Q3 2025 Cathay General Bancorp Earnings Call
Speaker #1: Good afternoon , ladies and gentlemen , and welcome to CATHAY GENERAL BANCORP . S Third Quarter 2020 Earnings Conference call . My name is Asiya , and I'll be your coordinator for today .
Speaker #1: At this time , all participants are in listen only mode . Following the prepared remarks , there will be a question and answer session .
Speaker #1: If you would like to participate in this portion of the call, please press star followed by one at any time during the conference.
Speaker #1: If assistance is needed at any time during the call, please press star followed by zero, and a coordinator will be happy to assist you.
Speaker #1: Today's call is being recorded and will be available for replay at Cathay General Bancorp. Now I would like to turn the conference over to Georgia Lo, Investor Relations of Cathay General Bancorp.
Speaker #1: Please go ahead .
Speaker #2: Thank you and good afternoon . Here to discuss the financial results today . Are Mr. Chang Liu , our President and Chief Executive Officer and Mr. Heng Chen , our Executive Vice President and Chief Financial Officer .
Speaker #2: Before we begin , we wish to remind you that the speakers on this call may make forward looking statements within the meaning of the applicable provisions of the Private Securities Litigation Reform Act of 1995 , concerning future results and events , and that these statements are subject to certain risks and uncertainties that could cause actual results to differ materially .
Speaker #2: These risks and uncertainties are further described in the company's Annual Report on Form 10-K for the year ended December 31st , 2020 , for at item one , a in particular and in other reports and filings with the Securities and Exchange Commission from time to time .
Speaker #2: As such , we caution you not to place undue reliance on such forward looking statements . Any forward looking statements speak only as of the date on which it is made , and , except as required by law , we undertake no obligation to update or revise any forward looking statements to reflect future circumstances , developments or events , or the occurrence of unanticipated events .
Speaker #2: This afternoon , CATHAY GENERAL BANCORP issued an earnings release outlining its third quarter 2025 results . To obtain a copy of our earnings release , as well as our earnings presentation , please visit our website at CATHAY GENERAL BANCORP .
Speaker #2: Com . After comments by management today , we will open up this call for questions . I will now turn the call over to our President and Chief Executive Officer , Mr. Chang Liu .
Speaker #2: Thank you , George , and good afternoon , everyone . This afternoon we reported a net income of 77.7 million for Q3 2025 , a 0.3% increase as compared to 77.5 million for Q2 2025 .
Speaker #2: Diluted earnings per share increased 2.7% to $1.13 for Q3 2025, as compared to $1.10 in Q2 2025. During Q3 2025, we repurchased 1.7 million shares of our common stock at an average cost of $46.81 per share.
Speaker #2: For 50.1 million . Under the June 2020 , 550 million stock buyback program in Q3 2025 , total gross loans increased 320 million , or 6.6% annualized , primarily driven by increases of hundred and 22 million in CRE loans and 123 million in residential loans .
Speaker #2: Due to our strong loan growth through September 30, 2025, we are increasing our loan and deposit guidance from 3% to 4% to 3.5% to 5% for both loans and deposits.
Speaker #2: Slide six shows the percentage of loans in each major loan portfolio that are either at a fixed rate or hybrid loans in their fixed-rate period.
Speaker #2: Our loan portfolio consists of 60% fixed rate and hybrid loans, excluding fixed to float interest rate swaps of 3.1% of total loans. Fixed rate loans comprise 30% of total loans, while hybrid and fixed rate periods comprise 30% of total loans.
Speaker #2: We expect these fixed-rate loans to support our loan yields as market rates are expected to decline. We continue to monitor our CRE loans.
Speaker #2: Turning to slide eight of our earnings presentation . The average loan to value of our CRE loans remained at 49% . Our retail property loan portfolio .
Speaker #2: As shown on slide nine, retail properties comprise 24% of our total CRE loan portfolio, or 13% of our total loan portfolio. Ninety percent of the $2.5 billion in retail property loans are secured by retail store neighborhoods, mixed-use, or strip centers, and only 9% are secured by shopping centers.
Speaker #2: On slide ten, office property loans represent 14% of our total CRE loan portfolio, or 7% of our total loan portfolio. Only 33% of the $1.5 billion in office property loans are collateralized by pure office buildings.
Speaker #2: Only 3% are located in central business districts. 40% of office property loans are collateralized by office properties, while retail stores, office spaces, mixed-use properties, and medical offices account for the remaining 27%, which are collateralized by office condos or properties as of Q3 2025.
Speaker #2: We reported net charge-offs of $15.6 million as compared to $12.7 million in Q2 2025. Our non-accrual loans were 0.8% of total loans as of September 30, 2025, which decreased by $8.5 million to $265.6 million as compared to Q2 2025.
