Chang Liu; President, Chief Executive Officer, Director of the Company and the Bank; Cathay General Bancorp
Heng Chen; Chief Financial Officer, Executive Vice President, Treasurer of the Company and Executive Vice President, Chief Financial Officer of the Bank; Cathay General Bancorp
Gary Tenner; Analyst; D.A. Davidson & Company
Good afternoon, ladies and gentlemen and welcome to Cathay General Bankcorp's third quarter of 2024 earnings conference call. My name is Rocco and I will be your coordinator for today. At this time all participants are in listen-only mode.
Following the prepared remarks, there will be a question-and-answer session. (Operator Instructions) Today's call is being recorded and will be available for replay at www.cathaygeneralbankcorp.com.
Now I would like to turn the call over to Georgia Lo, Investor Relations of Cathay General Bancorp.
Thank you, Rocco, and good afternoon. Here to discuss the financial results today are Mr. Chang Liu, our President and Chief Executive Officer; and Mr. Heng Chen, 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 the 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, 2023, 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 inquired 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 third-quarter 2024 results. To obtain a copy of our earnings release as well as our earnings presentation, please visit our website at www.cathaygeneralbankcorp.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.
Chang Liu
Thank you, Georgia, and good afternoon. Welcome to our 2024 third-quarter earnings conference call. This afternoon, we reported net income of $67.5 million for Q3 2024, a 1% increase as compared to $66.8 million in Q2. Diluted earnings per share increased 2.2% to $0.94 per share for the third quarter as compared to $0.92 per share in Q2.
During the third quarter of 2024 we repurchased 832,460 shares of our common stock at an average cost of $42 per share, with $35 million under our May 2024, $125 million stock buyback program.
We anticipate continuing to repurchase around $35 million in stock per quarter in Q4 and Q1 2025, depending on the market conditions. In Q3 2024, total growth loans increased $16 million or 0.3% annualized primarily driven by increases of $89 million or 4% annualized in CRE loans and $16 million or 2% annualized in C&I loans, offset by decreases of $40 million or 3% annualized in residential mortgages and HELOC and $50 million or 47% annualized in construction loans. We expect loan growth for 2024 to be between minus 1% and 0% based on the loan trend so far in 2024.
Slide 6, shows the percentage of loans in each major loan portfolio that are either fixed rate or hybrid loans in their fixed rate period. Our loan portfolio consists of 63% fixed rate and hybrid loans excluding fixed to flow interest rate swaps on 4.5% of total loans.
Fixed rate loans comprise 3% of total loans and hybrid in fixed rate period comprise 33% of total loans. We expect these fixed rate loans to support our loan yields as market rates are expected to decline. We continue to monitor our commercial real estate loans.
Turning to slide 8 of our earnings presentation. As of September 30, 2024, the average loan to value of our CRE loans was 49%. As of September 30, 2024, our retail property loan portfolio is shown on site nine comprised of 24% of our total CRE loan portfolio or 12% of our total loan portfolio. 90% of the $2.4 billion in retail property loans secured by retail store, building, neighborhood mixed use or strip centers only 9% is secured by shopping centers. On slide 10, office property loans represent 15% of our total CRE loan portfolio or 8% of our total loan portfolio. Only 35% of the $1.5 billion in office property loans are collateralized by pure office buildings. Only 3% are in central the business districts. 38% of office property loans are collateralized by office retail stores, office mixed use and medical offices and the remainder 27% are collateralized by office on those.
For Q3 2024 we reported net charge offs of $4.2 million as compared to $8 million in Q2. Our non-accrual loans were 0.84% of total loans as of September 30, 2024 which increased $55.5 million to $162.8 million, as compare to Q2.
The increase in non-accrual loans during Q3 2024, came primarily from a $38 million loan relationship that was placed on non-accrual due to interest delinquency of more than 90 days on $19 million of those loans. Of this loan relationship $11.2 million is a real estate loan where the borrower is looking for another lender.
The borrower is also seeking new financing to repay commercial loans in this relationship. We expect the loan delinquency to be resolved in the next few months. The other large new non-accrual loan is a $12.7 million real estate loan in Hong Kong secured by four rental properties with no projected loss. During the third quarter, we also sold our largest non-accrual loan, a $23 million construction loan and recover $1.9 million of back interest.
Turning to slide 12 as of September 30, 2024. Classified loans increased to $382 million from $324 million in Q2 mainly due to the placement of the $38 million loan relationship discussed above during accrual. And our special mention loans increased to $203 million from $202 million in Q2.
