[Management View]
Cathay General Bancorp reported a net income of $77.4 million for Q2 2025, an 11.4% increase from Q1 2025. Diluted earnings per share rose 12.2% to $1.10. The company repurchased 804,179 shares at an average cost of $44.22 per share, totaling $35.6 million. Total gross loans increased by $432 million, driven by commercial, commercial real estate, and residential loans.

[Outlook]
The company revised its loan growth guidance to 3%-4% for 2025, reflecting strong loan activity. Management remains cautious about potential economic headwinds, including trade tariffs and inflation, while emphasizing a strong loan pipeline. The effective tax rate guidance was lowered to 18.5%-19% following California tax changes.

[Financial Performance]
Net income increased by 11.4% QoQ to $77.4 million, primarily due to higher net interest income and lower provision for credit losses. Diluted earnings per share rose 12.2% QoQ to $1.10. Total deposits increased by $189 million, driven by core deposit growth and time deposit increases. Noninterest income rose by $4.2 million to $15.4 million, while noninterest expense increased by $3.4 million to $89.1 million.

[Q&A Highlights]
Question 1: In terms of the income tax rate for this quarter, was there any direct impact from that California state change that drove the income taxes higher this quarter? If so, what amount?
Answer: Yes. $3.4 million. That is a result of writing off a portion of our deferred tax asset to reflect a lower state apportionment, lower California state apportionment.

Question 2: And then just on the ACL, I know down two basis points quarter over quarter. 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, you know, of the allowance this quarter?
Answer: Well, there's a lot of noise this quarter, Gary. We have, let me start with, you know, we use Moody's as an economic forecast variable for our ACL. And Moody's, the unemployment factor, increased by 40 basis points compared to March. And since five of our six loan pools, one of the dependent variables is unemployment. That added more. We had loan growth, which added more. And offsetting that, we reduced specific provision for tariffs. We were not seeing any impact on our importers. And we had set up a reserve in Q1 for that. And then secondly, we had another credit that was on nonaccrual, and we increased the collateral as part of the bankruptcy settlement. We had a special reserve against that credit, which we now no longer need.

Question 3: So, Heng, the refill of the ACL, primarily related, would you say just to the economic factors in Moody's model more than any of the portfolio specifics?
Answer: That's right. That's right.

Question 4: Okay. That's what I was curious about. Thank you.
Answer: Thank you.

Question 5: I wanted to ask on just the loan growth and the guidance first. It feels like after a really strong second quarter that, you know, loan growth would need to revert to that low single-digit pace for kind of the next two quarters to stay within that, you know, kind of full-year guidance that you updated this afternoon. I'm just curious what you're seeing in terms of pipeline today and kind of the growth outlook for the back half of the year. And maybe just curious what's keeping you from maybe raising the top end of the loan growth guidance?
Answer: So, Andrew, I think, you know, what we look at is really there's been a balanced growth in both the C&I side and commercial real estate side. On the C&I side, we're seeing both some increases on existing lines and their advances as well as some new customers that we've been able to bring into the bank. As far as the sort of the second half, we're still, you know, we believe that, you know, we have a strong pipeline for the second half based on what we're seeing so far. And, you know, we're looking forward to getting those deals closed as well. We want to be a little, you know, want to just kind of look at the whole economic landscape both in terms of, you know, there's still some tariff noise out there and some of the CPI adjustment and increases. So we just want to be sensitive to that. And if 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%.

Question 6: Yep. Understood. Okay. And then I wanted to ask just a, you know, balance sheet related question on the, it looks like end of period, the FHLB borrowing positions stepped up quite a lot. Just curious, any, I think it was $412 million. Any color you can provide on whether those were term borrowings, overnight borrowings, and what the weighted average rate was and you still got a good cash position. Should we expect you to keep those borrowings kind of going into the third quarter?
Answer: We, Andrew, we, most of our loan growth was in the month of June. So that's why we had to borrow from a Federal Home Loan Bank. And those are mainly two-week borrowings. The rate is probably 4.6%. So we're in a process of replacing that with broker CDs, which would be in the, you know, 4.3% or maybe a little bit lower. So we were just surprised. This is the treasury group. We were surprised by the surge in loan growth, so we didn't have time to ramp up broker CDs to match that.

Question 7: Yep. Okay. Makes sense. Thanks for taking the questions.
Answer: Yeah. Thank you.

Question 8: Can you just touch on the increase in classifieds? I may have missed it in your prepared remarks, but if you could just give us some color on what drove that $50 million increase, you know, what drove it in terms of the type of credits and kind of what the situation is there?
Answer: Oh, sure. Yeah. Chang covered it. It was one commercial relationship. They had some cash flow issues. They didn't go ninety days past due. That's why it's still staged, just only sub. And now they're catching up. So we hope that they'll be fully current by the end of the third quarter, and we have a program for that borrower to gradually reduce the borrowings.

