Cathay General Bancorp

Good afternoon, ladies and gentlemen, and welcome to the CAFE General Bancorp second quarter of 2024 earnings conference call. My name is Cole, 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 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.cassegeneralbankcorp.com. I would now like to turn the call over to Georgia Lowe, Investor Relations at Casse General Bank Corp. Please go ahead.

Thank you, Cole, 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, 2023. 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 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 second quarter 2024 results. To obtain a copy of our earnings release as well as our earnings presentation, please visit our website at www.cafegeneralbankcorp.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. Welcome to our 2024 Second Quarter Earnings Conference Call. This afternoon, we reported net income of $66.8 million for Q2 2024. a 6.4% decrease as compared to $71.4 million in Q1. Diluted earnings per share decreased by 6.1% to $0.92 per share for the second quarter of 2024 as compared to $0.98 per share in the prior quarter. During Q2 2024, we repurchased 689,470 shares of our common stock at an average cost of $36.37 or $25.1 million under our May 2024 125 million stock buyback program. Under the May 2024 stock repurchase program, we anticipate repurchasing around 35 million in stock per quarter in Q3 and Q4, depending on market conditions. In Q2 2024, total gross loans decreased 72 million, or 1.5% annualized, primarily driven by decreases of 42 million, or 5.1% annualized, in commercial loans. 69 million or 4.6% annualized in residential mortgages and HELOC, and 25 million or 24.4% annualized in construction loans, offset by an increase of 64 million or 2.6% annualized in commercial real estate loans. Due to slower-than-expected loan growth in the first half of 2024, we have revised our overall loan growth guidance for 2024 to range between 0% and 2%. Slide six shows the percentage of loans in each major loan portfolio that are either fixed rate or hybrid loans in their fixed rate period. Our loan portfolio consists of 64% fixed rate and hybrid loans excluding fixed to float interest rate swaps on 4% of total loans. Fixed rate loans comprise 30% of total loans and hybrid in fixed rate period comprise 34% of total loans. We continue to monitor our commercial real estate loans. Turning to slide 8 of our earnings presentation, as of June 30, 2024, the average loan-to-value of our CRE loans was 50%. As of June 30, 2024, our retail property loan portfolio, as shown on slide 9, comprised of 24% of our total CRE loan portfolio or 12% of our total loan portfolio. Eighty-nine percent of the $2.4 billion in retail property loan is secured by retail buildings, a neighborhood, mixed use, or strip centers, and only 10% is secured by shopping centers. On slide 10, office property loans represent 15% of our total commercial real estate loan portfolio, or 8% of our total loan portfolio. Only 35% of the $1.5 billion in office property loans are collateralized by pure office buildings. Only 3% are in central business districts. 37% of office property loans are collateralized by office retail stores, office mixed-use and medical offices, and the remainder 28% are collateralized by office condos. For Q2 2024, we reported net charge-offs of $8 million, of which $5.1 million was reserved as of March 31, 2024, as compared to $1.1 million in Q1. Our non-accrual loans were 0.55% of total loans as of June 30, 2024. which increased $9.2 million to $107.3 million as compared to Q1. The increase in non-accrual loans during Q2 2024 came mainly from one office CRE loan and one retail condo CRE loan totaling $8.3 million with no projected losses based on recent appraisals. Turning to slide 12, as of June 30, 2024, classified loans increased to $324 million from $244 million in Q1 And our special mention loans decreased to $201 million from $249 million in Q1. We recorded a provision for credit loss of $6.6 million in Q2 2024 as compared to a $1.9 million in provisions for credit losses for Q1. Total deposits decreased by $73 million or 1.5% annualized during Q2 2024 with now deposits decreased $186 million in Q2 due to the runoff of broker now deposits. Total core deposits decreased $274 million, or 11% annualized, and total time deposits increased $201 million, or 8.6% annualized during Q2 2024 due to a shift from core deposits to time deposit with higher rates. We expect the overall deposit growth to continue at an estimated range between 3% and 4%. As of June 30, 2024, total uninsured deposits were $8.2 billion, net of $0.8 billion in collateralized deposits, or 41.5% of total deposits. We have an unused borrowing capacity from the Federal Home Loan Bank of $7.1 billion and the Federal Reserve Bank of $174 million, and on-place securities of $1.7 billion as of June 30, 2024. These sources of available liquidity more than cover 100% of uninsured and uncollateralized deposits as of June 30, 2024. I will now turn the floor over to our Executive Vice President and Chief Financial Officer, Mr. Heng Chang, to discuss the quarterly financial results in more detail.