Cathay General Bancorp Q2 2025 Earnings Report

Cathay General Bancorp EPS Results

• Actual EPS: $1.10
• Consensus EPS: $1.10
• Beat/Miss: Met Expectations
• One Year Ago EPS: $0.97

Cathay General Bancorp Revenue Results

• Actual Revenue: $196.61 million
• Expected Revenue: $197.04 million
• Beat/Miss: Missed by -$431.00 thousand
• YoY Revenue Growth: +10.10%

Cathay General Bancorp Announcement Details

• Quarter: Q2 2025
• Date: 7/22/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, July 22, 2025
• Conference Call Time: 6:00PM ET

Cathay General Bancorp (NASDAQ:CATY) operates as the holding company for Cathay Bank that offers various commercial banking products and services to individuals, professionals, and small to medium-sized businesses in the United States. The company offers various deposit products, including passbook accounts, checking accounts, money market deposit accounts, certificates of deposit, individual retirement accounts, and public funds deposits. It also provides loan products, such as commercial mortgage loans, commercial loans, small business administration loans, residential mortgage loans, real estate construction loans, and home equity lines of credit, as well as installment loans to individuals for household, and other consumer expenditures. In addition, the company offers trade financing, letter of credit, wire transfer, forward currency spot and forward contract, safe deposit, collection, automatic teller machine, Internet banking, investment, and other customary bank services, as well as securities and insurance products. Cathay General Bancorp was founded in 1962 and is headquartered in Los Angeles, California.

Cathay General Bancorp Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Net income rose 11.4% to $77.4 M in Q2 and EPS climbed 12.2% to $1.10, driven by higher net interest income and lower credit provisions.
• Positive Sentiment: Gross loans grew $432 M (8.9% annualized) with strength across commercial, CRE, and residential portfolios, prompting management to raise 2025 loan growth guidance to 3–4%.
• Negative Sentiment: Asset quality pressures increased as net charge-offs jumped to $12.7 M from $2 M and nonaccrual loans rose to 0.9% of total loans, driven by a large delinquent real estate credit.
• Positive Sentiment: Net interest margin expanded from 2.25% to 3.27% sequentially due to lower funding costs and benefits from prepayment fees, with further margin upside expected from future rate cuts.
• Neutral Sentiment: Total deposits rose $189 M (3.8% annualized) and the bank maintains over $10 B of unused FHLB and Fed capacity plus unpledged securities to fully cover uninsured deposits.

Presentation

[Operator]

Good afternoon, ladies and gentlemen, and welcome to Cathay General Bancorp's Second 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. If you would like to participate in this portion of the call, please press star followed by one at any time during the conference.

[Operator]

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 Georgie Lo, Investor Relations of Cathay General Bancorp. Please go ahead.

[Georgia Lo, Investor Relations at Cathay General Bancorp]

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.

[Georgia Lo, Investor Relations at Cathay General Bancorp]

These results 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 statements 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 its second quarter twenty twenty five results.

[Georgia Lo, Investor Relations at Cathay General Bancorp]

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. Chang Liu.

[Chang Liu, Director, President & CEO at Cathay General Bancorp]

Thank you, Georgia, and good afternoon. This afternoon, we reported a net income of $77,400,000 for Q2 twenty twenty five, an 11.4% increase as compared to $69,500,000 for Q1 twenty twenty five. Diluted earnings per share increased 12.2% to $1.1 for Q2 twenty twenty five as compared to $0.98 in Q1 twenty twenty five. During Q2 twenty twenty five, we repurchased 804,179 shares of our common stock at an average cost of $44.22 per share or $35,600,000 under the June 2025 $150,000,000 stock repurchase program. In Q2 twenty twenty five, total gross loans increased $432,000,000 or 8.9% annualized, primarily driven by increases of 196,000,000 in commercial loans, dollars $2.00 2,000,000 in commercial real estate loans and $69,000,000 in residential loans, offset by decreases of $32,000,000 in construction loans.

[Chang Liu, Director, President & CEO at Cathay General Bancorp]

Given the strong Q2 loan growth, we are revising our 2025 loan growth guidance back to 3% to 4% from the previously revised guidance of 1% to 4%. Slide six shows the percentage of loans in each major loan portfolio are either at a fixed rate or hybrid loans in their fixed rate period. Our loan portfolio consists of 62% fixed rate and hybrid loans excluding fixed to flow interest rate swaps of 4.9% of total loans. Fixed rate loans comprised 30% of total loans and hybrid and fixed rate period comprised 32% of total loans. We expect these fixed rate loans to support our loan yields as market rates are expected to decline.

