Cathay General Bancorp (CATY) Q3 2024 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals a mixed picture. Strong points include a slight increase in net income, EPS, and net interest margin, as well as a significant share repurchase plan. However, concerns arise from increased non-accrual and classified loans, higher provision for credit loss, and increased effective tax rate. The Q&A highlighted some uncertainties, such as the maturity schedule of fixed loans. The overall sentiment is neutral, as positive factors are balanced by risks and uncertainties.
Key Financial Performance
Net Income $67.5 million for Q3 2024, a 1% increase from $66.8 million in Q2 2024, primarily due to increases in net interest income and non-interest income, offset by higher provision for credit losses and income tax expense.
Diluted Earnings Per Share $0.94 for Q3 2024, a 2.2% increase from $0.92 in Q2 2024.
Total Gross Loans Increased by $16 million or 0.3% annualized in Q3 2024, driven by a $89 million increase in CRE loans and a $16 million increase in C&I loans, offset by decreases in residential mortgages and construction loans.
Net Charge Offs $4.2 million in Q3 2024, down from $8 million in Q2 2024.
Non-Accrual Loans Increased to $162.8 million or 0.84% of total loans as of September 30, 2024, up from $107.3 million in Q2 2024, primarily due to a $38 million loan relationship placed on non-accrual.
Classified Loans Increased to $382 million from $324 million in Q2 2024, mainly due to the placement of the $38 million loan relationship to non-accrual.
Provision for Credit Losses $14.5 million in Q3 2024, up from $6.6 million in Q2 2024, increasing the reserve to loan ratio from 0.79% to 0.85%.
Total Deposits Increased by $171 million or 3.5% annualized during Q3 2024.
Core Deposits Increased by $195 million or 7.8% annualized due to seasonal factors and marketing activities.
Total Time Deposits Decreased by $24 million or 1% annualized during Q3 2024.
Net Interest Margin 3.04% for Q3 2024, up from 3.01% in Q2 2024, indicating a potential bottoming out and beginning increase in net interest margin.
Non-Interest Income Increased by $7.2 million to $20.4 million in Q3 2024, compared to $13.2 million in Q2 2024, primarily due to a $5.7 million increase in mark-to-market gains on equity securities.
Non-Interest Expenses Decreased by $2.5 million or 2.5% to $96.9 million in Q3 2024, compared to $99.4 million in Q2 2024, primarily due to lower professional and operating expenses.
Effective Tax Rate 13.6% for Q3 2024, up from 7.9% in Q2 2024.
Tier 1 Leverage Capital Ratio Decreased to 10.82% as of September 30, 2024, from 10.83% as of June 30, 2024.
Tier 1 Risk-Based Capital Ratio Increased to 13.33% from 13.26% as of June 30, 2024.
Total Risk-Based Capital Ratio Increased to 14.88% from 14.74% as of June 30, 2024.
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Operating Highlights
Stock Buyback Program: Repurchased 832,460 shares at an average cost of $42 per share, with $35 million allocated under the $125 million stock buyback program initiated in May 2024.
Loan Growth: Total gross loans increased by $16 million or 0.3% annualized, with expectations of loan growth for 2024 to be between -1% and 0%.
Deposits: Total deposits increased by $171 million or 3.5% annualized, with core deposits increasing by $195 million or 7.8% annualized.
Credit Loss Provision: Recorded a provision for credit loss of $14.5 million in Q3 2024, increasing the reserve to loan ratio from 0.79% to 0.85%.
Non-Interest Income: Increased by $7.2 million to $20.4 million in Q3 2024, primarily due to a $5.7 million increase in mark-to-market gains on equity securities.
Net Interest Margin: Q3 2024 net interest margin increased to 3.04% from 3.01% in Q2, with expectations to range between 3.05% and 3.10% for 2024.
Loan Portfolio Composition: 63% of the loan portfolio consists of fixed rate and hybrid loans, which are expected to support loan yields as market rates decline.
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Risk or Challenges
Loan Loss Reserve Increase: The company increased its loan loss reserve by $10 million, primarily as a general reserve to bolster against potential losses, which may be related to a $38 million loan relationship that went on non-accrual.
Non-Accrual Loans: Non-accrual loans increased to 0.84% of total loans, with a significant contribution from a $38 million loan relationship and a $12.7 million real estate loan in Hong Kong.
Classified Loans: Classified loans rose to $382 million from $324 million in the previous quarter, indicating a potential increase in credit risk.
Provision for Credit Losses: The provision for credit losses increased to $14.5 million from $6.6 million in the previous quarter, reflecting heightened concerns over loan performance.
Economic Conditions: The company anticipates loan growth for 2024 to be between -1% and 0%, indicating a cautious outlook on economic conditions affecting lending.
Regulatory and Market Conditions: The company is monitoring commercial real estate loans closely, particularly in light of changing market conditions and potential regulatory impacts.
Uninsured Deposits: As of September 30, 2024, total uninsured deposits were $8.4 billion, which poses a risk if market conditions lead to significant withdrawals.
Interest Rate Environment: The company is navigating a changing interest rate environment, with expectations of declining rates impacting loan yields and deposit costs.
