Cathay General Bancorp

Good afternoon, ladies and gentlemen, and welcome to Cathay General Pancart's second quarter of 2023 Earnings Conference Call. My name is Vaishnavi, and I'll be your coordinator for today. At this time, all participants are in a listen-only mode. Following the prepared remarks, there will be a question and answer session. If you would like to participate in this portion of the call, please press star followed by one at any time during the conference. If assistance is needed any time during the call, please press star followed by zero, and a coordinator will be happy to assist you. Today's call is being recorded and will be available for replay at www.capigeneralbankcorp.com. Now, I would like to turn the call over to Giorgio Lowe, Investor Relations of Capigeneral Bank Corp. Please go ahead.

Thank you, Vaishnavi, and good afternoon. Here to discuss the financial results today are Mr. Cheng Liu, our President and Chief Executive Officer, and Mr. Hang 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, 2022, 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 statements speak 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 2023 results. To obtain a copy of our earnings release, as well as earnings presentation, please visit our website at www.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, and good afternoon, everyone. Welcome to our 2023 second quarter earnings conference call. This afternoon, we reported net income of $93.2 million for the second quarter of 2023, a 2.9% decrease as compared to a net income of $96 million for the first quarter of 2023. Earnings per share decreased 2.3% to $1.28 per share for the second quarter of 2023, compared to $1.32 per share for the first quarter of 2023. In the second quarter of 2023, our gross loans increased $635.5 million or 13.9% annualized. The increase in loans for the second quarter of 2023 was primarily driven by increases of $377 million or 17.1% annualized in commercial real estate loans, $158 million or 12.1% annualized in residential mortgage loans, and $165 million or 19.9% annualized in commercial loans, offset by a decrease of $38 million in construction loans. With the strong loan growth in the second quarter, we have revised our guidance for overall loan growth for 2023 to between 5% to 7% from our previous guidance of 1% to 3%. Our strong loan growth during the second quarter included advances from a handful of commercial loan borrowers. In addition, we have increased the loan spreads for fixed rate commercial real estate loans to help improve the returns. We continue to monitor our commercial real estate loans. Turning to slide seven of our earnings presentation, as of June 30th, 2022, the average loan to value of our CRE loans was 50%. As of June 30th, 2023, our retail property loan portfolio at slide eight comprises 22% of our total commercial real estate loan portfolio and 11% of our total loan portfolio. 88% of the $2.1 billion in retail loans is secured by retail store, building, neighborhood, mixed-use, or strip centers, and only 11% is secured by shopping centers. At slide 9, office property loans represent 17% of our total commercial real estate loan portfolio and 8% of the total loan portfolio. Only 34% of the $1.6 billion in office property loans are collateralized by pure office buildings, and only 3% of the office property loans are in central business districts. Another 38% of office property loans are collateralized by office retail stores, office mixed-use, and medical offices. The remaining 28% of office property loans are collateralized by office condos. For the second quarter of 2023, we reported net charge-offs of $2 million compared to net charge-offs of $4.9 million in the first quarter of 2023. Our non-accrual loans were 0.36% of total loans as of June 30th, 2023, which decreased by 4.6 million to 69 million as compared to the end of the first quarter of 2023. Turning to slide 12, as of June 30th, 2023, classified loans decreased to 193 million from 240 million as of March 31st, 2023. And our special mention loans increased slightly to 260 million from 251 million as of March 31st, 2023. We recorded a provision for credit loss of $9.2 million in the second quarter of 2023 as compared to an $8.1 million in provision for credit losses for the first quarter of 2023. We are pleased that total deposits increased by $448.1 million or 9.7% annualized during the second quarter of 2023. Total uninsured deposits were $8.4 billion as of June 30th, 2023. Excluding $0.9 billion in collateralized deposits, the uninsured and uncollateralized deposits of $7.5 billion was 39.2% of total deposits as of June 30, 2023. Our unused borrowing capacity from the Federal Home Loan Bank as of June 30, 2023 was $6.1 billion, and unplaced securities at June 30, 2023 was $1.3 billion. These and other sources of available liquidity were more than 100% of uninsured and uncollateralized deposits as of June 30th, 2023. Total time deposits increased 325 million or 18.6% annualized during the second quarter of 2023 compared to the first quarter of 2023. Total saving deposits increased by 241 million or 196.2% annualized primarily due to a promotional campaign. For 2023, the overall deposit growth is expected to range between 5% and 7%. I will now turn the floor over to our Executive Vice President and Chief Financial Officer, Mr. Heng Chang, to discuss the second quarter 2023 financial results in more detail.