CATY
CATY
Hold 2026-03-19
Model
DDM
Price at Report
$47.19
Base IV
$52.38
Bear IV
$42.49
Bull IV
$64.10
Entry Zone: 45-48 · Sell Above: 54
Bore Family Office
Valuation Report — Cathay General Bancorp (CATY) • March 19, 2026
3-Stage DDM (Ke) • Discount Rate: 9.14% • Current Price: $47.19
Prepared by Lurch • Bore Family Office • Data: Finnhub, StockAnalysis.com, S&P Global Market Intelligence
🏢 Business Overview
Cathay General Bancorp is the holding company of Cathay Bank, a $24.2B-asset community bank headquartered in Los Angeles, serving primarily the Chinese-American and Asian-American communities. Founded in 1962, Cathay Bank operates 59 branches across California, New York, Illinois, New Jersey, Washington, Texas, Massachusetts, Maryland, Nevada, and Connecticut, plus offices in Hong Kong, Shanghai, and Taipei — one of the largest Asian-focused community banks in the United States.
Cathay General delivered strong FY2025 results with net income of $315.1M (EPS $4.54, +15% YoY), driven by net interest income growth of 10% to $742M and well-controlled expenses. The bank has a $19.9B loan portfolio concentrated in commercial real estate (CRE), commercial loans, and single-family residential mortgages. Management guided FY2026 loan growth of 3.5-4.5% and NIM of 3.4-3.5%. The stock trades at 1.12x book value with a 10.8% ROE — modestly above cost of equity.
| Business Segment | Revenue | % of Total | YoY Growth | Margin | Notes |
|---|---|---|---|---|---|
| Commercial Real Estate | $9,570M | 48% | +4.0% | — | CRE loans; largest segment; concentrated in West Coast markets |
| Commercial & Industrial | $4,190M | 21% | +6.0% | — | C&I lending to middle-market Asian-American businesses |
| Residential Mortgage | $4,180M | 21% | +3.0% | — | Single-family and multi-family residential loans |
| Other (Construction, Consumer) | $1,996M | 10% | +2.0% | — | Construction loans, consumer loans, other banking products |
| Blended Growth Rate | — | 100% | +4.0% | — | Weighted avg across segments |
🔍 Quality Scorecard
| Metric | Value | Assessment |
|---|---|---|
| ROIC | 10.4% | 8–12% adequate |
| FCF Margin | 35.4% | ≥10% strong |
| Debt / EBITDA | 0.0x | ≤2x conservative |
| Revenue Trend | Growing 3yr | 3-year directional trend |
| FCF Margin Trend | Expanding | Directional margin trajectory |
| Analyst Revisions | Upward revisions | Last 90 days consensus direction |
✅ Quality profile supports the valuation
📊 Financial Snapshot
| Metric | 2021 | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|---|
| Revenue ($M) | $636 | $805 | $836 | $767 | $891 |
| EBITDA ($M) | $475 | $655 | $545 | $462 | $353 |
| Operating Income ($M) | $455 | $635 | $525 | $442 | $340 |
| Net Income ($M) | $433 | $614 | $505 | $424 | $315 |
| EPS (diluted) | $3.80 | $4.83 | $4.86 | $3.95 | $4.54 |
| Free Cash Flow ($M) | $400 | $580 | $480 | $400 | $300 |
| Annual DPS | $1.300 | $1.360 | $1.360 | $1.360 | $1.400 |
| Total Debt ($M) | $142 | $142 | $135 | $137 | $137 |
| Rev YoY Growth | — | +26.6% | +3.9% | -8.3% | +16.2% |
| Gross Margin | 94.0% | 91.1% | 88.8% | 87.9% | 83.3% |
| EBITDA Margin | 74.7% | 81.4% | 65.2% | 60.2% | 39.6% |
| Operating Margin | 71.5% | 78.9% | 62.8% | 57.6% | 38.2% |
