Cathay General Bancorp Q3 2025 Earnings Call Transcript

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October 21, 2025

Key Takeaways

  • Positive Sentiment: Q3 results beat modestly on the bottom line: net income was $77.7M (up 0.3% QoQ) and diluted EPS rose to $1.13, while the company repurchased 1.07M shares for $50.1M and raised its loan and deposit growth guidance to a 3.5%–5% range.
  • Positive Sentiment: Loan growth accelerated with total gross loans up $320M (6.6% annualized), led by a $122M increase in CRE and $123M in residential loans; management notes 60% of loans are fixed or hybrid-in-fixed periods to help support yields as rates fall.
  • Negative Sentiment: Credit costs increased: net charge-offs rose to $15.6M, provision for credit losses jumped to $28.7M (including $9.1M tied to two movie theater loans from the Far East acquisition and $3.8M from a CECL model change), and special mention loans grew to $455M with six downgraded relationships totaling $145M.
  • Positive Sentiment: Deposits and liquidity strengthened as total deposits increased $515M (10.5% annualized) and the bank retained ample backup liquidity — FHLB availability $7.2B, FRB $1.5B and $1.5B unpledged securities — which exceed uninsured, uncollateralized deposits.
  • Neutral Sentiment: Margin and capital profile: NIM improved to 3.31% (September month ~3.38%) and management expects NIM to benefit from rate cuts, while capital ratios edged down slightly (Tier 1 leverage 10.88%, total risk‑based capital 14.76%) but remain within comfortable ranges.
AI Generated. May Contain Errors.
Earnings Conference Call
Cathay General Bancorp Q3 2025
00:00 / 00:00

There are 8 speakers on the call.

Operator

Good afternoon, ladies and gentlemen, and welcome to Cathay General Bancorp's Third Quarter twenty twenty five Earnings Conference Call. My name is Ashia, and I'll be your coordinator for today. At this time, all participants are in a listen only mode. Following the prepared remarks, there will be a question and answer session. Today's call is being recorded and will be available for replay at www.cathaygeneralbancorp.com.

Operator

Now I would like to turn the conference over to Georgia Lowe, Investor Relations of Cathay General Bancorp. Please go ahead.

Speaker 1

Thank you, Ashiya, and good afternoon. Here to discuss the financial results today are Mr. Cheng Liu, our 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 on 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.

Speaker 1

These risks and uncertainties are further described in the company's annual report on Form 10 ks for the year ended 12/31/2024 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. Any forward looking statement speaks only as of the date on which it is made. And except as required by law, we undertake no obligation to update or review any forward looking statements to reflect future circumstances, developments or events or the occurrence of unanticipated events. This afternoon, Cathay General Bancorp issued an earnings release outlining third quarter twenty twenty five results.

Speaker 1

To obtain a copy of our earnings release as well as our earnings presentation, please visit our website at cathaygeneralbancorp.com. After comments by management today, we will open up this call for questions. I will now turn the call over to our President and Chief Executive Officer, Mr. Sheng Liu.

Speaker 2

Thank you, Georgia, and good afternoon, everyone. This afternoon, we reported a net income of $77,700,000 for Q3 twenty twenty five, a 0.3% increase as compared to $77,500,000 for Q2 twenty twenty five. Diluted earnings per share increased 2.7% to $1.13 for Q3 twenty twenty five as compared to $1.1 in Q2 twenty twenty five. During Q3 twenty twenty five, we repurchased 1,070,000.00 shares of our common stock at an average cost of $46.81 per share or $50,100,000 under the June 2025 $150,000,000 stock buyback program. In Q3 twenty twenty five, total gross loans increased $320,000,000 or 6.6% annualized, primarily driven by increases of $122,000,000 in CRE loans and $123,000,000 in residential loans.

Speaker 2

Due to our strong loan growth through 09/30/2025, we are increasing our loan and deposit guidance from 3% to 4% to 3.5% to 5% for both loans and deposits. Slide six shows the percentage of loans in each major loan portfolio that are either at a fixed rate or hybrid loans in their fixed rate period. Our loan portfolio consists of 60% fixed rate and hybrid loans, excluding fixed to float interest rate swaps of 3.1% of total loans. Fixed rate loans comprise 30% of total loans, and hybrid in fixed rate period comprises 30 of total loans. We expect these fixed rate loans to support our loan yields as market rates are expected to decline.

