Cathay General Bancorp (CATY) Q3 2026 earnings review
Cathay Bank lending surges, but real estate write-offs jump
Cathay General Bancorp's core lending and deposit engine accelerated in the third quarter, while real estate loan write-offs and one-time items clouded the bottom line. Chief executive Chang M. Liu said loans and deposits grew meaningfully as net interest margin expanded for a ninth straight quarter to 3.52%. By our math, the California lender's $575 million of new loans and $773 million of new deposits pushed year-to-date growth past the top of the company's own full-year plan.
| Revenue, excluding one-offs | $230.5M +11.2% from a year ago |
|---|---|
| Net interest margin | 3.52% +0.04 percentage points from last quarter |
| Net new deposits | $773.3M +3.7% from last quarter |
| Full-year loan and deposit outlook | Exceeded 5.2% loan and 4.5% deposit growth year to date |
⚖️ Verdict: 🟢 Bullish
The story got better because a surge in commercial lending and checking deposits broke the funding bottleneck that held the bank back in the first half. In addition, higher loan yields overpowered the long-awaited uptick in time deposit costs. The bad news: clearing troubled real estate loans required $25 million in write-offs, and headline profit relied on a $36 million stock gain that covered bond losses and a charity gift.
The question now is whether rising certificate of deposit costs and real estate write-offs will halt nine quarters of margin and earnings gains. Either higher loan yields and checking inflows keep the lending spread above 3.50%, or maturing time deposits and tougher credit loss assumptions pull profit down. Fourth-quarter deposit rates and loan charge-offs will decide.
🐂 Bull Case
Commercial Lending And Deposits Broke The Funding Bottleneck
Cathay General Bancorp, the California bank holding company that serves commercial and Chinese-American communities, spent the first half of the year constrained by slow deposit gathering. Chief executive Chang M. Liu said this quarter that "loans and deposits increased meaningfully". Both sides of the balance sheet grew fast enough in the third quarter to pass the bank's full-year targets three months early.
- Gross loans: $21.20 billion, up $574.5 million or 2.8% from last quarter, and up 5.2% year to date by our math
- Commercial business loans: $3.95 billion, up $420.4 million or 11.9% from last quarter
- Total deposits: $21.83 billion, up $773.3 million or 3.7% from last quarter, and up 4.5% year to date by our math
- Non-interest-bearing demand deposits: $3.95 billion, up $382.9 million or 10.7% from last quarter
This surge matters because deposit gathering had been the bottleneck on the lender's growth. By our math, the 5.2% year-to-date loan expansion already exceeds the 3.5% to 4.5% full-year outlook, and the 4.5% deposit gain tops the 3% to 4% full-year plan. Furthermore, customers added money to checking and money market accounts while letting $117.1 million of expensive time deposits run off.
What to watch: fourth-quarter commercial loan and non-interest-bearing deposit balances in the next release. If the bank keeps those checking accounts without paying higher certificate of deposit rates, it can sustain this bigger loan book.
Loan Yields Kept Lifting Margin Despite Deposit Repricing
Cathay's primary profit engine is its net interest margin (NIM), the percentage spread between what it earns on loans and what it pays on funding. For two years, falling deposit costs drove that spread wider. This quarter, the bank proved it could still expand its margin even after deposit costs turned back up.
Net interest margin rose 0.04 percentage points from last quarter to 3.52%, lifting net interest income 5.5% to a record $211.9 million. Average loan yields climbed 0.05 percentage points to 6.02%, and taxable bond yields jumped 0.23 percentage points to 3.62%. Those asset gains beat a 0.04 percentage point rise in funding costs.
What to watch: the yield on average loans in the fourth quarter. A further rise above 6.02% would show that new commercial loans and bond sales can keep expanding the margin without help from cheaper deposits.
Paying Off Expensive Debt Cut Long-Term Borrowings
Over the past three quarters, the California lender has been overhauling its balance sheet by selling low-yielding bonds and paying down expensive debt. In the third quarter, Cathay completed the payoff of $54.1 million of Trust Preferred Securities (TruPS), a form of long-term debt that carried a 6.20% interest rate.