Speaker #2: Turning to slide 12, classified loans decreased from $432 million to $420 million for Q3 2025. Our special mention loans increased from $310 million to $455 million in Q3 2025.
Speaker #2: The Bank conservatively downgraded six loan relationships totaling 145 million to special mention that have not met certain debt debt covenants and have established have exhibited short term financial issues for closure for closer monitoring , the Bank believes that these credits will resolve within the next 12 months by either credit upgrades or partial or full full payoffs .
Speaker #2: We recorded a provision for credit losses of $28.7 million in Q3 2025, as compared to $11.2 million in Q2 2025. The $28.7 million provision included $9.1 million for two movie theater loans that we acquired from the acquisition of Far East National Bank in Q3 2025.
Speaker #2: From a change in our CSO model, the two gross loan ratios increased from 0.88% for Q2 2025 to 0.93% for Q3 2025.
Speaker #2: However , excluding our residential mortgage portfolio , the total reserve to loan ratio would be 1.16% . Total deposits increased by 515 million , or 10.5% annualized during Q3 2025 , primarily due to increases of 508 million in core deposits and 7 million in time deposits .
Speaker #2: The increase in core deposits was due to seasonal factors and marketing activities . As of September 30th , 2025 , total uninsured deposits were 9.1 billion , net of 0.9 billion .
Speaker #2: In collateralized deposits, 40.44.3% of total deposits. The bank has an unused borrowing capacity of $7.7 billion from the Federal Home Loan Bank and $1.5 billion from the FRB, as well as $1.5 billion in unpledged securities.
Speaker #2: These available liquidity sources are more than 100% of the uninsured and Uncollateralized uncollateralized deposits . As of September 30th , 2025 , I will now turn the floor over to our Executive Vice President and Chief Financial Officer , Mr. Heng Chen , to discuss the quarterly financial results in more detail .
Speaker #3: Thank you . Chang , and good afternoon , everyone , for Q3 2025 , net income increased 0.2 million , or 0.3% , to 77.7 million , from 77.5 million for Q2 2025 , primarily due to 17.5 million in higher provision for credit losses , offset by 8.4 million in higher net interest income , 5.6 million in higher non-interest income , and 1 million lower in non-interest expense , and 2.7 million lower in provision for income taxes .
Speaker #3: Net interest margin increased to 3.31% for Q3 2025, up from 3.27% for Q2 2025. The increase in net interest margin income was due to the lower cost of funds in Q3 2025.
Speaker #3: Interest recoveries and prepayment penalties added four basis points to the net interest margin, compared to adding three basis points to the net interest margin for Q2 2025.
Speaker #3: Noninterest income for Q3 2025 increased 5.6 million to 21 million when compared to 15.4 million in Q2 2025 . The increase was primarily due to a 4.7 million change in mark to market unrealized gain on equity securities in Q3 from unrealized loss on equity securities in Q2 .
Speaker #3: Non-interest expense decreased by $1 million from $89.1 million in Q2 2025 to $88.1 million in Q3 2025. The decrease was primarily due to a $1.5 million increase in professional expense and a $0.6 million decrease in data processing, offset by a $1 million increase in low income housing and solar tax credit amortization. The effective tax rate for Q3 2025 was 17.2%, compared to 19.6% for Q2 2025.
Speaker #3: As of September 30, 2025, our Tier 1 leverage capital ratio decreased to 10.88% compared to 11.09% in the previous quarter.
Speaker #3: Our Tier 1 risk-based capital ratio decreased to 13.15% from 13.35% in the previous quarter, and our total risk-based capital ratio decreased to 14.76% from 14.92% in the previous quarter.
Speaker #2: Thank you. We will now proceed to the question-and-answer portion of the call.
Speaker #1: Ladies and gentlemen , if you have a question at this time , please press the star . Then one key on your touch tone phone .
Speaker #1: We ask that you please limit yourself to one question and one follow up question . You may then return to the queue . If your question has been answered or you wish to remove yourself from the queue , please press the star .
Speaker #1: Then please press star, then two. To prevent any background noise, we ask that you please place yourself on mute until your question has been stated.
Speaker #1: First question comes from Matthew Clark with Piper Sandler. Please go ahead.
Speaker #4: Hey , good afternoon . First . Hey , first question just around the increase in classifieds and I think you mentioned it was driven by six relationships and I believe it's commercial real estate related .
Speaker #4: But if there was any additional color you could provide in terms of the types of commercial real estate and, you know, anything chunky in there, I'm just trying to get a sense for if there was a credit that kind of moved the needle within that increase.
Speaker #3: Now , the largest one , Matthew , was about 15 million . This is a national full service business printing company . They had a weak second quarter due to the uncertainty regarding tariffs .
Speaker #3: And then they have regained momentum in Q3. Once we get there, for full year financial statements, we expect to upgrade that loan to the past.