Speaker 2

We continue to monitor our CRE loans. Turning to Slide eight of our earnings presentation. The average loan to value of our CRE loans remained at 49. Our retail property loan portfolio, as shown on Slide nine, comprises 24% of our total CRE loan portfolio or 13% of our total loan portfolio. 90% of the $2,500,000,000 in retail property loans are secured by retail store, neighborhood mixed use or strip centers, and only 9% secured by shopping centers.

Speaker 2

On Slide 10, office property loans represent 14% of our total CRE loan portfolio or 7% of our total loan portfolio. Only 33% of the $1,500,000,000 in office property loans are collateralized by pure office buildings, Only 3% are located in central business districts. 40% of office property loans are collateralized by office retail stores, office mixed use and medical offices, and the remainder 27% are collateralized by office condos. For q three twenty twenty five, we reported net charge offs of $15,600,000 as compared to $12,700,000 in q two twenty twenty five. Our nonaccrual loans were 0.8% of total loans as of 09/30/2025, which decreased $8,500,000 to $165,600,000 as compared to q two twenty twenty five.

Speaker 2

Turning to Slide 12. Classified loans decreased from $432,000,000 to $420,000,000 for Q3 twenty twenty five. Our special mention loans increased from $310,000,000 to $455,000,000 in Q3 twenty twenty five. The bank conservatively downgraded six loan relationships totaling $145,000,000 to special mention that have not met certain debt covenants and have established have exhibited short term financial issues for monitoring. The bank believes that these credits will resolve within the next twelve months by either credit upgrades or partial or full payoffs.

Speaker 2

We recorded a provision for credit losses of $28,700,000 in Q3 twenty twenty five as compared to $11,200,000 in Q2 twenty twenty five. The $28,700,000 provision included $9,100,000 for two movie theater loans that we acquired from the acquisition of Far East National Bank and $3,800,000 from a change in our CECL model. The ALLL to gross loan ratio increased from 0.88% for Q2 twenty twenty five to 0.93% for Q3 twenty twenty five. However, excluding our residential mortgage portfolio, the total reserve to loan ratio would be 1.16%. Total deposits increased by $515,000,000 or 10.5% annualized during Q3 twenty twenty five, primarily due to increases of $5.00 $8,000,000 in core deposits and $7,000,000 in time deposits.

Speaker 2

The increase in core deposits was due to seasonal factors and marketing activities. As of 09/30/2025, total uninsured deposits were $9,100,000,000 net of $900,000,000 in collateralized deposits or 44.3% of total deposits. The bank has unused borrowing capacity of $7,200,000,000 from Federal Home Loan Bank and 1,500,000,000 from FRB and $1,500,000,000 in unpledged securities. These available liquidity sources are more than 100% of the uninsured and uncollateralized deposits as of 09/30/2025. I will now turn the floor over to our Executive Vice President and Chief Financial Officer, Mr.

Speaker 2

Heng Cheng, to discuss the quarterly financial results in more detail.

Speaker 3

Thank you, Cheng, and good afternoon, everyone. For q three twenty twenty five, net income increased point 2,000,000 or point 3% to $77,700,000 from $77,500,000 for Q2 twenty twenty five, primarily due to $17,500,000 in higher provision for credit losses offset by $8,400,000 in higher net interest income, 5,600,000.0 in higher in noninterest income and $1,000,000 lower in noninterest expense and $2,700,000 lower in provision for income taxes. Net interest margin increased to 3.31% for Q3 twenty twenty five from 3.27% for Q2 twenty twenty five. The increase in net interest margin income was due to the lower cost of funds. In Q3 twenty twenty five, interest recoveries and prepayment penalties added four basis points to the net interest margin as compared to adding three basis points in net interest margin for Q2 twenty twenty five.

Speaker 3

Noninterest income for Q3 twenty twenty five increased $5,600,000 to $21,000,000 when compared to $15,400,000 in Q2 twenty twenty five. The increase was primarily due to a $4,700,000 change in mark to market unrealized gain on equity securities in Q3 from unrealized loss on equity securities in Q2. Noninterest expense decreased by BRL 1,000,000 from $89,100,000 in Q2 twenty twenty five to $88,100,000 in Q3 twenty twenty five. The decrease was primarily due to a $1,500,000 increase in professional expense and 600,000 decrease in data processing, offset by The effective tax rate for Q3 twenty twenty five was 17.2% as compared to 19.6% for Q2 twenty twenty five. As of 09/30/2025, our Tier one leverage capital ratio decreased to 10.88% as compared to 11.09% in the previous quarter.

Speaker 3

Our Tier one risk based capital ratio decreased to 13.15% from 13.35% in the previous quarter, and our total risk based capital ratio decreased to 14.76% from 14.92% in the previous quarter.

