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CG

CATHAY GENERAL BANCORP (CATY)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 delivered stable earnings with net income of $77.7M and diluted EPS of $1.13; net interest margin rose to 3.31% as deposit costs eased, while provision for credit losses stepped up materially to $28.7M .
  • The company raised full-year loan and deposit growth guidance to 3.5%–5% (from 3%–4%) on strong Q3 loan/deposit trends; management expects NIM to trend higher with further Fed cuts (6–7 bps over six months per 25 bp cut) .
  • Versus consensus, Q3 EPS modestly missed and “revenue” (net interest income after provision + noninterest income) missed; prior two quarters saw small EPS beats but persistent “revenue” misses, implying estimates likely need revision toward lower provisioning/fee dynamics*.
  • Near-term stock narrative hinges on improving NIM and raised growth guidance offset by higher provisioning and an uptick in special mention loans; capital return remains supportive with $50.1M repurchases in Q3 and ongoing dividends .

What Went Well and What Went Wrong

What Went Well

  • Net interest margin improved to 3.31% (from 3.27% in Q2), aided by lower cost of funds and deposit repricing; CEO: “We are pleased by the continued increase in the net interest margin compared to the second quarter of 2025.” .
  • Strong balance sheet momentum: total loans up $320M (+1.6% QoQ) and deposits up $514.8M (+2.6% QoQ); guidance for loan and deposit growth raised to 3.5%–5% .
  • Capital return: repurchased 1.07M shares for $50.1M at $46.81 average in Q3; efficiency ratio improved to 41.84% (from 45.34% in Q2), reflecting disciplined expenses .

What Went Wrong

  • Provision for credit losses rose to $28.7M (from $11.2M in Q2), including $9.1M for two movie theater loans and a $3.8M CECL model change; net charge-offs increased to $15.6M .
  • Special mention loans increased to $455M (vs $310M), driven by six relationships, including a printing company impacted by tariff uncertainty and properties with tenant loss/slow leasing; management expects resolution over 12 months but near-term risk elevated .
  • Investment yield pressure: ~40% of the bond book in six‑month Treasuries rolling down yields; securities income reflected ~30 bps yield decline QoQ, tempering asset yield gains .

Financial Results

Income and Profitability

MetricQ1 2025Q2 2025Q3 2025
Net Income ($USD Millions)$69.5 $77.5 $77.7
Diluted EPS ($USD)$0.98 $1.10 $1.13
Net Interest Margin (%)3.25% 3.27% 3.31%
Efficiency Ratio (%)45.60% 45.34% 41.84%
ROAA (%)1.22% 1.33% 1.29%
ROAE (%)9.84% 10.72% 10.60%

Estimates vs Actuals

MetricQ1 2025Q2 2025Q3 2025
EPS Actual ($USD)$0.98 $1.10 $1.13
EPS Consensus Mean ($USD)$0.9525*$1.088*$1.154*
EPS Surprise ($USD)+$0.0275*+$0.012*-$0.024*
Revenue Actual ($USD Millions)$172.343*$185.412*$181.877*
Revenue Consensus Mean ($USD Millions)$186.165*$195.917*$203.380*
Revenue Surprise ($USD Millions)-$13.822*-$10.505*-$21.503*

Values retrieved from S&P Global.*

Segment/Portfolio Breakdown (Loans)

Loan Type ($USD Millions)Q3 2024Q2 2025Q3 2025
Commercial Loans$3,106.994 $3,194.724 $3,212.907
Construction Loans$307.057 $301.125 $356.215
Commercial Real Estate Loans$9,975.272 $10,363.109 $10,484.939
Residential Mortgage Loans$5,750.546 $5,692.142 $5,815.140
Equity Lines$226.838 $230.001 $232.254
Installment & Other$6.886 $3.601 $3.261
Gross Loans$19,373.593 $19,784.702 $20,104.716

KPIs and Asset Quality

KPIQ1 2025Q2 2025Q3 2025
Total Deposits ($USD Millions)$19,817.528 $20,006.330 $20,521.149
Gross Loans ($USD Millions)$19,353.003 $19,784.702 $20,104.716
Non‑accrual Loans ($USD Millions)$154.626 $174.153 $165.632
Net Charge‑offs ($USD Millions)$1.977 $12.741 $15.646
ALLL / Gross Loans (%)0.90% 0.88% 0.93%
NIM (%)3.25% 3.27% 3.31%
Uninsured Deposits (% of Total)——44.3%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Loan GrowthFY 20253%–4% 3.5%–5% Raised
Deposit GrowthFY 20253%–4% 3.5%–5% Raised
NIM TrajectoryNext 6–12 months—Model ~flat on -25 bp shock; +6–7 bps over six months per 25 bp cut Directional Up
Core Expense Run‑RateQ4 2025—Comparable to Q3; consulting expense decreasing Maintained/Improving
LIHTC AmortizationNear‑term—~$11.5M in Q3; expected to remain stable Maintained
DividendOngoing$0.34 per share $0.34 per share Maintained
Share Repurchase2025 ProgramAuthorized $150M (June 4) $50.1M executed in Q3 (avg $46.81; 1.07M shares) Ongoing Utilization

