Cathay General Q3 2026 Earnings Call Transcript
Cathay General (NASDAQ:CATY) reported third-quarter financial results on Wednesday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Cathay General Bancorp reported a strong third quarter with record net interest income of $211.9 million, a 5.5% increase from the prior quarter, driven by loan growth, asset repricing, and strategic balance sheet management.
Net income for the quarter was $95.2 million, or $1.43 per diluted share, with a 3.2% increase in net income linked quarter. The net interest margin expanded by 4 basis points to 3.52%.
The company raised its full-year loan growth outlook to 5%-6% and deposit growth to 4%-5%, reflecting strong year-to-date performance and favorable market conditions.
Operationally, Cathay General Bancorp experienced strong loan and deposit growth, with loans increasing by $575 million and deposits by $773 million. Nonperforming assets declined by approximately 18% due to proactive credit management.
Several notable transactions were highlighted, including a $36.1 million valuation gain on equity securities and a $15.1 million loss from a securities repositioning transaction aimed at enhancing yield.
Management emphasized strategic priorities such as disciplined relationship growth, sound credit quality, and prudent capital management, while also focusing on technological investments and operational efficiencies.
The company’s capital position remains robust with a CET1 ratio of 13.51% and total risk-based capital ratio of 15% despite share repurchases and loan growth.
Cathay General Bancorp continues to invest in community support through an $8 million commitment to the Cathay Bank Foundation and incurred $5.4 million in contract termination costs to improve its operating model.
Full Transcript
OPERATOR
Good afternoon, ladies and gentlemen, and welcome to Cathay General Bancorp Third Quarter 2026 Earnings Conference Call. My name is Ashia and I’ll be your coordinator for today. At this time, all participants are in 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. If assistance is needed anytime during the call, please press star followed by zero and a coordinator will be happy to assist you.
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 George Lowe, Investor Relations of Cathay General Bancorp. Please go ahead.
George Lowe (Investor Relations)
Thank you, Ashia, and good afternoon. Here to discuss the financial results today are Mr. Chang M. Liu, our President and Chief Executive Officer, and Al Wang, our Executive Vice President and Chief Financial Officer. Before we begin, we wish to remind you that speakers on this call may make forward-looking statements within the meaning of 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. These risks and uncertainties are further described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 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 statement 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 third quarter 2026 results. To obtain a copy of our earnings release as well as our earnings presentation, please visit our website at www.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 M. Liu.
Chang M. Liu (President and Chief Executive Officer)
Thank you, George. Good afternoon and thank you for joining us today. I will begin on slide 4. We delivered another strong quarter of operating performance highlighted by record net interest income, continued margin expansion, strong loan and deposit growth. Net income was $95.2 million, or $1.43 per diluted share. Net interest income reached a record $211.9 million, increasing $11 million, or 5.5%, from the prior quarter. Active balance sheet management, loan growth and asset repricing helped drive another 4 basis points of net interest margin expansion to 3.52%.
Pre-provision net revenue was $151.3 million, up $21.3 million, or 16.4%, from the prior quarter. Excluding the notable items in both periods, adjusted pre-provision net revenue was $140.6 million, up $11.7 million, or 9.1%, reflecting stronger revenue growth relative to expenses. We generated strong loan and deposit growth during the quarter. Loans increased $575 million, or 2.8%, during the quarter while deposits increased $773 million, or 3.7%, led by growth in noninterest-bearing demand and money market balances. Credit results this quarter included elevated charge-offs in three previously identified borrower-specific credits. We have substantial reserves in place against these credits and took appropriate action during the quarter.
As a result, nonperforming assets declined approximately 18%; criticized and classified balances also declined. Outside of these credits, the broader portfolio remains stable and overall credit quality remains sound. The quarter also included several notable items. We recognized a $36.1 million valuation gain on equity securities. We also recognized a $15.1 million loss related to another securities repositioning transaction. The repositioning improved the yield on the securities portfolio and is expected to add approximately $2.9 million to annual net interest income. To support the communities we serve and enhance tax efficiency, we committed $8 million to the Cathay Bank Foundation.
We also incurred $5.4 million of contract termination costs to improve our operating model. Finally, during the quarter we completed a planned redemption of $54.1 million of trust preferred securities. The redemption provided a $3.1 million benefit, simplified our funding structure, and reduced interest expense going forward. Overall, we are pleased with the underlying trends in the business including strong relationship growth, improving net interest income, continued investment in the franchise and a strong capital position. I will now turn the call over to Mr. Al Wang to walk through our third quarter results in more detail. I’ll provide some closing comments before we open up the call to Q&A.