Speaker #3: Then we have . We have a real estate loan . In Arizona and there was a loss of one tenant and the LTV is a little higher than our .
Speaker #3: Than our target LTV . And I'll just I think . And then we have the third one that's in Southern California . This is also the property was had slow leasing , but it's it's expected by the second quarter of 2026 to be fully leased up .
Speaker #3: So that's just some color out of the six relationships.
Speaker #4: Okay. And then, the increase in CRE reserves this quarter—was that related to some of that migration, or what was that maybe related to the increase in modifications?
Speaker #4: Just trying to get a sense of what that might be attributed to.
Speaker #3: Well , the modification we're going to relook at that . We have a if we if we . Renew substandard loan for 90 days , we're treating that as a modification .
Speaker #3: Trouble modification . Our understanding is that other banks regard those as insignificant changes , especially when there's no change in the in the contractual rate .
Speaker #3: So we'll we'll be changing our policy later on . But I'm just trying to think of we . Oh what the reason the , the CRA reserves brought up is because of the 99.
Speaker #3: $2 million additional reserve on the two movie theater loans that we inherited from our acquisition of Far East National Bank.
Speaker #4: Okay. Perfect. Thank you.
Speaker #3: You .
Speaker #1: The next question comes from Andrew Terrell with Stephens. Please go ahead.
Speaker #5: Hey . Good afternoon . I wanted to start just on the expense guide . You know , reiterated , I guess when I , when I look at it , it kind of implies what what looks like a pretty decent step up in the in the fourth quarter .
Speaker #5: So just kind of want to take your temperature on , on , on the core expenses in fourth quarter . If you could maybe share kind of a range of what you're what you're expecting for core expenses .
Speaker #5: And then, if you have the low-income housing tax credit amortization, you're expecting as well.
Speaker #3: Yeah . So we think the you know , we're happy to see the consulting expense decrease . Yeah . Decrease starting here in the third quarter .
Speaker #3: And then in the low income housing . We had some additional amortization . Mainly from catching up to the 2024 K-1s . So the so long .
Speaker #3: Housing is yeah it's . It's about . 10.5 million . Work for I'm sorry . It's yeah it's 11.5 million . Sorry for Q3 .
Speaker #3: But once again it's a one time catch up adjustment based on the k-1s that we received from from our funds . And for 2024 .
Speaker #5: Got it. Okay. So you'd expect it to remain stable at 11.5.
Speaker #3: Yes , yes .
Speaker #5: And then outside of the the amortization , do you feel like core expense run rate for three ? Q is kind of a good a good starting point for for the fourth quarter .
Speaker #5: I know you noted some of the decrease in consulting expense.
Speaker #3: Yes , yes .
Speaker #5: Okay . And then on the on the bond portfolio , can you remind us how much of the the investment book is , is floating rate .
Speaker #5: And it looks like yields are down 30 basis points or so this quarter. Is that just reflective of the floating rate piece of that book?
Speaker #5: And the move in SOFR we saw this quarter, or anything else we should appreciate, came through the securities income line this quarter.
Speaker #3: Yeah . So , Matthew , about 40% of our bond portfolio is in six month treasuries . So so as they're rolling down , we're losing the yield .
Speaker #3: The rest of the portfolio is fixed.
Speaker #5: Got it. Okay. And then, you know, the last thing I wanted to ask is about your capital position, which is still very strong. We've got what feels like a more amicable regulatory environment.
Speaker #5: Just wanted to get your updated thoughts on , you know , whether M&A was of interest either on either side of the coin for , for Cathay .
Speaker #2: Sure . Andrew , M&A is always an interest to us . But I think we're very strategic . We're very focused on our organic growth and executing our business plan .
Speaker #2: If there's a candidate out there that surfaces, that's makes sense to us, whether it's strategically or financially, then we would absolutely look at it.
Speaker #2: But , you know , of course that depends on what the what the ask is . Right . And the and the exchange ratio on that .
Speaker #2: So I think we would we would want to make sure we execute something that makes sense . But sometimes it is just purely financial or an asset play without any other strategic reasons that might that might not make a ton of sense .
Speaker #2: So, but we're always open to that.
Speaker #5: Understood. Okay. Thanks for taking the questions.
Speaker #2: Thanks .
Speaker #1: The next question comes from Gary Tener with D.A. Davidson. Please go ahead.
Speaker #6: Hi . Good afternoon . I wanted to ask about the loan growth side of the equation here . You know , obviously you had to change the guide , but I'm curious about what you're seeing in the commercial mortgage segment .
Speaker #6: There's not a lot of banks out there that have put up real solid commercial mortgage growth this year. So I'm curious what you're seeing in terms of demand and what kind of pricing you're getting on new loans in that segment.
