Cathay Bancorp Posts Q2 Earnings Beat

Key Points

• Earnings per share of $1.10 and revenue of $196.6 million both narrowly beat analyst estimates for Q2 2025.

• Asset quality metrics showed notable deterioration, with non-performing assets rising 14.9% quarter over quarter in Q2 2025.

• The company maintained a quarterly dividend of $0.34 per share and repurchased $35.6 million of its own stock in Q2 2025.

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Cathay General Bancorp (NASDAQ:CATY), a bank holding company that serves commercial and retail banking customers, released its Q2 2025 results on July 22, 2025. The company reported earnings per share of $1.10 and revenue of $196.6 million, both slightly above analyst expectations of $1.09 and $195.9 million, respectively. The quarter saw improvements in efficiency and profitability, but also highlighted an uptick in non-performing assets and net charge-offs.

Overall, the company delivered a modest earnings beat and steady top-line growth, though investors will note increasing asset quality pressures.

Source: Cathay General Bancorp. Note: Analysts' consensus estimates for the quarter provided by FactSet.

Company Overview and Areas of Focus

Cathay General Bancorp, headquartered in Los Angeles, is best known for serving both business and individual customers, often focusing on the Chinese-American community in key markets such as California and New York. Its main lines of business include commercial and consumer loans, deposit services, treasury management, and a variety of other financial products. The bank competes against both large national banks and regional Asian-American banks.

In recent years, Cathay General Bancorp has centered its strategy on several critical areas. Navigating a regulatory environment shaped by laws such as the Dodd-Frank Act and Basel III capital rules is a constant priority. The company also emphasizes strong asset quality, prudent risk management, and maintaining high capital adequacy ratios. Compliance efforts, talent management, and deep customer relationships within its core markets are seen as key success factors.

Quarter Highlights: Profitability, Growth, and Asset Quality

The second quarter delivered a modest earnings and revenue beat, with GAAP net income rising 16% year over year. Net interest income (GAAP) increased 9.6% year over year, helped by a net interest margin -- which measures the difference between interest earned on assets and interest paid on deposits and other borrowings -- that reached 3.27%. The net interest margin increased by 0.26 percentage points versus Q2 2024.

The company’s operating efficiency improved: the efficiency ratio, a measure of how much it costs to generate each dollar of revenue (lower is better), dropped by 10.31 percentage points year over year to 45.34% (GAAP). This improvement reflects Cathay General Bancorp's cost controls, even as non-interest expenses saw some increases due to higher amortization on tax-advantaged investments and elevated professional services costs.

Loan growth was led by gains in commercial loans, which rose $196.3 million, commercial real estate by $202.2 million, and residential mortgages by $68.6 million. Construction loans, by contrast, fell 9.5% from the prior quarter, highlighting some softness in that segment. Deposit growth was steady but moderate, with time deposits showing a slight quarterly uptick but remaining lower than year-ago levels. The bank continued to leverage promotional activities -- such as Lunar New Year specials -- to attract and retain client deposits.

Non-accrual loans rose 12.7% over the previous quarter, totaling $174.2 million. Total non-performing assets increased 14.9% to $199.5 million, raising the non-performing assets ratio (total non-performing assets divided by total assets) to 0.84%. The bank’s allowance for loan losses as a percentage of non-performing loans fell to 96.1%, compared with 112.1% in Q1 2025. Net charge-offs -- a measure of loan losses that can't be recovered -- increased sharply to $12.7 million, up from $2.0 million in Q1 2025. This jump was mainly due to higher charge-offs in both commercial and real estate loan categories. The provision for credit losses, which reflects the funds set aside for potential loan defaults, was $11.2 million, down from $15.5 million in the first quarter and up from $6.6 million in Q2 2024.

Capital measures remain a source of strength for Cathay General Bancorp. The Tier 1 risk-based capital ratio, an important measure of a bank’s ability to absorb losses, stood at 13.35%, well above regulatory minimums. Total risk-based and leverage capital ratios also remained comfortably in the “well-capitalized” category. Book value per share (GAAP) increased both year over year and compared to the prior quarter.

During the quarter, Cathay General Bancorp returned capital to shareholders through both dividends and share buybacks. The company repurchased 804,179 shares at an average price of $44.22, totaling $35.6 million. The quarterly dividend was maintained at $0.34 per share, resulting in a dividend payout ratio of 30.79%. No change was made to the dividend compared to prior quarters.

Looking Ahead: Outlook and Investor Considerations

Company leadership did not provide any forward financial guidance in the second-quarter earnings release. Previously, management revised its full-year 2025 loan growth outlook to a range of 1% to 4%, widened from an earlier 3% to 4%, citing uncertainties in loan demand and customer activity. For the net interest margin, executives previously cited sensitivity modeling suggesting this metric could rise by about 0.04 percentage points for each 0.25% cut in benchmark interest rates, helped by a portfolio that is over 60% fixed or hybrid-rate loans. This guidance was discussed in Q1 2025, with management indicating the effect is modeled on a full-year basis. However, this information was not updated in the latest quarterly release.

In the absence of explicit forward guidance, investors are left to monitor a few key themes. Asset quality will remain a central focus, given the rise in non-performing assets and a dip in reserve coverage ratios. Changes in commercial loan performance, trends in deposit composition, and ongoing competitive and regulatory pressures will also deserve attention in the coming periods. The dividend remains steady for now, and capital levels are strong.

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

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