Cathay General Bancorp (NASDAQ:CATY) Q1 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
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.
Key Financial Performance
Net Income $69.5 million, a decrease of 13.3% from $80.2 million in Q4 2024, primarily due to an increase of $10.7 million in provision for income taxes.
Diluted Earnings Per Share (EPS) $0.98, a decrease of 12.5% from $1.12 in Q4 2024.
Total Gross Loans Decreased by $23 million or 0.5% annualized, primarily driven by decreases of $100 million in commercial loans and $65 million in residential loans.
Net Charge-Offs $2 million, a decrease from $16.3 million in Q4 2024.
Non-Accrual Loans 0.8% of total loans, decreased by $14.5 million to $154.6 million compared to Q4 2024, primarily due to the transfer of a loan to loans held for sale and pay down.
Provision for Credit Loss $15.5 million, compared to $14.5 million for Q4 2024, primarily to cover possible losses from one commercial client.
Total Deposits Increased by $131 million or 2.7% annualized, primarily due to a net increase of $67 million in core deposits and an increase of $64 million in time deposits.
Core Deposits Increased by $67 million due to seasonal factors and marketing activities.
Time Deposits Increased by $41 million during Q1 2025 due to a promotional campaign.
Net Interest Margin (NIM) Increased to 3.25% from 3.07% in Q4 2024, with interest recoveries and prepayment penalties contributing to the increase.
Effective Tax Rate 19.82%, increased from 7.57% in Q4 2024, due to a decrease in solar tax credit fund investment.
Tier One Leverage Capital Ratio Increased to 11.06% from 10.97% as of December 31, 2024.
Risk-Based Capital Ratio Increased to 13.57% from 13.55% as of December 31, 2024.
Total Risk-Based Capital Ratio Increased to 15.19% from 15.09% as of December 31, 2024.
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Operating Highlights
Loan Growth Guidance: Widened 2025 loan growth guidance to 1% to 4% from the previous guidance of 3% to 4%.
Stock Repurchase Program: Repurchased 876,906 shares at an average cost of $46.83 per share, totaling $41.1 million, completing the $125 million stock repurchase program.
Net Interest Margin: Increased to 3.25% for Q1 2025 from 3.07% for Q4 2024, with 2025 NIM guidance raised to 3.35%.
Total Deposits: Increased by $131 million or 2.7% annualized during Q1 2025.
Tariff Impact Monitoring: Monitoring the impact of US-China tariffs on borrowers, estimating 1.4% of total loans could be adversely affected.
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Risk or Challenges
Tariffs Impact: The current tariffs between the US and China may adversely impact approximately 1.4% of total loans, as customers have shifted sourcing away from China to other countries.
Loan Growth Guidance: Due to economic uncertainties, the loan growth guidance for 2025 has been widened to 1% to 4%, from the previous guidance of 3% to 4%.
Provision for Credit Loss: A provision for credit loss of $15.5 million was recorded in Q1 2025, primarily to cover possible losses from one commercial client.
Non-Accrual Loans: Non-accrual loans were 0.8% of total loans, indicating potential credit quality issues.
Uninsured Deposits: Total uninsured deposits amounted to $8.5 billion, representing 42.7% of total deposits, which may pose liquidity risks.
Effective Tax Rate: The effective tax rate increased to 19.82% due to a decrease in solar tax credit fund investment, impacting net income.
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Guidance & Outlook
Loan Growth Guidance: Given the uncertainties in the economy, we have widened our 2025 loan growth guidance to 1% to 4% from the previous guidance of 3% to 4%.
Net Interest Margin Guidance: Based on the first quarter net interest margin, we have increased our 2025 NIM guidance to 3.35% from the previous 3.10% to 3.20%.
Stock Repurchase Program: During Q1 2025, we repurchased 876,906 shares of our common stock at an average cost of $46.83 per share, totaling $41.1 million, completing our May 2024 $125 million stock repurchase program.
Net Income Outlook: For Q1 2025, net income decreased $10.7 million or 13.3% to $69.5 million compared to $80.2 million for Q4 2024.
Effective Tax Rate: The effective tax rate for Q1 2025 was 19.82% as compared to 7.57% for Q4 2024.
Loan Portfolio Composition: The loan portfolio consists of 62% fixed rate and hybrid loans, which are expected to support loan yields as market rates are expected to decline.
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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 $41.1 million, completing their May 2024 $125 million stock repurchase program.
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Key Q&A
Q:Can you provide the sensitivity to the margin guide and NII level if we were to get more than 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 provide the spot deposit costs at the end of the quarter and the average margin for March?
A:The average margin for March was 3.39%. Excluding interest recoveries, the net margin was 3.21%. The spot rate for total interest-bearing deposits at March 31, 2025, was 3.36%.
Q:Can you talk about what you’re seeing in your pipelines and customer behavior that drove the decline in loan growth guidance?
A:The pipeline in commercial real estate is still strong compared to the last two years. The guidance reflects current uncertainty, particularly on the C&I side, and a slight uptick in residential mortgages.
Q:Are you seeing projects being delayed or customers pausing investments?
A:Yes, customers are focused on managing their balance sheets and P&L rather than growth due to unpredictable inventory prices.
Q:Was the allowance build for a borrower impacted by tariffs?
A:The reserve was for a domestic company, not trade finance related. The rest of the buildup was tariff-related.
Q:What is the allowance on the aggregate 1.4% of loans?
A:It’s probably two percent.
Q:Will there be another buyback program in the future?
A:We’re waiting for regulatory approval; once we get it, we’ll announce a new buyback program.
Q:Can you walk through some of the major expense lines and how you expect them to grow or decline?
A:Salaries and benefits increased due to excess bonus approvals, and consulting expenses should be lower in the second half of the year.
Q:What degree of seasonality is involved in the deposit flows this quarter?
A:The only seasonality is from our lunar new year promotion in January and February.
Q:What was the rate offered for the lunar new year deposit specials this year?
A:For six months, it was about 4.10%, compared to 4.50% last year.
Q:Review of Unclear Management Responses
A:Management appeared to avoid giving a direct answer regarding the specifics of the loan growth decline, particularly in relation to customer behavior and project delays. Their responses were somewhat vague and lacked detailed data on the impact of tariffs on specific borrowers.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Bancorp expectation
CBDs percent
China
FDIC assessment
Form item
Mr Chen
NIM income
Transcript Cathay
accrual FDIC
assistance press
background noise
broker deposit
coordinator Today
country
credit fund
credit tier
deposit broker
deposit increase
expectation afternoon
increase tax
item report
loan ratio
loss expense
margin interest
mute Today
noise mute
percent property
portion assistance
portion queue
queue background
reserve loan
reversal accrual
slide
star coordinator
tariff
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
Frequently Asked Questions
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