Speaker #2: So, Gary, some of the increase is really pull-through; some of the pull-through from the second quarter. I think we had a strong CRE portfolio pipeline in the second half of Q1.
Speaker #2: Q and two and two Q was also pretty strong as well . So a lot of those numbers kind of pull through for for the third quarter for us right now , even in the past few weeks , as we're sitting on our committee calls , the pipeline is definitely slowing down a bit .
Speaker #2: I think people are kind of waiting to see if there are going to be any more rate cuts for perhaps October, and maybe even one more in December.
Speaker #2: So but that's been kind of the the activities for us , even on the pricing end . Gary , I think we're competing on pricing for sure .
Speaker #2: You know , just recently we were looking at a transaction where strong deposits and , you know , we have to kind of bear down a little bit on the margins just to make sure we keep the relationship .
Speaker #2: So, the price competition is still there for sure.
Speaker #6: Thanks. I appreciate the thoughts.
Speaker #1: Once again, if you have a question, please press star then one on your telephone keypad. The next question comes from Kelly Motta with CFPB.
Speaker #1: Please go ahead .
Speaker #7: Hey good afternoon . Thanks for the question . Maybe , maybe looking at the funding side , it looks like on the average balance sheet , other borrowed funds went up wondering I know you have your loan and deposit guidance , but as we look ahead , if there's any increased competition , you're seeing on on on deposits and how that comes into play .
Speaker #7: Now, if we get another cut or two here, thanks.
Speaker #2: So the competition on deposits is still very fierce out there . Kelly , to be honest , particularly in our California and new and the new New York East Coast , we are seeing even outside of our niche market , the mainstream players kind of offering rates that are , you know , pretty substantial .
Speaker #2: Our group and our team, you know, and I make sure they're focusing on this -- that anytime there's a rate cut, a potential rate cut coming, and whether it's the exception rates on money market.
Speaker #2: High balance accounts and those kinds of things. So, we're executing on those kinds of drops and rates pretty quickly. In addition, we're also adjusting our exception rates on any of the CD deposits.
Speaker #2: And those kind of things . And the drive for noninterest bearing and low interest bearing deposits continues where , you know , we've built a specialty deposit side .
Speaker #2: And in one particular segment , and we're trying to add more to it . And and it's going to take some time to really have that impact .
Speaker #2: The liability side of the balance sheet, but that's the objective. So, we're going to continue to try to drive down the cost of funds.
Speaker #7: Got it . Thank you . And can you refresh us on your your asset sensitivity here in terms of like do you think you're going to be able to lower deposit costs again with , with future rate cuts in order to offset any impact on , on on the asset side , I appreciate the Nim guidance , but you're kind of in the middle of it .
Speaker #7: So, I'm wondering if you could provide additional color as to how we should be thinking about the near-term trajectory.
Speaker #3: Our model , which we're still trying to improve , has us basically flat in a down 25 basis point rate shock and we think , you know , just based on what happened in 2025 , that for every quarter point drop in fed funds over six months .
Speaker #3: Rates should go up 6 or 7 basis points. So, you know, with another rate cut possible here in October or certainly for sure in December.
Speaker #3: And then probably one or two more in 2026. We think directionally our NIM will go up or should go up.
Speaker #7: That's helpful. Thank you. Hang, I will step back.
Speaker #3: Thank you . Kelly .
Speaker #1: We have a follow-up question from Matthew Clark with Piper Sandler. Please go ahead.
Speaker #4: Hey, I may have missed it, but just if you had the average net interest margin in the month of September, either.
Speaker #4: On a core basis or reported basis, by the way.
Speaker #3: Yeah , December was three . This is a month . It's 3.38% for the month of September . Okay . That's a 30 day month .
Speaker #3: So it's generally when we have so much in the way of residential mortgages, it's up 3 or 4 basis points higher.
Speaker #4: Okay. And then the spot rate on deposits, either at the end of the month or just the average for the month, the cost.
Speaker #3: Yeah . Okay . Hold on . So . We . So we have I guess , interest bearing deposits . Do you want to buy each component ?
Speaker #3: Matthew or .
Speaker #4: No . No , no , just the overall interest bearing deposits . It's fine .
Speaker #8: Yeah .
Speaker #3: 3.16. That's compared to 3.31 at the end of June.
Speaker #4: Okay, so that's the end of September.
Speaker #3: Right .
Speaker #4: Perfect . Thank you .
Speaker #1: Thank you for your participation. I will now turn the call back over to Cathay General Bancorp management for closing remarks. Please go ahead.
Speaker #2: I want to thank everyone for joining us on our call, and we look forward to speaking with you at our next quarterly earnings release call.
Speaker #1: Ladies and gentlemen , thank you for your participation in today's conference . This concludes the presentation . You may now disconnect . Good day .
