CATHAY GENERAL BANCORP Q4 FY2024 earnings call

• President Chang Liu noted heavy hearts over LA fires and discussed Q4 financials, loan growth expectations, loan portfolio composition, and net charge-offs.
• CFO Heng Chen detailed Q4 net income components, NIM outlook, non-interest income decrease, non-interest expense decrease, tax rate guidance, and capital ratios. He also mentioned expectations for core non-interest expense growth and no solar tax credit investments in 2025.

For Q4 2024, net income was $80.2 million, an 18.8% increase from $67.5 million in Q3. Diluted earnings per share increased to $1.12 from $0.94. Total gross loans had increases in CRE loans ($59 million annualized, 2.4%) and construction loans ($30 million annualized, 11.9%), offset by decreases in residential mortgages ($61 million annualized, 4.2%) and commercial loans ($9 million annualized, 1.1%). Loan portfolio has 63% fixed rate and hybrid loans. Net charge-offs in Q4 were $16.3 million vs $4.2 million in Q3. Total deposits decreased by $258 million, but core deposits increased $417 million. Q4 net interest margin was 3.07% vs 3.04% in Q3. Non-interest income decreased by $4.9 million to $15.5 million, while non-interest expense decreased by $11.6 million to $85.2 million.

• Anticipates loan growth in 2025 between 3% and 4%.
• Expects NIM for 2025 to range between 3.10% and 3.20%.
• Core non-interest expense is expected to increase between 4.5% and 5.5% from 2024 to 2025.
• Effective tax rate for 2025 is expected to be between 19.5% and 20.5%.
• Anticipates repurchasing around $30 million in stock in Q1 2025 depending on market conditions.

• Regulatory compliance risks related to beefing up risk side of business.
• Interest rate changes affecting loan yields and deposit costs.
• Potential credit risks in commercial real estate and other loan portfolios.
• Impact of broker deposit runoff on deposits.

Q: Could you give the average margin in December and spot rate on deposits at year-end?

A: The average margin for December was 3.11% including interest recoveries, and the total weighted spot rate on deposits at year-end was 3.52%.

Q: Unpack core expense growth of roughly 5%?

A: Mostly due to staff additions in 2024 and higher bonus accruals expected in 2025, with focus on regulatory side staffing since Spring 2023.

Q: Impact of wildfires on credit exposure?

A: No loss reported in commercial real estate, business banking, or SBA portfolios; some minor items in C&I and mortgages but small compared to total assets.

Q: Thoughts on capital deployment and M&A?

A: Always eyeing M&A, but niche market means opportunities need to be accretive and strategic; currently focused on risk side staffing.

Q: Details on special mention loans?

A: Most due to one credit with lower profitability, handled with abundance of caution.

Q: SNC portfolio size and criticized percentage?

A: SNC portfolio is about 4% of total loans, with most criticized in nonaccrual and reduced by selling $50 million in Q4 at small discount.

Q: Chief Risk Officer departure?

A: Incumbent CRO retired, searching for qualified candidate to elevate risk side maturity post Spring 2023.