Cathay General Bancorp (CATY) 2024 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen and welcome to Cathay General Bancorp's fourth quarter and full year 2024 earnings conference call.

My name is ASHA and I'll be your coordinator for today.

(Operator Instructions) Today's call is being recorded and will be available for replay at www.cape General bank corp dotcom.

Now I would like to turn the call over to Georgia lo Investor relations ofCathay General Bancorp.

Please go ahead.

Thank you, Asha 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.

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 1,990 five 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 31, 2023 at item one A in particular and other reports and filing 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.

Any forward-looking statement speaks only as of the date on which it is made and except as required by law, we undertake no obligation to update or review any forward-looking statements to reflect future circumstances, developments or events or the occurrence of unanticipated events.

This afternoon, Cathay General Bancorp issued an earnings release outlining its fourth quarter and full year 2024 results to obtain a copy of our earnings release as well as our earnings presentation.

Please visit 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 President and Chief Executive Officer, Mr. Chang Liu.

Thank you Georgia.

And good afternoon before we go into our 2024 4th quarter earnings, I know that our hearts are heavy with the use of the devastating fires that have swept across Los Angeles.

The destruction is unimaginable and our thoughts are with every person affected.

Recovery is a long term process.

The flames are extinguished.

The work of rebuilding lives and communities will continue the bank along with the rest of our Los Angeles community will continue to work diligently towards that.

Towards that part.

This afternoon, we reported net income of $80.2 million for Q4, 2024 an 18.8% increase.

As compared to $67.5 million in Q3, the earnings per share increased 19.1% to $1.12 per share for the fourth quarter.

As compared to $0.94 per share in Q3.

During Q4 2024 we repurchased 506,651 shares of our common stock at an average cost of $47.10 per share for 200 for $23.9 million under our May 20 2,400 and $125 million stock buyback program.

We anticipate continuing to repurchase around 30 million in stock in Q1 2025 depending on market conditions.

In Q4, 2024 total growth loans increased $2.4 million or 0.05% annualized primarily driven by increases of $59 million or 2.4% annualized in CRE loans and $30 million or 11.9% annualized in construction loans offset by decreases of $61 million or 4.2% annualized in residential mortgages and $9 million or 1.1% annualized in commercial loans.

We expect loan growth in 2025 to be between 3% and 4%.

Slide, seven shows the percentage of loans in each major loan portfolio that are either fixed rate or hybrid loans in their fixed rate period.

Our loan portfolio consists of 63% fixed rate and hybrid loans excluding fixed to flow interest rate swaps on 4.1% of the total loans.

Fixed rate loans comprise 31% of total loans and hybrid fixed rate period comprise 32% of total loans.

We expect these fixed rate loans to support our loan yield as market rates are expected to decline.

We continue to monitor our commercial real estate loans.

Turning to slide 9 of our earnings stack as of December 31st 2024 the average loan to value of our CRE loans was 49%.

As of December 31st 2024.

Our retail property loan portfolio as shown on slide, 10 comprised of 24% of our total CRE loan portfolio or 13% of our total loan portfolio.

90% of the $2.4 billion in retail property loan is secured by retail store and buildings, neighborhood, mixed use or strip centers and only 9% is secured by shopping centers on slide 11 office property loans represent 14% of our total CRE loan portfolio or 7% of our total loan portfolio.

Only 36% of the $1.4 billion in office property loans are collateralized by pure office and only 3.5% are in central business districts. 36% of office property loans are collateralized by office retail stores, office mixed use and medical offices.

And the remainder 28% are collateralized by office condos for Q4 2024 we reported net charge offs of $16.3 million as compared to $4.2 million in Q3 of the $16.3 million net charge offs. $12.2 million is related to a syndicated commercial loan for a borrower in the recycling business.

Our nonaccrual loans were 0.83% of total loans as of December 31st 2024 which increased $6.3 million to $69.2 million.

As compared to Q3.

The increase in nonaccrual loans during Q4 2024 came primarily from a $ 16 million CRE loan collateralized by a commercial and residential mixed use property in New York.

The loan was reclassified as Nonaccrual in December after the borrower filed for bankruptcy, the loan is fully secured by the collateral and no loss is projected.

Turning to slide 13 as of December 31st, 2024 classified loans decreased slightly to $380 million from $382 million in Q3.

And our special mention loans increased to $293 million from $203 million in Q3.

We recorded a provision for credit loss of $14.5 million in Q4 2024.

Same as for Q3, the reserve to loan ratio decreased to 0.83% for Q4 from 0.85% for Q3.

However, excluding our residential mortgage portfolio, the total reserve to loan ratio would be 1.08% total deposits decreased by $258 million or 5.3% annualized during Q4 2024.

Primarily due to the decrease of $449 million in broker deposits.

Total core deposits increased $417 million or 16.7% annualized due to seasonal factors and marketing activities.

Total time deposits excluding broker deposits decreased $226 million during Q4 2024.

We expect deposit growth for 2025 to be between 3% and 4%.

