Last Update 17 Dec 25

CATY: Net Interest Strength And Buybacks Will Balance Emerging Credit Cost Pressures

Analysts have nudged their average price target on Cathay General Bancorp modestly higher, citing solid net interest income growth, expanding net interest margins, and manageable credit concerns as support for a fair value near $52.20.

Analyst Commentary

Recent commentary from Street research points to a balanced view on Cathay General Bancorp, with modestly higher price targets reflecting confidence in the bank's earnings power and capitalization, while still acknowledging pockets of risk around credit costs and loan growth sustainability.

Bullish Takeaways

Bullish analysts highlight that the latest quarter's net interest income growth supports the view that Cathay General can sustain an earnings profile consistent with the low to mid 50 dollar price target range.
Expansion in net interest margin is seen as a sign of disciplined balance sheet management, reinforcing confidence in the bank's execution and profitability through a mixed rate environment.
Stable credit quality and limited concerns around the current loan book underpin the case that credit costs should remain manageable and not materially erode earnings or capital.
The incremental price target increases are interpreted as validation that fundamental trends are skewing positively, even if not strong enough yet to justify a more aggressive rating stance.

Bearish Takeaways

Bearish analysts remain cautious on valuation, noting that with shares already near revised price targets, upside may be constrained unless the bank accelerates growth or delivers further margin upside.
A higher than expected loan loss provision in the recent quarter raises questions about the potential for normalization of credit costs, which could cap earnings growth if economic conditions soften.
Neutral to Market Perform ratings suggest lingering skepticism about the durability of recent margin gains, especially if funding costs rise or competitive pressure intensifies.
Some analysts see the modest nature of the target hikes as a signal that, while risks are manageable, Cathay General may track in line with peers rather than outperform meaningfully on growth or return metrics.

What's in the News

Completed a share repurchase tranche from July 1, 2025 to September 30, 2025, buying back 1,070,000 shares (1.54 percent of outstanding shares) for 50.09 million dollars. This brings total buybacks under the June 4, 2025 authorization to 1,874,179 shares (2.69 percent) for 85.65 million dollars (Key Developments).
Reported a sharp increase in net charge offs for the third quarter ended September 30, 2025, rising to 15.646 million dollars from 4.202 million dollars a year earlier. This highlights emerging credit cost pressure (Key Developments).

Valuation Changes

Fair Value: Unchanged at approximately 52.20 dollars, indicating a stable assessment of intrinsic equity value.
Discount Rate: Edged down marginally from about 6.96 percent to 6.956 percent, reflecting a negligible shift in perceived risk or required return.
Revenue Growth: Essentially flat at roughly 11.45 percent, with only a de minimis numerical adjustment that does not alter the growth outlook.
Net Profit Margin: Stable at about 39.25 percent, with only a minute recalibration that leaves the profitability profile effectively unchanged.
Future P/E: Steady at around 10.08 times forward earnings, signaling no material change in the valuation multiple applied to projected results.

Growth in core Asian-American markets and urban regions is fueling loan demand, bolstering revenue and supporting reliable future expansion.
Enhanced digital capabilities and disciplined credit practices are improving efficiency, asset quality, and noninterest income, strengthening long-term profitability and shareholder value.
Heavy exposure to commercial real estate, asset quality concerns, digital competition, geographic concentration, and regulatory pressures threaten growth, profitability, and long-term stability.

Catalysts

About Cathay General Bancorp

Operates as the holding company for Cathay Bank that offers various commercial banking products and services to individuals, professionals, and small to medium-sized businesses in the United States.What are the underlying business or industry changes driving this perspective?

Sustained growth in the bank's core Asian-American customer base, with ongoing wealth creation and business formation in key markets like California and New York, provides a reliable pipeline for new commercial and real estate lending, supporting future revenue and loan growth.
The continued economic expansion and commercial activity in urban regions where Cathay General operates is driving demand for both commercial and CRE loans, which is reflected in the upward revision of loan growth guidance and is likely to positively impact top-line revenue and net interest income.
The bank's ongoing investments and progress in digital capabilities are increasing operational efficiency and enabling additional cross-sell opportunities (evidenced by higher foreign exchange and derivative fee income), supporting margin expansion and noninterest income growth.
Strong credit discipline, with low nonaccrual and classified loan ratios despite headline charge-off events, underpins stable asset quality, translating to more predictable earnings and reduced long-term credit-cost volatility.
Disciplined capital allocation, including active share repurchases and steady dividend practices, is expected to drive higher EPS and total shareholder returns over time, enhancing the value proposition as the stock remains undervalued relative to underlying fundamentals.

Cathay General Bancorp Earnings and Revenue Growth

Cathay General Bancorp Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Cathay General Bancorp's revenue will grow by 11.0% annually over the next 3 years.
Analysts assume that profit margins will shrink from 41.8% today to 40.8% in 3 years time.
Analysts expect earnings to reach $393.8 million (and earnings per share of $5.5) by about September 2028, up from $294.7 million today.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.0x on those 2028 earnings, down from 11.6x today. This future PE is lower than the current PE for the US Banks industry at 11.9x.
Analysts expect the number of shares outstanding to decline by 2.96% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 6.78%, as per the Simply Wall St company report.

Cathay General Bancorp Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Heavy concentration in commercial real estate (CRE) loans, particularly in office and retail property segments (with office property loans alone comprising 14% of total CRE loans and 7% of total loans), exposes Cathay General Bancorp to persistent sector headwinds like declining CRE values, tenant bankruptcies, and higher delinquencies, which could lead to increased credit losses, higher provisioning, and pressure on earnings.
Rising levels of nonperforming and classified loans-such as the increase of nonaccrual loans and a significant rise in classified loans driven by downgrades and borrower cash flow problems-signal potential asset quality deterioration in the loan book, which may negatively impact future revenue stability and net margins.
Ongoing digital disruption in the banking sector and the shift to fintech solutions require substantial ongoing technology investments; if Cathay General Bancorp falls behind larger peers in digital banking capabilities, it risks losing market share and incurring higher costs, compressing net interest and fee margins over time.
Significant geographic focus in California and a customer base concentrated in the Chinese-American and Asian-American communities could amplify vulnerability to localized economic shocks, regulatory shifts, demographic changes, or immigration policy restrictions, potentially limiting loan and deposit growth and affecting long-term revenue streams.
Heightened regulatory scrutiny-such as evolving capital requirements (noted by slight decreases in risk-based capital ratios) and increased compliance costs associated with anti-money laundering and liquidity management-may further raise expense ratios and reduce profitability in a competitive, consolidating regional banking environment.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $51.6 for Cathay General Bancorp based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $60.0, and the most bearish reporting a price target of just $45.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $964.1 million, earnings will come to $393.8 million, and it would be trading on a PE ratio of 10.0x, assuming you use a discount rate of 6.8%.
Given the current share price of $49.26, the analyst price target of $51.6 is 4.5% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Asian American Demand And Digital Banking Will Strengthen Performance