Cathay General Bancorp Price & Performance (CATY)

Thank you, Rocco, and good afternoon. Here to discuss the financial results today are Mr. Cheng Lu, 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 speaker on this call may make forward looking statements within the meaning of the applicable provisions of the Private Securities Litigation Reform Act of 1995 concerning future results and events. And that these statements are subject to certain risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are further described in the company's annual report on Form 10 ks for the year ended 12/31/2024, at Item 1A in particular, and in other reports and filings with 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 of which it is made Except as required by law, we undertake no obligation to 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 first quarter twenty twenty five results.

To obtain a copy of our earnings release as well as our earnings presentation, please visit our website at www.cathaygeneralbancorp.com. After comments by management today, we will open this call up 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 discuss our twenty twenty five first quarter earnings, want to address the current tariffs between The U. S. And China. Based on our survey, customers have moved their sourcing away from China since 2018 to other countries, including some to Mexico. Our borrowers have told us that for the most part, they can move their sourcing to other countries or pause importing from China until the tariffs are more reasonable. We estimate that about 1.4% of total loans could be adversely impacted by the [indiscernible] tariffs. We are closely monitoring the impact of the evolving tariff situation on our borrowers and our loan portfolio. This afternoon, we reported net income of $69,500,000 for Q1 twenty twenty five, a 13.3% decrease as compared to 80,200,000.0 for Q4 twenty twenty four. Diluted earnings per share decreased 12.5% to $0.98 for Q1 twenty twenty five as compared to $1.12 in Q4 twenty twenty four. During Q1 twenty twenty five, we repurchased 876,906 shares of our common stock at an average cost of $46.83 per share, $41,100,000 completing our May 2024 $125,000,000 stock repurchase program. In Q1 twenty twenty five, total gross loans decreased $23,000,000 0.5% annualized, primarily driven by decreases of $100,000,000 in commercial loans, and $65,000,000 in residential loans.

Offset by increases of $127,000,000 in CRE loans and $13,000,000 in construction loans. Given the uncertainties in the economy, we have widened our 2025 loan growth guidance to 1% to 4%, the previous guidance of 3% to 4%. Slide six shows the percentage of loans in each major loan portfolio that are either at a fixed rate or hybrid loans, in their fixed rate period. Our loan portfolio consists of 62% fixed rate and hybrid loans excluding fixed to float interest rate swaps of 4.1% of total loans. Fixed rate loans comprise 30% of total loans, and hybrid and fixed rate period comprise 32% of total loans. We expect these fixed rate loans to support our loan yields as market rates are expected to decline. We continue to monitor our commercial real estate loans. Turning to slide eight of our earnings presentation, as of 03/31/2025, the average loan to value of our CRE loans remained at 49%. As of 03/31/2025, retail property loan portfolio, as shown on slide nine, comprises 25% of our total CRE loan portfolio or 13% our total loan portfolio. 90% of the $2,500,000,000 in retail property loans are secured by retail store building, mixed use or strip centers, and only 9% secured by shopping centers.

On slide 10, office property loans represent 15% of our total CRE loan portfolio, or 8% of our total loan portfolio. Only 35% of the $1,500,000,000 in office property loans are collateralized by pure office buildings, and only 3.4% are in CBDs. 38% of office property loans are collateralized by office retail stores, office mixed use, and medical offices. The remainder, 27%, are qualified by office [indiscernible] For Q1 twenty twenty five, we reported net charge off of $2,000,000 as compared to $16,300,000 in Q4 twenty twenty four. Our non accrual loans were 0.8% of total loans as of 03/31/2025, which decreased $14,500,000 to 154,600,000.0 as compared to Q4 twenty twenty four. Primarily due to the transfer of a loan to loans held for sale and pay down in Q1 twenty twenty five. Turning to slide 12. As of 03/31/2025, classified loans remain at $380,000,000 the same as in Q4 twenty twenty four. Our special mention loans increased slightly to $300,000,000 $293,000,000 in Q4 twenty twenty four.

Dollars Q4 We recorded a provision for credit loss of $15,500,000 in Q1 twenty twenty five, as compared to $14,500,000 for Q4 twenty twenty four. Most of the provisions were to cut cover possible losses from one commercial client. The reserve to loan ratio increased from 0.83% for Q4 twenty twenty four to 0.91% for Q1 twenty twenty five. However, excluding our residential mortgage portfolio, total reserve to loan ratio would be 1.17%. Total deposits increased by 131,000,000 or 2.7% annualized during Q1 twenty twenty five, primarily due to a net increase of $6,767,000,000 dollars in core deposits and an increase of $64,000,000 in time deposits. Total core deposits increased $67,000,000 due to seasonal factors and marketing activities. Total time deposits, excluding broker deposits, increased $41,000,000 during Q1 twenty twenty five due to promotional campaign in the first month of the year. As of 03/31/2025, total uninsured deposits were 8,500,000,000.0 net of $800,000,000 in collateralized deposits. Or 42.7% of total deposits. We have an unused borrowing capacity from the Federal Home Loan Bank of 7,000,000,000 the Federal Reserve Bank of $343,000,000 and unpledged securities of $1,500,000,000 as of 03/31/2025. These sources of available liquidity more than cover 100% of uninsured and uncollateralized deposits as of 03/31/2025.

