Cathay General Bancorp

Good afternoon, ladies and gentlemen, and welcome to Cathay General Bancorp's Second Quarter 2025 Earnings Conference Call. My name is Ashya, and I'll 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 a coordinator will be happy to assist you. Today's call is being recorded and will be available for replay at www.kathaygeneralbankcorp.com. Now, I would like to turn the call over to J.J. Lowe, Investor Relations of Cathay General Bank Corp. Please go ahead.

Thank you, Varsha, 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 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 results 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 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 2025 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, and good afternoon. This afternoon, we reported a net income of $77.4 million for Q2 2025, an 11.4% increase as compared to $69.5 million for Q1 2025. Diluted earnings per share increased 12.2% to $1.10 for Q2 2025 as compared to $0.98 in Q1 2025. During Q2 2025, we repurchased 804,179 shares of our common stock at an average cost of $44.22 per share for $35.6 million under the June 2025 $150 million stock repurchase program. In Q2 2025, total gross loans increased $432 million, or 8.9% annualized, primarily driven by increases of $196 million in commercial loans, $202 million in commercial real estate loans, and $69 million in residential loans, offset by decreases of $32 million in construction loans. Given the strong Q2 loan growth, we are revising our 2025 loan growth guidance back to 3% to 4% from the previously revised guidance of 1% 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 flow interest rate swaps of 4.9% 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 track our commercial real estate loans. Turning to slide eight of our earnings presentation, As of June 30, 2025, the average loan-to-value of our CRE loans remained at 49%. As of June 30, 2025, our retail property loan portfolio, as shown on slide nine, comprises 24% of our total CRE loan portfolio, or 13% of our total loan portfolio. 90% of the 2.5 billion retail property loans are secured by retail store, building, neighborhood mixed use, or strip centers, and only 9% is secured by shopping centers. On slide 10, office property loans represent 14% of our total CRE loan portfolio, or 7% of our total loan portfolio. Only 33% of the 1.5 billion in office property loans are collateralized by pure office buildings, and only 3.3% are in CBDs. 40% of office property loans are collateralized by office retail stores, Office mixed use and medical offices in the remainder 20%, 27%, are collateralized by office condos. For Q2 2025, we reported net charge-offs of $12.7 million as compared to $2 million in Q1 2025. The $12.7 million charge-offs included $8.3 million charge-off, which had been reserved for in the first quarter on a large commercial loan. our non-accrual loans were 0.9% of total loans as of June 30th, 2025, which increased 19.6 million to 174.2 million as compared to Q1 2025, primarily due to a 16 million real estate loan, which is in the process of foreclosure. Turning to slide 12, as of June 30th, 2025, classified loans increased to 432 million from 380 million for Q1 2025 due to downgrade of our large loan relationship to substandard due to delays in interest payments, which are now in the process of incurred. Our special mention loans increased slightly to $310 million from $300 million in Q1 2025. We recorded a provision for credit losses of $11.2 million in Q2 2025 as compared to $15.5 million in Q1 2025. the reserve to loan ratio decreased to 0.88% for Q2 2025 from 0.91% for Q1 2025. However, excluding our residential mortgage portfolios, the total reserve to loan ratio would be 1.1%. Total deposits increased by $189 million or 3.8% annualized during Q2 2025, primarily due to increases of $120 million in core deposits and $68 million in time deposits. Total core deposits increased $120 million due to seasonal factors and marketing activities. Total time deposits, excluding broker deposits, decreased $37 million during Q2 2025. As of June 30, 2025, total uninsured deposits were $8.7 billion, net of $0.8 billion in collateralized deposits or 43.3% of total deposits. We have an unused borrowing capacity from the Federal Home Loan Bank of $7 billion, and the Federal Reserve Bank of 1.5 billion, and Unplugged Securities of 1.5 billion as of June 30th, 2025. The sources of available liquidity are more than 100% of the uninsured and uncollateralized deposits as of June 30th, 2025. I will now turn the floor over to our Executive Vice President and Chief Financial Officer, Mr. Heng Cheng, to discuss the quarterly financial results in more detail.