[Chang Liu, Director, President & CEO at Cathay General Bancorp]

We continue to track our commercial real estate loans. Turning to Slide eight of our earnings presentation. As of 06/30/2025, the average loan to value of our CRE loans remained at 49%. As of 06/30/2025, 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 2,500,000,000.0 retail property loans are secured by retail store, building, neighborhood mixed use or strip centers, and only 9% is secured by shopping centers.

[Chang Liu, Director, President & CEO at Cathay General Bancorp]

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 3.3% are in CBDs. 40% of office property loans are collateralized by office retail stores, office mixed use, and medical offices, and the remainder 20% 27% are collateralized by office condos. For Q2 twenty twenty five, we reported net charge offs of $12,700,000 as compared to $2,000,000 in Q1 twenty twenty five. The $12,700,000 charge offs included $8,300,000 charge off, which have been reserved for in the first quarter on a large commercial loan.

[Chang Liu, Director, President & CEO at Cathay General Bancorp]

Our nonaccrual loans were 0.9% of total loans as of 06/30/2025, which increased $19,600,000 to $174,200,000 as compared to Q1 twenty twenty five, primarily due to a $16,000,000 real estate loan, which is in the process of foreclosure. Turning to Slide 12, as of 06/30/2025, classified loans increased to $432,000,000 from $380,000,000 for Q1 twenty twenty five due to downgrade of our large loan relationship to substandard due to delays in interest payments, which are now in the process of incurred. Our special mention loans increased slightly to $310,000,000 from $300,000,000 in Q1 twenty twenty five. We recorded a provision for credit losses of $11,200,000 in Q2 twenty twenty five as compared to $15,500,000 in Q1 twenty twenty five. The reserve to loan ratio decreased to 0.88% for Q2 twenty twenty five from 0.91% for Q1 twenty twenty five.

[Chang Liu, Director, President & CEO at Cathay General Bancorp]

However, excluding our residential mortgage portfolios, the total reserve to loan ratio would be 1.1%. Total deposits increased by $189,000,000 or 3.8% annualized during Q2 twenty twenty five, primarily due to increases of $120,000,000 in core deposits and $68,000,000 in time deposits. Total core deposits increased $120,000,000 due to seasonal factors and marketing activities. Total time deposits, excluding broker deposits, decreased $37,000,000 during Q2 twenty twenty five. As of 06/30/2025, total uninsured deposits were $8,700,000,000 net of $800,000,000 in collateralized deposits or 43.3% of total deposits.

[Chang Liu, Director, President & CEO at Cathay General Bancorp]

We have an unused borrowing capacity from the Federal Home Loan Bank of $7,000,000,000 and the Federal Reserve Bank of $1,500,000,000 and unpledged securities of $1,500,000,000 as of 06/30/2025. These sources of available liquidity are more than 100% of the uninsured and uncollateralized deposits as of 06/30/2025. I will now turn the floor over to our Executive Vice President and Chief Financial Officer, Mr. Heng Cheng, to discuss the quarterly financial results in more detail.

[Heng Chen, EVP, CFO & Treasurer at Cathay General Bancorp]

Thank you, Cheng, and good afternoon, everyone. For q two twenty twenty five, net income increased 7,900,000.0 or 11.4% to 77,400,000.0 from 69,500,000.0 for q one twenty twenty five, primarily due to 4,600,000.0 in higher net interest income, 4,300,000.0 lower provision for credit losses, and 4,200,000.0 higher in non interest expense. No, sorry, in non interest income offset by 3,500,000.0 higher in non interest expense and 1,700,000.0 higher in provision for income taxes. Net interest margin increased from 2.25% for q one twenty twenty five to 3.27 for q two twenty twenty five. The increase in net interest income was due to the lower cost of funds.

[Heng Chen, EVP, CFO & Treasurer at Cathay General Bancorp]

In q two twenty twenty five, interest recoveries and prepayment penalties added three basis points to the net interest margin as compared to adding six basis points in net interest margin for q one twenty twenty five. Noninterest income for Q2 twenty twenty five increased $4,200,000 to $15,400,000 when compared to $11,200,000 in Q1 twenty twenty five. The increase was primarily due to a 2,800,000 change in mark to market unrealized loss on equity securities in Q2 compared to unrealized loss in equity securities in Q1 and a $2,400,000 increase in other operating income resulting from higher foreign exchange income and derivative fee income offset by 1,200,000 lower in wealth management income. Noninterest expense increased by 3,400,000.0 or 4% to 89,100,000.0 in Q2 twenty twenty five from 85,700,000.0 in Q1 twenty twenty five. This increase was primarily due to a 2,100,000 increase in low income housing amortization and a 1,400,000.0 increase in professional expenses.