We recorded a provision for credit loss of $14.5 million in Q3 2024 as compared to a $6.6 million provision for credit losses for Q2. This increased the reserve to loan ratio from 0.79% for Q2 to 0.85% for Q3. However, excluding our residential mortgage portfolio which has historically have very low loss content.
The total reserve to loan ratio would be 1.08%. Total deposits increased by $171 million or 3.5% annualized during Q3 2024. Total core deposits increased $195 million or 7.8% annualized due to seasonal factors in marketing activities and total time deposits decreased $24 million or 1% annualized during Q3 2024.
The average number of months of time deposits is five months which will allow us to lower the cost of time deposits as deposit rates are expected to decline. As of September 30, 2024, total uninsured deposits were $8.4 billion net of $0.8 billion in collateralized deposits or 42.1% of total deposits.
We have an unused borrowing capacity from the Federal Home Loan Bank of $7.2 billion and the Federal Reserve Bank of $438 million and unpledged securities of $1.5 billion as of September 30, 2024. The sources of available liquidity more than covers 100% of uninsured and uncollateralized deposits as of September 30, 2024.
I will now turn the floor over to our Executive Vice President and Chief Financial Officer, Mr. Heng Chen to discuss quarterly financial results in more detail.
Heng Chen
Thank you, Chang, and good afternoon, everyone. For Q3 2024, net income increased $0.7 million or 1% to $67.5 million compared to $66.8 million for Q2 primarily due to increases of $3.8 million in net interest income and $7.1 million in noninterest income and $2.5 million decreases in noninterest expense, offset by $7.9 million increase in provision for credit losses and 4.9 million increase in income tax expense.
Net income for Q3 2024 was reduced by $2.2 million or $0.03 per share from the true-up of loan composing tax credits, recorded for 2023. Q3, 2024 net interest margin was 3.04% as compared to 3.01% for Q2.
With the first starting of the rate cutting cycle, our net interest margin appears to have bottomed out and began to increase. We anticipate that the net interest margin for 2024 they range between 3.05% and 3.10%.
In Q3, interest recoveries and prevent penalties added 5 basis points to the net interest income as compared to adding 2 basis points in net interest margin for Q2. Non-interest income for Q3 2024 increased $7.2 million to $20.4 million when compared to $13.2 million in Q2 2024.
The increase was primarily due to a $5.7 million increase, (inaudible) market and gain on equity securities. Non-interest expenses decreased by $2.5 million, 2.5% to $96.9 million in Q3 2024 when compared to $99.4 million in Q2.
This increase was primarily due to $1.2 million in lower professional expense and $1.2 million in lower operating expenses, lower other operating expenses. The effective tax rate for Q3 2024 was 13.6% as compared to 7.9% for Q2. We expect an effective tax rate between 10.5% and 11.5% for 2024. The solar tax credit investment amortization is expected to be $32.5 million in 2024 with $1.5 million in Q4.
A true-up of low income housing tax credits for 2023 added $2.2 million to third quarter 2024 income tax expense. As of September 30, 2024, year one leverage capital ratio increased to 10.82% as compared to 10.83% as of June 30, 2024. Our tier one risk based capital ratio increased to 13.33% from 13.26% as of June 30, 2024. And our total risk based capital ratio increased to 14.88% from 14.74% as of June 30, 2024.
Chang Liu
Thank you Heng, we will now proceed to the question-and-answer portion of the call.
Operator
Thank you. (Operator Instructions)
Gary Tenner, D.A. Davidson.
Gary Tenner
Thanks. Good afternoon. I wanted to ask first about the increase in the loan loss reserve in the quarter, the $10 million increase. Was that related to the $38 million loan relationship that went on non-accrual in the quarter or any other changes that you made to the model or any inputs there?
Heng Chen
Yeah, Gary, this is that $30 million loan. We did not have any specific reserves against. So we mainly added the extra $10 million out of charge offs, just to bolster our reserves. So its general reserves.
Gary Tenner
Okay, thank you. And then as we look up to 2025 the fixed of loans and then the fixed loans that become hybrid loans. Can you give us an idea of the maturity schedule of the fixed loans and then how much of those fixed loans enter a hybrid period next year?
Heng Chen
I don't have that handy. Give me a couple of days, and I'll get back to you. But most of those hybrid loans are residential mortgage.
Gary Tenner
All right. Thank you.
Operator
Andrew Terrell, Stephens.
