Q2 2025 Cathay General Bancorp Earnings Call
Good afternoon, ladies and gentlemen, and welcome to Cathy General van Corps, second quarter 2025 earnings conference. Call my name is Asha 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 1 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.cap Regional Bank corp.com.
Joe: Now, I would like to turn the call over to Joe investor relations of Cathy. General Banker. Please go ahead.
Speaker Change: Thank you, Russia and good afternoon here to discuss the financial results today. Our Mr. Chang, Liu our president and chief executive officer and Mr. Hang Chen, our Executive Vice President, and Chief Financial Officer.
Speaker Change: 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, 10K for the year, ended December 31st 2024 at item 1A in particular and another reports and filings with the Securities and Exchange Commission from time to time.
Speaker Change: As such, we caution, you not to place undue Reliance on such forward-looking statements, any for looking statements.
Speaker Change: New card 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 Kathy General borb 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 Cathy General
Speaker Change: This afternoon, we reported a net income of 77.4 million for Q2 20225.
Speaker Change: And the 11.4 increase as compared to 69.5 million for q1 2025.
The Luda earnings per share increased 12.2% to 1.10 cents. For Q2 20225 as compared to n, 988 cents in q1 2025.
During Q2 2025 we repurchased, 84,179 shares of our common stock and an average cost of 4469.
Speaker Change: Program in Q2, 2025 total gross loans, increase 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.
Speaker Change: 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%.
Size 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.
Speaker Change: our loan portfolio, consists of 62% fixed rate and hybrid loans, excluding fix to flow interest rate swaps of 4.9% of
total loans.
Speaker Change: 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.
Speaker Change: we continue to track our commercial real estate loans turning to slide 8 of our earnings presentation as of June 30th 2025, the average loan to value of our CRA loans, remained at 49%,
Speaker Change: As of June 3025, our retail property loan portfolio is shown on slide 9 comprises 24% of our total CRA loan portfolio or 13% of our total loan portfolio.
Speaker Change: 90% of the 2.5 billion. Retail property loans are secured by retail store building neighborhood, mixed use or strips strip centers. And only 9% is secured by shopping centers on site 10 office property loans represent 14% of our total CRA loan portfolio or 7% of our total loan portfolio.
Speaker Change: Only 33% of the 1.5 billion in office. Property loans are collateralized by pure Office Buildings. Only 3.3% are in
CBDs.
Speaker Change: 40% of office. Property loans are collateralized by office retail stores. Office mixed use and medical offices. In the remainder of 20% 27% are collateralized by office.
Condos.
Speaker Change: For 22 2025, we reported net, charge offs of 12.7 million.
As compared to 2 million in q1, 2025.
Speaker Change: The 12.7 million charge offs included, 8.3 million charge off, which have been reserved for in the first quarter on a large commercial loan.
Speaker Change: our non acrol, loans were 0.9% of total loans, as of June 30th 2025, which increased 19.6 million 274.2 million, as compared to q1,
2025 primarily due to a 16 million real estate loan, which is in the process of foreclosure
Speaker Change: turning to slide 12 as of June 30th 2025, classify loans increase to 432 million from 308, 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 incured.
Speaker Change: Our special mention loans increase 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.
For q1 2025.
Speaker Change: 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.
Speaker Change: Total Core deposits, increased 120 million due to seasonal factors and marketing activities.
Speaker Change: Total time deposits. Excluding broker deposits decreased. 37 million during Q2 2025.
As of June 30th 2025 total uninsured deposits were 8.7 billion. Net of 0.8 billion in collateralized deposits or 43.3% of total deposits.
Speaker Change: We have an un 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, these sources of available liquidity are more than 100% of the uninsured and uncolored deposits as of June 30th.
Speaker Change: 2025.
Speaker Change: I will now turn the floor over to our Executive Vice, President, and Chief Financial Officer Mr. Henchen, to discuss the quarterly Financial results in more detail.
Thank you, Chang and good afternoon everyone for Q2 2025.
Net income, increase 7.9 million.
Or 11.4% to 77.4 million.
Speaker Change: From 69.5 million for q1 2025.
Primarily to due to 4.6 million.
Speaker Change: uh,
Speaker Change: In higher net. Interest income.
Speaker Change: uh,
4.3 million.
Speaker Change: Lower provision for.
Speaker Change: Credit losses.
Speaker Change: And 4.2 million higher in non-interest expense.
