Cathay General Bancorp (NASDAQ:CATY) Q1 2018 Earnings Conference Call Transcript

Apr 18, 2018 • 06:00 pm ET

Previous

Cathay General Bancorp (NASDAQ:CATY) Q1 2018 Earnings Conference Call Transcript

Share
Close

Loading Event

Loading Transcript

Presentation
Executive
Pin Tai

2018 business financials in more detail.

Executive
Heng Chen

Thank you, Pin, and good afternoon, everyone. For the first quarter, we announced net income of $63.8 million or $0.78 per share, which was reduced by $0.03 from a decrease in the fair value of equity securities. Our net interest margin was 3.75% in the first quarter of 2018 as compared to 3.49% in the first quarter of 2017 and 3.65% in the fourth quarter of 2017. In the first quarter of 2018, interest recoveries and pre-payment penalties added five basis points for the net interest margin compared to seven basis points for the fourth quarter of 2017 and three basis points for the first quarter of 2017.

Non-interest income during the first quarter of 2018 decreased by $1.4 million to $5.3 million when compared to the first quarter of 2017. The decrease was due to the $3.9 million decrease in the fair value of equity securities that was recorded in the income statement from the adoption of new accounting pronouncement ASU 2016-01 financial instruments.

Prior to the adoption of ASU 2016-01, changes in the fair value of equity securities were recorded in comprehensive income as a component of equity. Non-interest expense increased by $9.1 million or 17.5% to $61 million in the first quarter of 2018 when compared to $51.9 million in the same quarter a year ago, due in part to the acquisition of Far East National Bank. For the first quarter of 2018, the increase in non-interest expense was due to a $4.5 million increase in salaries and employee benefits expense and a $1.8 million increase in professional services expense.

The effective tax rate for the first quarter of 2018 was 22.8%. Income tax expense for the first quarter of 2018 was reduced primarily by the reduction of the corporate tax rate from the enactment of the Tax Cuts and Jobs Act. We hope to complete an investment in the solo tax credit fund during the second quarter. While there is no assurance that we'll complete any such investment, if we proceed and complete such investment, we project our full year 2018 effective tax rate will be between 18% and 18.5%. The second quarter effective tax rate will reflect a year-to-date catch up to the meaningful year effective tax rate. We expect solid tax credit amortization of $2 (ph) million in the second quarter and then $9 million per quarter for the second half of 2018.

At March 31, 2018, our Tier 1 leverage capital ratio increased to 10.59% as compared to 10.35% at December 31, 2017. Our Tier 1 risk-based capital ratio increased 12.7% from 12.19% at December 31, 2017. And our total risk-based capital ratio increased to 14.37% from 14.11% at December 31, 2017. Our ratios significantly exceeded well-capitalized minimum ratios under all these regulatory guidelines.

Net recoveries for the first quarter of 2018 were $1.8 million compared to net recoveries of $1.7 million in the fourth quarter of 2017 and net charge-offs of $0.9 million in the first