Speaker #1: Good afternoon , ladies and gentlemen , and welcome to CATHAY GENERAL BANCORP Third Quarter 2020 Earnings Conference . Call . My name is Asiya , and I will be your coordinator for today .
Speaker #1: At this time , all participants are in listen only mode . Following the prepared remarks , there will be a question and answer session .
Speaker #1: If you would like to participate in this portion of the call, please press star followed by one at any time during the conference.
Speaker #1: If assistance is needed at any time during the call, please press star followed by zero, and a coordinator will be happy to assist you.
Speaker #1: Today's call is being recorded and will be available for replay at Cathay General Bancorp. Now, I would like to turn the conference over to Georgia Lo, Investor Relations of Cathay General Bancorp.
Speaker #1: Please go ahead .
Speaker #9: Thank you and good afternoon . Here to discuss the financial results today . Are Mr. Chang Liu , our President and Chief Executive Officer and Mr. Heng Chen , our Executive Vice President and Chief Financial Officer .
Speaker #9: Before we begin , we wish to remind you that the speakers on this call may make forward looking statements within the meaning of the applicable provisions of the Private Securities Litigation Reform Act of 1995 , concerning future results and events , and that these statements are subject to certain risks and uncertainties that could cause actual results to differ materially .
Speaker #9: These risks and uncertainties are further described in the company's Annual Report on Form 10-K for the year ended December 31, 2024, at Item One.
Speaker #9: A in particular and in other reports and filings with the Securities and Exchange Commission from time to time. As such, we caution you not to place undue reliance on such forward-looking statements.
Speaker #9: Any forward looking statements speak only as of the date on which it is made , and , except as required by law , we undertake no obligation to update or revise any forward looking statements to reflect future circumstances , developments or events , or the occurrence of unanticipated events .
Speaker #9: This afternoon , CATHAY GENERAL BANCORP issued an earnings release outlining its third quarter 2025 results . To obtain a copy of our earnings release , as well as our earnings presentation , please visit our website at CATHAY GENERAL BANCORP .
Speaker #9: Com . After comments by management today , we will open up this call for questions . I will now turn the call over to our President and Chief Executive Officer , Mr. Chang Liu .
Speaker #2: Thank you , Georgia , and good afternoon , everyone . This afternoon we reported a net income of 77.7 million for Q3 2025 , a 0.3% increase as compared to 77.5 million for Q2 2025 .
Speaker #2: Diluted earnings per share increased 2.7% to $1.13 for Q3 2025 , as compared to $1.10 in Q2 2025 . During Q3 2025 , we repurchased 1.7 million shares of our common stock at an average cost of $46.81 per share .
Speaker #2: For 50.1 million . Under the June 2020 , five , 150 million stock buyback program in Q3 2025 , total gross loans increased 320 million , or 6.6% annualized , primarily driven by increases of 122 million in CRA loans and 123 million in residential loans .
Speaker #2: Due to our strong loan growth through September 30, 2025, we are increasing our loan and deposit guidance from 3% to 4% to 3.5% to 5% for both loans and deposits.
Speaker #2: Slide six shows the percentage of loans in each major loan portfolio that are either at a fixed rate or hybrid loans in their fixed-rate period.
Speaker #2: Our loan portfolio consists of 60% fixed rate and hybrid loans, excluding fixed to float interest rate swaps, which make up 3.1% of total loans. Fixed rate loans comprise 30% of total loans, while hybrid and fixed rate periods account for the remaining 30% of total loans.
Speaker #2: We expect these fixed-rate loans to support our loan yields, as market rates are expected to decline. We continue to monitor our CRE loans.
Speaker #2: Turning to slide eight of our earnings presentation . The average loan to value of our CRE loans remained at 49% . Our retail property loan portfolio , as shown on slide nine , comprises 24% of our total CRE loan portfolio , or 13% of our total loan portfolio .
Speaker #2: Ninety percent of the $2.5 billion in retail property loans are secured by retail stores, neighborhood centers, mixed-use properties, or strip centers, and only 9% are secured by shopping centers.
Speaker #2: On slide ten, office property loans represent 14% of our total CRE loan portfolio, or 7% of our total loan portfolio. Only 33% of the $1.5 billion in office property loans are collateralized by pure office buildings.
Speaker #2: Only 3% are located in central , central business districts . 40% of office property loans are collateralized by office . Retail stores , office , mixed use and medical offices .
Speaker #2: In the remainder of 27% are collateralized by office condos . For Q3 2025 , we reported net charge offs of 15.6 million as compared to 12.7 million in Q2 2025 .
Speaker #2: Our non-accrual loans were 0.8% of total loans as of September 30th, 2025, which decreased by $8.5 million to $265.6 million as compared to Q2 2025.
Speaker #2: Turning to slide 12, classified loans decreased from $432 million to $420 million for Q3 2025. Our special mention loans increased from $310 million to $455 million in Q3 2025.