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Net Interest MarginNIM rose to 3.25% in Q1; to 3.27% in Q2; deposit repricing lowered cost of funds NIM 3.31%; CFO model suggests +6–7 bps per 25 bp cut over six months Improving
Deposit Competition & CostFierce competition; cost of interest‑bearing deposits 3.35% in Q2 Competition “very fierce”; September cost 3.16% vs 3.31% in June Easing Costs
Loan Growth & GuidanceLoans up 2.23% QoQ in Q2; CRE pipeline strong Loans +$320M; guidance raised to 3.5%–5% Positive
Asset Quality & ProvisionNPA ratio 0.75% in Q1; 0.84% in Q2; non‑accruals up in Q2 Provision up to $28.7M; special mention loans up; NPL coverage improved Mixed
CRE Exposure & RisksNon‑accrual CRE up Q2; office/retail monitoring CRE LTV ~49%; office 14% of CRE (7% of loans), retail 24% of CRE (13% of loans) Stable/Monitored
Capital Return & M&ANew $150M buyback (June); ongoing dividends $50.1M buyback in Q3; open to strategic M&A, focus on organic growth Shareholder Friendly

Management Commentary

  • CEO: “We are pleased by the continued increase in the net interest margin compared to the second quarter of 2025. During the third quarter, we repurchased 1,070,000 common shares at an average cost of $46.81 per share, for a total of $50.1 million.” .
  • CFO on rate sensitivity: “For every quarter point drop in Fed funds… over six months, our NIM should go up… six or seven basis points.” .
  • CEO on M&A: “M&A is always an interest to us… we’re very focused on our organic growth… if there’s a candidate… that makes sense strategically or financially, we will absolutely look at it… we’re always open to that.” .
  • Credit commentary: provision included $9.1M additional reserve for two movie theater loans and $3.8M CECL model change; ALLL/gross loans rose to 0.93% .

Q&A Highlights

  • Special mention increase driven by six relationships: a ~$50M printing company affected by tariff uncertainty, an Arizona property with tenant loss/high LTV, and a Southern California property with slow leasing expected to be fully leased by 2026 .
  • CRE reserves: higher due to $9.1M additional reserve on two acquired movie theater loans (Far East National Bank) .
  • Expenses: consulting expense decreasing; LIHTC amortization ~$11.5M in Q3 and expected to remain stable near term .
  • Investment portfolio: ~40% in six‑month Treasuries; yields rolling down, pressuring securities income .
  • Deposits: competition “very fierce,” particularly CA/NY; active repricing with rate cuts; September interest‑bearing deposit cost 3.16% vs 3.31% in June .
  • NIM cadence: 3.38% in September (30‑day month); residential mortgage mix can lift monthly NIM vs quarterly .

Estimates Context

  • Q3 2025: EPS $1.13 vs $1.154 consensus (miss), “revenue” $181.9M vs $203.4M consensus (miss)*.
  • Q2 2025: EPS $1.10 vs $1.088 consensus (beat), “revenue” $185.4M vs $195.9M consensus (miss)*.
  • Q1 2025: EPS $0.98 vs $0.9525 consensus (beat), “revenue” $172.3M vs $186.2M consensus (miss)*.
  • Implications: Street “revenue” frameworks for banks should incorporate provisioning volatility; consensus likely needs to lower top‑line expectations when provisioning rises and to reflect securities yield roll‑downs and fee/mark‑to‑market variability*.

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • NIM trajectory improving with deposit cost relief; management’s rate sensitivity suggests incremental NIM upside with further Fed cuts .
  • Balance sheet growth is re‑accelerating; guidance raised to 3.5%–5% for loans and deposits supports medium‑term earnings compounding .
  • Provisioning elevated near term (movie theater loans, CECL update) and special mention growth adds headline risk; watch credit migration and resolution pace over the next 12 months .
  • Asset quality mixed but coverage improved (ALLL/NPL coverage 112.6%); non‑accruals down QoQ, while OREO increased .
  • Capital return continues: Q3 buybacks ($50.1M) and steady dividend ($0.34/share) provide downside support; capital ratios remain well‑capitalized .
  • Deposit competition remains intense, but active repricing and focus on specialty deposits are lowering costs; uninsured deposits are 44.3% with ample liquidity coverage (>100% of uninsured/un‑collateralized) .
  • Tactical setup: near‑term stock moves likely tied to NIM trajectory beats and clarity on credit resolution; medium‑term thesis hinges on profitable growth with disciplined expenses and ongoing capital return .