Albert Wang (Executive Vice President & Chief Financial Officer)
Thank you, Chang. I’ll start with our balance sheet on slide 5. Period-end loans, net of fees, were $21.2 billion, increasing approximately $573 million, or 2.8% linked quarter, reflecting strong loan growth, particularly in C&I. On the deposit side, period-end balances rose approximately $773 million, or 3.7%, to $21.8 billion, led by noninterest-bearing demand and money market deposits. That growth helped fund our lending and improved our net loan-to-deposit ratio to approximately 96%.
Tangible book value per share grew $0.61 to $40.54, even after this quarter’s share repurchases. Slide 6 shows our average loan and deposit mix. Average loans were $20.5 billion, representing annualized growth of 5.9%. Average deposits reached $21.4 billion, representing annualized growth of 13.8%. Our CRE concentration ratio was 283%, remaining below both regulatory thresholds and our internal limits. Slide 7 summarizes our cash and available-for-sale securities portfolio. Cash and short-term investments increased this quarter, reflecting strong deposit growth and the timing of our balance sheet management activities. By contrast, the AFS securities portfolio declined modestly, reflecting a lower reinvestment rate and the impact of sharply higher market rates. During the quarter we sold approximately $89 million of agency MBS yielding 1.83% and reinvested in agency MBS yielding 5.65%.
The new securities have a similar average life and shorter duration, so we picked up yield without adding interest rate or credit risk. So far this year we’ve repositioned approximately $460 million of securities through three transactions. Together, these transactions are expected to add approximately $11.4 million to annual net interest income with an aggregate earn-back period of approximately 3.6 years. Our securities portfolio remains highly liquid and defensively positioned.
Effective duration is approximately 2.1 years and 61% of projected cash flows are expected to return through 2027. That limits our duration exposure and gives us substantial near-term capacity to reinvest in a higher-rate environment. Moving to slide 8, net income increased 3.2% linked quarter to $95.2 million. Record net interest income and higher noninterest income supported the increase. Higher provision expense and noninterest expense offset part of that benefit.
On slide 9, I’ll walk through the yields and funding costs. Net interest income increased $11 million to a record $211.9 million driven by loan growth, day count and continued margin expansion. Net interest margin increased 4 basis points to 3.5% as higher loan yields more than offset the increase in funding costs. Loan yields increased 5 basis points to 6.02% reflecting higher rates as well as interest recoveries and prepayment penalties. That benefit was partially offset by higher funding costs.
Total deposit costs rose 4 basis points to 2.43% and interest-bearing deposit costs rose 5 basis points to 2.91%. Overall, we continue to see positive momentum in net interest income supported by balance sheet growth and asset repricing. Moving to Slide 10, noninterest income increased to $42.8 million, driven mainly by the notable items Chang mentioned earlier. These included a $36.1 million unrealized gain on equity securities and the $3.1 million benefit from the trust preferred redemption. Those gains were partially offset by the $15.1 million repositioning loss. Excluding these items, adjusted noninterest income was $18.8 million, down slightly from last quarter mainly due to lower wealth management fees.
Moving to slide 11, noninterest expense increased to $103.4 million from $92.3 million last quarter. The increase was primarily driven by the two other notable items Chang mentioned earlier. We committed $8 million to the Cathay Bank Foundation to support the communities we serve while also providing a tax benefit. We also incurred $5.4 million of contract termination costs as we made changes to improve our operating model. Outside of those items, compensation and benefits increased by $1.5 million, partially offset by approximately $3.4 million of lower tax credit investment amortization.
Excluding those notable items, adjusted noninterest expense was $82.9 million, up approximately 1.2% from the prior quarter with only modest growth in underlying expenses. Strong revenue growth further drove improvement to our efficiency ratios. Our reported efficiency ratio improved to 40.6% while our adjusted efficiency ratio, excluding the notable items, improved to 35.9%. Turning to Slide 12, the allowance for loan loss increased approximately $5 million to $224 million while the allowance ratio remained relatively stable at 1.06% of gross loans. The provision for credit loss was $28.6 million this quarter, primarily reflecting strong loan growth and updated loss assumptions incorporating recent charge-off experience. Net charge-offs increased to $25.3 million, or 49 basis points annualized. These charge-offs were concentrated in the three previously identified credits.
They included one fully reserved construction loan and two movie theater CRE loans acquired through the Far East National Bank acquisition. We previously provisioned $9.1 million for those two movie theater loans in the third quarter of 2025. Classified balances and nonperforming assets declined during the quarter, largely reflecting the charge-offs. Beyond those credits, broader portfolio trends remain generally stable and overall credit quality remains sound.
