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CG

CATHAY GENERAL BANCORP (CATY)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered a sequential rebound: diluted EPS rose to $1.12 (+19% q/q) on net income of $80.2M, driven by lower deposit costs and a sharp drop in non-interest expense; NIM ticked up to 3.07% from 3.04% .
  • Asset quality mixed: non-accrual loans increased to $169.2M and net charge-offs spiked to $16.3M due largely to a syndicated recycling credit; allowance coverage of NPLs fell to 93.39% from 209.33% a year ago .
  • Deposits remix favorable: broker deposits declined $449M while core deposits rose $417M; spot rate on deposits ended at 3.52% and ~$4.2B of CDs will reprice near 4.0–4.1% in Q1, supporting further deposit cost relief .
  • 2025 outlook: management guides NIM to 3.10–3.20%, loan and deposit growth both 3–4%, core opex +4.5–5.5%, and tax rate 19.5–20.5%; buybacks targeted near $30M in Q1 2025 .
  • Catalysts: margin stabilization and cost relief, disciplined capital return, and clarity on CD repricing and tax-credit amortization cadence; note rising NPLs and special mention balances as an offset .

What Went Well and What Went Wrong

  • What Went Well

    • “We are pleased by the increase in the net interest margin compared to the third quarter of 2024” — NIM expanded to 3.07% and net interest income increased $1.8M q/q .
    • Non-interest expense fell $11.7M (-12%) q/q, mainly from $13.3M lower amortization of low-income housing/alternative energy investments, improving the efficiency ratio to 45.70% .
    • Capital strengthened: Tier 1 risk-based 13.55%, total risk-based 15.09%, Tier 1 leverage 10.97%; buybacks of 506,651 shares for $23.9M and intent to repurchase ~$30M in Q1 2025 .

  • What Went Wrong

    • Net charge-offs surged to $16.3M (vs. $4.2M in Q3), with ~$12.2M tied to a syndicated commercial recycling borrower .
    • Non-accrual loans rose to $169.2M (+3.9% q/q; +153.7% y/y), including a $16M CRE loan moved to non-accrual after borrower bankruptcy (fully secured, no loss projected) .
    • Special mention loans increased to $293M (from $203M in Q3), reflecting caution on a lower-profitability credit; non-interest income fell $4.9M on equity securities mark-to-market .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Diluted EPS ($)$1.13 $0.94 $1.12
Net Income ($M)$82.5 $67.5 $80.2
Net Interest Income before Provision ($M)$182.1 $169.2 $171.0
Provision for Credit Losses ($M)$1.7 $14.5 $14.5
Non-Interest Income ($M)$23.1 $20.4 $15.5
Non-Interest Expense ($M)$110.5 $96.9 $85.2
Margins & RatiosQ4 2023Q3 2024Q4 2024
Net Interest Margin (%)3.27 3.04 3.07
Net Interest Spread (%)2.40 2.11 2.17
Efficiency Ratio (%)53.84 51.11 45.70
ROA (%)1.40 1.15 1.37
ROE (%)12.21 9.50 11.18
Loan Composition ($M)Dec 31, 2023Sep 30, 2024Dec 31, 2024
Commercial Loans3,305.0 3,107.0 3,098.0
Construction Loans422.6 307.1 319.6
Commercial Real Estate Loans9,729.6 9,975.3 10,033.8
Residential Mortgage Loans5,838.7 5,750.5 5,689.1
Equity Lines245.9 226.8 230.0
Installment & Other6.2 6.9 5.4
Gross Loans19,548.1 19,373.6 19,376.0
Deposit Composition ($M)Dec 31, 2023Sep 30, 2024Dec 31, 2024
Non-Interest Demand3,529.0 3,253.8 3,284.3
NOW2,370.7 2,093.9 2,205.7
Money Market3,049.8 3,134.5 3,372.8
Savings1,039.2 1,216.0 1,252.8
Time Deposits9,336.8 10,245.8 9,570.6
Total Deposits19,325.4 19,943.9 19,686.2
Asset Quality & LiquidityQ3 2024Q4 2024
Non-Accrual Loans ($M)162.8 169.2
Total NPAs ($M)188.0 196.3
Allowance / NPL (%)96.45 93.39
Net Charge-offs ($M)4.203 16.333
Uninsured Deposits (% of total)—43.8
Available Liquidity (FHLB/FRB/Securities, $B)—$7.2 / $0.395 / $1.5