Andrew Terrell
Hey, good afternoon. If I could just start on the CD re-pricing, it's good to see the time deposit cost leveled out in the third quarter. Just curious as you look at the fourth quarter how much is coming up for maturity and then relative to your average cost right now, where -- what's the kind of backbook cost of what's rolling off in the fourth quarter? And where are you pricing new CDs at today?
Chang Liu
So I can start with that, in the fourth quarter, maturing CDs is going to be about $3.49 billion. The average yield on those maturing CD is about 4.82%. Depending upon where, what kind of tenure the clients choose, whether it's 6 months or 12 months. Those rates are going to be in the low to mid-4s.
Heng Chen
Right. Yeah. And then we have about $600 million that is a maturing in January and early February from our Chinese New Year promotion. That's the one year CDs and those were at 4.85% and they'll roll down to hopefully to the low 4s, maybe 4.20%, 4.30%.
And the last thing we have another $800 million or six month Chinese promotion CDs that matured in July and in early August. So they we price them down by 20 basis points, but when they come up for renewal in January and February, there'll be another 60 basis points or so in reduction on those.
Andrew Terrell
Okay. Very good. I appreciate it. If I could just ask one more on the on the expense side, just making sure I have the guidance correctly. It looks like to get to the stated full year expense growth range on the core expense side.
It implies kind of a moderation again by, a few million dollars off the core run rate in 4Q '24 a similar move to what we saw this quarter. Does that sound right? Should we expect the core expenses to step down by a few million bucks or so in 4Q?
Heng Chen
I think they'll be close to Q3. But we have this our largest project, which is the -- to improve our deposit opening process and that should be finished in Q3. So we'll save something there. But if we're off, it's just a couple of Andrew from our guidance.
Andrew Terrell
Okay. Very good. Thank you for taking the questions. I'll step back.
Operator
Chris McGratty, KBW.
Nick Moutafakis
Hi, this is Nick Moutafakis is on for Chris. Maybe just tell me the start real quick on the amortization for low income housing is $10 million still a good run rate for the fourth quarter.
Chang Liu
Yeah.
Nick Moutafakis
Okay. And then just on the buyback, I know you said $35 million for this quarter. But any reason to deviate as you look into 2025 for re-up the authorization just given the capital levels?
Heng Chen
Well, the board will consider that when we're done with this one. But we probably do the same signs, maybe we will increase it instead of $125 million we will increase it to $150 million for the buyback, but we’ll have to see how things are.
Nick Moutafakis
Okay, thank you for taking my questions.
Heng Chen
Yeah, thanks.
Operator
Adam Butler with Piper Sandler.
Adam Butler
Hey everyone. This is Adam on for Matthew Clark. If I look at your NIM guide, the low end would assume about a 3 basis point increase from this prior quarter and the upside high end would be even more. Do you guys happen to have the spot rate on loans deposits and or the NIM at the end of the quarter or for the month of September?
Chang Liu
Yeah. So for the quarter, our spot rates on the residential mortgage is about seven compared to portfolio is about 5.6% and mid-5s. Our spot rate for commercial real estate is in the mid -- about around the mid-6s compared to our portfolio average yield that right at basically the 6% mark and for the C&I loans our spot rate is usually at prime and the portfolio yield is about 8.4%.
Adam Butler
And thank you for that. And then, I was also curious about the deposits and the names you have that.
Heng Chen
Yeah, so the deposits it's -- I mean we can get you by categories. So now period end account rate is 1.2%, savings is 1.83%, money market 3.58%, CDs is 4.58%. So the total interest bearing is at 9.30% million is 3.82%. And then the NIM for September, it has a quite a bit of interest recovery on that September NIM was 3.17%.
Adam Butler
Okay. That's very helpful. And if I could ask just one more question. It looks like the non-performers increased primarily due to that $38.1 million relationship, but it looks like a little bit more migrated as well. Do you guys haven’t -- can you guys provide any color on the remaining migration during the quarter?
Chang Liu
Yeah, one of them was the one we were talking about in Hong Kong that has secured by three retail center collaterals and that was about $12.7 million.
Adam Butler
Okay. Thank you. I appreciate you guys taking the questions.
Chang Liu
Thank you
Operator
(Operator Instructions) I want to thank everybody for joining us on our call.
Thank you for your participation. I will now turn the call back over to Cathay General Bankcorp’s management for closing remarks.
Chang Liu
I want to thank everyone for joining us on our call and we look forward to speaking with you at our next quarterly earnings release call.
Operator
Ladies and gentlemen, thank you for your participation in today's conference. This includes the presentation you. You may now disconnect and good day.