Speaker #2: The Bank conservatively downgraded six loan relationships totaling 145 million to special mention that have not met certain debt . Debt covenants and have established have exhibited short term financial issues for closure for closer monitoring , the Bank believes that 3D credits will resolve within the next 12 months by either credit upgrades or partial or full full payoffs .
Speaker #2: We recorded a provision for credit losses of $28.7 million in Q3 2025, as compared to $11.2 million in Q2 2025. The $28.7 million provision included $9.1 million for two movie theater loans that we acquired from the acquisition of Far East National Bank and $3.8 million from a change in our CECL model. The two gross loan ratio increased from 0.88% for Q2 2025 to 0.93% for Q3 2025.
Speaker #2: However , excluding our residential mortgage portfolio , the total reserve to loan ratio would be 1.16% . Total deposits increased by 515 million , or 10.5% annualized during Q3 2025 , primarily due to increases of 508 million in core deposits and 7 million in time deposits .
Speaker #2: The increase in core deposits was due to seasonal factors and marketing activities . As of September 30th , 2025 , total uninsured deposits were 9.1 billion , net of 0.9 billion .
Speaker #2: In collateral collateralized deposits , were 44 44.3% of total deposits . The bank has unused borrowing capacity of 7.7. 2 billion from Federal Home Loan Bank and 1.5 billion from FRB , and 1.5 billion in unpaid securities .
Speaker #2: These available liquidity sources are more than 100% of the uninsured , and Uncollateralized uncollateralized deposits , as of September 30th , 2025 , I will now turn the floor over to our Executive Vice President and Chief Financial Officer , Mr. Heng Chen , to discuss the quarterly financial results in more detail .
Speaker #3: Thank you . Chang , and good afternoon , everyone , for Q3 2025 , net income increased 0.2 million , or 0.3% , to 77.7 million , from 77.5 million for Q2 2025 , primarily due to 17.5 million in higher provision for credit losses , offset by 8.4 million in higher net interest income , 5.6 million in higher in non-interest income , and 1 million lower in non-interest expense , and 2.7 million lower in provision for income taxes .
Speaker #3: Net interest margin increased to 3.31% for Q3 2025, up from 3.27% for Q2 2025. The increase in net interest margin income was due to the lower cost of funds in Q3 2025.
Speaker #3: Interest recoveries and prepayment penalties contributed four basis points to net interest margin, compared to an addition of three basis points in net interest margin for Q2 2025.
Speaker #3: Noninterest income for Q3 2025 increased $5.6 million to $21 million when compared to $15.4 million in Q2 2025. The increase was primarily due to a $4.7 million change in mark-to-market unrealized gain on equity securities in Q3 from an unrealized loss on equity securities in Q2.
Speaker #3: Non-interest expense decreased by $1 million from $89.1 million in Q2 2025 to $88.1 million in Q3 2025, but the decrease was primarily due to a $1.5 million increase in professional expense and a $0.6 million decrease in data processing, offset by a $1 million increase in low-income housing and solar tax credit amortization.
Speaker #3: The effective tax rate for Q3 2025 was 17.2% . As compared to 19.6% for Q2 2025 . As of September 30th , 2025 , a tier one leverage capital ratio decreased to 10.88 as compared to 11.09% in the previous quarter .
Speaker #3: Our Tier 1 risk-based capital ratio decreased to 13.15% from 13.35% in the previous quarter, and our total risk-based capital ratio decreased to 14.76% from 14.92% in the previous quarter.
Speaker #2: Thank you. We will now proceed to the question-and-answer portion of the call.
Speaker #1: Ladies and gentlemen, if you have a question at this time, please press the star key followed by the one key on your touchtone phone.
Speaker #1: We ask that you please limit yourself to one question and one follow up question . You may then return to the queue . If your question has been answered or you wish to remove yourself from the queue , please press the star .
Speaker #1: Then please press star, then two. To prevent any background noise, we ask that you please place yourself on mute until your question has been stated.
Speaker #1: The first question comes from Matthew Clark with Piper Sandler. Please go ahead.
Speaker #4: Hey , good afternoon .
Speaker #8: First .
Speaker #4: Hey, first question just around the increase in classifieds, and I think you mentioned it was driven by six relationships, and I believe it's commercial real estate related.
Speaker #4: But if any additional color you could provide in terms of the types of commercial real estate and , you know , anything chunky in there , I'm just trying to get a sense for if there was a credit , that kind of moved the needle within that increase .
Speaker #3: Now , the largest one , Matthew , was about 15 million . This is a national full service business printing company . They had a weak second quarter due to the uncertainty regarding tariffs .
Speaker #3: And then they have regained momentum in Q3 . And once we get there , full year financial statements , we expect to upgrade that loan to the past .
