Cathay General Bancorp (CATY)

Regional bank Cathay General Bancorp (NASDAQ:CATY) reported revenue ahead of Wall Streets expectations in Q4 CY2025, with sales up 18.7% year on year to $222.8 million. Its GAAP profit of $1.33 per share was 8.3% above 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. Regrettably, Cathay General Bancorp’s revenue grew at a tepid 6.7% compounded annual growth rate over the last five years. This fell short of our benchmark for the banking sector and is a rough starting point for our analysis.

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 shows its demand has slowed as its annualized revenue growth of 1.6% over the last two years was below its five-year trend. 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 18.7%, and its $222.8 million of revenue exceeded Wall Street’s estimates by 5.2%.

Net interest income made up 92% 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.

While banks generate revenue from multiple sources, investors view net interest income as the cornerstone - its predictable, recurring characteristics stand in sharp contrast to the volatility of non-interest income.

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 3.4 percentage points, going from 44.8% to 43.5%. 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 41.4% this quarter, beating analysts’ expectations by 176 basis points (100 basis points = 1 percentage point).

For the next 12 months, Wall Street expects Cathay General Bancorp to maintain its trailing one-year ratio with a projection of 42.7%.

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 an unimpressive 9.6% compounded annual growth rate over the last five years. This performance was better than its flat revenue but 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 3.3% show it’s continued to underperform. These results were bad no matter how you slice the data.

In Q4, Cathay General Bancorp reported EPS of $1.33, up from $1.12 in the same quarter last year. This print beat analysts’ estimates by 8.3%. Over the next 12 months, Wall Street expects Cathay General Bancorp’s full-year EPS of $4.54 to grow 14.3%.

Banks operate as balance sheet businesses, with profits generated through borrowing and lending activities. Valuations reflect this reality, emphasizing balance sheet strength and long-term book value compounding ability.

When analyzing banks, tangible book value per share (TBVPS) takes precedence over many other metrics. This measure isolates genuine per-share value by removing intangible assets of debatable liquidation worth. 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 8.1% annually from $32.43 to $37.90 per share.

Over the next 12 months, Consensus estimates call for Cathay General Bancorp’s TBVPS to grow by 9% to $41.31, paltry 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 (ROE) measures how effectively banks generate profit from each dollar of shareholder equity - a critical funding source. High-ROE institutions typically compound shareholder wealth faster over time through retained earnings, share repurchases, and dividend payments.

Over the last five years, Cathay General Bancorp has averaged an ROE of 12.3%, healthy 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 were impressed by how significantly Cathay General Bancorp blew past analysts’ revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. Overall, we think this was a decent quarter with some key metrics above expectations. The stock remained flat at $52.36 immediately following the results.

Updated: January 22, 2026 at 5:06 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Cathay General Bancorp.

Cathay General Bancorp isn’t a terrible business, but it isn’t one of our picks. To begin with, its revenue growth was uninspiring over the last five years, and analysts don’t see anything changing over the next 12 months. 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. This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. 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 $54.20 on the company (compared to the current share price of $52.36).