Note: Wall Street consensus (S&P Global) was unavailable at time of analysis due to data access limits; estimate comparisons are omitted.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Interest Margin (%)FY 2025Not provided3.10–3.20 Introduced
Loan Growth (%)FY 2025Not provided3–4 Introduced
Deposit Growth (%)FY 2025Not provided3–4 Introduced
Core Non-Interest Expense Growth (%)FY 2025 vs 2024Not provided4.5–5.5 Introduced
Effective Tax Rate (%)FY 2025Not provided19.5–20.5 Introduced
Solar Tax Credit InvestmentsFY 2025Not providedNone planned Clarified
Share Repurchases ($)Q1 2025Not provided~$30M targeted (market dependent) Introduced
Dividend ($/share)Next Pay Date$0.34 (historical cadence)$0.34 declared, payable Mar 10, 2025 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3 2024)Current Period (Q4 2024)Trend
Net Interest MarginQ2 NIM dipped to 3.01% on higher deposit costs ; Q3 NIM improved to 3.04% Further improvement to 3.07%; mgmt expects 3.10–3.20% in 2025 Improving/Stabilizing
Deposit Costs & MixQ2 rising deposit cost; time deposits elevated ; Q3 interest-bearing deposit cost 3.95% Broker deposits down $449M; core deposits +$417M; spot deposit rate 3.52%; ~$4.2B CDs to renew at ~4.0–4.1% Favorable remix; cost relief
Asset QualityQ2 non-accrual $107.3M ; Q3 non-accrual rose to $162.8M; special mention increased Non-accrual $169.2M; net charge-offs $16.3M (recycling credit); special mention $293M Deterioration/Watch
Tax Credits & OpexQ2 amortization increased, opex up ; Q3 amortization $24.1M Lower amortization reduces opex; core opex guided +4.5–5.5% y/y in 2025; no solar investments Structural opex reset; modest growth
CRE ExposureQ3 CRE non-accruals rose CRE LTV ~49%; retail 24% of CRE (9% shopping centers); office 14% of CRE (3.5% CBD) Risk disclosure enhanced
Liquidity & Uninsured Deposits—Unused FHLB $7.2B, FRB $0.395B, unpledged securities $1.5B; uninsured deposits 43.8% (net of collateral) Strong liquidity posture
Regulatory & RiskBuilding risk capabilities since Spring ’23 CRO transition announced; continued risk focus Governance continuity
Macro/Rate Outlook—Assumes one Fed cut mid-2025 per futures; NIM outlook based on deposit repricing and fixed-rate loan mix Balanced/Constructive

Management Commentary

  • CEO: “We are pleased by the increase in the net interest margin compared to the third quarter of 2024. During the quarter, we repurchased 506,651 shares at an average cost of $47.10 per share for a total of $23.9 million” .
  • CEO: “Our nonaccrual loans were 0.83% of total loans…The increase…came primarily from a $16 million CRE loan…reclassified as nonaccrual after the borrower filed for bankruptcy. The loan is fully secured…no loss is projected” .
  • CFO: “We are pleased that our NIM…appeared to have bottomed out…we anticipate [2025 NIM] to range between 3.10% and 3.20%…We expect…core noninterest expense…to increase between 4.5% to 5.5%…We do not anticipate investing in any solar tax credit investment funds in 2025” .
  • CEO on CRE: retail property loans are 24% of CRE; office is 14% of CRE, with only 3.5% in central business districts .

Q&A Highlights

  • Margin and deposits: December average margin ~3.11% (incl. 6 bps recoveries); spot deposit rate 3.52% .
  • CD repricing: ~$4.2B of Lunar New Year CDs maturing at ~4.6%, offered renewals at ~4.0–4.1% .
  • Tax credits: LIHTC amortization ~$10M per quarter; no solar credits in 2025; 2025 ETR 19.5–20.5% .
  • Broker deposits: runoff concentrated in Nov–Dec; intent to maintain smaller broker CD portfolio; core deposit inflows seasonal .
  • SNC portfolio: ~4% of total loans; sold ~$50M in Q4 at small discounts to reduce exposure .
  • Wildfires: no losses reported to CRE/business/SBA; limited mortgage/HELOC collateral reports; ongoing assessment .
  • Capital deployment: continued buyback interest; M&A considered selectively if accretive and strategic .

Estimates Context

  • Wall Street consensus (S&P Global) for Q4 2024 EPS and revenue was unavailable at time of analysis due to data access limits. As a result, explicit beat/miss vs consensus cannot be determined. When available, we will anchor comparisons to S&P Global estimates and update this recap accordingly.

Key Takeaways for Investors

  • Margin inflection: NIM uptick to 3.07% with 2025 guide to 3.10–3.20% suggests deposit cost relief and fixed-rate loan support; December margin at ~3.11% underscores momentum .
  • Cost reset: lower tax-credit amortization drove a notable opex decline; expect modest core opex growth (+4.5–5.5%) in 2025, manageable within efficiency ratio improvement .
  • Deposit strategy: broker CD runoff and core deposit gains, plus ~$4.2B CD repricing at ~4.0–4.1%, should aid funding costs and NIM, a positive near-term trading catalyst .
  • Asset quality watch: rising non-accruals and net charge-offs (recycling credit) warrant caution; rising special mention balances imply continued conservative stance and potential credit costs .
  • Capital return: healthy CET1/Tier 1 metrics and ongoing buybacks (~$30M targeted in Q1) provide support to EPS and book value accretion .
  • CRE risk disclosure: low CRE LTVs (avg 49%), limited CBD office exposure, and high proportion of retail centers may mitigate sector stress, but monitoring remains prudent .
  • Liquidity strength: substantial FHLB/FRB capacity and unpledged securities more than cover uninsured/uncollateralized deposits; supports confidence during macro volatility .

Appendix: Additional Data Points

  • Yield/cost dynamics: Q4 yield on interest-earning assets 5.92% vs cost of interest-bearing liabilities 3.75%; net interest spread 2.17% .
  • Balance sheet: Gross loans ~$19.38B; total deposits ~$19.69B; total assets ~$23.05B .
  • Dividends: $0.34/share declared payable March 10, 2025 .