Speaker #3: Then we have . We have a real estate loan . In Arizona and there was a loss of one tenant and the LTV is a little higher than our .
Speaker #3: Than our target LTV . And I'll just I think . And then we have a third one that's in Southern California . This is also the property was had slowly seen , but it's is expected by the second quarter of 2026 to be fully leased up .
Speaker #3: So that's just some color out of the six relationships.
Speaker #4: Okay. And then the increase in CRE reserves this quarter, was that related to some of that migration, or what was that maybe related to the increase in modifications?
Speaker #4: Just trying to get a sense for what that might be attributed to.
Speaker #8: Well .
Speaker #3: The modification . We're going to relook at that . We have a if we if we renew a substandard loan for 90 days , we're treating that as modification trouble modification .
Speaker #3: Our understanding is that other banks . Regard those as insignificant changes , especially when there's no change in the in the contractual rate .
Speaker #3: So we'll we'll be changing our policy later on . But I'm just trying to think of we . Oh what the reason the , the CRA reserves were up is because of this .
Speaker #3: $99.2 million additional reserve on the two movie theater loans that we inherited from our acquisition of Far East National Bank.
Speaker #4: Okay. Perfect. Thank you.
Speaker #8: Good .
Speaker #1: The next question comes from Andrew Terrell with Stephens. Please go ahead.
Speaker #5: Hey . Good afternoon . I wanted to start just on the expense guide . You know , was reiterated . I guess when I when I look at it , it kind of implies what what looks like a pretty decent step up in the in the fourth quarter .
Speaker #5: So I just kind of want to take your temperature on , on , on the core expenses in fourth quarter . If you could maybe share kind of a range of what you're what you're expecting for core expenses and then if you have the low income housing tax credit amortization , you're expecting as well .
Speaker #3: Yeah . So we think the we're happy to see the consulting expense decrease . Yeah . Decrease starting here in the third quarter .
Speaker #3: And then in the low income housing . We had some additional amortization , mainly from catching up to the 2024 K-1s . So the so lung compounding is yeah , it's .
Speaker #3: It's about that 10.5 million . For for I'm sorry . It's yeah it's 11.5 million . Sorry for for Q3 . But once again it's a one time catch adjustment based on the K-1s we received from from our funds .
Speaker #3: And for 2024 .
Speaker #5: Got it. Okay. So you'd expect it to remain stable to that $11.5.
Speaker #3: Yes , yes .
Speaker #5: And then outside of the the amortization , do you feel like core expense run rate for three ? Q is kind of a good a good starting point for for the fourth quarter .
Speaker #5: I know you noted some of the decrease in consulting expense.
Speaker #3: Yes , yes .
Speaker #5: Okay . And then on the on the bond portfolio , can you remind us how much of the the investment book is , is floating rate .
Speaker #5: And it looks like yields are down 30 basis points or so this quarter. Is that just reflective of the floating rate piece of that book?
Speaker #5: And the move in SOFR we saw this quarter, or anything else we should appreciate, came through the securities income line this quarter.
Speaker #8: Yeah .
Speaker #3: So , Matthew , about 40% of our bond portfolio is in six month treasuries . So so as they're rolling down , we're losing the yield .
Speaker #3: The rest of our portfolio is fixed.
Speaker #5: Got it. Okay. And then, you know, the last thing I wanted to ask you is your capital position still very strong. We've got what feels like a more amicable regulatory environment.
Speaker #5: Just wanted to get your updated thoughts on , you know , whether M&A was of interest either . On either side of the coin for for Cathay .
Speaker #2: Sure. Andrew, M&A is always of interest to us. But I think we're very strategic. We're very focused on our organic growth and executing our business plan.
Speaker #2: If there's a candidate out there that surfaces that's makes sense to us, whether it's strategically or financially, then we would absolutely look at it.
Speaker #2: But , you know , of course that depends on what the what the ask is . Right . And the and the exchange ratio on that .
Speaker #2: So I think we would we would want to make sure we execute something that makes sense . But sometimes it's just purely financial or an asset play without any other strategic reasons that might that might not make a ton of sense .
Speaker #2: So, but we're always open to that.
Speaker #5: Understood . Okay . Thanks for taking the questions .
Speaker #8: Thanks .
Speaker #1: The next question comes from Gary Tener with D.A. Davidson. Please go ahead.
Speaker #6: Hi . Good afternoon . I wanted to ask about the loan growth side of the equation here . You know , obviously you did change the guide , but I'm curious about what you're seeing in the commercial mortgage segment .
Speaker #6: There's not a lot of banks out there that have put up real solid commercial mortgage growth this year. So, I'm curious what you're seeing in terms of demand and what kind of pricing you're getting on new loans in that segment.
Speaker #2: So , Gary , some of the increase is really pull through some of the pull through from second quarter . I think we had strong CRE portfolio pipeline in the second half of first .
