Earnings call transcript Q2 2023

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Operator

Good afternoon, ladies and gentlemen and welcome to Cathay General Bancorp’s Second Quarter of 2023 Earnings Conference Call. My name is Vaishnavi and I will be your coordinator for today. [Operator Instructions] Today’s call is being recorded and will be available for replay at www.cathaygeneralbancorp.com.

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

Georgia Lo

good and Vaishnavi you, afternoon. Thank

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

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

we statements caution statements speaks of As undertake to forward-looking circumstances, unanticipated review undue which date law, of the required except such as or it the future forward-looking by update Any you on on or obligation as place such, any occurrence we made, statements. only to and forward-looking not reflect no to is developments or reliance events events.

as open questions. quarter This management at afternoon, release Cathay earnings visit To we call today, up as results. XXXX second a After this for release issued obtain of www.cathaygeneralbancorp.com. an its General by our earnings well Bancorp presentation, outlining comments copy our will earnings website please

Mr. our I over President will Chang now Executive to call Officer, the and Liu. turn Chief

Chang Liu

XXXX, XXXX the This of our decreased share compared Welcome X.X% the second good of earnings to first and second to of conference quarter $XX everyone. quarter a net XXXX. quarter quarter for share for the net the $XX.X of income per X.X% for quarter Thank decrease for Diluted of per $X.XX compared reported a earnings income first we as of to you, to XXXX afternoon, second million Georgia million afternoon $X.XX call. per share XXXX.

our annualized construction of In real XX.X% $XXX.X primarily for in or quarter was XX.X% XX.X% gross increases annualized driven loans. or loans estate of residential loans of or million offset decrease loans. annualized and loans annualized. the loans by commercial $XXX the commercial by in million second increase The or million $XXX XXXX in a second in million quarter in $XX million XXXX, increased mortgage $XXX of XX.X%

in for With the the X% growth second loan our from XXXX X%. have growth previous between we to quarter, of guidance to for revised guidance strong to our X% overall X% loan

included strong quarter loan growth a borrowers. from Our second advances loan during commercial of handful the

rate improve for loan estate help to returns. In fixed commercial loans increased spreads addition, the have our we real

We to real our continue monitor commercial estate loans.

Turning of to our presentation. earnings Slide X

As XXXX, the XX%. our average CRE loans XX, of of June loan-to-value was

of XX% XX% by of centers, portfolio centers. portfolio. total June portfolio $X.X building, secured comprises of property estate loans our loan at our neighborhood, is in and retail X XX, by only is of strip XX% billion or retail XX% total the our loan Slide commercial shopping store, mixed secured and As retail use XXXX, real loan

loans in Only are buildings office collateralized office pure are $X.X central property of X% X, At office portfolio total property billion of districts. estate the Slide the commercial only office X% and XX% loans loan of loans of in property business XX% our portfolio. total represent the real and loan by

offices. collateralized The office remaining XX% office property office and property condos. Another loans stores, are office of collateralized loans are mixed use by of office, by retail XX% medical

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

of were loans as of of decreased compared as first non-accrual to the by $XX quarter June to end loans X.XX% the million XXXX, XX, $X.X of XXXX. total million which Our

XX. Turning Slide to

of March increased XXXX. XX, for of to loss $XXX for credit As of the classified of XXXX We June in of in an from as special second $X.X million XXXX. of XX, March as XX, XXXX, first million from loans slightly recorded mention quarter our provision $XXX provision and million loans $XXX million a quarter for XXXX million to compared losses $XXX million credit decreased as $X.X the to

deposits We XXXX. increased or XXXX. the quarter are of were second June billion by uninsured as $XXX.X total X.X% of annualized $X.X million pleased Total that XX, during deposits

deposits, collateralized of in deposits as deposits XXXX. billion XX, June was $X.X XX.X% and uninsured billion $X.X uncollateralized the Excluding of of total

annualized XX, Our than XXX% of securities capacity uninsured XX.X% June unused to borrowing of of as were second increased annualized, campaign. first was of XX, $XXX unplaced quarter Total June billion promotional $X.X increased Home These XXX.X% sources Total $X.X liquidity the and deposits XXXX, as a Loan and Federal to of uncollateralized compared $XXX during other more of Bank XXXX. at saving billion. XX, was available June deposits XXXX. due XXXX primarily by million quarter from deposits or the XXXX, or the million time and

deposit For XXXX, the range to is between overall X% expected X%. growth and

and in to financial Mr. detail. floor second the results President Officer, the Chen, turn more Executive now discuss Financial Heng will over Chief our to XXXX quarter I Vice

