Cathay General Bancorp (CATY) Q2 Earnings call transcript Jul 22, 2024
Cathay General Bancorp recently held its second quarter 2024 earnings call, providing investors and analysts with valuable insights into the company's financial performance and future prospects. In this article, we will analyze the key themes and trends that emerged during the call, highlighting the company's financial health and growth prospects.
Financial Performance and Guidance
During the call, Cathay General Bancorp reported a net income of $66.8 million for Q2 2024, marking a 6.4% decrease from the previous quarter. Diluted earnings per share also decreased by 6.1% to $0.92 per share. The company's loan portfolio saw a decrease of $72 million or 1.5% annualized, driven primarily by commercial loans, residential mortgages, and construction loans. The company attributed this to slower-than-expected loan growth in the first half of 2024, leading to a revised loan growth guidance for 2024, ranging between 0% and 2%.
Loan Portfolio and Asset Quality
Cathay General Bancorp's loan portfolio consists of 64% fixed rate and hybrid loans, with fixed rate loans comprising 30% of total loans. The company reported an average loan-to-value of 50% for its commercial real estate (CRE) loans and a retail property loan portfolio of $2.4 billion, representing 12% of total loans. Notably, only 10% of retail property loans are secured by shopping centers. The company's nonaccrual loans increased to $107.3 million, with a majority of the increase attributed to 1 office CRE loan and 1 retail condo CRE loan. However, these loans are not projected to result in any losses based on recent appraisals.
Deposits and Liquidity
Total deposits decreased by $73 million or 1.5% annualized, with NOW deposits decreasing significantly due to the runoff of brokered NOW deposits. Total uninsured deposits were $8.2 billion, net of collateralized deposits, representing 41.5% of total deposits. The company has an unused borrowing capacity from the Federal Home Loan Bank and the Federal Reserve, as well as securities of $1.7 billion, providing ample liquidity to cover uninsured and un-collateralized deposits.
Expenses and Taxes
Heng Chen, the company's Chief Financial Officer, discussed the increase in core noninterest expense, which is now expected to range between 4% and 5%, up from the previous guidance of 3% to 3.5%. The effective tax rate for Q2 2024 was 7.9%, with expectations of a higher rate between 10.5% and 11.5% for the second half of 2024. The company also anticipates total 2024 solar tax credit investment amortization of $32.5 million, with $10 million amortization in Q3 and $2 million in Q4.
Future Outlook
Chang Liu, Cathay General Bancorp's President and CEO, provided an update on the company's M&A strategy, stating that they are not actively pursuing any acquisitions at the moment. The company's focus is on improving its loan and deposit growth, with expectations of seeing most of the improvement coming from commercial real estate.
In conclusion, Cathay General Bancorp's second quarter 2024 earnings call provided a comprehensive overview of the company's financial performance and future prospects. Despite facing challenges in loan growth, the company remains confident in its financial health and growth prospects, particularly in the commercial real estate sector. The company's focus on increasing liquidity and managing expenses, along with its solid asset quality, positions it well for the future. Investors and analysts will be closely monitoring Cathay General Bancorp's performance in the second half of 2024, particularly in relation to its revised loan growth guidance and expectations for net interest margin.