Speaker #2: Q and in two and two Q was also pretty strong as well . So a lot of those numbers kind of pulled through for for the third quarter for us right now , even in the past few weeks , as we're sitting on our committee calls , the pipeline is definitely slowing down a bit .
Speaker #2: I think people are kind of waiting to see if there are going to be any more rate cuts for perhaps October, and maybe even one more in December.
Speaker #2: So but that's been kind of the the activities for us , even on the pricing end . Gary , I think we're competing on pricing for sure .
Speaker #2: You know, just recently we were looking at a transaction where strong deposits and, you know, we have to kind of bear down a little bit on the margins just to make sure we keep the relationship.
Speaker #2: So, the price competition is still there for sure.
Speaker #6: Thanks. I appreciate the thoughts.
Speaker #1: Once again, if you have a question, please press star, then one on your telephone keypad. The next question comes from Kelly Motor with CFPB.
Speaker #1: Please go ahead .
Speaker #7: Hey good afternoon . Thanks for the question . Maybe , maybe looking at the funding side , it looks like on the average balance sheet , other borrowed funds went up .
Speaker #7: I'm wondering I know you have your loan and deposit guidance , but as we look ahead , if there's any increased competition you're seeing on on on deposits and how that comes into play .
Speaker #7: Now, if we get another cut or two here, thanks.
Speaker #2: So the competition on deposits is still very fierce out there . Kelly , to be honest , particularly in our California and new and the new New York East Coast , we are seeing even outside of our niche market , the mainstream players kind of offering rates that are , you know , pretty substantial .
Speaker #2: Our group and our team , you know , and I make sure they're focusing on this , that anytime there's a rate cut , potential rate cut coming and whether it's the exception rates on money market , high balance accounts and those kind of things .
Speaker #2: So, we're executing on those kinds of drops and rates pretty quickly. In addition, we're also adjusting our exception rates on any of the CD deposits.
Speaker #2: And those kind of things . And the drive for noninterest bearing and low interest bearing deposits continues where , you know , we've built a specialty deposit side .
Speaker #2: And in one particular segment , and we're trying to add more to it . And , and it's going to take some time to really have that impact .
Speaker #2: The liability side of the balance sheet, but that's the objective. So we're going to continue to try to drive down the cost of funds.
Speaker #7: Got it . Thank you . And can you refresh us on your your asset sensitivity here in terms of like do you think you're going to be able to lower deposit costs again with , with future rate cuts in order to offset any impact on .
Speaker #7: On the on the asset side , I appreciate the Nim guidance , but you're kind of in the middle of it . So I'm wondering if you could provide additional color as to how we should be thinking about the near trajectory .
Speaker #3: Our model , which we're still trying to improve , has us basically flat in a down 25 basis point rate shock and we think , you know , just based on what happened in 2025 , that for every quarter point drop in fed funds over six months , our Naomi should go up 6 or 7 basis points .
Speaker #3: So, you know, with another rate cut possible here in October, or certainly for sure in December, and then probably one or two more in 2026.
Speaker #3: We think directionally our NIM will go up or should go up.
Speaker #7: That's helpful. Thank you. Hang, I will step back.
Speaker #3: Thank you .
Speaker #8: Kelly .
Speaker #1: We have a follow-up question from Matthew Clark with Piper Sandler. Please go ahead.
Speaker #4: Hey, I may have missed it, but just if you had the average net interest margin in the month of September, either.
Speaker #4: On a core basis or reported basis. By the way.
Speaker #8: Yeah .
Speaker #3: Samburu was three . This is a month . It's 3.38% for the month of September . Okay . That's a 30 day month .
Speaker #3: So it's generally when we have so much in the way of residential mortgages, it's up 3 or 4 basis points higher.
Speaker #4: Okay. And then the spot rate on deposits, either at the end of the month or just the average for the month, the cost.
Speaker #8: Yeah. Okay. Hold on.
Speaker #3: So .
Speaker #8: We .
Speaker #3: So we have , I guess , interest bearing deposits . Do you want to buy each component Matthew or .
Speaker #4: No . No , no , just the overall interest bearing deposits . It's fine .
Speaker #8: Yeah .
Speaker #3: 3.16. That's compared to 3.31 at the end of June.
Speaker #4: Okay, so that's the end of September.
Speaker #3: Right .
Speaker #4: Perfect . Thank you .
Speaker #1: Thank you for your participation. I will now turn the call back over to Cathay General Bancorp management for closing remarks. Please go ahead.
Speaker #2: I want to thank everyone for joining us on our call, and we look forward to speaking with you at our next quarterly earnings release call.
Speaker #1: Ladies and gentlemen , thank you for your participation in today's conference . This concludes the presentation . You may now disconnect . Good day .