CATY - Earnings call transcript Q4 2020

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Operator

Good afternoon ladies and gentlemen and welcome to the Cathay General Bancorp's Fourth Quarter and Full Year 2020 Earnings Conference Call. My name is Chino and 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. [Operator Instructions] Today's call is being recorded and will be available for replay at www.cathaygeneralbancorp.com.

to of call Cathay like Lo, to would Relations Investor General I turn over the Georgia Now, Bancorp.

Georgia Lo

Thank you, afternoon. Chino, and good

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

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

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

Chang Liu

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

$XX.X is we was to for increase in fourth quarter of gross to While net when to during compared of growth reported for fourth share Diluted results, in loans increase our $XX.X our quarter XXXX increased earnings be afternoon by million a of team fourth quarter operating clients, $X.XX today our continuing XXXX of ago. the loans. fourth income X.X% on fourth focus year communities In X.X% a commercial of and the we loans of support acknowledge increased or compared for and XXXX, million a estate by X%. pandemic. quarter net the XXXX, income increase the COVID-XX $XX.X million share the to billion. for same $XX.X quarter to X% of This our commitment The between quarter the $XX.X XXXX. loans Protection We per per for $X.XX XXXX X% real to the excluding fourth million an of quarter per share anticipate Paycheck primarily members, driven Program loan in to

$XX were modifications or our loan loan C&I commercial million, portfolio. COVID-XX or X.X% XXXX, XXst, December approximately of As of

origination portfolio eight XXXX. of for of XX%. million slide of $XXX of relief CRE compared a to as This provide balance modifications The September these million or terms. $XX decrease aggregate to XX% our of loans to Turning to CRE with approximately loans loans earnings December an XXst, our on XXXX, of was of represents loan loan repayment still value presentation, on X.X% average XXth, [ph] on deferral loan at ratio CRE as the are

loans compared with million, million. million the were that with or of portfolio total hotel $XXX loss that had $XXX of $XX Of loans As the $XX loan X% million loan as hotel of December XXst, September loans XXth, XXXX, hotel XXXX. hotel Cathay totaled loss to

of December loans and in total real portfolio or of of XX% estate As neighborhood, by loan total our commercial comprises is XXXX, secured use, retail loan billion portfolio the XX% retail and $X.XX our centers. XXXX. The mixed under loans million loan portfolio. our dropped XXst, XX% of of is shopping amount as centers, the $X of December XXXX, still secured September XX% of only by CRE XXst, XX% strip or million to modifications retail as loan XXth, of $XXX

under to loan loan $XX the XXst, XXXX, million million September were portfolio. XX, or XXXX. X% modifications million XXth, XX% residential of total loans are slide XXXX, of December of XXst, $XXX.X of as modifications of summary, as loan Turning of our mortgage $XXX approximately December or In total as still the

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

Our commercial a a compared by the XXXX. of for XXXX. or off fourth million $X.X credit the quarter end our charge reversal the Hong to quarter the fourth third in of million $X.X $X a as provision million to primarily non-accrual of loss Kong million the recognized in economy during $XX.X The for of reflected reversal for improvement $X $XX.X XXXX to losses end for loans a loan of of The loan the XXXX. of the period credit of branch. decreased quarter million was losses in decrease We million to compared due X.XX% loans in quarter third

to the begins the Act estimated losses comes year the until COVID-XX for under National or end of defer the Act Appropriations the of Xst, methodology earlier the and chosen has permitted adoption the XXXX, as an company's extended of to beginning Emergency January by credit after date CECL XXXX. fiscal CARES continue that consolidated company to the As the the

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

our decreased or X.X% Heng deposits the $XXX over decreased the run fourth Executive Average to With turn by to average of off third million discuss I'll quarter that, and by or financial Vice results XX, time million the during Financial slide President Chen Chief Officer, detail. Turning total in more broker CDs. the to $XXX X% XXXX due to deposit floor quarter.