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

Thank you, Cheng, and good afternoon, everyone.

From Q1 twenty twenty five net income decreased $10,700,000 or 13.3% to 69,500,000.0 compared to $80,200,000 for Q4 twenty twenty four, primarily due to an increase of 10,700,000.0 and provision for income taxes due to an increase in the effective tax rate resulting from no investment in solo tax credit. [indiscernible] In 2025. Net interest margin increased to 3.25% for Q1 twenty twenty five, from 3.07% for Q4 twenty twenty four. In Q1 twenty twenty five, interest recoveries and prepayment penalties added six basis points to the net interest margin as compared to adding four basis points in net interest margin for Q4 twenty twenty four. Based on the fourth first quarter net interest margin we have increased our 2025 guidance to 3.25% to 3.35% for NIM from the previous 3.1% the 3.2%. Noninterest income for Q1 decreased 4,300,000.0 eleven point two million when compared to 15,500,000.0 in Q4 twenty twenty four. The decrease was primarily due to 2,900,000.0 mark to market unrealized loss on equity securities and a 1,500,000.0 decrease in other operating income due to lower foreign exchange income loan and derivative fees, and [indiscernible] Interest rate swap loss. Non interest expense increased by $500,000 or 0.6% to 85,700,000.0 in Q1 twenty twenty five when compared to 85,200,000.0 in Q4 twenty twenty four.

The increase was primarily due to 2,200,000.0 higher FDIC assessment this quarter compared to Q4 twenty twenty four, which was lower of the reversal of an over accrual of FDA assessment.

And $1,100,000 increase in computer equipment expense offset by $1,700,000 in lower solar tax credit fund amortization and $1,300,000 in lower professional expense. The effective tax rate for Q1 twenty twenty five was 19.82% as compared to 7.57% for Q4 twenty twenty four. The increase in the effective tax rate was due to a decrease in solar tax fund investment because of limitations on tax credits. As of 03/31/2025, our Tier one leverage capital ratio increased to 11.06%. As compared to 10.97% as of 12/31/2024, our Q1 risk based capital ratio increased to 13.57% from 13.55% as of 12/31/2024. In our total risk based capital ratio. Increased to 15.19% from 15.09% as of 12/31/2024.

Thank you, Heng. We will now proceed to the question and answer portion of the call.

Thank you. Ladies and gentlemen, if you have a question at this time, You may then rejoin the queue. Your question has been answered or you wish to remove yourself from the queue, please press star then 2. To prevent any background noise, we ask that you please place yourself on mute once your Today's first question comes from Chris McGratty at KBW. Please go ahead. Hey, this is Andrew.

On for Chris McGratty. How's it going? [indiscernible] So just looking at the margin, can you provide what sensitivity would be to the margin guide and maybe NII levels we were to get more than the one interest rate cut in July?

Well, on a full year basis, it'd be about four basis points. For every rate cut. So if it's happens in July, it's only two.

Okay, great. Thank you. And then Maxine, Yeah. Go ahead. Go ahead.

No. Sorry. I was gonna switch gears there.

Alright. And then can can you just provide the spot deposit costs at the end of the quarter and also if you have the average margin for the month of March?

Yeah.

The average margin for the month of March was 3.39%. It had the bulk of the interest recoveries. For the first quarter. So excluding the interest recoveries [indiscernible] The next margin was three point two one. And then you like the rates on deposits, the spot rates? Yes. Yes, please. K. So the spot rate for total interest bearing deposits at March 31, 2025 was 3.36 Okay. Great. Thank you.

Thank you. And our next question today comes from Gary Tenner at D. A. Davidson. Please go ahead. Thanks. Good afternoon. I appreciate the change you made to your loan growth guide for the year, lowering it from 3% to 4% to 1% to 4%. Can you talk about of what you're seeing in your pipelines and customer behavior today compared to you know, thirty, sixty days ago, that kinda drove that [indiscernible] Sure, Gary. I think for us, pipeline in the commercial real estate side is still relatively strong compared to the last two years at the same time from a relative perspective. And then I think the guidance is really just to given the current uncertainty and what we're seeing on the tariff side, particularly on the C and I clients. That we're concerned about sort of the growth prospect in that particular side of the business. And the residential mortgage, while we've seen some slight uptick recently, I think there was a recent article in Wall Street about how it's now not the seller's market and it's a little bit shifting a little bit. So, we're seeing a little bit of pickup there. So that's the reason for the sort of revision to the guidance.

So just as a follow-up to that, are you seeing projects being delayed? Are seeing our customers talking about just, you know, not not investing or undertaking any you know, investment in their companies? What's what what are you hearing, I guess, more specifically on the C and I side?