Turning to Slide 13, capital ratios declined modestly reflecting strong loan growth and share repurchases, while the redemption of our trust preferred securities reduced total risk-based capital. During the quarter, we purchased approximately 800,000 shares for $50.3 million at an average price of approximately $62.81 per share. Even with those impacts, our capital position remains strong. We ended the quarter with a CET1 ratio of 13.51% and total risk-based capital ratio of 15%, both well above regulatory minimum requirements.
I’ll wrap up on slide 14 with our full-year outlook. Based on our strong year-to-date loan growth, we are raising our full-year outlook to 5% to 6% from 3.5% to 4.5% previously. We are also increasing our deposit growth outlook to 4% to 5% compared with the prior expectation of 3% to 4%. We continue to expect adjusted noninterest expense growth of 3.5% to 4.5% for the year. Our full-year NIM outlook remains at 3.40% to 3.50%. Our rate outlook now assumes two 25 basis points increases during 2026, including the September increase and another increase in December.
Finally, we now expect our full-year effective tax rate to be between 21.5% and 22.5%. And with that I’ll turn the call back over to Chang.
Chang M. Liu (President and Chief Executive Officer)
Thank you, Al. We are pleased with our performance through the first nine months, including strong balance sheet growth, record net interest income, and continued margin expansion. That momentum is reflected in the higher full-year loan and deposit growth outlooks we announced today. During the quarter, we took several proactive steps to support our communities, improve our earnings profile, and optimize our funding and capital structure, while continuing to support organic growth.
We believe these actions leave us well positioned as we move forward. Looking ahead, our priorities remain straightforward: disciplined relationship growth, sound credit quality, and prudent capital management. With that, we can now open it up for questions.
OPERATOR
Ladies and gentlemen, if you have a question at this time, please press the star key followed by one on your touch-tone telephone. We ask that you please limit yourself to one question and one follow-up question. You may then return to the queue. If your question has been answered and you wish to remove yourself from the queue, please press star then two. To prevent any background noise, we ask that you please place yourself on mute once your question has been stated.
Your first question comes from David Chiaverini with Jefferies. Please go ahead.
David Chiaverini (Analyst)
Hi, thanks for taking the questions. Wanted to start on the net interest margin. Very nice trend here over the past several quarters. Looking at the guide range being unchanged seems to be conservative. But can you talk about how we should think about the NIM into the fourth quarter and then maybe layer into that your rate sensitivity and how rate hikes could impact the forward look on NIM?
Albert Wang (Executive Vice President & Chief Financial Officer)
Yeah, so I’m not ready to call kind of a peak on NIM. I still think there’s room for expansion. We do have in the guide a 25 basis point increase in December, which will kind of help us from the asset side. So we’ve got, I would say, on the asset side over the next year we’ve got $8.9 billion of loans repricing, obviously we have a billion-plus of cash, and a large part of our investment portfolio, half of which are in Treasuries. So we’ll get some tailwind from the asset side.
On the deposit side, I would say that we do have some headwinds. We’ve got $3.4 billion of CDs rolling off this quarter at a rate of 3.46%. As you might know, we ran a summer CD promo, for example, at 3.65% and 3.85% for 6 and 12 months respectively. So just with those data points there’s going to be some more pressure, and you saw some pressure on deposit costs just this quarter — it went up about 5 basis points. So we expect the pressure to continue with competition, and that’s not just for us but across the industry.
But we feel pretty confident that we still have room to expand. If I look at, for example, the margin in the month of September, ex prepayments and recoveries, we were for that month at 3.53%. So I think we’ll probably be at the upper end of the range. But remember that’s a full-year range. So I think we’re pretty confident, at least in the near term, with where we’ll be in terms of margin.
David Chiaverini (Analyst)
Great, thanks for that. And my follow-up is on the deposit side. Noninterest-bearing deposits up nicely year over year. What’s driving this strong growth and how do the pipelines look? Could this momentum continue?
Albert Wang (Executive Vice President & Chief Financial Officer)
I think the team did a really nice job this quarter. I mean, we grew noninterest-bearing $331 million in one quarter. So that’s kind of — I would probably say that that’s not sustainable, so I wouldn’t bake that into the forward guide. But it is an area of focus for us in the branch network. I don’t know, Che, if you want to—
Chang M. Liu (President and Chief Executive Officer)
Yeah, so I’ll add to that a little bit. I think some of the law firm practices that we have are adding good, much lower-cost deposits to our liability side, and I think our communication and collaboration with the branches is a lot stronger now, where they know the direction going forward is to really bring in lower cost of funds. The CD campaign, while it’s at 3.65%, 3.85%, you know for a fact that’s not at the top of the market. So while that’s a tool for them to kind of defend the CD base, at the same time they’re also using that to bring in other types of deposits.
