Cathay General Bancorp Q1 Earnings Call Highlights

Q1 results: Cathay reported net income of $86.9 million and diluted EPS of $1.29, though results included offsetting securities items — a $17.3M valuation gain and a $15.7M AFS impairment — that management says support margin expansion and tangible book recovery.

NIM and securities repositioning: Net interest margin rose to 3.43% (up 7 bps) as the bank sold $210M of lower-yielding MBS and reinvested $197M into higher-yielding, similar-duration securities (effective yield ~5.33% vs 2.45%), expected to add ~2–2.5 bps to NIM and about $4M of NII in 2026.

Capital, shareholder returns and outlook: The bank raised its quarterly dividend to $0.38 (up 11.8%), completed a $150M buyback and approved a new $150M program, while reaffirming guidance for 2026 loan growth of 3.5–4.5% and deposit growth of 4–5%, and adding a $13M reserve build to $209M.

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Cathay General Bancorp (NASDAQ:CATY) reported what management described as a “solid” start to 2026, posting first-quarter net income of $86.9 million and diluted earnings per share of $1.29. President and CEO Chang Liu said results included two noteworthy items that “largely offset each other”: a $17.3 million valuation gain on equity securities and a $15.7 million impairment on available-for-sale (AFS) debt securities tied to a balance sheet repositioning.

Liu said the securities actions were intended to improve future performance. “We sold lower yielding securities and reinvested at current market rates, a move that supports margin expansion and accelerates tangible book value recovery,” he said. Excluding the two items, Liu added that diluted EPS would have been $0.02 lower.

Net interest margin expands amid deposit cost management

Executive Vice President and CFO Al Wang reported net interest margin (NIM) of 3.43%, up 7 basis points from the prior quarter. Net interest income totaled $194.0 million, down $0.8 million from the previous quarter, which Wang attributed to day count effects that were “offset by margin expansion.” Wang said margin improvement was driven by lower deposit costs, partially offset by a decline in loan yields following the Federal Reserve’s rate cuts in the fourth quarter.

During the Q&A, management discussed how its 2026 outlook has shifted. Wang said the company’s NIM and net interest income outlook “no longer assumes any rate cuts in 2026,” but management maintained confidence in achieving its full-year NIM target of 3.40% to 3.50%.

In response to Jefferies analyst David Chiaverini, Wang said that removing assumed rate cuts could “put pressure and point us down slightly,” though the securities repositioning should help by “a few basis points for the year.” Wang also pointed to loan pricing and repricing dynamics, including origination rates in commercial real estate and mortgage lending that were higher than the overall portfolio yield for the quarter. On funding costs, he said the bank still had “room to run” on deposit pricing, but also acknowledged rising brokered CD rates and “a lot more pressure and competition with deposits.”

Wang also provided additional detail on one-time items that affected NIM. Piper Sandler analyst Matthew Clark asked about prepayment and interest recoveries; Wang said those items totaled about $3.5 million in the quarter, representing roughly 6 basis points. He added that reported NIM of 3.43% would have been about 3.37% excluding those items, and noted a small Federal Home Loan Bank special dividend included in that amount.

The company’s AFS portfolio actions featured prominently in management’s remarks. Wang said Cathay recognized a $15.7 million impairment loss as part of a securities repositioning initiative. In the first week of April, the bank sold $210 million of lower-yielding mortgage-backed securities and reinvested $197 million into “similar duration securities at significantly higher yields.”

Wang said the trade was structured with an “earn back under three years” while keeping duration and credit profile “essentially unchanged.” He described the AFS portfolio as “short and high quality,” with duration “just under two years,” and said nearly two-thirds of cash flows would return this year. Wang added that more than 90% of the portfolio is U.S. government-backed, with the remainder in investment-grade securities.

In response to Chiaverini, Wang said the securities sold carried a yield of about 2.45%, while the effective yield on the reinvested securities was around 5.33%. He estimated the repositioning would add roughly 2.0 to 2.5 basis points to NIM for the year and about $4 million of additional net interest income in 2026, given the timing of the transaction early in the year.

Loans, deposits, and capital actions

On the balance sheet, Wang said on-balance sheet cash and short-term investments declined by $219 million as the bank stayed aligned with shifts in its funding profile. Period-end loans were $20.2 billion, up 0.2% linked-quarter, while period-end deposits were $20.7 billion, down 1% linked-quarter, led by a $71 million decline in broker deposits.