[Heng Chen, EVP, CFO & Treasurer at Cathay General Bancorp]

The effective tax rate for q two twenty twenty five was 19.56% as compared to 19.82% for Q1 twenty twenty five. Due to a recent California tax legislation, we are updating our guidance for the effective tax rate to between 18.5% to 19% from the previous guidance between 19.5% to 20.5%. As of 06/30/2025, our tier one leverage capital ratio increased to 11 o 7% as compared to 11.806% as of 03/31/2025. Our tier one risk based capital ratio decreased to 13.34% from 13.58% as of 03/31/2025, and our total risk based capital ratio decreased to 14.9% from 15.19% as of 03/31/2025.

[Chang Liu, Director, President & CEO at Cathay General Bancorp]

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

[Operator]

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

[Gary Tenner, MD & Senior Research Analyst at D.A. Davidson]

Thanks. Good afternoon. In terms of income tax rate for this quarter, was there any direct impact from that California state change that drove the income taxes higher this quarter? And if so, what amount?

[Heng Chen, EVP, CFO & Treasurer at Cathay General Bancorp]

Yes. Yes. 3,400,000.0. That that that's a result of writing off a portion of our deferred tax asset to reflect a lower state apportionment, lower California state apportionment.

[Gary Tenner, MD & Senior Research Analyst at D.A. Davidson]

Okay. Great. Thank you. 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 this this quarter?

[Heng Chen, EVP, CFO & Treasurer at Cathay General Bancorp]

Well, there's a lot of noise this quarter, Gary. We have let me start with the you know, we use Moody's as the 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, they one of the dependent variables is unemployment that added more. We had loan growth, which added more.

[Heng Chen, EVP, CFO & Treasurer at Cathay General Bancorp]

And offsetting that, we reduced specific provision for tariffs. We were would not see any impact on our importers, And we had set up a reserve in q one for that. And then secondly, we had another credit that was on nonaccrual, and we we increased the the collateral as part of the the bankruptcy settlement. We had a special reserve against that credit at which we now look no longer need. So

[Gary Tenner, MD & Senior Research Analyst at D.A. Davidson]

So so, Heng, the the refill of the ACL, primarily related, you'd would you say just to the economic factors in Moody's model more than any of the portfolio specifics?

[Heng Chen, EVP, CFO & Treasurer at Cathay General Bancorp]

That's right. That's right.

[Gary Tenner, MD & Senior Research Analyst at D.A. Davidson]

Okay. Okay. That's what I was curious about. Thank you.

[Heng Chen, EVP, CFO & Treasurer at Cathay General Bancorp]

Thank you.

[Operator]

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

[Andrew Terrell, Managing Director at Stephens Inc]

Hey, good afternoon. Hey, I wanted to ask on just the loan growth and the guidance first. It feels like after a really strong second quarter that loan growth would need to revert to that low single digits pace for kind of the next two quarters to stay within that 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?

[Chang Liu, Director, President & CEO at Cathay General Bancorp]

So Andrew, I think what we look at is really there's been a balanced growth in both the C and I side and the commercial real estate side. On the C and I side, we're seeing both some increases on existing line 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 we believe that we have a strong pipeline for the second half based on what we're seeing so far, and we're looking forward to getting those deals closed as well. We want to be a little want to just kind of look at the whole economic landscape, both in terms of just you know, there's still some terrorist noise out there and some of the CPI adjustment and and increases. So we just wanna be sensitive to that.

[Chang Liu, Director, President & CEO at Cathay General Bancorp]

And if loan demand starts to drop, then we don't wanna kinda not hit the top end of the range. That's why we kept the top end of the range at the 4%.

[Andrew Terrell, Managing Director at Stephens Inc]

Yep. Understood. Okay. Great. And then I wanted to ask just a balance sheet related question on the it looks like end of period, the FHLB borrowing position stepped up quite a lot.

[Andrew Terrell, Managing Director at Stephens Inc]

Just curious, any I think it was $412,000,000 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?

[Heng Chen, EVP, CFO & Treasurer at Cathay General Bancorp]

We Andrew, we most most of our loan growth was in the month of June. So so that's why we had to borrow from a federal home loan bank. And those are mainly two week borrowings. The rate is 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.

[Heng Chen, EVP, CFO & Treasurer at Cathay General Bancorp]

So we were just surprised. This this is the treasury group. We were surprised by by the surge in loan growth, so we didn't have time to ramp up broker CDs

[Andrew Terrell, Managing Director at Stephens Inc]

Yep. Okay. Makes sense. Thanks for taking the questions.

[Heng Chen, EVP, CFO & Treasurer at Cathay General Bancorp]

Yeah. Thank you.