Speaker 2

Thank you, Heng. We will now proceed to the question and answer portion of the call.

Operator

First

Speaker 4

question just around the increase in classifieds. And I think you mentioned it was driven by six relationships. And I believe it's commercial real estate related. But if any additional color you could provide in terms of the types of commercial real estate and anything chunky in there? I'm just trying to get a sense for if there was a credit that kind of moved the needle within that increase.

Speaker 3

No. The largest one, Matthew, was about 50,000,000. This is a national full service business printing company. They had a weak second quarter due to the uncertainty regarding tariffs. And then they have regained momentum in Q3.

Speaker 3

And once we get their full year financial statements, we expect to upgrade that loan to the past. Then we have we have a real estate loan in Arizona, and there was a loss of one tenant. And the LTV is a little higher than our than our target LTV. And I'll just I think and then we have the third one that's in Southern California. This is also the property was had slow leasing for this.

Speaker 3

It's expected by the 2026 to be fully leased up. So that's that's just some cover out out of the six relationships.

Speaker 4

Okay. And then the increase in CRE reserves this quarter, was that related to some of that migration? Or was that maybe related to the increase in modifications? Just trying to get a sense for what that might be attributed to.

Speaker 3

Well, the modification, we're we're we're gonna relook at that. We have a if we ex if we renew a substandard loan for ninety days, we're treating that as a modification, trouble modification. Our understanding is that other banks regard those as insignificant changes, especially when there's no change in the in the contractual rate. So we'll we'll be changing our policy later on, but I'm just trying to think of

Speaker 4

the

Speaker 3

oh, but the reason the the CRU reserve is because of this $99,200,000.0 additional reserve on the two movie theater loans that we inherited from our acquisition of Far East National Bank.

Speaker 4

Okay. Perfect. Thank you.

Speaker 3

The

Operator

next question comes from Andrew Terrell with Stephens. Please go ahead.

Speaker 5

Hey, good afternoon. I wanted to start just on the expense guide. Reiterated, I guess when I look at it, it kind of implies what looks like a pretty decent step up in the fourth quarter. So I just kind of want to take your temperature on the core expenses in fourth quarter, if you could maybe share kind of a range of what you're expecting for core expenses? And then if you had the low income housing tax credit amortization you're expecting as well?

Speaker 3

Yes. So we think we're happy to see the consulting expense decrease or or or, yeah, decrease starting here in the third quarter. And then in that loan, we have housing. We had some additional amortization mainly from catching up to the twenty twenty four k one. So the so loan cut housing is yeah.

Speaker 3

It's it's about $10.10 and a half million for for I'm sorry. It's yeah. It's 11 and a half million, sorry, for for q three. But once again, it it's a onetime catch up adjustment based on the k one that we received from from our funds in 04/2024.

Speaker 5

Got it. Okay. So you'd expect it to remain stable to that 11 and a half?

Speaker 3

Yes. Yes.

Speaker 5

And then outside of the amortization, do you feel like core expense run rate for 3Q is kind of a good starting point for the fourth quarter? I know you noted some of the decrease in consulting expense.

Speaker 3

Yes. Okay.

Speaker 5

And then on the bond portfolio, can you remind us how much of the investment book is floating rate and looks like yields down 30 basis points or so this quarter. Is that just reflective of the floating rate piece of that book and the move in so far we saw this quarter or anything else we should appreciate that it came through the securities income line this quarter?

Speaker 3

Yeah, so Matthew about 40% of our bond portfolio is six month treasuries. So as they're rolling down, losing the yield. The rest of our portfolio is fixed.

Speaker 5

Got it. Okay. And last thing I wanted to ask, your capital position is still very strong. We've got what feels like a more amicable regulatory environment. Just wanted to get your updated thoughts whether M and A was of interest either either side of the coin for Cathay?

Speaker 2

Sure, Andrew. M and A is always an interest to us, but I think we're very strategic. We're very focused on our organic growth and executing our business plan. If there's a candidate out there that surfaces that makes sense to us, whether it's strategically or financially, then we will absolutely look at it. But of course, that depends on what the ask is, right, and the exchange ratio on that.

Speaker 2

So I think we would wanna make sure we execute something that makes sense. But sometimes if it's just purely financial or an asset play without any other strategic reasons, might not make a ton of sense. So we're always open to that.

Speaker 5

Understood. Okay. Thanks for taking the questions.