That’s going to help to contribute to that lower-cost end of the balance.
David Chiaverini (Analyst)
Very helpful, thank you.
OPERATOR
The next question comes from Gary Tenner with D.A. Davidson. Please go ahead.
Gary Tenner (Analyst)
Thanks. Good afternoon. I wanted to ask about loan growth. The guide was increased to 5% to 6%, but that kind of full-year guide seems to suggest fourth-quarter growth could be anywhere from kind of flat to up 3%. So can you talk about that a little bit? Are you seeing any specific slowdown? Is it just where the pipelines are? Any impact of interest rates, et cetera, that maybe is having you lean conservative for the fourth quarter?
Chang M. Liu (President and Chief Executive Officer)
So yeah, Gary, the way we’re thinking about it is I think we saw the biggest growth in Q2 and Q3. Our Q1 was pretty flat. Q4 historically has been flat based on my experience, although we’re seeing some pretty good pipelines so far. C&I has been kind of the driver of that growth, and we see that in sort of just a broad base of different types of industries, whether it’s manufacturing, distribution, and the service providers. So we’re continuing to kind of expect some of that to pull through.
But, you know, it’s harder for us to say how much of that is really going to be a significant growth event for Q4. So I think we’re comfortable with the revised guide that we issued today.
Gary Tenner (Analyst)
Okay, appreciate that. And then just in terms of the LIHTC amortization in fourth quarter, what do you expect that number to be?
Albert Wang (Executive Vice President & Chief Financial Officer)
Yeah, so this quarter obviously came in a little bit below expectations, and that was mainly due to timing and updates of prior estimates. Q3 had some true-ups that came in during the quarter, and we also got a small amount of solar investment distributions on investments where our basis was zero, or fully amortized. So those were recorded against amortization expense. I’m expecting more of the $9 to $10 million per quarter. Obviously, as you know, that can vary quarter to quarter, and it depends on the financials that we get relative to project performance and tax credit recognition.
Gary Tenner (Analyst)
Got it. Thank you.
OPERATOR
Once again, if you have a question, please press star then one. The next question comes from Andrew Turrell with Stephens. Please go ahead.
Andrew Turrell (Analyst)
Hey, good afternoon. Could you talk a little bit more about just the contract termination that took place this quarter — just how that plays into operating expenses moving forward, and then, just more broadly, any kind of areas you’re looking to get efficiency out of? And how does that play into just kind of how you think about expense growth from here?
Albert Wang (Executive Vice President & Chief Financial Officer)
Yeah, so I would say that that contract termination fee — we noted it as kind of a notable item because it is more of a one-time type of charge. It really wasn’t an expense-savings plan per se. It was really more a vendor agreement for one of our lines of business that we plan to upgrade, because another vendor we’re looking at we think has a stronger platform and tech platform. So we’re hoping that obviously it’s going to generate revenue growth for us in the future.
Hopefully that— I don’t know, Shang, if you want to weigh in.
Andrew Turrell (Analyst)
No, that’s great. If I could just follow up on the margin quickly as well. Do you have — I might have missed it — do you have the dollar amount or the basis point impact of the interest recovery in loan yields this quarter?
Albert Wang (Executive Vice President & Chief Financial Officer)
Yeah, most of it was recoveries and not prepayment penalties, but it was about $3.7, $3.8 million of recoveries. It was about 6 basis points for the quarter. So core NIM would have been around 3.46%.
Andrew Turrell (Analyst)
Got it. Okay, that’s it for me. Thank you.
OPERATOR
The next question comes from Matthew Clark with Piper Sandler. Please go ahead.
Matthew Clark (Analyst)
Hey, good afternoon. Thanks for the questions. On the net charge-offs this quarter, can you just isolate how much of the net charge-offs were tied to those three credits that were previously reserved against? I guess I’m just trying to get— I’m trying to— Yeah, go ahead.
Chang M. Liu (President and Chief Executive Officer)
Yeah, sorry. So the two theater loans from the Far East Bank acquisition — those two totaled about $18 million. And we have one particular construction loan that had problems with water damage and mold contamination leading to structural issues. So that’s also something that’s kind of unforeseen for us. It was a multifamily product. It was here in SoCal, and that’s about almost a $9 million exposure.
Matthew Clark (Analyst)
Okay, got it, thank you. And then just on — maybe I can do a combo here. Do you have the spot rate on deposits at the end of September, and then your appetite to continue to buy back stock here? A nice step-up here in 3Q.