As of December 31st 2024 total uninsured deposits were $8.6 billion net of $0.8 billion in collateral collateralized deposits or 43.8% of total deposits.

We have an unused borrowing capacity from the federal home loan bank of $7.2 billion in the Federal Reserve Bank of $395 million and Unpleased securities of $1.5 billion.

As of December 31st 2024.

The sources of available liquidity more than covers 100% of uninsured and uncola deposits.

As of December 31st 2024.

I will now turn the floor to our executive Vice President and Chief Financial Officer Mr Heng Chen to discuss the quarterly financial results in more detail.

Thank you Chang and good afternoon everyone.

Q4 2024 net income increased to $12.2 million or 18.8% to $80.2 million compared to $67.5 million for Q3.

Primarily you do an increase of $1.9 million in net interest income. $11.6 million decrease in noninterest expense at $4.1 million decrease in income tax expense offset by a $4.9 million decrease in noninterest income.

Q4 2024 net interest margin was 3.07% as compared to 3.04% for Q3.

We are pleased that our name and net interest income appear to have bottomed out and we anticipate further benefit to them and, and, and net interest income based on the ability to lower deposit costs over the next few quarters.

While having the support of our fixed rate laws with the December, with the strong December job report, the fund, the first fund futures for rejects one rate cut in July 2025.

We anticipate that the net interest margin for 2025 to range between 3.10% and 3.20% in Q4 interest recoveries and pre penalties added four basis points to the net interest income.

Oh, sorry to the net interest margin as compared to five basis points.

And that is remargin for Q3 non interest income for Q4, 2024 decreased $4.9 million.

The $15.5 million compared to $20.4 million in Q3, 2024.

A decrease what was primarily due to a 5.66 million change in market to market and real game.

A 4.3% in Q3 to unrealized loss of $1.3 million in Q4 on equity securities.

Noninterest expenses decreased by $11.6 million or 12% to $85.2 million in Q4 2024.

When compared to $96.9 million in Q3, the decrease was primarily due to $12.7 million in lower solar tax credit.

Fun conversation we expect or not interest expense excluding tax credit and co for deposit and tangible amortization to increase between 4.5% to 5.5% for 20.

But from 2024 to 2025 the effective tax rate for Q4, 2024 was 7.6% as compared to 13.6% for Q3.

We expect the effective tax rate between 19.5% and 20.5% for 2025.

We do not anticipate investing in any solar tax credit investment funds in 2025.

As of December 31 2024 our tier one leverage capital ratio increased to 10.97% as compared to 10.28%.

As of September 30th 2024 our tier one risk based capital ratio increased to 13.55% from 13.33% as of September 30th 2024.

And our total risk based capital ratio increased to 15.09% from 14.88% as of September 30th 2024.

Thank you hang.

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

(Operator Instructions)

Matthew Clark with Piper Sandler.

Please go ahead.

Hey, good afternoon.

Just a, just a few questions around the margin.

Could you give us the average margin the month of December and then the spot rate on deposits at the end of the year?

Yeah, the average margin for the month of December was 3.05%.

I'm sorry, 3.11% that includes six basis points of, of interest recoveries.

And then what, what was the other part of your question?

The spot rate on deposits, either total or interest bearing at year end.

So the total weighted spot rate at your end was 3.52%.

Okay.

That's interest bearing.

Okay.

And then can you remind us how much in the way of C DS you have coming due here in the first quarter and you know, rates they're maturing at and what are you expecting to renew it?

It's quite a bit.

So we have $4.2 billion of C DS maturing.

This is from our chinese Lunar New year promotion that's maturing and the average yield is 4.6%.

We're, we're offering the renewal from the Chinese New year at between 4% and 4.1% depending on the size of the deposit.

Okay.

And then just last one and I'll hop back in the queue the your expectations for the low income housing tax credit amortization this year in dollars.

It's about it's about $10 million a quarter.

Okay.

And, and I know you're not going to do any solar, but are there any other tax credit, credit investments embedded in that tax rate guidance or is it just the low income housing we're, we're assuming for now?

It's just low income housing?

Okay, thank you.

The next question comes from Chris mcgrady with KBW.

Please go ahead.

Oh, great.

Thanks for the question.

I was wondering if you could unpack the expense, the core expense growth of roughly 5%.

A little bit, a little bit higher than what we've been seeing.

I'm wondering if there's a catch up in the, in some investments or anything in particular you'd call out.

It's mostly we've been adding to staff in 2024.

So it's a full year impact of that and then we expect a higher bonus approvals for next year because this year we, we're paying out bonuses that lower than the target.

So that's that.

But really, I there's nothing, nothing significant.

Yes.

So, Chris, you know, since the spring of 23 you know, we had to really beef up our risk side of our business.

Given the, given the higher level of maturity on the risk side that's expected from the regulatory side.

So, that's where we've been adding some of the bodies.

I looked at actually our head count.

It's been pretty consistent on the branch side and the lending side other than the uptick in the operational side.

Okay, great.