Yeah, that's probably the bulk of it is, you know, if there were some growth plans or expansion plans or anything like that, I think there's some pause to that. I think more they're more focused on managing their balance sheet and P and L, both sort of the top line side because the demand is going to slow down. And as well as sort of the cost side, right? So their inventory size prices is unpredictable somewhat in the near future. So, they're trying to manage P and L side and the balance sheet rather than thinking about growth.

Yes, let me add. We also [indiscernible] [indiscernible] a chair situation doesn't improve we expect some loan pay downs as some importers just stopped importing and sell out. Very few of the importers import primarily from China and they would just imports for whatever, nine months or [indiscernible] [indiscernible] [indiscernible] another factor in widening the gap.

And I'll add one more. Some of our C and I customers have already told us that they've built up some excess inventory anywhere between three to nine months. So, the line usage on what they need is going to be flat.

Great color. Thank you.

Thank you. Our next question comes from Andrew Terrell with Stephens. Please go ahead.

Hey. Good afternoon. If I could just go back to the question that was asked a minute ago around the margin. And the impact of rate cuts specifically on the forward guide. I appreciate the the four basis points annualized for every cut. Just to clarify, is that four basis if we go down 25 basis on rates, is that four basis points positive to the NIM on a full year basis or negative?

Positive, positive. So you can see in the first quarter, [indiscernible] loans only decreased by two basis points and our deposits went down by 29. So this this year, I think we're gonna be helped by the fact that about 60% of our loans are fixed or hybrids in the fixed period, so they're not going to go down that much. 100%. Yep, I get it. Just wanted to clarify that. Shifting over to the just the ACL. I I think you you called out that the provision this quarter, the allowance build was one specific C and I credit. I'm curious if that one specific commercial credit, was that a borrower that fell in that 1.4% of loans that you guys highlighted as could be impacted by tariffs? And then just more broadly, as you did the work to kind of ring fence borrowers and exposure where you could be more impacted by tariffs Have you taken any incremental provisions or built allowances on those specific relationships?

Yeah. That that reserve which was the majority of Q1 reserve was for domestic company So they're not trade financed. Related at at all. And then we did the rest of the buildup in the reserve was tariff related. We're hopeful that that covers most of the exposure. As I mentioned before, I think our importers they'll just they should be able to pass on the cost of tariffs if they're reasonable if not, they'll stop importing that particular line of imports.

Yep.

Do you have what the allowance is on that aggregate, 1.4% of loans?

It's probably [indiscernible] Got it.

Okay.

And if I could ask just one more on the buyback. It looks like you I mean, it's good to see you guys completed the authorization in the quarter. It looks like the the price bought back was around, I think was $46.47 I might have missed it, but I didn't see a new authorization in place I would assume you've given you've still got pretty strong capital, it seems like the growth could maybe be a little bit slower balance sheet wise. Would expectations be that we get another buyback at some point in the future? Just remind us kind of your interest in repurchasing going forward. [indiscernible] We're waiting for regulatory approval [indiscernible] our new buyback program.

Very good. Thank you for taking the questions.

Yes. Thank you. Our next question today comes from Adam Butler at Piper Sandler. Please go ahead.

Good afternoon everybody. This is Adam on for Matthew Clark. Just my first question is on non interest expense. I know that your guidance outlook has is consistent quarter over quarter for 4.5% to 5.5% growth year over year. But I just noticed that there were some puts and takes within some of the expense lines. So, I was just curious if you could walk through some of the major expense lines and just kind of talk about how you expect them to grow or decline throughout the year? Thanks.

Yes. Let me cover that. So, Yeah, just on some of the major categories. Salaries and benefits, we picked up about 2 and a half million from excess bonus accruals in 2024. So that offset the the annual FICA yet And We think our consulting expense should be lower in the second half of the year. I think that's that's pretty much it. Looking at the income statement.

Okay. That's helpful.

And then just one other one for me. Most of my questions have been asked and answered. But just on the deposit growth during the quarter, was robust.

And I was just curious what what what degree is there seasonality involved in the in the deposit flows this quarter? And do you kind of are you what kind of trends are you seeing from the growth standpoint?

Yeah, I think the only seasonality is that our Lunar New Year promotion is in January and February. So we picked up probably a net of about 200,000,000 And then we left some broker CDs run off. Given our increase in relationship deposit.

Okay. And if I could just follow-up on the Lunar Year deposit specials.

What was the rate offered this year And how does it compare to last year's special?

Yeah, it was for the six months It was about $4.10 versus the $4.04 50 or so for for the July renewals. Then the one year, we actually did thirteen months this year. That was also $14.10.

It's about $4.10 as well. And that's coming off of I think $5.40 or something, $5.05 30 Okay. That's very helpful.

And I that's all the questions that I had. I I appreciate it and congrats on the quarter.

Thank you. Thank you.

Thank you for your participation. I will now turn the call back over to Cathay General Bancorp's management for closing remarks.

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

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.