Heng Chen

Thank everyone. you, Chang good and afternoon

net higher year. increased quarter quarter the million X.X% compared which by of $X.X compared was fourth gains For to XXXX, income XXXX, the to of or fourth the $XX.X to primarily million attributable to prior security

net XXXX of fourth interest added interest XXXX, were prepayment of of margin We're points interest to basis XXXX. the XX, as for the CDs billion retail $X.X margin renewing as X.X X.XX% $X.X XX second [ph] fourth billion in flow X.XX$ basis quarter compared the CDs Our of third point to and quarter four and at to XXXX. loans first and quarters net to December quarter compared rate during of penalties XXXX respectively. There X.XX% mature of in XX and their recoveries of our Approximately third the with for X.XX% targeting was the quarter points of In rates eight basis average the XXXX. million range.

to interest the of increased of XXXX Non-interest interest year fourth $XX.X the million to $XX.X $X.X We security XXXX margin $X.X higher million X.XX%. increased XXXX quarter XXXX X.XX% million compared in of quarter be when to to gains. between ago. million for to the same to by income compared fourth in X.X% million or by during when expect our $XX expense quarter fourth And due a to quarter mainly the net

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

unfunded compared fourth quarter XXXX partnerships, operating increase penalty The for the long-term due not effective in housing XXXX. tax for of FHLB primarily For energy quarter reserved tax additional on a to do prepayment investments We the increase the of rate of in non-interest expect solar alternative the buys in to fourth to higher low-income XXXX. amortization expense in [ph] $X.X XXXX, XX.X% XX.X% losses, in and million a quarter methods. was was investments and invest of credit higher fourth for

is be expected XX% to As a effective to between rate XX%. for tax result, our XXXX

be Solar and second the first million of million $X credit XXXX $X quarter the million of is amortization is fourth which and in the million the XXXX, expected XXXX. quarter of quarter in $X task was in to $X.X XXXX in

or December XX, X of of XX.XX% leverage XX, XXXX. ratio Tier capital XXXX, As increased compared as to December to as XX.XX%

XXXX. Our Tier XXXX of our from and X increased capital stock We to and average risk-based fourth total to XX, shares XX.XX% at shows XX.XX% XX.XX% of ratios increased XX, December as risk-based quarter our buyback $XX.XX. during the resumed December as of XXXX, cost ratios from XXX,XXX repurchase XX.XX% capital program of

Chang Liu

Thank you, Heng.

[Operator Instructions] We questions-and-answer portion will from comes of now question KBW. the to Chris first McGratty Your the from call. proceed

live. now are You

Chris McGratty

a that composition you There's how appreciating that I'm the in net question. how with income the in margin parts, we interest gave guide the the income obviously expect? that for net maybe you for How contribution, the outlook. Thanks numbers? PPP of Great. is changes starting about to so interest think balance do much just the lot of could the net maybe you sheet speak -- the $X.XX, dollars? moving And and interested Thanks. interest $X.XX

Heng Chen

terms out and the of into that us, Chang guidance the -- million growth. loan would QX. $X are for on gave deferred forgiven. loan X% X% between have of spread interest Yes, we go of once then going slow It's on we it sure. so expect income And PPP, fee in assume one, we be QX roughly to our about round Chris, loan to that loans still

see on budget, mid-single-digit for So, NII we based increase our XXXX. in

Chris McGratty

just and maybe had income solar if appetite expect XXXX? could wondering And for Thanks. you squeeze two well amortization, the gave for great. I'm if That's parts, buybacks more Thanks. in follow-up. low -- the I as the you a you also that interested

Heng Chen

Yes.

in $XX roughly then buyback get hoping working on so to -- we're I So, on And approval million call that. mentioned the for quarter low-income $X for it's so to million housing, that $XX and the on third buyback, appraise quarter, we're XXXX. a million

Chris McGratty

you. Sure. Thank

Heng Chen

you. thank Yes,

Operator

is from D.A. Davidson. Next one the on Gary Tenner queue

You are live. now

Gary Tenner

just in an brokered terms left, any? that book? afternoon. is if Or Good of Thanks. of I runoff, there much amount ask wanted is runoff additional rather, the in to how CD

