Cathay General Bancorp(CATY) - 2023 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net income for Q1 2023 decreased by 1.6% to $96 million compared to$ 97.6 million in Q4 2022, primarily due to net interest margin compression from increased deposit costs [24][80] - Diluted earnings per share decreased by 0.8% to $1.32 per share for Q1 2023 from$ 1.33 per share in Q4 2022 [6] - Non-interest expenses increased by 2.4% to $83.2 million in Q1 2023 compared to$ 81.2 million in Q4 2022, driven by higher salaries and bonuses [10] Business Line Data and Key Metrics Changes - Gross loans increased by $63.3 million or 1.4% annualized in Q1 2023, with commercial real estate loans up by$ 123 million or 5.6% annualized and residential mortgage loans up by $131 million or 10% annualized [87] - Non-accrual loans increased to 0.4% of total loans, totaling$ 73.6 million, up by $6.9 million from Q4 2022 [22] - Total time deposits increased by$ 2.9 billion or 222% annualized during Q1 2023 due to a promotional campaign [23] Market Data and Key Metrics Changes - Total uninsured deposits decreased by approximately $0.5 billion to$ 8.7 billion as of March 31, 2023, from $9.2 billion as of December 31, 2022 [8] - Total deposits reduced by$ 143.6 million or 3.1% annualized during Q1 2023 [89] - Total money market deposits decreased by $1.4 billion or 119% annualized due to a migration back to CDs [93] Company Strategy and Development Direction - The company has reduced its guidance for overall loan growth for 2023 to between 1% to 3% from a previous guidance of 3% to 5% due to economic uncertainties [3] - The company is focusing on business deposits and leveraging its commercial and industrial (C&I) client base to gather deposits [97] - The company plans to restart its stock repurchase program later in the year, pending economic conditions [51] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns about net interest margin compression due to rising deposit costs and expects a slight recovery in NIM with anticipated Fed rate hikes [108] - The effective tax rate for 2023 is expected to be between 16.5% and 17.5% [25] - Management noted that the overall deposit growth for 2023 is expected to range between 2% and 4% [93] Other Important Information - The company recorded a provision for credit loss of$ 8.1 million in Q1 2023, up from $1.4 million in Q4 2022 [89] - The average loan-to-value ratio for commercial real estate loans was 50% as of March 31, 2023 [21] - The company has$ 6.5 billion in unused borrowing capacity from the Federal Home Loan Bank as of March 31, 2023 [92] Q&A Session Summary Question: What is the reserve set aside for office CRE exposure? - The reserve for office CRE exposure is approximately 70 basis points, with minimal non-accruals in that portfolio [31] Question: What are the expectations for net interest margin (NIM)? - The company expects NIM to be between 3.6% to 3.7% for 2023, with a slight recovery anticipated due to Fed rate hikes [108] Question: How is the company managing liquidity post-banking crisis? - The company did not feel the need to build up significant liquidity due to available cash and borrowing capacity from the Federal Home Loan Bank [40] Question: What is the strategy for deposit gathering moving forward? - The company will continue to focus on business deposits and leveraging its C&I client base while maintaining a pace of CDs [97] Question: What is the outlook for provisions and reserves in 2023? - The company hopes not to see large charge-offs again in the second quarter, with reserves expected to be lower than in Q1 [62]