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Guidance & Outlook
Stock Buyback Program: Repurchased 832,460 shares at an average cost of $42 per share, with $35 million allocated under the $125 million stock buyback program initiated in May 2024. Anticipate continuing to repurchase around $35 million in stock per quarter in Q4 and Q1 2025, depending on market conditions.
Loan Growth Expectations: Expect loan growth for 2024 to be between -1% and 0% based on current loan trends.
Net Interest Margin Guidance: Anticipate net interest margin for 2024 to range between 3.05% and 3.10%.
Tax Rate Guidance: Expect an effective tax rate between 10.5% and 11.5% for 2024.
Capital Management: Board may consider increasing the buyback authorization from $125 million to $150 million after the current program.
Net Income: Reported net income of $67.5 million for Q3 2024, a 1% increase from Q2.
Earnings Per Share: Diluted earnings per share increased 2.2% to $0.94 for Q3 2024.
Loan Loss Reserve: Recorded a provision for credit loss of $14.5 million in Q3 2024, increasing the reserve to loan ratio from 0.79% to 0.85%.
Deposits Growth: Total deposits increased by $171 million or 3.5% annualized during Q3 2024.
Core Deposits Growth: Total core deposits increased by $195 million or 7.8% annualized due to seasonal factors and marketing activities.
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Shareholder Return Plan
Share Repurchase Program: During Q3 2024, Cathay General Bancorp repurchased 832,460 shares of common stock at an average cost of $42 per share, totaling $35 million under the May 2024 $125 million stock buyback program. The company anticipates continuing to repurchase approximately $35 million in stock per quarter in Q4 2024 and Q1 2025, depending on market conditions.
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Key Q&A
Q:Was the $10 million increase in the loan loss reserve related to the $38 million loan relationship that went on non-accrual in the quarter?
A:We did not have any specific reserves against that. So we mainly added the extra $10 million net of charge offs just to bolster our reserves. It's general reserves.
Q:Can you give us an idea of the maturity schedule of the fixed loans and how much of those fixed loans enter a hybrid period next year?
A:I don't have that handy. Give me a couple of days, and I'll get back to you, but most of those hybrid loans are residential mortgage.
Q:How much is coming up for maturity in the fourth quarter regarding CD repricing?
A:In the fourth quarter, maturing CDs is going to be about $3.49 billion. The average yield on those maturing CDs is about 4.82%.
Q:Should we expect the core expenses to step down by a few million bucks or so in Q4?
A:I think there'll be close to Q3. But we have this -- our largest project, which is the – improve our deposit opening process and that should be finished in Q3.
Q:Is $10 million still a good run rate for the fourth quarter for low-income housing amortization?
A:Yes.
Q:Any reason to deviate from the $35 million buyback for the next quarter?
A:Our Board will consider that when we're done with this one. But we will probably do the same signs maybe we'll increase it instead of $125 million will increase it to $150 million for the buyback.
Q:Do you have the spot rate on loans, deposits and/or the NIM at the end of the quarter for the month of September?
A:Yes. For the quarter, our spot rates on the residential mortgage is about 7% compared to -- portfolio is about 5.6%.
Q:Can you provide any color on the remaining migration during the quarter regarding non-performers?
A:One of them was, one, we were talking about in Hong Kong that has secured by three retail center collaterals and that was about $12.7 million.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer regarding the maturity schedule of fixed loans and how much will enter a hybrid period next year, stating they would need a couple of days to get back with that information.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
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CATY Transcript
Cathay General Bancorp (NASDAQ:CATY) Q1 2025 Earnings Call Transcript
Unknown4-23
The earnings call reveals several concerns: a decline in net income and EPS, increased non-accrual loans, and significant uninsured deposits posing liquidity risks. Despite a share repurchase program, loan growth guidance is weak, and management's responses in the Q&A lack clarity. These factors, combined with an increased effective tax rate and cautious market sentiment, suggest a negative stock price reaction in the near term.
Earnings call transcript: Cathay General Bancorp Q1 2025 beats EPS forecast
Unknown4-21
The earnings call presents a mixed picture: while there is a positive net interest margin increase and a steady share repurchase plan, the financial performance shows a decrease in net income and diluted EPS. The Q&A reveals economic uncertainties affecting loan growth and customer investment, with management providing unclear responses regarding tariff impacts. The lack of strong positive catalysts and mixed financial results lead to a neutral sentiment, with potential for minor fluctuations in the stock price over the next two weeks.
Earnings call transcript: Cathay General Bancorp beats Q3 2024 forecasts
Unknown1-22
The earnings call presents mixed signals. Financial performance shows modest growth, but increased non-accrual and classified loans raise concerns. The stock buyback program is positive, yet liquidity risks from uninsured deposits persist. The Q&A section reveals some uncertainties and unclear responses, particularly regarding loan maturity schedules. Overall, the sentiment is balanced, with neither strong positive nor negative indicators dominating.
Cathay General Bancorp (CATY) Q3 2024 Earnings Call Transcript
Unknown10-22
The earnings call reveals a mixed picture. Strong points include a slight increase in net income, EPS, and net interest margin, as well as a significant share repurchase plan. However, concerns arise from increased non-accrual and classified loans, higher provision for credit loss, and increased effective tax rate. The Q&A highlighted some uncertainties, such as the maturity schedule of fixed loans. The overall sentiment is neutral, as positive factors are balanced by risks and uncertainties.
CATY Slides
CATY Report
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