Cathay General Bancorp

Good afternoon ladies and gentlemen and welcome to Cathay General Bancorp's 4th Quarter and Full Year 2020 Earnings Conference Call. My name is Chino and I'll be your 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. If you would like to participate in this portion of the call, please press star followed by the number 1 at any time during the conference. If assistance is needed any time during the call, please press star followed by zero and a coordinator will be happy to assist you. Today's call is being recorded and will be available for replay at www.cafegeneralbankcorp.com. Now, I would like to turn the call over to Georgia Law, Investor Relations of Cafe General Bancorp.

Thank you, Chino, and good afternoon. Here to discuss the financial results today are Mr. Chang Liu, our President and Chief Executive Officer, and Mr. Hang 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 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-K for the year ended December 31, 2019, at Item 1A in particular, and in other reports and filings 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 obligations to update or review any forelooking 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 2020 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 Ngu.

Thank you, Georgia, and good afternoon, everyone. Welcome to our 2020 Fourth Quarter Earnings Conference Call. While we acknowledge our fourth quarter operating results, our commitment and focus today is on continuing to support our clients, team members, and communities during the COVID-19 pandemic. This afternoon, we reported net income of $70.9 million for the fourth quarter of 2020, a 5.2% increase when compared to a net income of $67.4 million for the fourth quarter of 2019. Diluted earnings per share increased 6% to $0.89 per share for the fourth quarter of 2020, compared to $0.84 per share for the same quarter a year ago. In the fourth quarter of 2020, our gross loans increased by $78.6 million to $15.6 billion. The increase in loans for the fourth quarter of 2020 was primarily driven by an increase of $95.7 million, or 1.3% in commercial real estate loans. We anticipate loan growth in 2021, excluding Paycheck Protection Program loans, to be between 3% to 5%. As of December 31, 2020, our COVID-19 C&I loan modifications were $29 million, or approximately 1.1% of our commercial loan portfolio. Turning to slide 8 of our earnings presentation, as of December 31, 2020, CRE loans with an aggregate balance of $81 million, or approximately 1.1% of our CRE loan portfolio, are still on loan modifications to provide relief on repayment terms. The average loan-to-value ratio at origination for these loans was 51 percent. This represents a decrease of 81 percent compared to the $428 million of CRE loans on deferral as of September 30, 2020. As of December 31, 2020, CAFE had hotel loans that totaled $299 million. Of that $299 million, the hotel loans with loan mods were $24 million, or 8 percent of the total hotel portfolio, compared to $39 million of hotel loans with loan mods as of September 30, 2020. As of December 31, 2020, our retail loan portfolio comprises 23 percent of our total commercial real estate loan portfolio and 11 percent of our total loan portfolio. Sixty-one percent of the $1.72 billion in retail loans is secured by neighborhood, mixed-use, or strip centers, and only 10 percent is secured by shopping centers. The amount of retail CRE loans still under loan modifications dropped to $5 million as of December 31, 2020, or 3% of the $161 million as of September 30, 2020. Turning to slide 10, as of December 31, 2020, $41 million of our residential mortgage loans are still under loan modifications, or 23% of the $180.6 million as of September 30, 2020. In summary, as of December 31st, 2020, total loan modifications were $151 million, or approximately 1 percent of the total loan portfolio. For the fourth quarter of 2020, we reported net charge-offs of $7.6 million compared to the net charge-offs of $3.1 million in the third quarter of 2020. Our non-accrual loans decreased by $9.5 million to $67.7 million, or 0.44 percent of period end loans. as compared to the end of the third quarter of 2020. The decrease was primarily due to a $8.4 million charge off for a commercial loan in our Hong Kong branch. We recognize the reversal for credit loss of $5 million in the fourth quarter of 2020 compared to a $12.5 million provision for loan losses in the third quarter of 2020. The reversal for credit losses of $5 million reflected the improvement in the economy during the fourth quarter of 2020. As permitted under the CARES Act and as extended by the Consolidated Appropriations Act 2021, the company has chosen to continue to defer the adoption of the CECL methodology for estimated credit losses until the earlier of the beginning of the company's fiscal year that begins after the date the COVID-19 national emergency comes to an end, or January 1, 2022. We also continue to monitor and evaluate the potential impact of the continuing tariffs from the partially resolved trade dispute between the US and China to our loan portfolio. Borrowers that we believe could be adversely impacted by the current tariffs constitute approximately 1.5% of our total loans. Turning to slide 13, total average deposits decreased by $324 million or 2% during the fourth quarter. Average time deposit decreased by $594 million, or 8.2%, due to the runoff of broker CDs. With that, I'll turn the floor over to our Executive Vice President and Chief Financial Officer, Peng Cheng, to discuss the third quarter 2020 financial results in more detail.