CATY Q1 Deep Dive: Loan Growth Outlook Narrows Amid Economic Uncertainty and Tariff Risks

Regional bank Cathay General Bancorp (NASDAQ:CATY) reported Q1 CY2025 results exceeding the market’s revenue expectations, with sales up 7.2% year on year to $187.8 million. Its non-GAAP profit of $0.98 per share was 2.9% above analysts’ consensus estimates.

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StockStory’s Take

Cathay General Bancorp’s first quarter results reflected stable revenue growth and modest market reaction, with management attributing the performance to a combination of healthy fixed-rate loan yields, deposit growth, and prudent risk management. CEO Chang Liu highlighted that commercial real estate lending remained resilient, while the company’s loan portfolio benefited from a high proportion of fixed and hybrid-rate loans. Despite these positives, Liu acknowledged that a modest contraction in total loans was driven by softness in commercial and residential lending, as well as customer caution in the face of new tariffs and shifting economic conditions. Provision for credit losses was elevated this quarter, with much of the increase tied to a single commercial client and anticipated fallout from tariff exposure. As Liu stated, “We estimate that about 1.4% of total loans could be adversely impacted by the proposed tariffs.”

Looking ahead, management’s outlook is shaped by economic uncertainty, evolving trade policy, and customer conservatism, especially among commercial borrowers. The company widened its full-year loan growth expectations and signaled a cautious stance on business expansion as clients adjust to new tariff regimes and unpredictable demand. CFO Heng Chen noted that the bank’s net interest margin guidance has improved, supported by a high mix of fixed-rate and hybrid loans, which are less sensitive to falling interest rates. However, Chen also cautioned that expense management and deposit cost trends will remain key watchpoints, and that regulatory approval will determine the timing of any new share repurchase program.

Key Insights from Management’s Remarks

Management pointed to a mix of resilient loan yields, shifting customer behavior, and proactive credit monitoring as the main themes of the quarter, while also addressing how tariffs and economic uncertainty are shaping strategic decisions.

• Tariff impacts on borrower behavior: Management reported that proposed U.S.-China tariffs have led many clients to pause or shift their sourcing strategies, especially within the commercial and industrial (C&I) loan segment. CEO Chang Liu explained that about 1.4% of the loan portfolio could be exposed to tariff-related risk, but most affected borrowers are mitigating by sourcing from other countries or pausing imports until conditions improve.
• Loan portfolio composition supports yields: Approximately 62% of total loans are fixed or hybrid with fixed-rate periods, according to Liu, which should help sustain loan yields as market rates decline. This conservative approach is intended to buffer net interest margin (NIM) from the effects of lower rates.
• Commercial real estate (CRE) lending remains robust: CRE loans, particularly retail and office segments, continued to show stability, with average loan-to-value ratios at 49%. Management emphasized that only a small portion of office property loans are concentrated in central business districts or pure office buildings, which are considered higher risk.
• Credit quality closely monitored: The company’s provision for credit losses increased, mainly due to a single commercial credit, while the broader reserve was fortified to address tariff-related exposures. Liu stated the reserve ratio for potentially impacted loans stands at about 2%.
• Deposit growth aided by seasonal campaigns: Deposit inflows were attributed to seasonal factors, including a Lunar New Year promotion, and targeted marketing, resulting in higher core and time deposits. CFO Heng Chen noted that promotional rates offered were lower year-over-year, reflecting a normalization in deposit pricing.

Drivers of Future Performance

Cathay General Bancorp’s forward guidance is shaped by shifting borrower sentiment, the balance of fixed versus variable loans, and the evolving trade environment.

• Loan growth uncertainty: Management widened its loan growth outlook to 1%–4%, citing caution among commercial and residential borrowers. Clients are delaying expansion plans and focusing on balance sheet management due to tariffs and economic unpredictability, which could dampen lending volumes.
• Net interest margin resilience: A high proportion of fixed and hybrid-rate loans positions the bank to maintain net interest margin even if interest rates decline. CFO Heng Chen projected that every 25 basis point rate cut would have a limited positive effect on NIM, thanks to the loan portfolio’s composition.
• Expense and regulatory considerations: Management expects consulting expenses to decline in the second half of the year, but continues to monitor FDIC assessments and technology costs. The timing of a new share buyback is contingent on regulatory approval, which may affect capital allocation priorities.

Catalysts in Upcoming Quarters

In coming quarters, our team will be watching (1) how commercial and industrial loan demand responds to ongoing tariff developments and broader economic shifts, (2) whether core deposit growth can be sustained as promotional pricing tapers off, and (3) any signs of credit quality deterioration, especially in CRE and tariff-impacted portfolios. We will also monitor regulatory updates regarding share repurchases and any shifts in expense discipline.

Cathay General Bancorp currently trades at $44.54, in line with $44.23 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free).

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