Cathay General Bancorp Reports Q2 Growth

Key Points

• - Earnings per share edged past estimates at $1.10, beating the consensus by $0.01.

• - Revenue climbed to $195.9 million, up 9.8 % year over year and nearly matching expectations.

• - Operating efficiency improved, with the efficiency ratio dropping 10.3 percentage points from the prior year.

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Cathay General Bancorp (NASDAQ:CATY), a regional bank with a strong footprint in Asian-American communities, released its earnings for the second quarter of 2025 on July 22, 2025. The company modestly surpassed Wall Street expectations, reporting diluted earnings per share of $1.10 versus a consensus estimate of $1.09, and revenue of $195.9 million against an estimate of $195.92 million. The period showed an uptick in both revenue and efficiency, but also revealed a rise in non-performing assets. Overall, the quarter presented incremental progress, with some early warning signs on credit quality that will be important to monitor.

Source: Analyst estimates for the quarter provided by FactSet.

Company Overview and Business Focus

Cathay General Bancorp, founded in 1962 and headquartered in Los Angeles, focuses on community banking particularly for Chinese-American and other minority communities on the U.S. West Coast, New York, and select Asian markets. Its core business is providing loans, deposit accounts, and related banking services across over 60 branches in major metropolitan markets.

Recently, it has emphasized risk management and operational efficiency, especially as it faces a highly competitive regulatory environment. Success depends on careful loan portfolio management, staying ahead of regulatory requirements, and balancing growth with asset quality. Continued investments in human capital and community relationships remain essential drivers of its performance.

Quarter in Review: Metrics and Milestones

The second quarter showed steady progress on several fronts. Earnings per share came in slightly above expectations, while revenue saw an almost 10 % increase over the prior-year period. Return on average assets, a metric that compares profit to the bank’s asset base, rose to 1.33 %, up from 1.15 % last year, highlighting improved profitability. The efficiency ratio, which measures expenses as a percentage of revenue (lower is better), dropped to 45.34 % from 55.65 % a year ago, indicating better cost control and operational gains.

Net interest income—the difference between interest earned on loans and interest paid on deposits and other funds—rose by nearly $16 million year over year. Net interest margin, an indicator of how efficiently the bank lends compared to its interest costs, ticked up to 3.27 %, reflecting firm pricing power in a period when many banks have struggled to maintain margins. Non-interest expense (costs not related to lending or deposit interest) increased 4.0 % sequentially, kept in check by disciplined spending in professional fees and partnership amortization. Non-interest income jumped 37.5 % from the previous quarter, thanks mainly to stronger swap commissions and reduced losses on equity securities.

Loan growth returned after a pause in recent quarters. Total loans stood at $19.78 billion at the period’s end, up 2.2 % from the first quarter. Commercial real estate lending rose $202.2 million (2.0 %), with commercial loans up $196.3 million (6.5 %) and residential mortgage loans growing $68.6 million (1.2 %). Construction loans fell 9.5 % due to project completions and restrained new activity. Deposits increased by $188.8 million, driven by a mix of demand deposit accounts and growth in savings, with time deposit balances essentially flat—possibly reflecting both competitive market dynamics and client price sensitivity.

Cathay’s asset quality trend emerged as a risk flag. Non-performing assets (NPAs), which include loans not generating interest and real estate the bank has taken back due to loan defaults, climbed 14.9 % from the prior quarter and over 55 % year over year to reach $199.5 million. Non-accrual loans, or loans that have stopped accruing interest due to payment issues, increased by $19.6 million just in the quarter. Alongside this, net charge-offs—loans written off as uncollectible minus any recoveries—jumped to $12.7 million for the period, compared with $2.0 million the quarter before. Management attributed a significant part of this spike to one large commercial credit and rising real estate loan charge-offs. The ratio of allowances for loan losses to non-performing loans dropped sharply from prior quarters, suggesting the coverage buffer has diminished, and could require attention if trends continue.

Capital adequacy ratios, which regulators use to gauge the bank’s strength, remained well above minimum requirements. As of June 30, 2025, Cathay’s Tier 1 risk-based capital ratio stood at 13.35 %, with a total risk-based capital ratio of 14.92 % and a Tier 1 leverage ratio of 11.09 %. These levels keep the company solidly in the “well-capitalized” regulatory category and provide the flexibility to continue repurchasing shares. In June, Cathay announced a new stock buyback authorization of up to $150 million. During the period, it bought back 804,179 shares for $35.6 million at an average price of $44.22 per share—part of its strategy to return capital to shareholders.

