Cathay General Bancorp

Good afternoon, ladies and gentlemen, and welcome to the Cathay General Bank Corp's first quarter 2025 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. 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 at any time during the call, please press star followed by zero, and the coordinator will be happy to assist you. Today's call is being recorded and will be available for replay at www.cathegeneralbankcorp.com. I would now like to turn the call over to Georgia Lowe, Investor Relations of Cathay General Bank Corp. Please go ahead.

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. Hang Chen, our Executive Vice President and Chief Financial Officer. Before we begin, we wish to remind you that the speaker 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, 2024, at Item 1A in particular, and in other reports and filing with Securities and Exchange Commission from time to time. As such, we caution you not to place undue reliance on such forelooking statements. Any forelooking statement speaks only as of the date of which it is made, except as required by law, we undertake no obligation to update or review any forelooking 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 first quarter 2025 results. To obtain a copy of our earnings release as well as our earnings presentation, please visit our website at www.cathaygeneralbancorp.com. After comments by management today, we will open this call up 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. Before we discuss our 2025 first quarter earnings, I want to address the current tariffs between the US and China. Based on our survey, customers have moved their sourcing away from China since 2018 to other countries, including some to Mexico. Our borrowers have told us that for the most part, they can move their sourcing to other countries or pause importing from China until the tariffs are more reasonable. We estimate that about 1.4% of total loans could be adversely impacted by the proposed tariffs. We are closely monitoring the impact of the evolving tariff situation on our borrowers and our loan portfolio. This afternoon, we reported net income of 69.5 million for Q1 2025, a 13.3% decrease as compared to 80.2 million for Q4 2024. Earnings per share decreased 12.5% to 98 cents for Q1 2025, as compared to $1.12 in Q4 2024. During Q1 2025, we repurchased 876,906 shares of our common stock at an average cost of $46.83 per share for $41.1 million, completing our May 2024 $125 million stock repurchase program. In Q1 2025, total gross loans decreased $23 million or 0.5% annualized, primarily driven by decreases of $100 million in commercial loans and $65 million in residential loans, offset by increases of $127 million in CRE loans and $13 million in construction loans. Given the uncertainties in the economy, we have widened our 2025 loan growth guidance to 1% to 4% from the previous guidance of 3% to 4%. Slide 6 shows the percentage of loans in each major loan portfolio that are either at a fixed rate or hybrid loans in their fixed rate period. Our loan portfolio consists of 62% fixed rate and hybrid loans excluding fixed to float interest rate swaps of 4.1% of total loans. Fixed rate loans comprise 30% of total loans, and hybrid and fixed rate period comprise 32% 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 eight of our earnings presentation, as of March 31st, 2025, the average loan-to-value of our CRE loans remained at 49%. As of March 31st, 2025, our retail property loan portfolio, as shown on slide nine, comprises 25% of our total CRE loan portfolio, or 13% of our total loan portfolio. 90% of the $2.5 billion in retail property loans are secured by retail store, building, mixed-use or strip centers, and 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, and only 3.4% are in CBDs. 38% of office property loans are collateralized by office retail stores, office mixed-use, and medical offices. The remainder, 27%, are collateralized by office condos. For Q1 2025, we reported net charge-off of $2 million as compared to $16.3 million in Q4 2024. Our non-accrual loans were 0.8% of total loans as of March 31, 2025. which decreased $14.5 million to $154.6 million as compared to Q4 2024, primarily due to the transfer of a loan to loans held for sale and pay down in Q1 2025. Turning to slide 12, as of March 31, 2025, classified loans remain at $380 million, the same as in Q4 2024. And our special mention loans increased slightly to $300 million from $293 million in Q4 2024. We recorded provision for credit loss of $15.5 million in Q1 2025 as compared to $14.5 million for Q4 2024. Most of the provisions were to cover possible losses from one commercial client. The reserve to loan ratio increased from 0.83% for Q4 2024 to 0.91% for Q1 2025. However, excluding our residential mortgage portfolio, the total reserve to loan ratio would be 1.17%. Total deposits increased by 131 million, or 2.7% annualized during Q1 2025, primarily due to a net increase of 67 million in core deposits and an increase of 64 million in time deposits. Total core deposits increased 67 million due to seasonal factors and marketing activities. Total time deposits, excluding broker deposits, increased 41 million during Q1 2025 due to promotional campaign in the first month of the year. As of March 31, 2025, total uninsured deposits were $8.5 billion, net of $0.8 billion in collateralized deposits, or 42.7% of total deposits. We have an unused borrowing capacity from the Federal Home Loan Bank of $7 billion and the Federal Reserve Bank of $343 million, and unpledged securities of $1.5 billion as of March 31, 2025. The sources of available liquidity more than cover 100% of uninsured and uncollateralized deposits as of March 31, 2025. I will now turn the floor over to our Executive Vice President and Chief Financial Officer, Mr. Hang Cheng, to discuss quarterly financial results in more detail.