Speaker Change: No, sorry, a non-interest income offset by 3.5 million higher in non-interest expense.
Speaker Change: And 1.7 million.
Speaker Change: Higher in provision for income taxes.
Net. Interest margin increase from 3.25% for q1 2025.
Speaker Change: the 3.27 for Q2, 2025,
That increase and that interest.
Speaker Change: uh,
Speaker Change: income was due to the lower cost of funds.
Speaker Change: And Q2 2025 interest, recoveries and prepend penalties.
Speaker Change: Added.
3 basis points to the net interest margin as compared to adding 6 basis points.
Speaker Change: In net. Interest margin q1, 2025
Not interest income for Q2 2025 increase.
Speaker Change: 4.2 million to 15.54 million when compared to 11.2 million in q1 2025?
Speaker Change: The increase was primarily due to a 2.8 million change in Market to Market unrealized loss on Equity Securities and Q2.
Speaker Change: Uh, compared to unrealized.
Speaker Change: Loss in equity Securities in q1.
Speaker Change: And a 2.4 million.
Speaker Change: Increase in other operating income, resulting from higher foreign exchange income.
Speaker Change: And today.
Speaker Change: Them free income.
Speaker Change: Asset by 1.2 million. Lower in wealth management, income.
Speaker Change: Not interest expense increased by 3.4 million or 4% to 89.1 million in Q2 2025.
Speaker Change: From 85.7 million in G1 2025.
Speaker Change: this increase was primarily due to a 2.1 million increase in long-term housing amortization
Speaker Change: and a 1.4 million increase in professional expenses.
Speaker Change: Effective tax rate for Q2 2025 was 19.
Speaker Change: 56% as compared to 19.82% for q1 2025.
Speaker Change: Due to a recent California.
Speaker Change: A previous guidance.
Uh, between 19.5% to 20.5%.
Speaker Change: as of June 30th 2025 or Tier 1 leverage Capital ratio
Speaker Change: Increased to 11.07% as compared to 11.806%.
as of March, 31st 2025
Speaker Change: Our Tier 1 risk-based Capital ratio decreased to 13.34%.
Speaker Change: From 13.58% as of March 312022.
Speaker Change: From 15.19, as of March, 31 2025, thank you Hank. We will now proceed to the question and answer portion of the call.
Speaker Change: ladies and gentlemen, if you
Speaker Change: Turn on phone. The ask that you please limit yourself to 1 question and 1 follow-up question. You may then return to the queue? If your question has been addressed, or you wish to remove yourself from the queue, please press star, then 2 to prevent any background noise, we ask that you please see Place yourselves on mute. Once your question has been stated.
Speaker Change: The first question comes from Gary tenner. It's da Davidson. Please go ahead.
Gary Tenner: Uh, thanks. Good afternoon.
uh, in terms of the, uh, the
Gary Tenner: The income tax rate for this quarter. Was there any direct impact from that? Uh, California state change, that drove the income taxes higher this quarter. And if so, what amount, yes,
Gary Tenner: Yes, uh, 3.4 million. Uh,
that that that's the results of uh,
Gary Tenner: riding off a portion of our deferred tax asset.
Gary Tenner: to uh, reflect the Lower State of horsemint lower California state of forcement,
Speaker Change: Okay, great, thank you. And then just on the on the, uh,
The ACL I know down 2 basis points, quarter over quarter. Uh, but you did have the charge off that was, I think specifically reserved for. So, what kind of drove the refill of that bucket, this quarter of the, you know, of the allowance? This this, this quarter
Speaker Change: well, uh,
Speaker Change: there's a lot of noise this quarter Gary, uh, we have uh,
Speaker Change: Let me start with the, you know, we use uh, Moody's as an economic forecast.
Speaker Change: Uh, variable for our ACL.
and Moody's, the unemployment Factor increased by
Speaker Change: uh,
Speaker Change: 40 basis points compared to March.
And since uh, 5 of our 6 loan polls, uh,
Speaker Change: They 1 of the dependent variables is unemployment.
Speaker Change: that added more, we had loan growth, which added more
Speaker Change: and an offsetting rat, uh,
Speaker Change: We uh, reduce uh, specific provision. Uh,
Speaker Change: For terrorists.
Speaker Change: Uh, we were, were not seeing any impact on our importers.
And we had set up a reserved and q1 for that.
