Cathay General Bancorp

Good afternoon, ladies and gentlemen, and welcome to the fourth quarter and full year 2023 CAFE General Bancorp 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 one 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. Please go ahead.

Thank you, MJ, and good afternoon. Here to discuss the financial results today are Mr. Chang Liu, our President and Chief Executive Officer, and 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 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, 2022, at Item 1 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 obligation to update or review any forward-looking statements to reflect future circumstances, developments, or events, or the occurrence of an anticipated event. This afternoon, Cathay General Bancorp issued an earnings release outlining its fourth quarter and full year 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 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, everyone. Welcome to our 2023 fourth quarter earnings conference call. This afternoon, we reported net income of $82.5 million for the fourth quarter of 2023, a 0.1% increase as compared to a net income of $82.4 million for the third quarter of 2023. The fourth quarter net income included $11.3 million, or $0.12 per share, charged for the one-time FDIC special assessments. Diluted earnings per share was $1.13 per share for the fourth quarter of 2023, same as the third quarter of 2023. In the fourth quarter of 2023, our gross loans increased $524 million, or 11.5% annualized, primarily driven by increases of $218 million, or 9.9% annualized in commercial real estate loans, $153 million, or 11.6% annualized in residential mortgage loans, and $214 million, or 25.9% annualized in commercial loans, offset by a decrease of $52 million, or 36.9% annualized in construction loans. The overall loan growth for 2024 is expected to range between 4% and 5%. We continue to monitor our commercial real estate loans, turning to slide 8 of our earnings presentation. As of December 31, 2023, the average loan-to-value of our CRE loans was 50%. As of December 31, 2023, our retail property loan portfolio, as slide 9, comprises 23% of our total commercial real estate loan portfolio, or 12% of our total loan portfolio. 89% of the $2.3 billion in retail loans is secured by retail store, building, neighborhood, mixed-use, or strip centers. Only 10% is secured by shopping centers. As slide 10, office property loans represent 16% of our total commercial real estate loan portfolio, or 8% of the total loan portfolio. Only 34% of the $1.5 billion in office property loans are collateralized by pure office buildings, and only 3% of office property loans are in central business districts. Another 24% of office property loans are collateralized by office retail stores, office mixed use, and medical offices. The remaining 28% of office property loans are collateralized by office condos. In the fourth quarter of 2023, we reported net charge-offs of $4.1 million which included a $4.2 million reserve established during Q3 2023 on an office construction loan as compared to a net charge off of $6.6 million in the third quarter of 2023. Our non-accrual loans were 0.34% of total loans as of December 31st, 2023, which decreased by $10.6 million to $66.7 million as compared to the end of the third quarter of 2023. Turning to slide 13. As of December 31, 2023, classified loans decreased slightly to $200 million from $202 million as of September 20, 2023. And our special mention loans increased to $308 million from $278 million as of September 30, 2023. We recorded a provision for credit loss of $1.7 million in the fourth quarter of 2023 as compared to $7 million in provision for credit losses for the third quarter of 2023. Total average deposits increased by $244.3 million or 5.2% annualized during the fourth quarter of 2023. Average total core deposits increased $180.7 million or 5.9% annualized and average total time deposits increased $63.6 million or 4% during the fourth quarter of 2023 due to organic growth and seasonal increases. With 2024, the overall deposit growth is expected to range between 4% and 5%. Total uninsured deposits were 8.7 billion, but excluding 0.8 billion in collateralized deposits, the uninsured and uncollateralized deposits were reduced to 7.9 billion, or 40.9% of total deposits as of December 31st, 2023. Our unused borrowing capacity from the Federal Home Loan Bank was $6.6 billion, and unpledged securities was $1.5 billion as of December 31st, 2023. Resources of available liquidity were more than 100% of uninsured and uncollateralized deposits as of December 31st, 2023. I will now turn the floor over to our Executive Vice President and Chief Financial Officer, Mr. Heng Cheng, to discuss the fourth quarter 2023 financial results in more detail.