Retiring roughly 45% of those securities cut long-term debt on the balance sheet from $119.1 million to $65.0 million and produced a $3.1 million one-time gain. The bank also took $15.1 million in losses from selling older investment bonds to reinvest at higher rates, bringing its nine-month repositioning losses to $41.3 million.
What to watch: quarterly interest expense on long-term debt in the fourth quarter, which should drop by roughly $800,000 now that the full $54.1 million debt payoff is complete.
🐻 Bear Case
Troubled Real Estate Loans Cleared Via Charge-Offs
Cathay highlighted that nonperforming assets — loans no longer paying interest plus foreclosed property — fell 18.0% from last quarter to $119.2 million, or 0.47% of total assets. However, the bank achieved that cleaner balance sheet by writing off bad real estate debt rather than collecting from borrowers, which forced a sharp rise in credit costs.
- Net charge-offs (uncollectible loans written off): $25.3 million, up from $1.8 million last quarter
- Provision for credit losses (money set aside for bad loans): $28.6 million, up from $11.2 million last quarter
- Non-accrual commercial real estate loans: $47.2 million, down $22.9 million from last quarter
- Accruing loans 90 or more days past due: $5.0 million, up from zero last quarter
The company said the write-offs were concentrated in "three borrower-specific credits, including one construction loan and two movie theater CRE loans acquired from Far East National Bank". Real estate and construction gross charge-offs totaled $26.7 million, matching the $24.4 million drop in non-accrual loans. Furthermore, Cathay raised its credit provision because of "updated loss assumptions incorporating recent charge-off experience", meaning past loan losses are now raising future reserve requirements.
What to watch: fourth-quarter net charge-offs and the new $5.0 million bucket of loans 90 days past due. If write-offs stay elevated, credit reserves will keep draining the extra income from loan growth.
Maturing Time Deposits Turned Funding Costs Higher
For four straight quarters, Cathay lowered its deposit costs as high-rate certificates of deposit (CDs) from the prior rate cycle expired. Last quarter, management warned that over $3.3 billion of CDs yielding 3.54% were set to mature into slightly higher market rates. That warning showed up in the third-quarter numbers.
The average rate Cathay paid on interest-bearing deposits rose 0.05 percentage points from last quarter to 2.91%, driven by the "higher repricing of maturing time deposits in the third quarter". Rates on time deposits climbed from 3.39% to 3.41%, while interest-bearing checking rates jumped 0.18 percentage points to 1.66%. Because time deposits still represent $9.45 billion, or 43.3% of total deposits by our math, the funding tailwind is over.
What to watch: the average rate on time deposits and interest-bearing deposits in the fourth quarter. A second straight increase would confirm that deposit competition is squeezing the bank's lending spread.
One-Off Stock Gains Masked Securities Losses And Fees
Headline net income rose 3.3% from last quarter to $95.2 million, and non-interest income doubled to $42.8 million. However, those headline figures relied on a $36.1 million unrealized valuation gain on equity securities — up from $11.7 million last quarter — which obscured weaker underlying fee income and a jump in one-time operating expenses.
- Wealth management fees: $6.6 million, down $1.3 million or 16.4% from last quarter by our math
- Non-interest income excluding one-offs: $18.7 million, down 8.1% from $20.3 million last quarter by our math
- Other operating expenses: $18.1 million, up from $7.2 million last quarter (a 3.9 percentage point jump as a share of revenue)
- Pre-tax profit excluding securities, debt and expense one-offs: $112.0 million, below the $122.7 million reported figure by our math
Other operating costs jumped because Cathay donated $8.0 million to the Cathay Bank Foundation and paid a $5.4 million contract termination fee. Meanwhile, the 16.4% drop in wealth management fees broke a multi-quarter growth streak and showed that fee cross-selling cannot offset swings in the main lending business.
What to watch: wealth management fees and equity security gains in the fourth quarter. Without another stock market mark-up, headline profit will drop toward the core run rate.
