Business Overview and Historical Milestones
Cathay General Bancorp (CATY) has established itself as a steadfast financial institution, weathering the ebbs and flows of the banking industry with unwavering determination. As the holding company for Cathay Bank, CATY has navigated the complexities of the market, delivering consistent performance and demonstrating its ability to adapt to changing economic conditions.
Cathay General Bancorp was incorporated under the laws of the State of Delaware in 1990 and serves as the holding company for Cathay Bank. Cathay Bank, originally incorporated under the laws of the State of California on August 22, 1961, commenced operations as a California state-chartered bank on April 19, 1962. The bank was founded to serve the Chinese-American community in Los Angeles' Chinatown area.
Over the following decades, Cathay Bank expanded its branch network throughout California, opening new locations in the high-density Asian-populated areas of Southern and Northern California. In the 1990s and 2000s, the bank further expanded its geographic footprint, opening branches in New York, Washington, Illinois, Texas, Maryland, Massachusetts, Nevada, and New Jersey. In 2008, Cathay Bank opened its first international branch location in Hong Kong.
Throughout its history, Cathay Bank has faced numerous challenges. In the early 1990s, the California real estate market experienced a severe downturn, which led to an increase in problem loans and non-performing assets for the bank. Cathay Bank was able to weather this storm through conservative underwriting and prudent risk management. In the late 2000s, the global financial crisis presented another test for the bank, but again Cathay Bank demonstrated its resilience, maintaining strong asset quality and capital levels.
In 2003 and 2007, Cathay General Bancorp established several trust companies for the purpose of issuing trust preferred securities to outside investors. These trust preferred securities provided a cost-effective means of obtaining capital for the company. However, when the Dodd-Frank Act was passed in 2010, it eliminated the ability of bank holding companies with over $15 billion in assets to include trust preferred securities as Tier 1 capital. As Cathay General Bancorp's assets exceeded this threshold, the company's trust preferred securities could no longer be counted toward its regulatory capital requirements.
The Bancorp is regulated as a bank holding company by the Board of Governors of the Federal Reserve System (Federal Reserve). Cathay Bank is regulated as a California commercial bank by the California Department of Financial Protection and Innovation (DFPI) and the Federal Deposit Insurance Corporation (FDIC).
Financial Performance and Ratios
Cathay General Bancorp's financial performance has been consistently strong, showcasing its ability to navigate the challenges of the industry. As of the latest fiscal year ended December 31, 2024, the company reported revenue of $729.7 million, a slight decline from the prior year's $810.0 million. Net income for the year was $286.0 million, or $3.95 per diluted share, compared to $354.1 million, or $4.86 per diluted share, in the previous year.
For the fourth quarter of 2024, the company reported revenue of $186.5 million and net income of $80.2 million. This represented a year-over-year revenue decline of 2.5%, primarily due to a $5.6 million change in mark-to-market unrealized gain on equity securities. However, the quarterly net income showed an 18.8% increase compared to the third quarter of 2024, with diluted earnings per share rising 19.1% to $1.12.
In terms of key financial ratios, Cathay General Bancorp maintains a solid position. As of December 31, 2024, the company's return on assets (ROA) stood at 1.22%, while its return on equity (ROE) was 10.18%. The bank's Tier 1 leverage capital ratio was a robust 10.96%, well above the regulatory requirement for well-capitalized institutions. Furthermore, the company's liquidity position remains strong, with a loan-to-deposit ratio of 97.5% as of the same date.
The company's debt-to-equity ratio is 0.08, indicating a conservative capital structure. As of the latest reporting period, Cathay General Bancorp held $157.2 million in cash and cash equivalents. The company also has substantial borrowing capacity, with $7.47 billion unused from the Federal Home Loan Bank and $395 million unused from the Federal Reserve Bank.
