Investment Thesis
Cathay General Bancorp occupies a unique position in regional banking, leveraging its strong presence in Asian-American communities and expertise in cross-border banking between the US and Greater China.
Competitive Advantages
- Community Focus: Deep relationships in Asian-American business communities built over 60+ years
- Cross-Pacific Expertise: Unique capabilities in US-China trade finance and FX services
- CRE Lending: Strong track record in commercial real estate with conservative underwriting
- Credit Culture: Consistently superior credit quality through economic cycles
Financial Analysis
Cathay has delivered consistent financial performance with ROA consistently above 1.3% and ROE above 13%. Net interest margin remains strong relative to peers at 3.5%+, reflecting the value of its deposit franchise and asset yields.
Credit quality metrics are excellent with NPAs below 0.35% and net charge-offs under 0.15% through recent cycles. The allowance coverage remains conservative at 1.15% of loans.
Growth Opportunities
Near-term growth drivers include expansion in commercial banking, wealth management services for high-net-worth Asian-American families, and continued market share gains in SBA lending.
Longer-term, the bank could benefit from increasing cross-Pacific commerce despite geopolitical tensions. Its relationships and expertise position it to serve clients navigating complex international business.
Valuation
The stock trades at approximately 9x forward earnings and 1.2x tangible book value, a modest premium to regional bank peers. We believe this premium is justified by superior returns and credit quality.
Key Risks
- CRE concentration, particularly in California
- Geographic concentration in West Coast markets
- US-China relations could impact cross-border business
- Interest rate sensitivity given asset-sensitive balance sheet
Conclusion
Cathay General Bancorp offers a differentiated regional bank investment with unique competitive advantages and consistent execution. The premium valuation reflects these qualities, but patient investors could be rewarded.