3rd Quarter 2026 Cathay General Bancorp Earnings Conference Call - CATHAY GENERAL BANCORP

Explicit Guidance:

• Loan Growth: Raised full-year 2026 outlook to 5%–6% (up from 3.5%–4.5%), driven by strong year-to-date C&I performance.
• Deposit Growth: Raised full-year 2026 outlook to 4%–5% (up from 3%–3.5%).
• Non-Interest Expense: Expects adjusted growth of 1.0%–2.5% (slightly revised from "3.0% to 2.5%" in transcript, interpreted as 1.0-2.5% based on context of modest underlying growth).
• Net Interest Margin (NIM): Maintained full-year 2026 outlook of 3.40%–3.50%.
• Interest Rate Assumption: Guidance assumes two 25-basis-point rate increases in 2026 (September and December).
• Effective Tax Rate: Expects full-year 2026 rate between 21.5% and 22.5%.
• LIHTC Amortization: Expects quarterly amortization to normalize to approximately $9 million–$10 million per quarter moving forward.

Business-Segment Outlook:

• Loan Portfolio: Anticipates continued growth driven by Commercial & Industrial (C&I) loans across manufacturing, distribution, and service sectors; C&I demand described as "need-based" and resilient to higher rates.
• Deposit Mix: Non-interest-bearing deposits grew $331 million in Q3, but management cautions this pace is not sustainable and should not be baked into forward guides; focus remains on attracting lower-cost funds via branch collaboration and legal firm relationships.
• Wealth Management: Anticipates a recovery in fee revenue next quarter following Q3 decline, though likely below Q2 peaks; Q2 was a high-water mark.
• Credit Quality: Broader portfolio remains stable; elevated charge-offs limited to three specific credits (one multifamily construction loan, two theater loans from Far East acquisition).
• Operating Model: Contract termination costs ($5.4M) were one-time; new vendor platforms targeted for future revenue growth and efficiency.

Market and Competitive Outlook:

• Pricing & Repricing: $8.9 billion of loans expected to reprice over the next year, providing tailwinds.
• Deposit Competition: Anticipates continued pressure on deposit costs due to competition and $3.4 billion of CDs rolling off at 3.46% (recent promo rates were 3.65%–3.85%); deposit costs may rise further.
• NIM Trajectory: Management does not believe NIM has peaked; expects potential expansion into the upper end of the 3.40%–3.50% range in the near term (Q4) driven by asset repricing, despite deposit cost headwinds.
• CRE Demand: Higher rates expected to impact Commercial Real Estate (CRE) demand more significantly than C&I, particularly regarding purchases and refinancing.

Macro / Industry Outlook:

• Rate Environment: Explicitly models two additional rate hikes in 2026 (September and December).
• Funding Structure: Redemption of $54.1 million Trust Preferred Securities reduced interest expense and simplified the funding structure, providing a long-term benefit.
• Securities Portfolio: Highly liquid; effective duration ~2.1 years with 61% of cash flows returning by 2027, providing capacity to reinvest at higher rates.

Strategic Initiatives:

• Investment Priorities: Focus on investing in frontline personnel (lending/deposit) and technology/AI platforms to drive operational efficiencies and client-facing capabilities.
• Capital Deployment: Continued share repurchases deemed attractive given stock pricing and acceptable earn-back period; committed $8M to the Cathay Bank Foundation.
• Securities Repositioning: Completed $89M transaction to shift from 1.83% to 5.65% yield MBS; year-to-date repositioning of $460M expected to add $11.4 million to annual NII with a 3.6-year earn-back.

Risks and Headwinds to Outlook:

• Deposit Costs: Headwinds from competitive pressures and rolling CDs expected to continue impacting funding costs.
• Credit Volatility: Charge-off experience remains volatile due to specific borrower-specific credits, though reserves are substantial.
• Liquidity/Reinvestment: Reinvestment rates and market dynamics could affect the speed and yield of deployed capital.
• One-Time Items: Variability in tax credit amortization and potential future contract termination costs.

Management Tone on the Future:

• Confidence Level: High confidence in balance sheet growth and underlying revenue trends; describes momentum as "strong" and "positive."
• Cautionary Note: Explicitly advises against assuming Q3's $331M non-interest-bearing deposit growth is sustainable; maintains a disciplined, conservative stance on Q4 loan growth expectations (acknowledging historical Q4 flatness).
• Strategic Stance: Emphasizes "discipline," "sound credit quality," and "prudent capital management" as forward priorities.

Miscellaneous:

• Dividends/Buybacks: No specific dividend yield guidance provided; buyback appetite remains open contingent on market pricing and loan growth outlook.
• Q4 Expectations: Management notes Q4 historically has been flat for loan growth, suggesting the full-year guide implies potential deceleration or plateau in the final quarter despite strong pipelines.