Heng Chen

is $XXX about growth us trying runoff the but balance our a It's extent about mix million. It -- sheet million. to for on on the on liquidity what we're depends core of reasonable brokered We maintain CD, constraining liquidity. ratios, But amount it's $XXX few in XXXX. of may a deposit

Gary Tenner

that or quarter, CD Okay. year And I you could--. missed first half of the second noted maturities the the and you first for the if

Heng Chen

I'd It QX billion X.XX%. is QX in X.XX% at in a rate billion be a happy at $X.X rate $X.X repeat of of Yes, and to that.

Gary Tenner

target at guess, what retention your, of And I for those what -- is balances? that renewal rate,

Heng Chen

based hoping We're on hoping XX%. to XX% activity, XXXX

Gary Tenner

All Thank right. you.

Heng Chen

Yes.

Operator

Next line on Sandler. as Clark the Matthew Piper from

live. now are You

Matthew Clark

think I fees and that mentioned points, margin, also the within did -- The you the PPP afternoon. four basis good related Hey, include recoveries of prepay revenue? net

Heng Chen

No, not. no. That's

Matthew Clark

the the much revenue way of How in have PPP-related quarter? you in did

Heng Chen

it's $XXX,XXX. interest income, about loans and It's there's -- months that pretty is We fee goes for over that forgiven XX We're into believe amortizing forgiveness, the small. -- the fee then that unamortized around as it's $XXX,XXX. are

Matthew Clark

great. ago the or last And outlook can describe Okay, today loan that on? putting it how you to growth and looks ex-PPP, quarter growth X% and to of X% year maybe pipeline source relative you then anticipate the a

Chang Liu

Sure, is in the several C&I for C&I new outstandings. on other the X% strong a lenders, increases C&I a Matthew, I people. and guidance looking loan added X% mostly our think We've team and to stronger relationship growth

C&I the on focused side of of kind business. the really we're So,

as growth CRE modest prepayment of probably small our flat, very high business be given some some that prepayment expect to and seen XXXX. -- in the will well growth mortgage We we've

Matthew Clark

Just color loans; just deferrals to criticized in that payments or kind making And something uptick there? that just on of Okay. are some was a then some is of to migrated for else it? them just and -- there function that have waiting you've start the give

Heng Chen

was think or loan. I Are about one you substandard special hotel talking [Indiscernible]? there

Matthew Clark

Both?

Heng Chen

Yes. Well--

Matthew Clark

sorry. I'm combine looking I'm the number. at

Heng Chen

fourth I downgraded in quarter I hotel in recollection that was -- was loan there substandard was we're third one is think downgraded the guess But it's aviation and mostly that one that in then more -- business. another was there loans. the my there focused parts the the on

So--

Matthew Clark

Okay.

Heng Chen

they But remained accrual.

Matthew Clark

these then Okay. credit just me there? last one guess I decision the And pursue around for was tax longer your no the investments. solar to decision

Heng Chen

mainly taxes. to administration it's in uncertainty of the as the Well, change and corporate because

-- Biden, as So, President running the included as it's Office, when corporate XX%, well minimum program as steep corporate for tax tax. fairly was he to tax -- his rate, believe tax a I minimum

So, our tax fair we're we're already XXXX. housing of credits, with lot expecting low-income -- tax amount in a credits of a

XXXX. in then and see and into until not But clear, pause back wait here. go having to we want we may we're the So, it is picture a

Matthew Clark

Thank Okay, make you. sense.

Operator

from from Truist Young comes Securities. question Michael Next

live. are You now

Michael Young

on the just a taking for tax follow-up wanted the with to start thanks was just solar question. credit I asked. that question Hey,

IRR strong kind or more uncertainty is characteristics on would Just it basis, a interest, it still return of the standalone of enough of be going just where the forward?