Yeah, you've talked about that chang in the past of even up the regulatory.

Okay.

That makes sense.

And, and then on the nine, the $90 million increase in, I guess it was a special mention, any, any color there that you could provide.

Most of it is one credit that's that just had some lower profitability.

So as an abundance of caution, we put that that loan on the special medicine.

The next question comes from Gary Tenner with D A Davidson.

Please go ahead.

Thanks.

Good afternoon.

Wanted to ask about the impact of the wildfires, obviously, nothing in terms of a kind of credit ramification for you this quarter.

I know a lot of those areas had been closed to access for a period of time.

They may still be can you talk about how you've gone about sort of assessing kind of the either property specific exposure you might have or kind of exposure to underlying businesses that might operate in some of these areas.

Or Gary.

So let me, let me kind of give you some update.

We look at the affected areas by zip codes.

We also looked at what additional data is available based on L A county inspections.

So far we have no loss reported of any of our commercial real estate portfolio.

Nothing in the business banking portfolio and nothing in the SB A portfolio in the.

We have some reported items in the C&I portfolio.

There's one CN I with the collateral in the Palisades in that segment of it.

And we have a few of the mortgages and two helocs that we report, we've received reports as well as have, verified them through some of the, some of the websites, but it's a small number compared to the size of the mortgage assets that we have in total.

Okay.

I appreciate the color there.

And then, just in terms of the securities yields come down a few quarters in a row.

I didn't recall there being much in the way of, variable rate securities in your portfolio.

Could you kind of talk to expectations of the securities you're going for?

Yeah.

It's mostly, most of the change we've been buying six month treasury and we all, so that rate has come down between 2020.

So during 2024 and then we have some, financial institutional debt that's, that's been called or, or matured.

Those were generally over 5% range and those will not replace it.

So it, but, that, that's pretty much it.

We're not looking to expand that, the total amount of our securities portfolio at this time.

All right.

Thank you.

Once again, if you have a question, please press star, then one the next question.

So it's Stevens.

Please go ahead.

Hey, good afternoon.

Changes that question capital.

I think I heard in your prepared remarks, continued maybe interest in the buyback, but your, your capital is still in a really strong position.

Just wanted to get, updated thoughts from you on any other potential avenues of capital deployment.

Is M&A of interest to you in 2025?

I would love to hear your thoughts.

Yeah, sure, Andrew, we've always had an eye on the M&A side of the business, but as you know, we operate in a very niche market, there's certainly a number of players in our market.

There's certainly some in Texas and New York, but the Texas and New York always sort of sub a billion which doesn't really move the base that much.

The ones in our backyard.

It depends on the opportunity.

If the opportunity is there, then certainly we'll look at it.

If it makes sense for us and it's, it's accretive to the numbers and if it's a strategic mix for us, that makes sense, it's definitely something we'll look at, but some of them have profiles that's very similar to ours and there's not a lot of sort of enterprise value there.

So it certainly give us a pause even if they were to become available.

Understood.

Thank you.

And then on the, on the margin, I guess specifically the brokered deposit runoff this quarter, was that pretty evenly spread throughout the fourth quarter?

Was it, front end or back end loaded?

And then just expectations going forward.

Is there any more broker broker deposits that you foresee remixing throughout 2025?

Yeah, and through most of it was in November and December where we are where we had an inflow of core deposits.

Some of which left in the second half of December, the core deposits.

But where we, we'll probably just maintaining the brokers CD portfolio, it's come down quite a bit and yeah, we'll, we'll just maintain it unless we have good deposit growth and that's higher than, but it's a, it's a incremental source of deposits for us.

Got it.

Okay.

Thank you for taking the questions.

Thank you.

The next question comes from Matthew Clark with Piper Sandler.

Please go ahead.

Hey, I think you called out as part of your net charge offs being sure national credit related.

Can you just remind us how large your, your SNC portfolio is?

It's about 4% of our total loans.

We've been trying that in 2024 to, to, to reduce the risk exposures.

Got it and I guess what percent of that portfolio is criticized.

I think most of the criticized is, is on, is in or not.

So, that.

Okay, it's, well, it's lower than average because we did sell about $50 million of sure national credits in Q4 to reduce credit exposures and, and we sold lots at a small discount. 2% or 3%.

Got it.

Okay.

And then just on the Chief Risk Officer departure, I think late last week look like retirement.

But can you just provide some more color there on the?

Sure.

Sure.

Yeah, we you know, I mean, it's really kind of just timing, right?

I mean, it's really the incumbent cro has expressed, that he wanted to step down and retire and kind of move off to the next chapter.

But in the meantime, we were able to go out to market and, and search for candidates that are qualified in that, in that space.

And really, I think post spring of 23 we need to be more focused on the risk side of the business.

And so we believe we found the right candidate in Di in Diana and we're counting on her and going forward to elevate the maturity level of the, of the risk side for us.

Great.

Thank you.

Let's see.

Thank you for your participation.

I will now turn the call back over to Cathy General Bank Management for closing yours.

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

And thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Good day.