Question 9: And was that, how large is that credit? Was that the entire...
Answer: Yeah. It's increased. It's not, yeah. It's in the high forties. Almost all of it is secured by real estate, but we want to limit our exposure to that borrower given the delinquency.

Question 10: Got it. Okay. Great. And then just two kind of minor housekeeping items. The prepay fees, the margin this quarter, interest income, I think they were...
Answer: Yeah. Three and a half million last quarter.

Question 11: Got it. And then the tax credit amortization expectations for 3Q and 4Q?
Answer: It would be about $11 million per quarter.

Question 12: Okay. Thank you.
Answer: Thank you.

Question 13: I wanted to circle back on loan growth and what you saw specifically on the commercial side. I appreciate the updated guide and the color there. But can you provide, was there any unusual pulls in utilization? And how should we think about that? Is that part of the reason why we're seeing a kind of slowdown relative to such a strong 2Q in the back half of the year? Just any color would be helpful. Thank you.
Answer: Yeah. So on that end, I think a lot of the growth really was more kind of CRE. It was pretty balanced, but there was a larger proportion on the CRE side, and it was either purchased or refinanced. Just our kind of traditional business. And then on the C&I end, you know, we definitely have added new names and new relationships that also help to propel the growth. But I would say the advance on the existing lines, there were definitely some, but not as significant of a portion of the growth for Q2.

Question 14: Got it. That's helpful. And then on the deposit pricing side, you guys have done an excellent job, you know, getting deposit costs down after, you know, the first couple of cuts. With your NIM expectations ahead, wondering, have we seen most of the improvement we are going to get after the first 100 basis points of cuts? And two, I know the guidance provides two cuts in the back half of the year. Wondering how you guys are thinking about your ability to drive betas off of the next round of cuts. Thanks.
Answer: Yeah. Kelly, I think for, you know, we were doing some announcements on our betas, and like, for some CD retail CD balances, the adjustment last rate cut was in December. And those CD rates since then, the two CD rates have been down more than 25 basis points. Because I think we're in a slightly less promotional environment for CDs. And then, as I mentioned in the script, about 60% of our loans are fixed or hybrid. And we're getting some repricing on the loans. Like our residential mortgage, the originations in Q2 were at, like, 6.25%. And the average portfolio yield on residential mortgage in the second quarter was 5.79%. And, also, on UCRE, I think we're getting a little bit of uplift as fixed rate loans that we made three or four years ago repriced today. So we have a little bit of a backwind, and our NIM should expand anytime there's another 10 rate cuts. So we're just waiting for that to happen.

Question 15: And to answer your first part of your question, I think we've pulled through on the 100 basis points cut that for the most part happened in the '20, you know, 2023. So that's kind of all '24. Sorry. And that's pulled through for us, and I think it's reflected in our current deposit rates. I think there's any kind of tailwind on that part of it.
Answer: Awesome. Thanks for the color. I'll step back.

[Sentiment Analysis]
Analysts expressed cautious optimism, focusing on the company's strategic adjustments and strong loan growth. Management maintained a conservative outlook, emphasizing caution due to economic uncertainties.

[Quarterly Comparison]
| Key Metrics | Q2 2025 | Q1 2025 |
|----------------------------|---------------|---------------|
| Net Income (GAAP) | $77.4 million | $69.5 million |
| Diluted EPS | $1.10 | $0.98 |
| Total Gross Loans | $432 million | - |
| Provision for Credit Losses| $11.2 million | $15.5 million |
| Reserve to Loan Ratio | 0.88% | 0.91% |
| Total Deposits | $189 million | - |
| Noninterest Income | $15.4 million | $11.2 million |
| Noninterest Expense | $89.1 million | $85.7 million |
| Effective Tax Rate | 19.56% | 19.82% |
| Tier 1 Leverage Capital | 11.07% | 11.806% |
| Tier 1 Risk-Based Capital | 13.34% | 13.58% |
| Total Risk-Based Capital | 14.9% | 15.19% |

[Risks and Concerns]
Net charge-offs increased to $12.7 million, up from $2 million in Q1 2025, including an $8.3 million charge-off for a large commercial loan. Nonaccrual loans rose to 0.9% of total loans, driven by a $16 million real estate loan in foreclosure. Classified loans increased to $432 million from $380 million due to a downgrade of a large commercial relationship.

[Final Takeaway]
Cathay General Bancorp demonstrated strong financial performance in Q2 2025, with significant loan growth and strategic adjustments. Management remains cautious about economic uncertainties, including trade tariffs and inflation, while maintaining a strong loan pipeline. The company's conservative approach to loan growth and effective tax rate adjustments reflect its commitment to navigating potential economic headwinds. Investors should monitor the company's ability to sustain loan growth and manage credit risks in the coming quarters.