Heng Chen

it Michael, know, faster $X.XX little A bit XXXX deployment estimate we was as you expected. Well, because to as per we than more EPS much our in year.

really, we trapped tax administration, years. or stance, for we until the a want or from Biden corporate So, but tax it's paying the clear were where many don't we're -- minimum on

Michael Young

just of about? to both Right. kind relative about various And wanted guide recognition the And guidance think guide, talking to with frame rounds Or kind just was TPP? I NII that's you that PPP. is the acceleration fee include ex-PPP, be NIM switching that outlook, but exclusive the just were of then understand trying everything loan that that. And to of maybe sure same excluding to and does I growth

Chang Liu

Yes, is the-- does to the X%. loan It speak PPP to I'll growth to round exclude to Heng X% defer guidance two.

Heng Chen

one round forgiveness. Also

core from Chang, round two? seeing about in PPP for nothing So, two. fee we're the is in to guidance. it's we fee put round loans. in talk that one And our -- the remaining what round just in budget, But NIM you want then

Chang Liu

that two our for significant already really, round request into total with And yesterday, far come a Yes, portion about through so at in SBA applications over as we've X,XXX a of we've submitting just approval. million. of application XXX started seen portal through

we're seeing through success So, the process. the through and portal application some

Michael Young

of last if the hiring, with you of ex It in to maybe that maybe pieces. me side some getting what one of And tax the pull like wasn't may view of branch kind there had this expenses, lot closed, for Okay. some on kind on credit levers a like. sounds interest look sure a branches was

takes expenses XXXX? in just for So, any color puts on and

Chang Liu

be Michael, for XXXX certainly think still is is to and objective I time -- year going be behind any a COVID here, the be to us far us. going in challenging any not

employee the control physical So, expenses to of to the looking we we're and continue well can the costs the cost. pieces sort occupancy where biggest are our still as obviously, as

So, we to hope to possible. cost that down as much continue control as

Heng Chen

expenses, solar X% or hoping and for think low-income to expenses purposes, our that we're I housing, Yes, the budgeting core keep hoping that around excluding we're so.

Michael Young

Okay. Thanks.

Operator

queue Chiaverini the Wedbush Next one from on Securities. is David

are You now live.

David Chiaverini

thanks. Hi,

up with tax follow-up to should tax in that tax think then Just -- quarters on the lower Should the of about a the in of wanted year. you the rate, of of it we start ramp the year? to progression we see credits first on mentioned XX% XX the will half first and How year? the the solar half in have kind second couple rate the through

Heng Chen

be Well, I'm should constant rate. effective to happy say tax it the on

beginning the forecast of quarter the the at update make and end. You it every year

tax funding out XXXX for credit funds. solar we're So, our

in it's it so through flat XXXX each XXXX. should be [Indiscernible], quarter -- so our it's know of we So, forecast, because

David Chiaverini

to work under method? modeling, related you the that. reserve reserve on for the And quarter. on releases you the again? about deferring it given can then it's talk for this easier all that? potential out guys And push older you guys old why decided here What's Thanks to it. uncertainty, to it for Is CECL, the Got that, release just the outlook had

Heng Chen

of day as auditors, present X, and we deferring current of with CECL, charge would on January it plan. you And it's its flexible as law consulting intent year is XXXX. And adapt. what that's one be adopt X, to January as The believe our -- to outside the Yes, XXXX. talking

would $X earnings against charge how million. goes behaves. think between XXXX be in [ph] have retained opening we in day and $XX it That the million been and then So, and feel running of better we've a earnings methodology, -- our retained we terms our pretax parallel one of model

we So, multi-scenario. have a

significantly. going pessimistic are prices, unemployment of We driven the factors to us lowered and so any have and case, blended optimistic, they of base estate it's most heavily declined housing CECL by be if for real a that by

David Chiaverini

of think you the properly reserve feel releases, if kind reserves in with as have And or you do potential there's room for what terms of ratio do set you releases? additional you're that about now guys

Heng Chen

know. don't what Moody's I number on our depends first December to guess on as the forecasts. forecast it quarter we well net the adoption as Well, charge-offs. Moody's But happens one in is based our XXXX day the

model should what CECL; be. number that So be when to the it the should adopt we -- says be

So, in fourth for quarter have I the and operating banks, CECL relatively were benign. provisions they the on midcap number. based the been terms And not, room their under then guess, other of quarter, or fourth that's

we'll that continues. So, see if

David Chiaverini

to or So, be Xst, January clear, January are CECL just Xst, XXXX? you adopting XXXX

Heng Chen

January X, XXXX.