Speaker Change: And then secondly, uh,
we had another credit that was on non acral and we
Uh we uh increased the collateral as part of the, the bankruptcy settlement and we had a Special Reserve against that credit.
Speaker Change: Which we now no longer need. So,
Speaker Change: So so hang the the refill of the ACL uh primarily related you would you say just to the economic factors and Moody's model more than any of the portfolio? Specifics.
Speaker Change: That's right, that's right. Okay.
Speaker Change: Okay.
Speaker Change: That's that's what I was curious about. Thank you.
Thank you.
Speaker Change: The next question comes from Andrew Terrell with Stevens. Please go ahead.
Hey, good afternoon. Um, I
Speaker Change: hey, I wanted to ask, I'm just the the loan growth and the the guidance first it, it feels like, you know, after a really strong second quarter that
Speaker Change: What's what's keeping you from from maybe raising the top end of the loan growth guidance?
Um, so Andrew, I think, um, you know what we're looking at is really, does been a balanced growth in both the cni side and the commercial real estate on the cni side, we're seeing, uh, both some increases on existing line and their advances, as well as some new customers that we've been able to bring into the bank. Um, as far as the sort of the second half. Um, we're still, you know, we we we believe that, you know, if we have a strong pipeline for the second half, uh, based on what we're seeing so far. And, and, you know, we're looking forward to getting those deals closed as well. Um, we, we want to be a little, um, uh, you know, want to just kind of look at the whole economic landscape. Both, in terms of just, you know, there's still some terrorists noise out there and, um, some of the CPI adjustment, and, and increases. So we just want to be sensitive to that. And if, uh, loan demand starts to drop, then we don't want to kind of not hit the top end of the range. That's why we kept the top end of the range at the 4%,
Speaker Change: Yeah, understood. Okay. Um,
And then I wanted to ask just to, you know, balance sheet related, question on the it looks like end of period. The the fhlb borrowing position stepped up quite a lot.
Speaker Change: um, just curious any any I think it was 412 million any color, you can provide on whether those were term borrowings, uh, overnight borrowings and what the weighted average, uh, rate was and
Speaker Change: Uh, you still got a good cash position. Should we expect you to keep those borrowings kind of going into the third quarter?
Speaker Change: Uh,
Speaker Change: Most.
Speaker Change: Most of our loan growth.
Speaker Change: Uh, was in the month of June.
Speaker Change: so,
Speaker Change: uh,
Speaker Change: So that's why we had to borrow uh, from the federal Home Loan Bank.
Speaker Change: Uh,
Speaker Change: And those are mainly 2 week, borrowings.
Speaker Change: uh, the rate is, uh,
Speaker Change: is probably uh, 4.6.
So, we're in the process of replacing that with uh, broker CVS.
Speaker Change: which would be in the, uh, you know,
Speaker Change: 4.3 or maybe a little bit lower.
Speaker Change: So, we were just surprised.
Speaker Change: This is this is uh, the private group we're surprised by.
Speaker Change: By the, uh, surge of loan growth, so we didn't have time to ramp up broker cities to to match that.
Speaker Change: Yep. Okay uh, makes sense. Thanks for taking the questions.
Thank you.
Matthew Clark: The next question comes from Matthew Clark with Piper Sandler. Please go ahead.
Matthew Clark: Hey, good afternoon, everyone.
um,
Speaker Change: she just touched on the, uh, the, the increase in classifies. I may have missed it in your prepared remarks. But, uh, if you could just give us some color on what drove that 50 million. 50 million dollar increase.
Matthew Clark: um,
Matthew Clark: You know what? Drove in terms of the type of credits and and kind of what the situation is there.
Yeah, change covered. It, it was
Matthew Clark: 1 commercial relationship. They, they had some cash flow issues. Uh, they didn't go 90 days past due if that's why it's
Matthew Clark: yeah, it's still uh,
State just only sub.
Matthew Clark: and uh,
Matthew Clark: Now they're catching up. So, uh,
Matthew Clark: we hope that they'll be fully current by the, uh,
Matthew Clark: end of the third quarter, and we have a program for that borrower to, uh,
Gradually. Uh,
Matthew Clark: Reduce the borrowings.
Speaker Change: And was that how large is that credit? Was that the entire
Matthew Clark: Yeah, it's increased.
Speaker Change: Yeah, it's in the high 40s.
