booking had to on we CECL

David Chiaverini

I see.

a So an bump of How for January in much X, update XXXX? decrease in allowance? there or allowance, is

Heng Chen

our There should be we day incurred be same, the one for day goes reserve At the X, adjustment the $XX January same. retain earnings, almost CECL, add after that loss million one adjustment should none. they X/XX, in the to

David Chiaverini

it. Got

thanks much. Okay, very

Heng Chen

Sure. Thank you.

Operator

you. Thank

next Our comes Securities. from question Michael of Truist Young

open. is line Your

Michael Young

anything the just but of I have Hey, may given the you etcetera? country, I color clients. have for good do could the you across York, on in Chicago, was Lot noticed I of given was dispersion a actual versus major content, loan curious, terms there's values, geographic mostly already, of the a know follow-up. geographic your loss thanks curious overlay low performance California of just that and guys broad to if market your New cities you affect that the some not pretty but in wide

Chang Liu

cost is Queens, York, kind in just what per in high and try exposure We the Primarily a segment part in stay area business is commercial we California rent Manhattan. out of bulk a of throughout the have bulk of kind high of of In there bulk don't and in of our retail is Yes. residential mostly. square kind foot the both however, city to lot Flushing lot in in real meaning a California. the of main we mixed market -- think of of the terms New are North. mostly New California use that of The Mixed of small South in The in York. is over C&I estate a business use. the of our

mostly retail of and a I mix industrial. apartments, think it's some

any We exposure the have of in very office of to limited segment. terms the

Heng Chen

historically, in third our lot growth, because of York had strong they now even pretty growth quarter, loan Southern a our then And In CRE where New the was group California. are.

Chang Liu

in growth some most real commercial and that owner-occupied And of estate. was multifamily SoCal

Michael Young

But versus where at broad more of New no rent just point? generally in between collections, takeaway terms this better California performance Okay. I know, don't York or -- you're seeing

Chang Liu

about same, standpoint. think They're from I the collection a

both well. they I do closely fairly think

Michael Young

Okay, thanks follow-up. for the

Operator

any the showing remarks. Thank like over turn you. I'm time. for back management this the closing to questions at to call further I'd no

Chang Liu

to at want It quarterly with everyone the speaking due for pandemic. our look next us challenging I joining to call. the a call. for has thank release country you forward on been our to We earnings time

Operator

participation you in presentation. thank for conference. gentlemen, and today's Ladies concludes This the

now may good day. Have disconnect. You a

Cathay General Bancorp (CATY) 26 Oct 202020 Q3 Earnings call transcript