Albert Wang (Executive Vice President & Chief Financial Officer)
Yeah. So the September kind of interest rate deposit cost for interest-bearing was 2.92%. All-in, it was 2.43%, obviously helped by the growth in noninterest-bearing. And in terms of buybacks, obviously the same caveats always apply relative to the market, loan growth, and kind of the outlook. But we’re pretty comfortable with the buybacks from this past quarter. We think the stock is still attractively priced, and the earn-back is very acceptable to us.
So that’s kind of where we are with the buybacks. Hopefully that helps answer your question.
Matthew Clark (Analyst)
Yep, that’s great. Thank you.
OPERATOR
The next question comes from Kelly Mota with KBW. Please go ahead.
Kelly Mota (Analyst)
Hi, thank you so much for the question. I’d like to kick it back to loan growth. Commercial in particular has been incredibly strong all year and especially in Q3. Just wondering if you could provide additional color as to the drivers of that, and if you’re seeing — it sounds like there’s still a decent outlook here — but if higher rates are impacting borrower behavior at this point. Thank you.
Chang M. Liu (President and Chief Executive Officer)
Sure, Kelly. So we’re still seeing just the stronger loan growth on the C&I side. The industries that we serve in the manufacturing side, the distribution side — some of them, there are wholesalers in the food business — their business is doing well. In terms of the rate higher for longer, I talked to my C&I folks, and on the lender side that’s really a need base and a value proposition. If they need the loan and they need the lines, they’re going to continue to use it regardless of the rate environment.
I think the higher rate environment may hit the CRE demand a little bit more, and even on the CRE side that’s going to hit maybe the purchase side a little bit more than the refi. In the last few months of the quarter we saw a little bit of activity in cash-out refi and still within our credit parameters. But when there’s a cash-out refi or maturity refi, then they still have to do those. And then for the C&I side I think it’s really just on a need basis and what kind of value we can provide to the new prospects and the new clients that come into our bank as well.
Kelly Mota (Analyst)
Got it. That’s helpful. And then somebody touched on this earlier, but just to close the loop on the noninterest-bearing deposit growth. Clearly you’re working very hard at that and the results are showing through. If I look at it on a spot basis, they were up much more meaningfully than where the average balances are. I’m just wondering, as I’m thinking about just near-term modeling, if there were any kind of larger, chunkier flows in Q3 that I should be cognizant of when thinking through what to use as a jumping-off point for average balances.
Albert Wang (Executive Vice President & Chief Financial Officer)
Yeah, I think it was pretty— I think generally it was broad-based across the board, but I think at the end of the quarter there were some larger deposit inflows at the end in September. But I’d have to go back and look at the month over months.
Kelly Mota (Analyst)
Got it. That’s helpful.
Chang M. Liu (President and Chief Executive Officer)
Maybe I’ll start and Al can certainly chime in. I think strategically we’ve got to think about where we need to invest. I think we need to invest in our people on some of the front line, whether it’s the lending side or the deposit side. That’s where you can kind of see the investment, sort of a return on that investment. Additionally, through the technology front and any tech that’s client-facing, including anything that’s operationally with AI and efficiencies we can gain out of AI. Some of the things we’re using here with, for example, some of the AI-based platforms that are available to us, we’re already seeing some increases in how the lending teams are either running their product or their book and their loan reviews and those kind of things. So we’re seeing some efficiencies there.
That’s where really our focus should be. And long term, some of the expenses—we’re not prepared to give you the guidance for ’27—but it’s still going to be sort of the salaries and the tech investment side that you’re going to see the bulk of.
OPERATOR
Once again, if you have a question, please press star then 1. The next question comes from Andrew Leish with StoneX. Please go ahead, everyone.
Andrew Leish (Analyst)
Good afternoon. Most of my questions have been answered, but just wanted to circle back to the fee income side, noninterest income, the decline in wealth management revenue. Just curious what might have been driving that.
Chang M. Liu (President and Chief Executive Officer)
Yeah, that was just, you know, it was transaction-based volume. There was nothing kind of significant or unusual. I’d say we had a— You can see over the trend over the last several quarters, particularly since our new leader came in for that business, things have been, you know, revenues have been very strong. So we’re expecting kind of a tick up. Maybe not back to the Q2 level, but we think that there’ll be a tick up next quarter.
Andrew Leish (Analyst)
Just looking through the rest of it. You’ve covered everything else. I’ll step back.
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 M. Liu (President and Chief Executive Officer)
I want to thank everyone for joining us and for your interest in Cathay General. 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.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.