管理層發言
Good afternoon, ladies and gentlemen, and welcome to Cathay General Bancorp's Second Quarter 2026 earnings conference call. My name is Asha, and I'll be your coordinator for today. Today's call is being recorded and will be available for replay at www.cathaygeneralbancorp.com. Now I would like to turn the call over to Georgia Lo, Investor Relations of Cathay General Bancorp. 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; and Mr. Al Wang, 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 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 31, 2025, at Item 1A in particular, and in other reports and filings 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 second quarter 2026 results. To obtain a copy of our earnings release as well as our earnings presentation, please visit our website at 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. Good afternoon, and thank you for joining us today. I will begin on Slide 4. We delivered strong financial performance in the second quarter, reporting net income of $92.2 million or $1.37 per diluted share. Net interest income increased to $200.9 million and net interest margin expanded to 3.48%, marking the eighth consecutive quarter of NIM expansion. This reflects our continued focus on managing funding costs in a competitive environment. During the quarter, we completed another securities repositioning as part of our ongoing balance sheet optimization efforts. The transaction resulted in a $10.6 million loss on sale, but will improve future earnings and will further support margin expansion. Credit quality remains strong, reflecting disciplined underwriting. Net charge-offs declined while criticized and classified asset levels improved. Our reported efficiency ratio increased to 41.5% from 40.4% last quarter, primarily due to higher low-income housing tax credit amortization. On an adjusted basis, the efficiency ratio was 37.0% compared to 36.9% in the prior quarter. Capital management remains an important part of our overall strategy. We continue to operate from a strong capital position, which gives us flexibility to support growth, return capital to shareholders and optimize our funding profile. During the quarter, we repurchased 242,000 shares at an average cost of $58 per share. In addition, our Board recently approved an increase in our share repurchase authorization from $150 million to $200 million, subject to regulatory approval, reflecting our continued focus on disciplined and prudent capital returns. Separately, we intend to redeem a portion of our outstanding trust preferred securities as part of our ongoing capital and balance sheet optimization efforts, which are expected to reduce our funding costs and improve recurring earnings. From an operating standpoint, we saw improved momentum as the quarter progressed. Loan growth accelerated during the second quarter, and we continue to see healthy client activity and a solid pipeline heading into the second half of the year. These trends contributed to continued growth across the balance sheet while maintaining strong liquidity and capital levels. I will now turn the call over to Al to walk through our second quarter results in more detail. I'll provide some closing comments before we open up the call to Q&A.
Thank you, Chang. I'll start with our balance sheet on Slide 5. Period-end loans of $20.6 billion grew 2.2% linked quarter, supporting continued growth in interest income. Period-end deposits increased 1.9% linked quarter to $21.1 billion. While year-to-date deposit growth remains modest at $167 million or 0.8%, quarterly deposit growth accelerated meaningfully during May and June, reflecting improved momentum entering the second half of the year. Capital levels remain strong with regulatory capital ratios well above minimum requirements and internal operating targets, while tangible book value per share increased 3% linked quarter and 10% year-over-year. Slide 6 breaks down our average loan and deposit mix. Average loan balances increased 1% linked quarter on an annualized basis, while the composition remained relatively stable and well diversified. CRE concentration of 277% declined 1 basis point and continues to stay below regulatory guidelines. Average deposits increased 2% linked quarter on an annualized basis, non-maturity deposits increased while time deposits declined during the quarter, resulting in a more favorable funding mix and lower concentration in CDs. Our uninsured deposit ratio remained stable at 45%. The Slide 7 illustrates the strong liquidity, credit and interest rate risk profile of our AFS securities portfolio. In June, we sold $160 million of lower-yielding securities and recognized a $10.6 million loss as part of our ongoing balance sheet optimization efforts. The proceeds were reinvested at significantly higher yields and resulted in an earn back of less than 3.5 years, while maintaining substantially the same duration and credit profile. Included in this activity, year-to-date, we have sold $371.7 million of lower-yielding securities and reinvested $341.8 million into higher-yielding investments. These repositioning activities have an aggregate earn-back period of approximately 3.1 years and were executed with no meaningful change to the portfolio's overall duration or credit profile. The portfolio remains highly liquid and defensively positioned; duration is approximately 2 years, roughly two-thirds of the projected cash flows are expected to return within the next 12 months and more than 95% of the portfolio is backed by U.S. government agencies. Unrealized losses continued to decline during the quarter, benefiting from our ongoing balance sheet optimization efforts. On Slide 8, net income of $92.2 million increased 6% linked quarter, driven by net interest income and lower provision for credit losses, partially offset by higher noninterest expense and higher income tax expense. I'll discuss each of these drivers in more detail on the following slides. Slide 9 summarizes our yield and funding costs. Net interest income reached $201 million, increasing $7 