Speaker 3

Thanks. The

Operator

next question comes from Gary Tenner with D. A. Davidson. Please go ahead.

Speaker 6

Hi, good afternoon. I wanted to ask about the loan growth side of the equation here. Obviously, you did change the guide, but I'm curious about what you're seeing in the commercial mortgage segment. There's not a lot of banks out there that have put up real solid commercial mortgage growth this year. So I'm curious what you're seeing in terms of demand and what kind of pricing you're getting on new loans in that segment?

Speaker 2

So, Gary, some of the increase is really pull through some of the pull through from second quarter. I think we had strong CRE portfolio pipeline in the second half of first Q and 2Q was also pretty strong as well. So a lot of those numbers kind of pull through for the third quarter for us. Right now, even in the past few weeks, as we are sitting on our committee calls, the pipeline is definitely slowing down a bit. I think people are kind of waiting for seeing if there's going to be any more rate cuts for perhaps October and maybe even one more in December.

Speaker 2

But that's been kind of the activities for us. Even on the pricing end, Gary, I think we're competing on pricing for sure. Just recently, we were looking at a transaction where strong deposits and we have to kind of bear down a little bit on the margins just to make sure we keep the relationship. So the price competition is still there for sure.

Speaker 6

Thanks. I appreciate the thoughts.

Operator

The next question comes from Kelly Mota with KBW. Please go ahead.

Speaker 7

Hey, good afternoon. Thanks for the question. Maybe looking at the funding side, it looks like on the average balance sheet, other borrowed funds went up. Wondering, I know you have your loan and deposit guidance, but as we look ahead, if there's any increased competition you're seeing on deposits and how that comes into play now if we get another cut or two here? Thanks.

Speaker 2

So the competition on deposits is still very fierce out there, Kelly, to be honest, particularly in our California and the New York East Coast. We are seeing even outside of our niche market, the mainstream players kind of offering rates that are pretty substantial. Our group and our team, and I make sure they're focusing on this, that anytime there's a potential rate cut coming and whether it's an exception rates on money market, high balance accounts and those kind of things. So we're executing on those kind of drops in rates pretty quickly. In addition, we're also adjusting our exception rates on any of deposits and those kind of things.

Speaker 2

And the drive for non interest bearing and low interest bearing deposits continues where we've built the specialty deposit side in one particular segment and we're trying to add more to it And it's going to take some time to really have that impact the liability side of the balance sheet, but that's the objective. So we're going to continue to try to drive down the cost of funds.

Speaker 7

Got it. Thank you. And can you refresh us on your asset sensitivity here in terms of like, do you think you're going to be able to lower deposit costs again with future rate cuts in order to offset any impact on the asset side. I appreciate the NIM guidance, but you're kind of in the middle of it. So I'm wondering if you could provide additional color as to how we should be thinking about the near term trajectory.

Speaker 3

Our model, which we're still trying to improve, has us basically flat. It's a down 25 basis point rate shock. And we think, you know, just based on what happened in 2025 that for every quarter point drop in Fed funds, you know, over six months, our NIM should go up, you know, six or seven basis points. So, you know, with another rate cut possible here in October or certainly for sure in December and then probably one or two more in twenty sixth. We think directionally our NIM will go up or should go up.

Speaker 7

That's helpful. Thank you, Heng. I will step back.

Speaker 3

Thank you, Kelly.

Operator

We have a follow-up question from Matthew Clark with Piper Sandler. You

Speaker 4

may have missed it, but just if you had the average net interest margin in the month of September, either

Speaker 3

Yeah.

Speaker 4

On a core core basis or reported basis, by the way?

Speaker 3

Yeah. September was three this is the month. It's 3.38% for the month of September. Okay. So that's a thirty day month.

Speaker 3

So it's generally when when we have so much in the way of residential mortgages, it's up, you know, three or four basis points higher.

Speaker 4

Okay. And then the spot rate on deposits, either at the end of the month or just the average for the month, the cost? Yeah.

Speaker 3

Okay. Hold on. So we so we have, I guess, interest bearing deposits. Do you want to buy each component, Matthew? Or

Speaker 4

No. No. No. Just the overall interest bearing deposit is fine.

Speaker 3

Yeah. 3.16. That that's compared to 3.31 at the June. Okay. So that's the September?

Speaker 3

Right. Thank

Operator

you for your participation. I will now turn the call back over to Catherine General Bancorp's management for closing remarks. Please go ahead.

Speaker 2

I want to thank everyone for joining us in our call, and we look forward to speaking with you at our next quarterly earnings release call.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.

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