Heng Chen

and Thank afternoon you, everyone. good Chang

$XX because deposits quarter X.X% primarily to during cost XXXX. net the was XXXX, loan was quarter the the first second or $XX.X of fixed decrease margin of net to compared loans. For quarter interest to income second in decreased compression the to growth from by attributable and most The rate the the million of million million for due of increase $X.X

the XXXX for quarter first points basis XXXX, margin as the prepayment X the compared interest Our penalties the quarter added interest X.XX% the as of in and quarter In to X.XX% margin X was second of to recoveries net XXXX. first net second quarter points to XXXX. of for compared of basis interest

the cuts rate have we income during by XXXX, increased no $X.X million the net second on anticipated to revised $X a of increase XXXX gain due XXXX to during hike that interest X.X% after securities of an to quarter bond be our in XXXX to expectations in of from the Fed for With X.X%. in XXXX margin rate and July when Non-interest million compared equity write-off million security $XX.X to quarter. a corporate of first $X.X and an million first quarter between

when or The expenses, in in $X.X $XX.X Non-interest higher by $X.X million credit increased higher lower professional of in offset $X.X $XX.X $X.X by mainly amortization second of first million increase solar in $X.X salaries million expenses due million in investments, million FICA to expense higher XXXX tax the million bonuses quarter. to higher due to of in first million XXXX. quarter paid and the quarter primarily the compared was XX.X% taxes seasonally marketing to

intangible innovation funds. We XXXX effective expect tax XXXX. expenses first from X.X% of solar to and and quarter XX.X% for rate deposit quarter was compared and or from tax The HSBC investments to mainly X.X% XXXX, non-interest core – credits increase XXXX for solar excluding and tax amortization tax of as credit the credit expense to additional second the due

of For and XXXX, rate XX% we tax between the expect effective XX%.

$XX in amortization investment of and solar $XX XXXX. QX of million, million QX expect XXXX tax We million including for $XX credit

compared XX, XX, as XXXX. XXXX, X of to of XX.XX% Tier ratio XX.XX% leverage As June as our March to capital increased

ratio as risk-based March capital decreased to capital of X Our our total XXXX, XX, March of to from to and ratio decreased XX.XX% XX.XX% XX.XX% XX, XXXX. compared XX.XX% risk-based as Tier

Chang Liu

Thank you, Heng.

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

Operator

go Sandler. from question first Clark comes The Please Piper Matthew Instructions] ahead. with [Operator

Matthew Clark

Hi, good afternoon.

Heng Chen

Hi.

Matthew Clark

deposits First one for if the us me June the margin on of the on you interest-bearing margin, can give and the month at of June? rate spot average end the in

Heng Chen

was margin average The month X.XX%. of Yes. for the June

month May. of the total And then up March deposits for So slightly the June interest-bearing rate of XX it was the was from at X%. spot

Matthew Clark

– X.XX% And that then in the up guess, you the Great. back I X.XX% benefit, to the year-to-date getting of of well, have first Okay. half terms to margin? from X.XX%

Heng Chen

Right.

Matthew Clark

you down assuming like borrowings? in there. to and what So speak June costs any deposit margin kind to hang seems it that expect just pay of you Can X.XX% on you’re

Heng Chen

loan the quite bit QX We Yes. will in QX than lower and think growth in QX. a be

for us So make to fund it that easier will the loans.

between the we now will and expect over help rate $X And the the do between assume think year end of happen million. we that margin. additional in Fed improve and recovery Wednesday, I interest will slightly that hikes So the

of kind added to that’s that. So

Matthew Clark

second Okay. Great. out unchanged adjusted is And core or just half. the of the expect off year. the run just rate? That around come then last X.X%, at relief expenses, to you speak what you Can in expense here which million implies expense the some $XXX to outlook

Heng Chen

we last, $X it’s in And if lower million expenses don’t think most the quarter. we in we had Matthew, might mentioned in then our than have well, But probably of we slightly QX, about our X.X%, higher much we Well, items. than second comments, the half. of it’ll one-time I as the be higher that. quarter. then And the accrue second bonus think contributions That’s second in – in plus we make –

Matthew Clark

for third and then Okay. tax fourth credit Do numbers? have the you And the housing low-income amortization quarter? those

Heng Chen

It should be quarter. million per about $XX

Matthew Clark

thank Okay, you.

Heng Chen

Yes, you. thank

Operator

with Terrell question go Stephens. The from ahead. comes next Please Andrew

Andrew Terrell

afternoon. good Hi,

Heng Chen

Hi.

Andrew Terrell

Matt’s on Just there. a question follow-up

sound half per On the to $XX the you? to right little core year. I the growth of XXXX, about run down Does guess, a for to expenses, just rate million expense to X.X% that steps core implies the in get expense it back over quarter

Heng Chen

we it be kind million, should it – guess. No, to close $XX of think I the

Andrew Terrell

it. Got Okay.

rate? to quarter run the similar first So

Heng Chen

Yes.

