CATY

Cathay General Bancorp (CATY)

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Cathay General Bancorp (CATY)

Q1 2014 Earnings Conference Call

April 16, 2014 6:00 p.m. ET

Executives

Monica Chen – IR

Dunson Cheng – Chairman, President and CEO

Heng Chen – EVP and CFO

Kim Bingham – EVP and Chief Risk Officer

Analysts

Joe Morford – RBC Capital Markets

Brett Rabatin – Sterne Agee

Aaron Deer – Sandler O'Neill

Lana Chan – BMO Capital Markets

Gary Tenner – D.A. Davidson

Julianna Balicka – KBW

Presentation

Operator

Good afternoon, ladies and gentlemen, and welcome to the Cathay General Bancorp's First Quarter 2014 Earnings Conference Call. My name is Patrick and I'll be your coordinator for today.

[Operator Instructions] Today's call is being recorded and will be available for replay at www.cathaygeneralbancorp.com.

Now I would like to turn the call over to Monica Chen, Investor Relations for Cathay General Bancorp. Please proceed.

Monica Chen

Thank you, Patrick, and good afternoon.

Here to discuss the financial results today are Mr. Dunson Cheng, our Chairman of the Board, 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 of 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, 2013, 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 which speak only as of the date of this presentation. We undertake no obligation to update any forward-looking statements or to publicly announce any revision of any forward-looking statements to reflect future developments or events except as required by law.

This afternoon, Cathay General Bancorp issued an earnings release outlining its first quarter 2014 results. To obtain a copy, 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 Chairman of the Board, President and CEO, Mr. Dunson Cheng.

Dunson Cheng

Thank you, Monica, and good afternoon to all. Welcome to our 2014 first quarter earnings conference call.

This afternoon Cathay General Bancorp reported net income of $31.3 million for the first quarter of 2014, an 8.7% increase when compared to a net income of $28.8 million for the first quarter of 2013. Diluted earnings per share increased 30% to $0.39 per share for the first quarter of 2014, compared to $0.30 per share for the same quarter a year ago.

In the first quarter we experienced strong loan growth. Gross loans increased $218 million in the quarter, compared to a decrease of $65 million in the first quarter of 2013. The increase in loans in the first quarter represents a 10.8% annualized increase from the fourth quarter of 2014 -- sorry, for the first quarter of 2013.

The driver of the increase came from CRE loans which increased $170 million while single-family mortgages grew by $86 million and construction loans by $32 million. C&I loan decreased by $68 million, mainly from the payoff of one large CD secured loan. With the termination of our smart mortgage program, we are not expecting any meaningful increase in our single-family mortgages. However, our current expectation of loan growth for 2014 will be about 8%.

For the first quarter 2014, our total deposits increased $251 million to $8.23 billion from $7.89 billion at December 31, 2013. The increase represents an annualized increase of 12% over the fourth quarter of 2013. Our core deposits increased by 2.19% or $99 million.

In 2013, we signed an agreement to purchase a branch in Richmond district in San Francisco. This will give us a second branch in the city. Total deposits at the branch are about $36 million. We expect the purchase of this branch to be completed in the second quarter.

On March 17 we opened our second branch in Brooklyn, at the fast-growing area in Bensonhurst. We also relocated our Sacramento branch on March 31 to a more central district in the California capital. Cathay Bank is committed to open or acquire new branches to better serve our customers.

Since our core conversion in July 2013, we have taken steps to make fuller use of the new systems capability to streamline our workflows. Starting with the second half of 2014, we expect to begin to realize additional operating efficiencies. We shall apply part of the cost saves to develop more business in part [ph] to lower our efficiency ratio. In the first quarter, our efficiency ratio was 49.44%.

With that, I will turn the floor over to our Executive Vice President and CFO, Heng Chen, to discuss the first quarter financials in more detail.

Heng Chen

Thank you, Dunson, and good afternoon everyone.

For the first quarter we announced net income of $31.3 million or $0.39 per share.

Our net interest margin was 3.38% in the first quarter of 2014, compared to 3.30% in the fourth quarter of 2013, and compared to 3.35% for the first quarter of 2013. During the first quarter, interest recoveries and prepayment penalties added 5 basis points to the net interest margin, the same as during the fourth quarter.

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