CATY

Cathay General Bancorp (CATY)

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Cathay General Bancorp (CATY)

Q2 2014 Earnings Conference Call

July 22, 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

Aaron Deer – Sandler O'Neill & Partners

Joe Morford – RBC Capital Markets

Brett Rabatin – Sterne Agee

Lana Chan – BMO Capital Markets

Julianna Balicka – KBW

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Cathay General Bancorp's Second Quarter 2014 Earnings Conference Call. My name is Jasmine and I will 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.

Monica Chen

Thank you, Jasmine, 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 yearend 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 second 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 everyone. Welcome to our 2014 second quarter earnings conference call.

This afternoon, Cathay General Bancorp reported net income of $35.1 million for the second quarter of 2014, a 26% increase when compared to a net income available to common stockholders of $27.8 million for the second quarter of 2013. Diluted earnings per share increased 25.7% to $0.44 per share for the second quarter of 2014, compared to $0.35 per share for the same quarter a year ago.

In the second quarter, we continued to experience a strong loan growth. Gross loans increased $263 million in the quarter, representing an increase of 12.7% on an annualized basis. For the first six months of 2014, our loans increased $481 million or 81.5% over the increase of $265 million for the six months ended June 30, 2013. The driver of the increase came from CRE loans which increased $285 million, while single-family mortgages grew by $114 million, construction loans by $64 million, and C&I loans by $24 million. At this time, our expectation of loan growth for 2014 will come in around 10%.

For the second quarter of 2014, our total deposits increased by $348 million to $8.58 billion. In the first half, the increase in deposits was $599 million, which represents a 15% annualized increase from December 31, 2013. Our core deposits increased by 13.4% on an annualized basis or $301 million from December 31, 2013.

Last Friday we took over an existing branch in Richmond district. We now have two branches in the City of San Francisco. Total deposits in the branch on the date of acquisition were about $45 million. Cathay Bank remains committed to open or acquire new branches to better serve our customers.

Since our core conversion in July 2013, we have taken additional steps to make fuller use of the new system capabilities 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 core saved to develop more business and further [ph] lower our efficiency ratio. In the second quarter, our efficiency ratio was 44.92%, an improvement over the first quarter of 49.44%.

With that, I will turn the floor over to our Executive Vice President and CFO, Heng Chen, to discuss the second quarter 2014 financials in more detail.

Heng Chen

Thank you, Dunson, and good afternoon everyone.

For the second quarter we announced net income of $35.1 million or $0.44 per share.

Our net interest margin was 3.37% in the second quarter of 2014, compared to 3.38% in the first quarter of 2014 and compared to 3.30% for the second quarter of 2013. During the second quarter, interest recoveries and prepayment penalties added 9 basis points to the net interest margin compared to 5 basis points during the first quarter.

From July 2014 to January 2015, $300 million of structured repos with an average rate of 3.97% are scheduled to mature, which should help further improve our future net interest margin. The maturities are $100 million with a rate of 4.78% in July, $50 million at 3.75% in September, $100 million at 3.5% in November, and $50 million at 3.5% in January 2015.

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