Andrew Terrell

the on was quarter. to growth call gives I growth economy in you revision the growth confidence that Okay. it the loan guess of loan growth I surprised see the like Understood. here what am second do sounded I just it the after the quarter quarter? quarter, predicated put improved on then views in on such And surprised when the certainty just last opportunities and strong quarter? the was the last And where uncertainty conference in around the within second growth lowered, guidance in second see your economy. in loan mostly you on front, guess

Chang Liu

a the on really C&I quarter. on large side the case pharmaceutical So quarter, advances that the their side clients first during our handful second Andrew, drew of not tech in the from and the That the growth of down was loan was line. just

of the pull-through in had second the the some quarter. real the the that with we particularly first estate it until quarter, the latter didn’t on in expect, we on increase part commercial side. of in really don’t sometime kind the but margins started But side CRE and close the process addition, In

on expecting year. not half more sort to think of of growth muted at pace is going are second a loan We the see We pickup of in quarter. there that the in second demand any to continued be the

Andrew Terrell

Understood. Yes.

then And of… in terms Okay.

Heng Chen

that off mentioned, down Of the on we that, line, Chang third have borrower paid quarter. in tech drew that had since their they infrequent

help, will that third payoff. make So, the lower loan just growth the from quarter it will

Andrew Terrell

Understood.

it. Okay. would right, pay I the be loan the outpace reading appreciate is XQ And be I going year. them? maybe a half to the it the in seems to plan growth am XQ for guidance or then slightly it of or of portion the guess in deposit FHLBs at back the to down I growth that if like least

Heng Chen

a we of I Yes. to in we it crept very month growth June. target ratio. the XX% loan-to-deposit One had mean going is up strong are loan reason try to

So, in the Home jumped had down since they Federal about Home the half. up a Federal it that similarly, to it’s where growth Bank And it in more the happened. $XXX us borrowings, borrowings Loan was time, level million second then also for to loan for of half Bank paid stable of hard second at where We Loan now the match June. short

Andrew Terrell

Thank it. Got taking you Okay. the for questions.

Chang Liu

you. Thank

Operator

KBW. from with next McGratty question comes Our ahead. Instructions] Please [Operator Christopher go

Unidentified Analyst

bearing was [ph] started Hey. I Chris you is from expect Thank And stabilization a guess further we Andrew McGratty. How see have you. deposit going? any it’s your continue This in non-interest here? shift to to just should I mix wondering, Lisher outflows? on for

Heng Chen

$X.X billion Yes. We April, the $X.X rounded May just $X.X it’s of of of end at at think stabilized billion at was billion and the the month June. end end balances. end It giving the then you

So, Chang, it do yes you… –

Chang Liu

Yes.

sort any seeing outflows. additional of not are We

in at the so the at move clients sensitive into extent with them given market. point. think done to to already I had yielding they they some higher this accounts, rate hikes money the them They this point, have cash to and wanted and of that checking liquidity the

believe the should that we non-interest relatively core bearing remain So, stable.

Unidentified Analyst

And you that helpful. credit portfolio? have really have Okay. Great. credit, migration any you. started Thank reserve the you That’s see then within also remind portfolio? office on us And on just what to you can

Chang Liu

Sure.

there – and XX% office if square $X But million XX,XXX lower of in – skew feet. square exclude And the condos, space. you is property deck. credit urban, we kind have a size the little in on XX% size X all of footage. exclude and balance we portfolio total encompassing. just property kind the an about bit, loan over the billion in a just in of [ph] It’s lesser average about in page downtown average about might the is size if of of condos, office $X.X even balance the of Page million. still Just is that, the loan over is a on It’s Average little The suburban only business about it with portion XX,XXX a was $X.X of might – average these over it towards that little so X% feet. truly of size XX% is rest commercial of is district, Only core. square a which little the some

So, not Class big A XXX,XXX That’s are. what core. not are in we downtown the we

of – sort some medical of of And these well. office a office retail are and of the as over these lot space some

as average and average the is are occupancy, this far the the about debt add or board, As cover X.X% about across XX% higher. on you we

Heng Chen

any have reserves don’t office. we then on special And

is same our about by of the million. it’s our it’s loans. did up So, about reserves $X quarter same, which the build this as reserves X.X% reserves, CRE up CRE We the are

wasn’t general was So – reserving. for but that It office. for

Unidentified Analyst

you Great. Thank for Okay. questions. the

Chang Liu

you. Thank Yes.

Operator

Please with The go from [Operator Instructions] D.A. question Gary next comes ahead. Davidson. Tenner

Gary Tenner

the just point? ACL front, little given a any on resuming the on quarter wondering, questions were bit but and ratios up Thanks. or just Good this quarter, asked, you my have capital strong capital beefed of Most afternoon. this buyback thoughts at this

Heng Chen

want year a see in hopefully, our to early while, out, year. the We next or Not economy very for how Gary. shakes late

Gary Tenner

Thank you.

Heng Chen

Yes.

Operator

over this in questions remarks. management Cathay the closing we questions, there no [Operator now time, session. Instructions] the back I to are this queue. Q&A General see turn Bancorp’s As ends At the no will call for

Chang Liu

want joining to at quarterly our thank forward you us we to on everyone look I with for call. release call our speaking next and earnings

Operator

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

You Good may disconnect. now day. you. all Thank

Cathay General Bancorp (CATY) 24 Jul 232023 Q2 Earnings call transcript