million from the prior quarter, driven by higher average earning assets, continued net interest margin expansion and day count. Net interest margin expanded 5 basis points to 3.48%, reflecting continued improvement in funding costs, partially offset by narrower loan spreads. Slide 10 highlights noninterest income. Noninterest income increased $0.7 million from the prior quarter. Results included an $11.7 million gain on equity securities, largely offset by the $10.6 million loss on the available-for-sale securities related to our investment portfolio repositioning activities. Excluding these notable items, noninterest income was $20.3 million compared to $19 million in the prior quarter, reflecting growth of approximately 6%, including continued growth in wealth management. Moving to Slide 11. Noninterest expense increased to $92.3 million this quarter from $86.7 million last quarter. The increase was primarily driven by $3.1 million of higher amortization expense on our low-income housing tax partnerships following the receipt of updated fund financial statements. Excluding this and other noncore expenses, adjusted noninterest expense was $81.9 million. Our adjusted efficiency ratio remained stable at 37% compared to 36.9% last quarter. Turning to Slide 12. Credit quality remained strong with improvement across several key metrics. Net charge-offs declined to $1.8 million. Classified loans decreased $10 million and criticized loans improved by $103 million during the quarter. The allowance for loan loss increased $10 million to $219 million or 1.06% of gross loans, primarily reflecting loan growth. Turning to Slide 13. Capital levels remain strong and well above regulatory minimum requirements. As part of our ongoing capital and balance sheet optimization efforts, we plan to redeem approximately $54.1 million of the $119.1 million of outstanding trust preferred securities, representing the redemption of our highest cost issuances. In addition, we completed a review of certain regulatory capital reporting treatments, resulting in an increase of approximately 20 basis points to our risk-based capital ratios. I'll wrap up on Slide 14 with our outlook. We continue to expect full year loan growth in the 3.5% to 4.5% range. Given this lower-than-expected deposit growth during the first half of the year, we have revised our full year deposit growth outlook to 3% to 4%. Our NIM and NII outlook now assumes a 25-basis-point rate increase in September. Even with that updated rate outlook, we remain confident in achieving our full year NIM target of 3.4% to 3.5%. We are maintaining our adjusted noninterest expense growth outlook at 3.5% to 4.5%. And we now expect our effective tax rate to be between 21% and 22% for the year, reflecting our updated earnings outlook. And with that, I'll turn the call back over to Chang.
Thank you, Al. Overall, we're pleased with our performance for the first half of the year. We expanded net interest margin, delivered solid earnings, increased shareholder returns through both dividend increases and expanded share repurchase capacity and continue to maintain strong capital levels. Looking ahead, we are entering the third quarter with good momentum. Activity accelerated meaningfully during the second quarter, and we remain focused on executing our financial objectives while maintaining our disciplined approach to growth, capital and expenses. With that, we can now open it up for questions.
分析師問答
I wanted to start on net interest margin. You reiterated the 3.4% to 3.5%. Can you talk about the puts and takes within that range? What could take you to the high end, the low end? You mentioned that a rate hike is now assumed in there. Any commentary around that?
Yes. On the loan side, our loan yield dropped by about 4 basis points linked quarter, but we had an elevated level of interest recoveries and prepayment penalties last quarter, which was about $3.5 million or about 6 basis points of NIM. This quarter, it was about $2 million or 4 basis points of NIM. Equalizing that out, loan yields would have been roughly flat. We think that will continue to flatten out. As rates rise, that should go the other direction and begin to expand at some point later in the year. On the deposit side, we're seeing a lot of competition for deposits. We were able to reduce our deposit cost by 10 basis points linked quarter. A lot of that had to do with pricing, but a lot of it was also mix. In this last quarter, we did a good job of growing lower-cost deposits. Time deposit volumes were relatively flat, but we grew noninterest-bearing and savings balances. So much of the reduction in deposit costs was mix-driven, with some from pricing as well. Looking at next quarter and the coming quarters, we do see pressure. We have about $3.3 billion to $3.4 billion of CDs rolling off at a 3.54% rate. We expect to replace those at probably a slightly higher yield than that, so there will be pressure. That said, I think there's still room from a NIM perspective; it may be months rather than quarters, but there should still be some room for expansion as we go forward in the year. A hike in September is going to put a little more pressure, but we remain pretty confident we'll still be in the range.
Now, on that point, you mentioned NIM expansion. I'm assuming that's on a core basis, excluding some of the excess income you got this quarter. Since we're at 3.48% and you're calling for 3.40% to 3.50%, is it fair to assume we could see a little bit of pressure on the NIM getting back into the middle of that range?
Yes. We tend to have those recoveries and prepayment penalties every quarter. On a core basis, we would have been at 3.44% this past quarter. In the coming quarter, there's probably still some room for improvement even on a core basis, but it will become smaller as we go forward. Depending on how well we can manage spreads and deposit costs, we'll see more pressure in the fourth quarter. I'm not sure at this point whether we'll see expansion in the fourth quarter, but we remain pretty confident we'll be in the range either way.