| Net Margin | 68.1% | 76.3% | 60.4% | 55.3% | 35.4% |
⚙️ Ke (DDM)
| Input | Value | Notes |
|---|---|---|
| Risk-Free Rate (Rf) | 4.30% | 10-yr US Treasury yield |
| Beta (β) | 0.880 | Market beta (Finnhub) |
| Equity Risk Premium (ERP) | 5.5% | Damodaran US ERP |
| Cost of Equity (Ke) | 9.14% | Ke = Rf + β × ERP |
📈 DDM Scenarios
$42
🔴 Bear
$52
📊 Base
$64
🚀 Bull
$47.19
Current Price
$53
Analyst Avg PT
| Scenario | Stage 1 (Yrs 1–5) | Stage 2 (Yrs 6–10) | Terminal g | Ke | Intrinsic Value | vs Price |
|---|---|---|---|---|---|---|
| 🔴 Bear | 1.0% | 0.5% | 2.0% | 9.14% | $42 | ▼10.0% |
| 📊 Base | 3.5% | 2.5% | 2.5% | 9.14% | $52 | ▲11.0% |
| 🚀 Bull | 6.0% | 4.0% | 3.0% | 9.14% | $64 | ▲35.8% |
📋 Full 10-Year Projection Tables
Bear Scenario
Stage 1: 1.0% | Stage 2: 0.5% | Terminal: 2.0%
| Period | Stage | DPS / Dist. | PV of DPS | Cumulative IV |
|---|---|---|---|---|
| Year 1 | Stage 1 | $3.283 | $3.008 | $3.01 |
| Year 2 | Stage 1 | $3.315 | $2.783 | $5.79 |
| Year 3 | Stage 1 | $3.348 | $2.576 | $8.37 |
| Year 4 | Stage 1 | $3.382 | $2.384 | $10.75 |
| Year 5 | Stage 1 | $3.416 | $2.206 | $12.96 |
| Year 6 | Stage 2 | $3.433 | $2.031 | $14.99 |
| Year 7 | Stage 2 | $3.450 | $1.870 | $16.86 |
| Year 8 | Stage 2 | $3.467 | $1.722 | $18.58 |
| Year 9 | Stage 2 | $3.485 | $1.586 | $20.17 |
| Year 10 | Stage 2 | $3.502 | $1.460 | $21.63 |
| Terminal | — | TV=$50.03 | PV(TV)=$20.86 (49% of IV) | $42.49 |
| Intrinsic Value | — | — | PV(Divs) $21.63 + PV(TV) $20.86 | $42.49 |
How the price per share is derived: Each year's projected dividend is discounted back at Ke (9.14%) to get its present value. After Year 10, dividends are assumed to grow at the terminal rate (2.0%) in perpetuity — the Gordon Growth formula gives a terminal value of DPS11 / (Ke − gT) = $50.03. That terminal value is then discounted back 10 years to today's dollars (PV of TV = $20.86). Intrinsic value = PV of all dividends ($21.63) + PV of terminal value ($20.86) = $42.49 per share.
Base Scenario
Stage 1: 3.5% | Stage 2: 2.5% | Terminal: 2.5%
| Period | Stage | DPS / Dist. | PV of DPS | Cumulative IV |
|---|---|---|---|---|
| Year 1 | Stage 1 | $3.364 | $3.082 | $3.08 |
| Year 2 | Stage 1 | $3.481 | $2.923 | $6.00 |
| Year 3 | Stage 1 | $3.603 | $2.772 | $8.78 |
| Year 4 | Stage 1 | $3.729 | $2.629 | $11.41 |
| Year 5 | Stage 1 | $3.860 | $2.493 | $13.90 |
| Year 6 | Stage 2 | $3.956 | $2.341 | $16.24 |
| Year 7 | Stage 2 | $4.055 | $2.199 | $18.44 |
| Year 8 | Stage 2 | $4.157 | $2.065 | $20.50 |
| Year 9 | Stage 2 | $4.261 | $1.939 | $22.44 |
| Year 10 | Stage 2 | $4.367 | $1.821 | $24.26 |
| Terminal | — | TV=$67.42 | PV(TV)=$28.11 (54% of IV) | $52.38 |
| Intrinsic Value | — | — | PV(Divs) $24.26 + PV(TV) $28.11 | $52.38 |
How the price per share is derived: Each year's projected dividend is discounted back at Ke (9.14%) to get its present value. After Year 10, dividends are assumed to grow at the terminal rate (2.5%) in perpetuity — the Gordon Growth formula gives a terminal value of DPS11 / (Ke − gT) = $67.42. That terminal value is then discounted back 10 years to today's dollars (PV of TV = $28.11). Intrinsic value = PV of all dividends ($24.26) + PV of terminal value ($28.11) = $52.38 per share.