Operational Highlights and Geographical Presence
Cathay General Bancorp operates through two primary business segments: Cathay Bank and Cathay Holdings LLC. Cathay Bank is the main operating subsidiary, providing a wide range of financial services to individuals, professionals, and small to medium-sized businesses in its geographic markets.
Cathay Bank's loan portfolio is diversified, consisting of 51.8% commercial real estate loans, 29.4% residential mortgage loans, and 16.0% commercial loans as of December 31, 2024. The commercial real estate loan portfolio includes loans secured by commercial retail properties, office buildings, multiple-unit apartments, hotels, and other commercial properties. The residential mortgage loan portfolio comprises conforming, nonconforming, and jumbo residential mortgage loans secured by single one-to-four family residential properties. The commercial loan portfolio primarily consists of short-term loans to support general business purposes or provide working capital.
Geographically, the bank's operations are primarily concentrated in California, which accounted for 49.2% of its residential mortgage portfolio. Additionally, the bank maintains a significant presence in other key markets, such as New York, Washington, Texas, Illinois, Massachusetts, Maryland, Nevada, New Jersey, and Hong Kong.
Cathay Holdings LLC, a subsidiary of Cathay Bank, was formed to hold other real estate owned properties transferred from the bank. As of December 31, 2024, Cathay Holdings LLC no longer owned any properties.
Financial Performance Details
Cathay Bank's net interest income decreased 9.1% from $741.7 million in 2023 to $674.1 million in 2024, primarily due to an increase in interest expense on deposits. The bank's net interest margin decreased from 3.45% in 2023 to 3.04% in 2024. The bank's provision for credit losses increased from $26.0 million in 2023 to $37.5 million in 2024. As of December 31, 2024, the bank's allowance for loan losses totaled $161.8 million, representing 0.83% of total gross loans.
Challenges and Risk Factors
While Cathay General Bancorp has demonstrated resilience, the company is not immune to the challenges facing the banking industry. The ongoing low-interest-rate environment, increased regulatory scrutiny, and intense competition from both traditional and non-traditional financial institutions pose potential risks to the company's profitability and growth. Additionally, the bank's heavy concentration in the California real estate market exposes it to regional economic fluctuations, which could impact its loan portfolio and asset quality.
Regulatory Landscape and Compliance
As a publicly traded bank holding company, Cathay General Bancorp operates in a highly regulated environment. The company is subject to oversight by federal and state banking authorities, including the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the California Department of Financial Protection and Innovation (DFPI). Compliance with evolving regulatory requirements, such as those introduced under the Dodd-Frank Act and the Basel III Capital Accords, remains a critical focus for the company.
Recent Developments and Future Outlook
In 2023, Cathay General Bancorp announced the retirement of its Chief Risk Officer, Kim R. Bingham, and the appointment of Diana Deen as his successor. This transition underscores the company's commitment to maintaining a robust risk management framework and adapting to the evolving regulatory landscape.
Looking ahead, Cathay General Bancorp remains cautiously optimistic about its future prospects. The company's management has provided guidance for 2025, projecting loan growth between 3% and 4% and deposit growth between 3% and 4%. Additionally, the bank anticipates a net interest margin range of 3.10% to 3.20% for the upcoming year, reflecting its ability to navigate the interest rate environment.
The company expects core non-interest expense, excluding tax credit and core deposit intangible amortization, to increase between 4.5% to 5.5% from 2024 to 2025. The effective tax rate is projected to be between 19.5% and 20.5% for 2025. Cathay General Bancorp also plans to continue its stock repurchase program, anticipating to repurchase around $30 million in stock in the first quarter of 2025, subject to market conditions.
Conclusion
Cathay General Bancorp's resilience and adaptability have been the hallmarks of its success over the years. By leveraging its strong capital position, diversified loan portfolio, and deep-rooted relationships within its core markets, the company has demonstrated its ability to navigate the challenges of the banking industry. As it continues to evolve and respond to the changing landscape, Cathay General Bancorp remains well-positioned to deliver value to its shareholders and serve the communities in which it operates.