Cathay General Bancorp

Good afternoon, ladies and gentlemen. Welcome to the Cathay General Bank Corp's first quarter 2021 earnings conference call. My name is Valerie, and I'll be your coordinator for today. At this time, all participants ought to listen on the note. Following the prepared remarks, there will be a question and answer session. If you'd like to participate in this portion of the call, please press star, followed by one at any time during the conference. If assistance is needed at 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.cathaygeneralbankcorp.com. Now let's turn the call over to Georgia Lowe, Investor Relations of Cathay General Bank Corp.

Thank you, Valerie, 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 results and uncertainties are further described in the company's annual report on Form 10-K for the year ended December 31, 2020, at Item 1A in particular, and in all of the 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 obligation to update or review any forward-looking statements to reflect future circumstances, developments, or events, or the occurrence of unanticipated events. This afternoon, Cafe General Bancorp issued an earnings release outlining its first quarter 2021 results. To obtain a copy of our earnings release, as well as our first quarter earnings presentation, please visit our website at www.cathegeneralbankcorp.com. 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, everyone. Welcome to our 2021 first quarter earnings conference call. While we acknowledge our first 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 $73.4 million for the first quarter of 2021, a 3.5% increase as compared to a net income of $70.9 million for the fourth quarter of 2020. Earnings per share increased 55.9% to $0.92 per share for the first quarter of 2021, compared to 59 cents per share for the same quarter a year ago. In the first quarter of 2021, our gross loans increased by $7.5 million to $15.7 billion. The increase in loans for the first quarter of 2021 was primarily driven by an increase of $93.5 million, or 39 percent, in Paycheck Protection Program loans. During the first quarter of 2021, we originated $142.4 million of PPP loans and 48.3 million of PPP loans were forgiven. As of March 31st, 2021, 36.2 million of PPP loans have been submitted to the government for forgiveness review. As of March 31st, 2021, our deferred PPP loan fees were 9.9 million. We continue to monitor our commercial real estate loans. Turning to slide seven of our earnings presentation, as of March 31st, 2021, the weighted average loan to value of our CRE loans was 51%. As of March 31st, 2021, CRE loans with an aggregate balance of 56 million or approximately 0.7% of our CRE loan portfolio remain on loan modifications to provide relief on repayment terms. As of March 31st, 2021, our retail loan portfolio comprises 23% of our total commercial real estate loan portfolio and 11% of our total loan portfolio. The majority, 61% of the $1.73 billion in retail loans, is secured by neighborhood, mixed-use, or strip centers, and only 10% is secured by shopping centers. There were no retail CRE loans still under loan modifications as of March 31, 2021, and our total loan modifications as of March 31, 2021 for all loan categories was less than 1% of total loans. For the first quarter of 2021, we reported net charge-offs of $7.8 million compared to net charge-offs of $7.6 million in the fourth quarter of 2020. Our first quarter charge-offs included two commercial loan charge-offs totaling $7.8 million from our Hong Kong office. Our non-accrual loans increased by $26.8 million to $94.4 million or 39.5% of period end loans as compared to the end of the fourth quarter of 2020. The increase was primarily due to an $18.8 million oil and gas loan that was placed on non-accrual when an additional secondary financing fell through and a $10.1 million commercial real estate loan in Northern California that was placed on non-accrual during the first quarter of 2021, the latter of which is in the process of being refinanced by another lender. Our total oil and gas loan portfolio as of March 31, 2021, was $120 million, and this $18.8 million was the only loan rated substandard. Please see page 11 of our earnings presentation. As permitted under the Coronavirus Aid Relief and Economic Securities Act, the CARES Act, and as extended by the Consolidated Appropriations Act 2021, the company has chosen to adopt the current expected credit losses methodology. for estimated credit losses as of January 1st, 2021. The adoption of CECL on January 1st, 2021 increased the allowance for loan losses by $13.9 million and the reserve for unfunded loan commitments by $0.5 million. We recognized a reversal for credit loss of $13.6 million in the first quarter of 2021 as compared to a $5 million reversal of provision for loan losses in the fourth quarter of 2020. The reversal for credit losses of $13.6 million reflected the improvement in the economic forecast made in March 2021 compared to the forecast made in December 2020 by the economic forecaster using our CISO process. Turning to slide 12, total average deposits increased by $259 million or 1.6 percent during the first quarter of 2021. Average time deposit decreased by $283 million or 4.2%, due mainly to the runoff of broker CDs. With that, I'll turn the floor over to our Executive Vice President and our Chief Financial Officer, Feng Cheng, to discuss the first quarter 2021 financial results in more detail.