[Operator]

The next question comes from Matthew Clark with Piper Sandler. Please go ahead.

[Matthew Clark, MD & Senior Research Analyst at Piper Sandler Companies]

Hey, good afternoon, everyone. 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 $50,000,000 increase. What drove it in terms of the type of credits and kind of what the situation is there?

[Heng Chen, EVP, CFO & Treasurer at Cathay General Bancorp]

Oh, yeah. Shane covered it. It was one commercial relationship. They they had some cash flow issues. They didn't go ninety days past due.

[Heng Chen, EVP, CFO & Treasurer at Cathay General Bancorp]

That's why it's it's it's still state 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 their borrowings.

[Matthew Clark, MD & Senior Research Analyst at Piper Sandler Companies]

And was that how large is that credit? Was that the entire

[Heng Chen, EVP, CFO & Treasurer at Cathay General Bancorp]

Yeah. It's increased. Yeah. It's in the high forties. Almost all of it is secured by real estate, but we we wanna limit our exposure to that borrower given the given to the the delinquency.

[Matthew Clark, MD & Senior Research Analyst at Piper Sandler Companies]

Got it. Okay. Great. And then just two two kind of minor housekeeping items. The prepay fees in the margin this quarter, interest income, I think they were

[Heng Chen, EVP, CFO & Treasurer at Cathay General Bancorp]

Yeah.

[Matthew Clark, MD & Senior Research Analyst at Piper Sandler Companies]

3,500,000.0 last quarter.

[Heng Chen, EVP, CFO & Treasurer at Cathay General Bancorp]

Yeah. It's 3 basis points this quarter compared to six basis points Got in

[Matthew Clark, MD & Senior Research Analyst at Piper Sandler Companies]

it. And then the tax credit amortization expectations for 3Q and 4Q?

[Heng Chen, EVP, CFO & Treasurer at Cathay General Bancorp]

Would be about $11,000,000 per quarter.

[Matthew Clark, MD & Senior Research Analyst at Piper Sandler Companies]

Okay. Thank you.

[Heng Chen, EVP, CFO & Treasurer at Cathay General Bancorp]

Thank

[Operator]

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

[Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)]

Hey, good afternoon. Thanks for the question. 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?

[Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)]

And how we should 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.

[Chang Liu, Director, President & CEO at Cathay General Bancorp]

Yes. 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 purchase or refinance, just our kind of traditional business. And then on the C and I end, 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.

[Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)]

Got it. That's helpful. And then on the deposit pricing side, you guys have done an excellent job getting deposit cost down after the first couple of cuts. With your NIM expectations ahead, wondering, have we seen most of the improvement we're 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.

[Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)]

Wondering how you guys are thinking about your ability to drive betas off of the next round of cuts? Thanks.

[Heng Chen, EVP, CFO & Treasurer at Cathay General Bancorp]

Yeah. Kelly, I think for you know, we were doing some analysis on our betas and, like, for some CD retail CD balances, the the adjustment last rate cut was in the December, and those the CD rates since then, the June CD rates have been down more than 25 basis points because I think we're in the slightly less promotional environment for CEs. And then and then we as I mentioned in the script, about 60% of our loans are fixed or hybrid. And we we we we're getting some repricing on the loans, like our residential mortgage. The originations in q two were at, like, 6.25%, and the average portfolio yield on residential mortgage in the second quarter was 5.79.

[Heng Chen, EVP, CFO & Treasurer at Cathay General Bancorp]

And, also, on UCRE originations, I think we're getting a little bit of uplift as as fixed rate loans that we made three or four years ago repriced today. So so we we have a little bit of a backwind, and our NIM should expand anytime there's another Fed rate cut. So we're we're we're just waiting for the for that to happen.

[Chang Liu, Director, President & CEO at Cathay General Bancorp]

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 fourth quarter of twenty twenty three. So that's kind of of 2024, sorry. And that's pulled through for us, and I think it's reflected in our current deposit rates. I don't think there's any kind of tailwind on that part of it.

[Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)]

Awesome. Thanks for the color. I'll step back.

[Heng Chen, EVP, CFO & Treasurer at Cathay General Bancorp]

Thank you.

[Operator]

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

[Chang Liu, Director, President & CEO at Cathay General Bancorp]

I want to thank everyone for joining us on 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.

Participants

Executives

• Georgia Lo, Investor Relations
• Chang Liu, Director, President & CEO
• Heng Chen, EVP, CFO & Treasurer

Analysts

• Gary Tenner, MD & Senior Research Analyst at D.A. Davidson
• Andrew Terrell, Managing Director at Stephens Inc
• Matthew Clark, MD & Senior Research Analyst at Piper Sandler Companies
• Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)