The company maintained its quarterly dividend of $0.34 per share, unchanged from the prior year and prior quarter. The dividend payout ratio, which measures the portion of earnings paid out as dividends, fell to 30.8 %, reflecting higher profitability and improved earnings coverage for the payout.

Business Model, Recent Strategy, and Key Success Factors

Cathay General Bancorp operates as a full-service community bank with a strong commercial real estate lending focus, serving businesses and consumers in the Chinese-American community and beyond. It provides various lending products, including commercial loans, commercial real estate loans, construction loans, and residential mortgages. The bank’s non-lending product families, such as wealth management and swaps for interest rate risk management, help diversify its income.

In recent quarters, Cathay has focused on strengthening asset quality, managing operating costs, and sustaining loan and deposit growth amid increasing competition. Recent investor communications emphasized the importance of having robust risk management practices and a careful approach to expanding loan portfolios in key growth sectors. Regulation remains a central concern, especially as Cathay operates in highly competitive urban markets with strict federal and state requirements under frameworks like Basel III. The company's strategies rely on maintaining a strong capital base and leveraging its reputation and relationships in core Asian-American business communities.

Financial and Operational Highlights for the Quarter

During the period, revenues increased by 9.8 % over last year, reflecting a rebound in net interest income and a positive shift in interest margin. Non-interest income improved as various fee-based products, like swaps and wealth-management services, contributed higher earnings than previous quarters. Efficiency gains were visible in the double-digit drop in the efficiency ratio, which is a key industry measure of cost discipline.

Loans outstanding grew mainly in commercial and commercial real estate segments, a reversal from prior quarters when loan balances lagged or declined. Higher demand for business loans and some stabilization in residential mortgages underpinned this growth. Construction lending was an area of contraction, reflecting fewer new projects and paydowns on completed ones. The recent caution from management about commercial and industrial loan growth continued, especially with trade tariffs and supply chain shifts affecting borrowing by import-export clients.

The bank’s deposit base edged higher, anchored by rising balances in both demand (checking) and savings accounts. Seasonal promotional activity, including Lunar New Year deposit specials, helped attract new funds. Time deposits, which pay fixed rates for longer terms, remained mostly stable. The stable deposit base assisted in keeping funding costs under control and supporting the loan book’s expansion.

On asset quality, non-performing loans and net charge-offs both increased significantly compared to both prior quarter and prior year levels. The rise in troubled loans was concentrated in commercial and commercial real estate lending, as well as some new defaults in the residential book. Management cited one large commercial charge-off ($9.1 million) and a handful of real estate loans as key reasons for the spike. The allowance for loan losses as a share of non-performing loans shrank from 112 % to 96 % in a single quarter and fell even more over the prior year, signaling that the bank’s reserve coverage for troubled credits declined as new defaults emerged faster than provisions.

The period also included a new $150 million share repurchase program, with $35.6 million in buybacks in this quarter alone. Total capital levels dipped slightly as the repurchases offset earnings' contributions to equity, but key capital ratios stayed firmly within regulatory comfort zones. Tangible book value per share advanced, reflecting both profitability and share count reduction from buybacks.

The dividend remained unchanged at $0.34 per share. The payout ratio decreased as profit increased, allowing for more cushion between earnings and dividends.

Looking Ahead: Guidance and Key Items to Watch

Management did not issue updated financial guidance for the coming quarters or fiscal 2025 in this release. On the prior quarter call, leaders widened loan growth expectations for the year to between 1 % and 4 %, reflecting a more cautious view amid changes in customer behavior and ongoing economic uncertainty, especially related to tariffs and supply chain shifts. Interest margin was noted to be relatively resilient to moderate rate cuts because of a high share of fixed-rate loans, but more commentary on future quarters is pending.

Cathay investors should monitor credit quality trends over the coming quarters. The uptick in non-performing assets and net charge-offs could put pressure on future earnings and might prompt the bank to build reserves if the trend continues. Changes in deposit costs, ongoing competition in major markets, and the trajectory of commercial real estate exposures are also key areas to watch. The unchanged dividend and active share repurchase program underscore the company’s conservative capital posture, providing some reassurance despite the emerging asset quality concerns.

The quarterly dividend was unchanged at $0.34 per share.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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