Great to hear. One quick follow-up on noninterest-bearing deposit mix. How should we think about that? Could it be stable? It looks like about 17%. How should we think about that going forward?
We're pleased that noninterest-bearing balances went up. We're not projecting in our NIM projections that we'll grow that category on a relative basis materially. Through the first 21 days of July, we've grown deposits by $240 million, which is encouraging, although most of that was equally distributed between money market, savings and time deposits. So there wasn't significant growth in noninterest-bearing balances in the last two to three weeks. It's reasonable to expect the mix to be about the same as where we left off in Q2.
On the securities loss trade that you did, can you give us the pickup in yield that you got?
The second quarter trade was about $161 million. Those securities were yielding about 3.15%. We reinvested roughly $152 million at about 5.31%, resulting in the $10.6 million loss. That implies about a 3.5-year earn-back, or a little over $3 million of NII per quarter. On a run-rate basis, that's approximately a 1 basis point impact to margin. If I combine both loss trades from this year, it's about an $8.5 million annual income lift going forward with a combined $26 million loss. That equates to roughly a three-basis-point NIM lift going forward.
Okay. And the timing of that in the quarter?
The first quarter impairment trade was executed in early April, so we saw most of that quarter's benefit. The second trade was in the second half of June, so we didn't see much benefit from that trade in the quarter. We'll see the full effects from both trades starting next quarter.
It sounded like there's maybe a little bit of incremental pressure on loan yields, assuming no hike. And on the deposit side, it sounds like there's maybe a little upward creep going forward. Just trying to square that with your expectations for maybe a little bit of NIM lift here in the near term?
On an apples-to-apples basis, excluding interest recoveries and prepayment penalties, loan yields were about flat. There was some pressure on C&I and construction, and those balances fell. However, our origination rates for CRE and mortgage are higher than our current spot rates, which should provide tailwinds. The overall rate environment should also help. So we're projecting to be flattish on loan yields with the hope of an inflection later in the year. On the deposit side, CDs that are rolling off are currently priced fairly high, and there's a lot of competition, so there will be some pressure as those roll over.
And the last one, just on the low-income housing tax credit amortization that we should be using going forward on a quarterly basis?
We received updated statements that implied a slightly higher amortization. Next quarter, we're looking at around $8 million of expense based on current schedules, and it will probably settle into around a little under $10 million a quarter thereafter.
I wanted to ask about the loan outlook. You didn't change the guide at all in terms of the full-year number. Was the second quarter pent-up demand after a slower first quarter? Could you talk about the pipeline going into the third quarter? Are you seeing a reduction in activity given some of the macro uncertainty out there right now?
We were also surprised that the first quarter was a bit flat, but the bulk of the activity pulled through in the second quarter. We saw a bit more C&I activity, residential mortgage was up slightly but still somewhat flat, and CRE increased even though construction declined a bit. For the first three weeks of July, we've seen $200 million in loan bookings, which is a positive indicator. Much of that has been CRE business, including refinancings of apartment and multifamily deals and some retail. We're seeing more frequent activity in those areas and expect that to contribute to growth going forward.
On the allowance, you had a bit higher provision this quarter due to growth. The allowance increased from 1.03% to 1.06%. Was that a function of anything specific in the portfolio? Was it driven by Moody's forecast or something else?
We kept our economic scenarios intact given geopolitical uncertainty. Of the $10 million increase in the allowance, roughly $5.5 million was due to loan growth. About $3 million was due to specific reserves: we had a CRE property for which we increased reserves, and we also had a CRE multifamily where we added incremental reserves. There's actually a sale agreement for one property where we'll have zero losses, which was a favorable pickup. The net of those specific reserve changes was about $3 million. We also did some housekeeping on one of the key factors that contributed about $1.5 million. So the $10 million is comprised of $5.5 million for growth, $3 million for specific reserves and $1.5 million for adjustments to key factors.
Turning to capital return: it's been a part of the Cathay story for a while. You increased the buyback authorization in the release, but buybacks this quarter were relatively light. Given where the stock is and your healthy capital levels, what's your appetite for buybacks going forward?
Part of the lightness in buybacks was timing; we didn't receive formal regulatory approval until later, around the end of April, which limited early activity. We expect to increase purchase activity for the rest of the year. The $50 million upsizing is structured similarly to prior years: the prior $150 million was planned as $135 million for 2026 and $15 million for 2027. We wanted to ensure we had dry powder entering the first quarter. I would expect a similar pace to last year for the remainder of this year, but also to be more active in the first quarter than we've been historically.
I want to thank everyone for joining us and for your interest in Cathay. We look forward to speaking with you at our next quarterly earnings release call.
Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.