Cathay General Bancorp (CATY)

Regional bank Cathay General Bancorp (NASDAQ:CATY) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 13.7% year on year to $210.6 million. Its GAAP profit of $1.13 per share was 2.1% below analysts’ consensus estimates.

Company Overview

Founded in 1962 with its first branch in Los Angeles' Chinatown, Cathay General Bancorp (NASDAQ:CATY) operates Cathay Bank, providing commercial banking services to businesses and individuals with a strong presence in Asian-American communities.

Regional banks, financial institutions operating within specific geographic areas, serve as intermediaries between local depositors and borrowers. They benefit from rising interest rates that improve net interest margins (the difference between loan yields and deposit costs), digital transformation reducing operational expenses, and local economic growth driving loan demand. However, these banks face headwinds from fintech competition, deposit outflows to higher-yielding alternatives, credit deterioration (increasing loan defaults) during economic slowdowns, and regulatory compliance costs. Recent concerns about regional bank stability following high-profile failures and significant commercial real estate exposure present additional challenges.

Cathay General Bancorp competes with other regional and community banks serving Asian-American communities, including East West Bancorp (NASDAQ:EWBC), Bank of Hope (NASDAQ:HOPE), and Hanmi Financial (NASDAQ:HAFC), as well as larger national banks operating in its markets such as Bank of America (NYSE:BAC) and Wells Fargo (NYSE:WFC).

Net interest income and and fee-based revenue are the two pillars supporting bank earnings. The former captures profit from the gap between lending rates and deposit costs, while the latter encompasses charges for banking services, credit products, wealth management, and trading activities. Over the last five years, Cathay General Bancorp grew its revenue at a decent 5.8% compounded annual growth rate. Its growth was slightly above the average banking company and shows its offerings resonate with customers.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. Cathay General Bancorp’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 1.5% over the last two years. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Cathay General Bancorp reported year-on-year revenue growth of 13.7%, and its $210.6 million of revenue exceeded Wall Street’s estimates by 4%.

Net interest income made up 92.2% of the company’s total revenue during the last five years, meaning Cathay General Bancorp lives and dies by its lending activities because non-interest income barely moves the needle.

Our experience and research show the market cares primarily about a bank’s net interest income growth as non-interest income is considered a lower-quality and non-recurring revenue source.

Topline growth alone doesn't tell the complete story - the profitability of that growth shapes actual earnings impact. Banks track this dynamic through efficiency ratios, which compare non-interest expenses such as personnel, rent, IT, and marketing costs to total revenue streams.

Markets emphasize efficiency ratio trends over static measurements, recognizing that revenue compositions drive different expense bases. Lower efficiency ratios signal superior performance by indicating that banks are controlling costs effectively relative to their income.

Over the last five years, Cathay General Bancorp’s efficiency ratio has swelled by 2.7 percentage points, going from 44.8% to 44.3%. Said differently, the company’s expenses have grown at a slower rate than revenue, which typically signals prudent management.

Cathay General Bancorp’s efficiency ratio came in at 41.8% this quarter, beating analysts’ expectations by 218.5 basis points (100 basis points = 1 percentage point). This result was 9.3 percentage points better than the same quarter last year.

For the next 12 months, Wall Street expects Cathay General Bancorp to maintain its trailing one-year ratio with a projection of 44%.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Cathay General Bancorp’s EPS grew at a spectacular 9% compounded annual growth rate over the last five years, higher than its 5.8% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its efficiency ratio didn’t improve.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Cathay General Bancorp, its two-year annual EPS declines of 7.4% mark a reversal from its (seemingly) healthy five-year trend. We hope Cathay General Bancorp can return to earnings growth in the future.

In Q3, Cathay General Bancorp reported EPS of $1.13, up from $0.94 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Cathay General Bancorp’s full-year EPS of $4.34 to grow 12.4%.

Banks are balance sheet-driven businesses because they generate earnings primarily through borrowing and lending. They’re also valued based on their balance sheet strength and ability to compound book value (another name for shareholders’ equity) over time.

This is why we consider tangible book value per share (TBVPS) the most important metric to track for banks. TBVPS represents the real, liquid net worth per share of a bank, excluding intangible assets that have debatable value upon liquidation. On the other hand, EPS is often distorted by mergers and flexible loan loss accounting. TBVPS provides clearer performance insights.

Cathay General Bancorp’s TBVPS grew at an excellent 8.1% annual clip over the last five years. The last two years show a similar trajectory as TBVPS grew by 9% annually from $31.11 to $36.96 per share.

Over the next 12 months, Consensus estimates call for Cathay General Bancorp’s TBVPS to grow by 9.1% to $40.32, decent growth rate.

Leverage is core to a financial firm’s business model (loans funded by deposits). To ensure economic stability and avoid a repeat of the 2008 GFC, regulators require certain levels of capital and liquidity, focusing on the Tier 1 capital ratio.

Tier 1 capital is the highest-quality capital that a firm holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.

This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.

New regulation after the 2008 financial crisis requires that all firms must maintain a Tier 1 capital ratio greater than 4.5%. On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, firms generally must maintain a 7-10% ratio at minimum.

Over the last two years, Cathay General Bancorp has averaged a Tier 1 capital ratio of 13.3%, which is considered safe and well capitalized in the event that macro or market conditions suddenly deteriorate.

Return on equity, or ROE, quantifies bank profitability relative to shareholder equity - an essential capital source for these institutions. Over extended periods, superior ROE performance drives faster shareholder wealth compounding through reinvestment, share repurchases, and dividend growth.

Over the last five years, Cathay General Bancorp has averaged an ROE of 12.3%, excellent for a company operating in a sector where the average shakes out around 7.5% and those putting up 15%+ are greatly admired. This is a bright spot for Cathay General Bancorp.

We enjoyed seeing Cathay General Bancorp beat analysts’ revenue expectations this quarter. We were also happy its net interest income narrowly outperformed Wall Street’s estimates. On the other hand, its EPS missed. Zooming out, we think this was a mixed quarter. Investors were likely hoping for more, and shares traded down 2% to $46.19 immediately after reporting.

Updated: December 3, 2025 at 11:51 PM EST

Are you wondering whether to buy Cathay General Bancorp or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

Cathay General Bancorp’s business quality ultimately falls short of our standards. To kick things off, its revenue growth was uninspiring over the last five years. And while its TBVPS growth was impressive over the last five years, the downside is its net interest income growth was weak over the last five years. On top of that, its declining net interest margin shows its loan book is becoming less profitable.

Cathay General Bancorp’s P/B ratio based on the next 12 months is 1.1x. While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $51.20 on the company (compared to the current share price of $49.62).