David Chiaverini

to the what Okay, of $X okay. net All size Can confused you about I charge-off the and Hong us mentioned of there just portfolio that. you that branch. there? happened then shifting that by right. And over was in about remind talk the million Kong

Heng Chen

different Hong $XXX was borrower Kong names, a larger Kong Kong, the portfolio line of has banks can't this a in pursue industrial a -- by credit; Hong but the is in And that clauses. having look loan, the funded carry but is separate for -- that some there's customer about of with companies, Hong custom Well, this everybody different million. give we the instead

issues of the And business statements this our the left. financial was that So, and still million to few sort is. there value guess There's amount. we their down a liquidation best were down and on company so some what credit this in apparently, charged paper with adopted products we

David Chiaverini

net quarter comment the on the sort on interest margin. is end are was you for at year the interest then fourth it. or net the And exit what X.XX%, December? maybe margin follow-up the for to Got of of month with the one last able me a In

Heng Chen

issue months are can down. -- and month, We give me other it. day those December's Yes. XX-day mean, I -- were find the have XX-day let you month because count it the trending was But a but

December was X.XX% NIM. the So, was

David Chiaverini

very Thanks much. it. Got

Heng Chen

Sure.

Operator

Davidson. from follow have do from Tenner a D.A. We Gary up question

You live. are now

Gary Tenner

that Thanks. January X, press you're a the I But just the be earlier January sounds the it around CECL just national terminated wanted will to reading the was the after my it or of year XXXX. XXXX. releases of that clarify Xst, said commentary emergency adoption, you like adopting starts

sure to I'm Just make wanted on clear that.

Heng Chen

That's banks the preferable model. to incurred loss is as for principle such public correct. viewed as accounting CECL larger

So, earlier, if federal not if you I discouraged. think allows, you it's the adopt than law

Gary Tenner

Okay. But go there and is XXXX, that won't be back to requirement a correct? restate

Heng Chen

That's correct. That's our understanding. Yes.

Gary Tenner

Okay. on the events, FHLB just million $XX Thank like on what you. And rate fixture? reduction, was the that debt then looks

Heng Chen

X.XX%.

Gary Tenner

Great. Thanks for the follow-up.

Heng Chen

Sure.

Operator

We also Chiaverini Wedbush follow-up David from from question a have Securities.

You are now live.

David Chiaverini

for the follow-up. thanks Hey,

So, the interest about X.XX% of margin, comment year benefit the beginning clearly the forgiveness then CD's at of the you terms the net what on But XXXX to end anticipating get are net exiting with the re-pricing. boost margin NIM going the to as the have of towards interest when you the -- year for also to going able of interest we we're think that's X.XX%, to in margin? for and we you're know the the net the

Heng Chen

you year the -- at growth hope a PPP of should the the is to have quarter. full forgiveness year able Well, CD year project QX there re-pricing, that you And in and full mean, of that few have NIM-wise. I point highest loan a that's it's a be million the a because of is -- you on end it's the

David Chiaverini

like? range, end of So, of the higher that towards sounds it that

Heng Chen

Yes.

David Chiaverini

Thanks Great. Heng.

Heng Chen

Sure.

Operator

management your you are There I'll the General Instructions] queue. for closing no remarks. back over now call questions Cathay to a on Thank turn [Operator Bancorp's further for participation.

Chang Liu

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

Operator

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

disconnect. now day. may You Good

Cathay General Bancorp (CATY) 28 Jan 212020 Q4 Earnings call transcript