Risks this quarter didn't answer
Several standing risks and watch items depend on footnote tables and management remarks that do not appear in the third-quarter earnings release.
- Full-year 2026 outlook: the release gives no forward outlook ranges; the conference call will show whether management raises its loan and deposit targets after beating them in Q3.
- Commercial real estate concentration and office loan-to-value ratios: not in the release; the presentation and quarterly filing will show if concentration fell from 277% of risk-based capital.
- Unfunded loan commitments: not in the release; the quarterly filing's commitments footnote will show whether the $4.12 billion pipeline shrank as commercial loans funded.
- Uninsured deposits and capital ratio adjustments: not in the release; the quarterly filing will update the 45.3% uninsured deposit share and any follow-up on last quarter's home-equity capital review.
💲 Other KPIs
The adjusted efficiency ratio — operating expenses excluding one-offs and tax-credit amortization divided by revenue excluding securities gains — improved by 1.1 percentage points from 37.0% last quarter. Reported non-interest expense rose 12.0% to $103.4 million on foundation and contract fees, but core operating expenses grew just 1.2% from last quarter to $82.9 million.
Tangible book value per share — the bank's net worth per share after stripping out goodwill and intangible assets — rose 1.5% from $39.93 last quarter and 9.7% from $36.96 a year ago. Retained earnings and a smaller share count lifted per-share value even as fast asset growth trimmed the tangible common equity ratio to 10.63% from 10.99%.
Diluted average shares fell 0.8% from 67.30 million last quarter and 3.2% from 68.99 million a year ago. Period-end common shares dropped by 741,639 during the third quarter to 66.08 million, showing that the lender stepped up share buybacks after repurchasing only 242,148 shares in the second quarter.
🔮 Guidance
Unchanged in the release, which carries no outlook table. The standing plan from last quarter calls for a full-year net interest margin between 3.40% and 3.50%. With the nine-month margin already at 3.48% after nine straight quarters of expansion, by our math the 3.45% middle of the range implies a drop to 3.36% in the fourth quarter, making a full-year beat likely.
Unchanged pending the conference call. The standing plan targets 3.5% to 4.5% loan growth for 2026 off the $20.15 billion year-end 2025 base. Because third-quarter loans reached $21.20 billion — already up 5.2% year to date by our math — hitting the 4.0% middle of the range would require the loan book to shrink by $243 million in the fourth quarter.
Unchanged pending the conference call. Management cut this target from 4%–5% to 3%–4% last quarter after slow first-half gathering. Following the $773.3 million third-quarter deposit inflow, total deposits of $21.83 billion are already up 4.5% year to date by our math, putting the bank $105 million above the top of its full-year range with one quarter left.
❓ Key Questions
Will management raise the 2026 loan and deposit targets?
Loan growth of 5.2% and deposit growth of 4.5% through September have already passed the full-year ranges of 3.5%–4.5% and 3.0%–4.0%. Keeping those targets unchanged would imply balance sheet shrinkage in the fourth quarter.
What rate are maturing certificates of deposit renewing at now?
The average cost of interest-bearing deposits rose 0.05 percentage points to 2.91% as maturing time deposits repriced higher. Investors need the exact renewal rate on the $3.3 billion CD cohort to judge fourth-quarter margin pressure.
Are any movie theater or construction loans left on non-accrual?
Writing off $25.3 million across one construction loan and two acquired movie theater loans drove the credit provision to $28.6 million and led management to raise its loss assumptions. The remaining balance of those exposures determines future charge-off risk.
What caused the $36.1 million equity gain and wealth fee drop?
Unrealized equity gains contributed $36.1 million to pre-tax income in the third quarter and $65.0 million year to date, while wealth management fees fell 16.4% from last quarter. Neither the fund valuation inputs nor the fee decline were explained.
How much did Cathay spend on share buybacks in Q3?
Common shares outstanding fell by 741,639 in the third quarter after the board sought regulatory approval to lift the buyback plan to $200 million. The release did not state the exact share count repurchased or the average price paid.