Cathay General Bancorp

Good afternoon, ladies and gentlemen, and welcome to Cathay General Bancorp's fourth quarter and full year 2024 earnings conference call. My name is Asha, 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.capageneralbankcorp.com. Now, I would like to turn the call over to Georgia Lowe, Investor Relations of Capay General Bank Corp. Please go ahead.

Thank you, Asha, and good afternoon. Here to discuss the financial results today are Mr. Chang Liu, our President and Chief Executive Officer of 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 2023, at Item 1A in particular, and other reports and filing 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, Cathay General Bancorp issued an earnings release outlining its fourth quarter and full year 2024 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. Before we go into our 2024 fourth quarter earnings, I know that our hearts are heavy with the news of the devastating fires that have swept across Los Angeles. The destruction is unimaginable, and our thoughts are with every person affected. Recovery is a long-term process. When the flames are extinguished, the work of rebuilding lives and communities will continue. The bank, along with the rest of our Los Angeles community, will continue to work diligently towards that part. This afternoon, we reported net income of $80.2 million for Q4 2024, an 18.8% increase as compared to $67.5 million in Q3. Diluted earnings per share increased 19.1% to 1.12% per share for the fourth quarter as compared to 0.94% per share in Q3. During Q4 2024, we repurchased 506,651 shares of our common stock, at an average cost of $47.10 per share, or $23.9 million under our May 2024 $125 million stock buyback program. We anticipate continuing to repurchase around $30 million in stock in Q1 2025, depending on market conditions. In Q4 2024, total gross loans increased $2.4 million, or 0.05% annualized, primarily driven by increases of 59 million or 2.4% annualized in CRE loans, and 13 million or 11.9% annualized in construction loans, offset by decreases of 61 million or 4.2% annualized in residential mortgages, and 9 million or 1.1% annualized in commercial loans. We expect loan growth in 2025 to be between 3% and 4%. Slide seven 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 63 percent fixed-rate and hybrid loans, excluding fixed-to-flow interest rate swaps on 4.1 percent of the total loans. Fixed-rate loans comprise 31 percent of total loans, and hybrid and fixed-rate period comprise 32 percent of total loans. We expect these fixed-rate loans to support our loan yield as market rates are expected to decline. We continue to monitor our commercial real estate loans. Turning to Slide 9 of our earnings deck, as of December 31, 2024, the average loan-to-value of our CRE loans was 49 percent. As of December 31, 2024, our retail property loan portfolio, as shown on Slide 10, comprised of 24 percent of our total CRE loan portfolio, or 13 percent of our total loan portfolio. Ninety percent of the $2.4 billion in retail property loan was secured by retail store and buildings, neighborhood mixed-use, or strip centers, and only 9% is secured by shopping centers. On slide 11, office property loans represent 14% of our total CRE loan portfolio, or 7% of our total loan portfolio. Only 36% of the $1.4 billion in office property loans are collateralized by pure office, and only 3.5% are in central business districts. 36% 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 Q4 2024, we reported net charge-offs of $16.3 million, as compared to $4.2 million in Q3. Of the $16.3 million net charge-offs, $12.2 million is related to a syndicated commercial loan for a borrower in the recycling business. Our non-accrual loans were 0.83% of total loans as of December 31, 2024, which increased $6.3 million to $169.2 million as compared to Q3. The increase in non-accrual loans during Q4 2024 came primarily from a $16 million CRE loan collateralized by a commercial and residential mixed-use property in New York. The loan was reclassified as non-accrual in December after the borrower filed for bankruptcy. The loan is fully secured by the collateral and no loss is projected. Turning to slide 13, as of December 31st, 2024, classified loans decreased slightly to $380 million from $382 million in Q3. And our special mention loans increased to $293 million from $203 million in Q3. We recorded a provision for credit loss of $14.5 million in Q4 2024, same as for Q3. the reserve to loan ratio decreased to 0.83% for Q4 from 0.85% for Q3. However, excluding our residential mortgage portfolio, the total reserve to loan ratio would be 1.08%. Total deposits decreased by $258 million or 5.3% annualized during Q4 2024, primarily due to the decrease of $449 million in broker deposits. Total core deposits increased $417 million, or 16.7% annualized, due to seasonal factors and marketing activities. Total time deposits, excluding broker deposits, decreased $226 million during Q4 2024. We expect deposit growth for 2025 to be between 3% and 4%. As of December 31, 2024, total uninsured deposits were $8.6 billion, net of $0.8 billion in collateralized deposits, or 43.8 percent of total deposits. We have an unused borrowing capacity from the Federal Home Loan Bank of $7.2 billion and the Federal Reserve Bank of $395 million, and unplanned securities of $1.5 billion as of December 31st, 2024. These sources of available liquidity more than covers 100 percent of uninsured and uncollateralized deposits as of December 31st, 2024. I will now turn the floor over to our Executive Vice President and Chief Financial Officer, Mr. Hang Chang, to discuss the quarterly financial results in more detail.