Cathay General Bancorp Q3 Earnings Call Highlights

Key Points

• Strong operating performance: Cathay General Bancorp reported $95.2 million in third-quarter net income, while record net interest income rose 5.5% to $211.9 million and net interest margin expanded to 3.52%.
• Growth outlook raised: Loans increased 2.8% and deposits grew 3.7%, led by commercial and industrial lending and stronger demand deposits. Management raised its full-year loan growth forecast to 5%–6% and deposit growth outlook to 4%–5%.
• Credit costs and funding pressures remain: Provision expense reached $28.6 million, with charge-offs concentrated in three previously identified loans, while deposit competition and $3.4 billion of certificates of deposit rolling over could pressure funding costs. The company also repurchased approximately 801,000 shares for $50.3 million.

Cathay General Bancorp NASDAQ: CATY reported third-quarter 2026 net income of $95.2 million, or $1.43 per diluted share, as record net interest income, loan growth and margin expansion helped offset higher credit costs and operating expenses.

President and Chief Executive Officer Chang Liu said the company’s operating performance during the quarter was supported by “active balance sheet management, loan growth, and asset repricing.” Net interest income rose $11 million, or 5.5% from the prior quarter, to a record $211.9 million. Net interest margin expanded by 4 basis points to 3.52%.

Pre-provision net revenue totaled $151.3 million, up 16.4% on a linked-quarter basis. Excluding notable items, adjusted pre-provision net revenue was $140.6 million, an increase of $11.7 million, or 9.1%.

Loan and Deposit Growth Supports Balance Sheet

Period-end loans, net of fees, reached $21.2 billion, increasing approximately $573 million, or 2.8%, from the prior quarter. Executive Vice President and Chief Financial Officer Al Wang said growth was particularly strong in commercial and industrial lending.

Period-end deposits rose $773 million, or 3.7%, to $21.8 billion. The increase was led by non-interest-bearing demand deposits and money market balances, helping improve the company’s net loan-to-deposit ratio to approximately 96%.

Average loans grew at an annualized rate of 5.9% to $20.5 billion, while average deposits increased at an annualized rate of 13.8% to $21.4 billion. The company’s commercial real estate concentration ratio stood at 283%, below both regulatory thresholds and its internal limits.

Management raised its full-year loan growth outlook to 5% to 6%, from a previous range of 3.5% to 4.5%. Its deposit growth outlook was raised to 4% to 5%, compared with an earlier forecast of 3% to 4%.

Liu said C&I lending had been the primary driver of recent growth, with activity spanning manufacturing, distribution, service providers and food wholesalers. He said customer borrowing in C&I is generally need-based, while higher rates may have a greater effect on commercial real estate demand, particularly property purchases.

Margin Expands, Though Deposit Costs Remain a Pressure Point

Loan yields increased 5 basis points during the quarter to 6.02%, aided by higher rates, interest recoveries and prepayment penalties. Total deposit costs rose 4 basis points to 2.43%, while interest-bearing deposit costs increased 5 basis points to 2.91%.

Wang said the company was not ready to call a peak in net interest margin, pointing to $8.9 billion of loans expected to reprice over the next year, as well as cash and investment portfolio repricing opportunities. He added that the outlook includes a 25-basis-point rate increase in December.

However, Wang said funding costs could remain under pressure amid deposit competition. About $3.4 billion of certificates of deposit were set to roll off during the fourth quarter at an average rate of 3.46%.

Management maintained its full-year net interest margin outlook of 3.40% to 3.50%. Wang said that excluding loan prepayments and recoveries, the company’s September margin was about 3.53%. Interest recoveries totaled roughly $3.7 million to $3.8 million during the quarter and added about 6 basis points to margin, he said.

Securities Repositioning and Notable Items Affect Results

During the quarter, Cathay sold approximately $89 million of agency mortgage-backed securities yielding 1.83% and reinvested in agency MBS yielding 5.65%. The newly acquired securities have similar average lives and shorter duration, according to Wang.

The transaction generated a $15.1 million loss but is expected to add approximately $2.9 million to annual net interest income. Year to date, the company has repositioned about $460 million of securities in three transactions, which management expects will add $11.4 million in annual net interest income with an aggregate earn-back period of about 3.6 years.

Non-interest income increased to $42.8 million, primarily reflecting a $36.1 million unrealized valuation gain on equity securities and a $3.1 million benefit from the redemption of trust preferred securities. Adjusted non-interest income was $18.8 million, slightly lower than the prior quarter due mainly to reduced wealth management fees. Wang said the decrease reflected transaction-based volume and that the company expects wealth management revenue to rise in the next quarter.

Non-interest expense rose to $103.4 million from $92.3 million in the second quarter. The increase included an $8 million commitment to the Cathay Bank Foundation and $5.4 million in contract termination costs. Wang characterized the contract cost as a one-time charge related to replacing a vendor platform for one line of business, with the new platform expected to support future revenue growth.

Excluding notable items, adjusted non-interest expense was $82.9 million, up 1.2% from the previous quarter. The reported efficiency ratio improved to 40.6%, while the adjusted efficiency ratio improved to 35.9%.

Credit Costs Concentrated in Previously Identified Loans

The provision for credit losses was $28.6 million, reflecting loan growth and updated loss assumptions based on recent charge-off experience. Net charge-offs were $25.3 million, or 49 basis points annualized.

Management said the charge-offs were concentrated in three previously identified credits: two movie theater commercial real estate loans acquired through the Far East National Bank acquisition, totaling about $18 million, and a Southern California multifamily construction loan with nearly $9 million of exposure. Liu said the construction loan experienced water damage, mold contamination and resulting structural issues.

The allowance for loan losses increased approximately $5 million to $224 million, while the allowance ratio remained at 1.06% of gross loans. Non-performing assets declined approximately 18%, while criticized and classified balances also decreased, largely because of the charge-offs. Management said broader portfolio trends remained stable.

The company repurchased about 801,000 shares for $50.3 million during the quarter, at an average price of $62.81 per share. It ended the period with a common equity tier 1 ratio of 13.51% and a total risk-based capital ratio of 15%.

About Cathay General Bancorp (NASDAQ:CATY)

Cathay General Bancorp is a bank holding company headquartered in Los Angeles, California. Its principal subsidiary, Cathay Bank, provides banking and financial services to individuals, families, businesses and institutions, with a particular focus on serving the Chinese American and broader communities in the markets where it operates.

Cathay Bank offers deposit accounts, residential and commercial real estate loans, commercial and industrial lending, small-business financing, consumer loans, treasury management and other traditional banking services.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.