Cathay General Bancorp

Good afternoon, ladies and gentlemen, and welcome to CAFE General Bancorp's first quarter of 2023 Earnings Conference Call. My name is MJ, and I'll be your coordinator for today. At this time, all participants are in 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 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 Lowe, Investor Relations of Cafe General Bancorp.

Thank you, MJ, and good afternoon. Here to discuss the financial results today are Mr. Chang Nu, 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 31st, 2022, 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 of 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 first quarter of 2023 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 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 2023 first quarter earnings conference call. This afternoon, we reported a net income of $96 million for the first quarter of 2023, a 1.6% decrease as compared to a net income of $97.6 million for the fourth quarter of 2022. Net income for the first quarter of 2023 included a $3 million pre-tax write-off, or 3 cents per share for Senator Bank corporate securities. Diluted earnings per share decreased 0.8% to $1.32 per share for the first quarter of 2023, compared to $1.33 per share for the fourth quarter of 2022. In the first quarter of 2023, our gross loans increased 63.3 million, or 1.4% annualized. The increase in loans for the first quarter of 2023 was primarily driven by increases of 123 million or 5.6 percent annualized in commercial real estate loans, 131 million or 10 percent annualized in residential mortgage loans, offset by a decrease of 165 million in commercial loans, mostly due to seasonal factors. Due to the uncertain economy, we have reduced our guidance for overall loan growth for 2023 to between 1 percent to 3 percent from our previous guidance of 3 percent to 5 percent. We continue to monitor our commercial real estate loans. Turning to slide seven of our earnings presentation, as of March 31st, 2023, the average loan to value of our CRE loans was 50%. As of March 31st, 2023, our retail property loan portfolio at slide eight comprises 22% of our total commercial real estate loan portfolio and 11% of our total loan portfolio. 89% of the 1.97 billion in retail property loans is secured by retail store, building, neighborhood, mixed-use, or strip centers, and only 10% is secured by shopping centers. At Site 9, office property loans represent 16% of our total commercial real estate loan portfolio and 8% of the total loan portfolio. Only 38% of the $1.44 billion in office property loans is collateralized by pure office buildings. Another 33% of office property loans are collateralized by office retail stores, office mixed-use, and medical offices. The remaining 29% in office property loans is collateralized by office condos. For the first quarter of 2023, we reported net charge-offs of $4.9 million compared to net charge-offs of $2.5 million in the fourth quarter of 2022. The net charge-offs were primarily due to the $3.8 million collateral write-down of a CRE loan in Northern California and $2 million write-off of a CNI loan resulted from a bankruptcy filing. offset by a 2.5 million recovery on CRE loan. Our non-accrual loans were 0.4% of total loans as of March 31st, 2023, which increased by 6.9 million to 73.6 million as compared to the end of fourth quarter 2022. Turning to slide 12, as of March 31st, 2023, classified loans decreased slightly to 240 million from 256 million as of December 31st, 2022. And our special mention loans decreased to $251 million from $321 million as of December 31, 2022. We recorded a provision for credit loss of $8.1 million in the first quarter of 2023 as compared to a $1.4 million provision for credit losses in the fourth quarter of 2022. We are pleased that total deposits increased by $143.6 million or 3.1% annualized during the first quarter of 2023. Total uninsured deposits were 8.7 billion as of March 31, 2023, decreased approximately 0.5 billion from 9.2 billion as of December 31, 2022. Excluding 0.8 billion in collateralized deposits, the uninsured and uncollateralized deposits of 7.9 billion was 42.6% of total deposits as of March 31, 2023. Our unused borrowing capacity from the Federal Home Loan Bank as of March 31st, 2023 was 6.5 billion, and unplanned securities at March 31st, 2023 was 1.4 billion. These sources of available liquidity were more than 100% of uninsured and uncollateralized deposits as of March 31st, 2023. Total time deposits increased 2.9 billion or 222% annualized during the first quarter of 2023. compared to the fourth quarter of 2022, due to a Chinese New Year promotional campaign in January of 2023. Total money market deposits decreased by $1.4 billion, or 119% annualized, due primarily to a migration back to CDs from money market deposits and deposit runoff. On March 31st through April 19th, total deposits have increased by $152 million to $18.8 billion, and have almost recovered to the pre-banking crisis level on March 9, 2023. For 2023, the overall deposit growth is expected to range between 2% and 4%. During the first quarter of 2023, we repurchased 375,000 shares of our common stock at an average cost of $44.20 for $9.3 million, which completed the May 2022 stock repurchase program. I WILL NOW TURN THE FLOOR OVER TO OUR EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER HENG CHENG TO DISCUSS THE FIRST QUARTER OF 2023 FINANCIAL RESULTS IN MORE DETAIL.