Management emphasized capital strength and shareholder returns. Liu said Cathay increased its quarterly cash dividend to $0.38 per share, an 11.8% increase. He also said the bank completed a $150 million share repurchase program announced in June 2025 by repurchasing 244,000 shares at an average cost of $51.31. In addition, the board approved a new $150 million repurchase program, subject to regulatory approval.

Liu also highlighted tangible book value per share of $30.95 and said the bank grew book value per share 2% linked-quarter and 9% year-over-year.

Loan growth was “softer than we anticipated,” Liu said, attributing the approach to disciplined underwriting in an “unpredictable” environment. In response to Piper Sandler’s Clark, Liu said construction loan paydowns increased as some customers refinanced with life companies and agency lenders offering more competitive long-term rates. “Our pipelines are still healthy and strong, and the customer engagement has improved,” Liu said, adding that growth is expected to be weighted toward the middle and back half of the year.

Credit trends steady; allowance increased on model updates

Management said credit quality remained stable. Liu noted improvements in non-performing loans and net charge-offs, while criticized and classified levels were steady. Wang reported net charge-offs of $2.1 million, down from $5.4 million in the prior quarter, and said the non-performing asset ratio improved to 51 basis points from 59 basis points.

The bank increased its allowance for credit losses by $13 million to $209 million. Wang said coverage was 1.03% of loans, or 1.30% excluding residential mortgages, and attributed the increase to model updates including “a slight softening in the macroeconomic outlook.”

Asked by D.A. Davidson’s Gary Tenner about the reserve build, Wang said the overall model weightings were kept the same, but weightings were changed for certain portfolios. He added that Cathay stressed parts of the office portfolio more heavily, noting the bank’s coastal footprint and the view that national economic forecasts may not fully capture those conditions.

Expenses, fee income, and 2026 outlook

Non-interest expense declined to $86.7 million from $92.2 million, driven by $4.5 million of lower amortization expense on low-income housing and alternative energy partnerships, as well as lower compensation and benefits, Wang said. He also explained that Cathay records amortization of tax credit investments in non-interest expense (rather than in income tax expense as many peers do). On an adjusted basis, Wang said non-interest expense would have been $78.7 million, $3 million lower than the prior quarter, and adjusted efficiency ratio improved to 36.9% from 38.4%.

When asked about the tax credit amortization outlook, Wang said it is “a fluid number” depending on project performance and timing, but estimated $7 million to $8 million over the next few quarters.

On fee income, Liu told KBW’s Kelly Motta that core fee strength is “really the sort of the wealth business that drives that income,” while other sources include foreign exchange, international fees, swapping-related fees (which he said can be sporadic depending on the rate environment), and treasury management. Management said it was optimistic wealth management performance could hold, noting “some new leadership in wealth” and a “decent amount of referrals.”

For full-year 2026, Wang reiterated guidance for loan growth of 3.5% to 4.5% and deposit growth of 4% to 5%. Adjusted non-interest expense is still expected to rise 3.5% to 4.5% for the year, and the effective tax rate is expected to be roughly 21%.

In a separate Q&A topic, Wang said proposed capital rule changes could be a “huge win” for Cathay due to its mortgage portfolio with very low loan-to-value ratios. He estimated potential “low double digit” reductions in risk-weighted assets and a 1.50% to 1.75% boost to capital ratios, depending on the ratio.

On M&A, Liu said the bank would remain opportunistic but that it is “not the top priority at this point,” with the focus remaining on organic growth, strengthening the franchise, and meeting financial plans communicated to investors.

About Cathay General Bancorp (NASDAQ:CATY)

Cathay General Bancorp is a bank holding company headquartered in Los Angeles, California, trading on NASDAQ under the symbol CATY. Its principal subsidiary, Cathay Bank, provides a full suite of financial services to commercial, institutional and retail clients. As a community-focused institution, the company emphasizes relationship banking and tailored solutions for businesses and individuals.

Founded in 1962 by a group of Chinese American entrepreneurs, Cathay has expanded from a single branch operation in downtown Los Angeles into one of the largest Asian-American banks in the United States.