Earnings call transcript: Cathay General Bancorp Q1 2025 beats EPS forecast
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Overview
The earnings call presents a mixed picture: while there is a positive net interest margin increase and a steady share repurchase plan, the financial performance shows a decrease in net income and diluted EPS. The Q&A reveals economic uncertainties affecting loan growth and customer investment, with management providing unclear responses regarding tariff impacts. The lack of strong positive catalysts and mixed financial results lead to a neutral sentiment, with potential for minor fluctuations in the stock price over the next two weeks.
Key Financial Performance
Net Income $69,500,000 for Q1 2025, a 13.3% decrease from $80,200,000 in Q4 2024, primarily due to an increase in provision for income taxes.
Diluted Earnings Per Share $0.98 for Q1 2025, a 12.5% decrease from $1.12 in Q4 2024.
Total Gross Loans Decreased by $23,000,000 or 0.5% annualized, primarily due to decreases in commercial loans by $100,000,000 and residential loans by $65,000,000.
Net Charge Offs $2,000,000 for Q1 2025, compared to $16,300,000 in Q4 2024.
Non-Accrual Loans 0.8% of total loans as of 03/31/2025, decreased by $14,500,000 to $154,600,000 compared to Q4 2024.
Classified Loans Remained at $380,000,000, the same as in Q4 2024.
Special Mention Loans Increased to $300,000,000 from $293,000,000 in Q4 2024.
Provision for Credit Loss $15,500,000 in Q1 2025, compared to $14,500,000 in Q4 2024, primarily to cover possible losses from one commercial client.
Total Deposits Increased by $131,000,000 or 2.7% annualized during Q1 2025, primarily due to a net increase of $67,000,000 in core deposits and $64,000,000 in time deposits.
Tier One Leverage Capital Ratio Increased to 11.06% as of 03/31/2025 from 10.97% as of 12/31/2024.
Tier One Risk Based Capital Ratio Increased to 13.57% from 13.55% as of 12/31/2024.
Total Risk Based Capital Ratio Increased to 15.19% from 15.09% as of 12/31/2024.
Net Interest Margin Increased to 3.25% for Q1 2025 from 3.07% for Q4 2024.
Non Interest Income Decreased by $4,300,000 to $11,200,000 compared to $15,500,000 in Q4 2024, primarily due to a mark to market unrealized loss on equity securities.
Non Interest Expense Increased by $500,000 or 0.6% to $85,700,000 in Q1 2025 compared to $85,200,000 in Q4 2024, primarily due to higher FDIC assessments.
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Operating Highlights
Loan Growth Guidance: Widened from 3%-4% to 1%-4% due to economic uncertainties and tariff impacts.
Stock Repurchase: Repurchased 876,906 shares at an average cost of $46.83, totaling $41.1 million.
Deposit Growth: Total deposits increased by $131 million or 2.7% annualized, driven by core and time deposits.
Net Interest Margin: Increased to 3.25% from 3.07%, with guidance raised to 3.25%-3.35% for 2025.
Tariff Impact Monitoring: Monitoring the impact of U.S.-China tariffs on borrowers, with 1.4% of total loans potentially affected.
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Risk or Challenges
Tariff Impact: The ongoing tariffs between the U.S. and China have led customers to shift sourcing away from China, potentially impacting 1.4% of total loans. Borrowers may pause imports from China until tariffs are more reasonable.
Loan Growth Guidance: The company has widened its loan growth guidance for 2025 from 3%-4% to 1%-4% due to economic uncertainties and concerns regarding commercial and industrial (C&I) clients.
Customer Investment Behavior: C&I customers are reportedly pausing growth and expansion plans, focusing instead on managing their balance sheets and P&L due to unpredictable inventory prices and slowing demand.
Loan Pay Downs: If the tariff situation does not improve, the company expects some loan pay downs as importers may stop importing and sell off inventory.
Credit Loss Provisions: A provision for credit loss of $15.5 million was recorded, primarily to cover potential losses from one commercial client, indicating heightened risk in the loan portfolio.
Economic Uncertainty: The company is closely monitoring economic conditions, which have led to a cautious approach in loan growth and customer investment.
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Guidance & Outlook
Loan Growth Guidance: Widened 2025 loan growth guidance to 1% to 4% from previous guidance of 3% to 4% due to economic uncertainties.
Stock Repurchase Program: Completed stock repurchase program of $120 million, repurchasing 876,906 shares at an average cost of $46.83 per share.
Net Interest Margin Guidance: Increased 2025 guidance for net interest margin to 3.25% to 3.35% from previous guidance of 3.1% to 3.2%.
Net Income: Reported net income of $69.5 million for Q1 2025, a 13.3% decrease from Q4 2024.
Diluted Earnings Per Share: Diluted EPS decreased to $0.98 for Q1 2025 from $1.12 in Q4 2024.