Speaker Change: Uh, almost all of it is secured by real estate. But uh,
Speaker Change: we we want to limit our exposure to that borrower given the
Speaker Change: uh,
Speaker Change: given to the the delinquency.
Got it. Okay, great. And then just a 2 2 kind of minor housekeeping items. Um, the prepaid fees in in the margin this quarter interesting income.
Speaker Change: I think there were yeah, 3 and a half million last quarter.
Speaker Change: Yeah, it's 3 basis points. This quarter compared to the 6.
Faces. Okay. Uh, in q1.
Speaker Change: Ation expectations for 3 q and 4 q.
Speaker Change: Would be about 11 million.
Speaker Change: Per quarter.
Speaker Change: Okay, thank you.
Speaker Change: Thank you.
Once again, if you have a question, please press star then 1.
The next question comes from Kelly meter with KBW, please go ahead.
Kelly Meter: Hey, good afternoon. Thanks for the question. Um, I wanted to Circle back on loan growth and and what you saw specifically on the commercial side, I appreciate um, you know, the updated guide and the color there, but um, can you provide was there any unusual polls in utilization and how how we should think about that? Is that, is that part of the reason why we're we're seeing a kind of slow down relative to such a strong to queue in the back half of the year, just any color would be helpful. Thank you.
Yeah. Um, so on that end, I think a lot of the growth really was more kind of CEO. It was pretty balanced, but there was a larger proportion on the CRA side and it was either purchase or refinance, just our kind of traditional business. And then on the cni end, um, you know, we we definitely have added new names and new relationships that also helped to propel the growth. But I would say the events on the existing lines that would definitely some but not as significant of a portion of the growth for, uh, for Q2
Speaker Change: Got it. That's, that's helpful. Um and then on on the deposit pricing side, you guys have done an excellent job. Um, you know, getting deposit cost down after, you know, the first couple of cuts. Um, with your, your Nim expectations ahead um wondering have we seen most of the Improvement we're going to get after the first 100 basis points of cuts and 2. You know, I know the guidance provides, you know, 2 Cuts in the back half of the Year, wondering how you guys are thinking about your ability to, um,
Speaker Change: Uh, Drive bettas off of of the next round of cuts. Thanks.
Kelly Meter: Yeah. Uh, Kelly.
Kelly Meter: I think for, uh,
you know, we we're doing some announcements on our
Kelly Meter: uh, a betas and
Kelly Meter: like, for some CD and, uh,
retail CD, balances the
Kelly Meter: The, the adjustments, the last rate, cut was in the middle of December and those the CD rates.
uh, since then
The 2 CD rates have been down more than 25 basis points because I think we're in the slightly less promotional uh environment.
Kelly Meter: uh, for CES
uh,
Kelly Meter: and then, uh,
Kelly Meter: and then we
As uh, I mentioned in the uh, script.
Kelly Meter: About 60% of our loans are fixed for hybrid.
Kelly Meter: Us.
Kelly Meter: And we we we we're getting uh, some re-pricing uh, on the loans.
Kelly Meter: like our Residential Mortgage the, uh,
Kelly Meter: originations and Q2, or at like,
6 point, uh, 255%.
Kelly Meter: And the average portfolio yield at Residential Mortgage in the second quarter of us.
Kelly Meter: 5.79.
Kelly Meter: And also on new CRA originations. I think we're getting a a little bit of uplift as
Kelly Meter: As fixed rate loans, that we made uh 3 or 4 years ago, we priced today. So
Kelly Meter: so we we have a little bit of a back wind and, uh,
Kelly Meter: Our name should expand anytime, there's another Fed rate Cuts. We're we're, we're just waiting for the for that to happen and to answer your first part of your question, I think we've pulled through on the 100s, cut that for the most part happened in the fourth quarter of 20, uh, you know, 2023. So that's, that's kind of 24, sorry. And that's pulled through for us, you know? I think it's reflected in our current deposit rates. I don't think there's any kind of Tailwind on on, on that part of it.
Awesome. Thanks for the caller. I'll step back.
Kelly Meter: Thank you.
Thank you for you for your participation. I will not turn the call back over to gather General, bankrupts management for closing remarks, please go ahead.
Speaker Change: I want to thank everyone for joining us on a call and we look forward to speaking with you at our next quarterly earnings release call.
Speaker Change: Ladies and gentlemen, thank you for your participation. In today's conference, this concludes the presentation, you may now disconnect good day.