Cathay General Bancorp raises 2025 loan and deposit growth guidance to 3.5%-5% amid CRE and residential loan expansion

Earnings Call Insights: Cathay General Bancorp (CATY) Q3 2025

MANAGEMENT VIEW

* CEO Chang Liu reported net income of $77.7 million for Q3 2025, noting, "Diluted earnings per share increased 2.7% to $1.13 for Q3 2025 as compared to $1.10 in Q2 2025." He announced the repurchase of 1.07 million shares at an average cost of $46.81 per share under the June 2025 $150 million stock buyback program, and highlighted loan growth: "In Q3 2025, total gross loans increased $320 million or 6.6% annualized, primarily driven by increases of $122 million in CRE loans and $123 million in residential loans."
* Liu stated, "Due to our strong loan growth through September 30, 2025, we are increasing our loan and deposit guidance from 3% to 4% to 3.5% to 5% for both loans and deposits." He also emphasized the structure of the loan book, noting 60% of loans are fixed rate or hybrid, supporting future yields as rates decline.
* CFO Heng Chen said, "For Q3 2025, net income increased $0.2 million or 0.3% to $77.7 million from $77.5 million for Q2 2025, primarily due to $17.5 million in higher provision for credit losses, offset by $8.4 million in higher net interest income, $5.6 million in higher noninterest income and $1 million lower in noninterest expense and $2.7 million lower in provision for income taxes."

OUTLOOK

* Management raised loan and deposit growth guidance, with Liu stating, "we are increasing our loan and deposit guidance from 3% to 4% to 3.5% to 5% for both loans and deposits."
* The company expects fixed-rate and hybrid loans to support yields as market rates are anticipated to decline.
* Chen commented on deposit competition and pricing, indicating ongoing adjustments to rates and a continued focus on driving down cost of funds.

FINANCIAL RESULTS

* Net interest margin increased to 3.31% for Q3 2025 from 3.27% for Q2 2025, attributed by Chen to lower cost of funds and a 4 basis point benefit from interest recoveries and prepayment penalties.
* Noninterest income rose to $21 million, up $5.6 million from Q2, driven by a $4.7 million mark-to-market unrealized gain on equity securities.
* Noninterest expense declined to $88.1 million, primarily due to decreases in professional and data processing expenses, partially offset by higher long-term housing and solar tax credit amortization.
* The provision for credit losses climbed sharply to $28.7 million, including $9.1 million related to two movie theater loans acquired from Far East National Bank and $3.8 million from a CECL model change.
* Classified loans decreased to $420 million, while special mention loans increased to $455 million, following downgrades of six loan relationships totaling $145 million.
* The ALLL to gross loan ratio increased to 0.93%.
* Total deposits increased by $515 million in the quarter, with core deposits rising $508 million.

Q&A

* Matthew Clark, Piper Sandler, asked about the increase in classified loans and specifics behind the credit migration. CFO Chen responded, "The largest one, Matthew, was about $50 million. This is a national full-service business printing company...they have regained momentum in Q3. And once we get their full year financial statements, we expect to upgrade that loan to the past." He also noted a real estate loan in Arizona with higher LTV and a Southern California property expected to be fully leased by Q2 2026.
* Clark inquired about the increase in CRE reserves. Chen explained, "the reason the CRE reserve up is because of this $9.2 million additional reserve on the 2 movie theater loans that we inherited from our acquisition of Far East National Bank."
* Andrew Terrell, Stephens, questioned expense trends and tax credit amortization. Chen clarified, "low-income housing is...it's $11.5 million...for Q3. But once again, it's a one-time catch-up adjustment..." Terrell also asked about the bond portfolio’s floating rate exposure, to which Chen replied, "about 40% of our bond portfolio is 6-month treasuries. So as they're rolling down, we're losing the yield. The rest of our portfolio is fixed."
* Terrell asked about M&A. Liu responded, "M&A is always an interest to us, but...we're very focused on our organic growth and executing our business plan."
* Gary Tenner, D.A. Davidson, sought details on commercial mortgage segment demand and pricing, with Liu noting strong Q2 and early Q3 pipelines but recent slowing activity and ongoing price competition.
* Kelly Motta, KBW, pressed on deposit competition. Liu replied, "the competition on deposits is still very fierce...particularly in our California and the New York East Coast."
* Clark asked about net interest margin in September, and Chen provided, "September was...3.38% for the month of September."

SENTIMENT ANALYSIS

* Analysts focused on credit migration, loan growth sustainability, deposit competition, and expenses, with a neutral to slightly cautious tone as they pressed for clarity on credit quality and forward guidance.
* Management maintained a confident tone in prepared remarks, particularly on guidance and loan growth, but showed some defensiveness in Q&A, especially regarding credit migration and provisioning. Chen’s use of “we're going to relook at that” and Liu’s reiteration of strategic focus reflect readiness to address concerns.
* Compared to the previous quarter, management’s confidence on loan growth and guidance was more assertive, but Q&A exchanges continued to feature probing analyst questions on asset quality and expense control.

QUARTER-OVER-QUARTER COMPARISON

* Guidance for loan and deposit growth was raised from 3%-4% to 3.5%-5%, compared to the previous quarter’s upward revision from 1%-4% to 3%-4%.
* CRE and residential loan growth remained strong, but the pace of new pipeline is moderating, as indicated by management.
* Special mention loans increased significantly while classified loans decreased slightly, and provision for credit losses was notably higher in Q3 due to specific legacy loans.
* Deposit growth accelerated, and noninterest expenses declined compared to Q2, reflecting ongoing cost control efforts.
* Analyst questioning retained a focus on credit migration, loan growth pace, and funding costs, with greater scrutiny on the sustainability of loan demand and asset quality.

RISKS AND CONCERNS

* Management cited increased special mention loans, with downgrades tied to six relationships experiencing short-term financial issues or covenant breaches, subject to monitoring for resolution within 12 months.
* A major risk highlighted was the elevated provision for credit losses, including $9.1 million for acquired movie theater loans and a $3.8 million CECL model adjustment.
* Deposit competition remains intense, especially in key markets, pressuring funding costs.
* Management acknowledged price competition in commercial mortgage lending and slowing pipeline activity.

FINAL TAKEAWAY

Cathay General Bancorp’s third quarter results show continued strength in loan and deposit growth, prompting management to raise its full-year guidance. The bank remains focused on organic expansion, navigating elevated credit provisioning, and maintaining disciplined cost controls. While credit quality metrics are mixed—with increases in special mention loans offset by lower classified and nonaccrual loans—management expresses confidence in resolving short-term issues and leveraging its fixed-rate loan book to support yields as rates decline. Persistent deposit competition and moderating loan pipeline activity are key watch points as the bank moves into the final quarter of 2025.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/caty/earnings/transcripts]

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