Provision for Credit Loss: Recorded a provision for credit loss of $15.5 million in Q1 2025.
Total Deposits: Total deposits increased by $131 million or 2.7% annualized during Q1 2025.
Effective Tax Rate: Effective tax rate increased to 19.82% for Q1 2025 from 7.57% in Q4 2024.
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Shareholder Return Plan
Share Repurchase Program: During Q1 2025, Cathay General Bancorp repurchased 876,906 shares of common stock at an average cost of $46.83 per share, totaling $41,100,000. This completed their May 2024 stock repurchase program of $120 million.
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Key Q&A
Q:Can you provide what the sensitivity would be to the margin guide and maybe NII levels if we were to get more than the one interest rate cut in July?
A:On a full year basis, it’d be about four basis points for every rate cut. So if it happens in July, it’s only two.
Q:Can you just provide the spot deposit costs at the end of the quarter?
A:The average margin for the month of March was 3.39%. The spot rate for total interest bearing deposits at 03/31/2025 was 3.36.
Q:Could you talk about kind of what you’re seeing in your pipelines and customer behavior today compared to thirty, sixty days ago that kind of drove that decline?
A:The pipeline in the commercial real estate side is still relatively strong compared to the last two years. The guidance is really just to given the current uncertainty and what we’re seeing on the tariff side.
Q:Are you seeing projects being delayed or C and I customers talking about just not investing or undertaking any investment in their companies?
A:If there were some growth plans or expansion plans, I think there’s some pause to that. They’re more focused on managing their balance sheet and P and L.
Q:Was that one specific commercial credit, was that a borrower that fell in that 1.4% of loans that you guys highlighted as could be impacted by tariffs?
A:The majority of the Q1 reserve was for a domestic company. So they’re not trade finance related at all.
Q:Do you have what the allowance is on that aggregate, 1.4% of loans?
A:It’s probably 2%.
Q:Would expectations be that we get another buyback at some point in the future?
A:We’re waiting for regulatory approval. Once we get it, we’ll announce our new buyback program.
Q:Could you walk through some of the major expense lines and just kind of talk about how you expect them to grow or decline throughout the year?
A:On the salaries and benefits, we picked up about $2,500,000 from excess bonus accruals in 2024.
Q:What to what degree is there seasonality involved in the deposit flows this quarter?
A:The only seasonality is that our Lunar New Year promotion is in January and February.
Q:What was the rate offered this year and how did it compare to last year’s special?
A:It was for the six months. It was about $4.10 versus the $4.50 or so for the July renewals.
Q:Review of Unclear Management Responses
A:Management appeared to avoid giving a direct answer when asked about the specific impact of tariffs on the commercial credit that was highlighted, stating it was a domestic company and not trade finance related, which lacked clarity on the broader implications.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
ACL provision
Bancorp Sure
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Bancorp month
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Lunar New
Officer Cathay
Tenner
Yep
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balance sheet
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cost
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exposure
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CATY Transcript
Cathay General Bancorp (NASDAQ:CATY) Q1 2025 Earnings Call Transcript
Unknown4-23
The earnings call reveals several concerns: a decline in net income and EPS, increased non-accrual loans, and significant uninsured deposits posing liquidity risks. Despite a share repurchase program, loan growth guidance is weak, and management's responses in the Q&A lack clarity. These factors, combined with an increased effective tax rate and cautious market sentiment, suggest a negative stock price reaction in the near term.
Earnings call transcript: Cathay General Bancorp Q1 2025 beats EPS forecast
Unknown4-21
The earnings call presents a mixed picture: while there is a positive net interest margin increase and a steady share repurchase plan, the financial performance shows a decrease in net income and diluted EPS. The Q&A reveals economic uncertainties affecting loan growth and customer investment, with management providing unclear responses regarding tariff impacts. The lack of strong positive catalysts and mixed financial results lead to a neutral sentiment, with potential for minor fluctuations in the stock price over the next two weeks.
Earnings call transcript: Cathay General Bancorp beats Q3 2024 forecasts
Unknown1-22
The earnings call presents mixed signals. Financial performance shows modest growth, but increased non-accrual and classified loans raise concerns. The stock buyback program is positive, yet liquidity risks from uninsured deposits persist. The Q&A section reveals some uncertainties and unclear responses, particularly regarding loan maturity schedules. Overall, the sentiment is balanced, with neither strong positive nor negative indicators dominating.
Cathay General Bancorp (CATY) Q3 2024 Earnings Call Transcript
Unknown10-22
The earnings call reveals a mixed picture. Strong points include a slight increase in net income, EPS, and net interest margin, as well as a significant share repurchase plan. However, concerns arise from increased non-accrual and classified loans, higher provision for credit loss, and increased effective tax rate. The Q&A highlighted some uncertainties, such as the maturity schedule of fixed loans. The overall sentiment is neutral, as positive factors are balanced by risks and uncertainties.
CATY Slides
CATY Report
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