Cathay (CATY) Q3 2025 Earnings Call Transcript

CATY is showing the classic late-cycle bank mix of improving reported spread income while credit optics deteriorate underneath. The near-term winner is the equity holder through buybacks and a still-high capital base, but that return of capital is increasingly being funded off a balance sheet where special mention migration is the more important signal than the current NCO print. A few downgraded relationships can look manageable in isolation; the second-order risk is that those downgrades are a leading indicator for broader CRE repricing as refinancing windows tighten and borrowers push for extensions.

The most interesting part is not the quarter itself but the embedded rate convexity. Management is effectively telling you that falling Fed funds helps faster than it hurts asset yields, because deposit betas are still lagging and the securities book is rolling down. That means the stock has upside torque if cuts arrive on schedule over the next 1-2 quarters, but only so long as credit stays contained; if CRE stress starts to broaden, the market will re-rate the NIM benefit as transitory and focus on reserve build.

Consensus looks too anchored on the clean liquidity story. Yes, uninsured deposits are covered, but in practice liquidity is a defense against funding runs, not against earnings compression from higher promotional deposit pricing and lower loan growth quality. The real contrarian issue is that the CRE pipeline slowing may actually be bullish for near-term underwriting discipline but bearish for 2026 earnings growth, because the bank is simultaneously losing volume momentum and increasing reserve coverage on legacy exposures.