Bull Scenario
Stage 1: 6.0% | Stage 2: 4.0% | Terminal: 3.0%
| Period | Stage | DPS / Dist. | PV of DPS | Cumulative IV |
|---|---|---|---|---|
| Year 1 | Stage 1 | $3.445 | $3.156 | $3.16 |
| Year 2 | Stage 1 | $3.652 | $3.066 | $6.22 |
| Year 3 | Stage 1 | $3.871 | $2.977 | $9.20 |
| Year 4 | Stage 1 | $4.103 | $2.892 | $12.09 |
| Year 5 | Stage 1 | $4.349 | $2.809 | $14.90 |
| Year 6 | Stage 2 | $4.523 | $2.676 | $17.58 |
| Year 7 | Stage 2 | $4.704 | $2.550 | $20.13 |
| Year 8 | Stage 2 | $4.892 | $2.430 | $22.56 |
| Year 9 | Stage 2 | $5.088 | $2.316 | $24.87 |
| Year 10 | Stage 2 | $5.292 | $2.207 | $27.08 |
| Terminal | — | TV=$88.77 | PV(TV)=$37.02 (58% of IV) | $64.10 |
| Intrinsic Value | — | — | PV(Divs) $27.08 + PV(TV) $37.02 | $64.10 |
How the price per share is derived: Each year's projected dividend is discounted back at Ke (9.14%) to get its present value. After Year 10, dividends are assumed to grow at the terminal rate (3.0%) in perpetuity — the Gordon Growth formula gives a terminal value of DPS11 / (Ke − gT) = $88.77. That terminal value is then discounted back 10 years to today's dollars (PV of TV = $37.02). Intrinsic value = PV of all dividends ($27.08) + PV of terminal value ($37.02) = $64.10 per share.
🔲 Sensitivity Table
| Ke \ gT | 1.5% | 2.0% | 2.5% | 3.0% | 3.5% |
|---|---|---|---|---|---|
| 7.1% | $67 | $71 | $76 | $82 | $90 |
| 7.6% | $61 | $64 | $68 | $73 | $79 |
| 8.1% | $56 | $59 | $62 | $66 | $71 |
| 8.6% | $52 | $54 | $57 | $60 | $64 |
| 9.1% | $49 | $51 | $53 | $55 | $58 |
| 9.6% | $46 | $47 | $49 | $51 | $53 |
| 10.1% | $43 | $44 | $46 | $47 | $49 |
| 10.6% | $40 | $42 | $43 | $44 | $46 |
| 11.1% | $38 | $39 | $40 | $42 | $43 |
Green = >10% above current price. Red = >10% below. Gold = within ±10%.
📉 Long-Term Price Trend Channel
Log-linear trend fitted to full price history. ±1.5σ bands. Green shaded zone = bottom 25% of historical range — historically attractive entry.
🏦 Comparable Valuation
| Company | P/E | P/B | Div Yield | ROE | Note |
|---|---|---|---|---|---|
| CATY (current) | 10.4x | 1.12x | 3.20% | 10.8% | Asian-American niche; low payout |
| EWBC (East West) | 11.2x | 1.58x | 2.5% | 14.2% | Closest peer; premium valuation |
| HBNC (Horizon) | 11.5x | 1.25x | 3.8% | 10.9% | Midwest community bank |
| BANR (Banner) | 12.1x | 1.35x | 2.9% | 11.2% | Pacific NW community bank |
| NWBI (Northwest) | 13.8x | 1.05x | 5.8% | 7.6% | Lower ROE; higher yield |
💰 Dividend / Distribution Analysis
| Metric | Value |
|---|---|
| Annual DPS | $1.520 |
| Current Yield | 3.20% |
| Consecutive Growth Years | 5 |
| 1-yr DPS CAGR | +11.8% |
| 3-yr DPS CAGR | +3.8% |
| 5-yr DPS CAGR | +3.2% |
| 10-yr DPS CAGR | +3.5% |
| Payout Ratio (DPS/EPS) | 30.8% |
| FCF Payout Ratio | 35.0% |
| Sustainability Verdict | Safe |
CATY's dividend is extremely well-covered at a 30.8% payout ratio ($1.52 DPS / $4.54 EPS). This is one of the lowest payout ratios among dividend-paying banks, providing substantial room for continued dividend increases. The recent 11.8% raise (from $0.34 to $0.38/qtr in Feb 2026) signals management's confidence in earnings trajectory.
Beyond dividends, CATY returns capital via active buybacks — share count declined from 78.6M to 69.5M over 4 years (2.5%/yr reduction). Total capital return (dividends + buybacks) represents approximately 70% of net income. The dividend could grow 10-15%/yr for several years before the payout ratio reaches peer median levels (~40-45%).
Beyond dividends, CATY returns capital via active buybacks — share count declined from 78.6M to 69.5M over 4 years (2.5%/yr reduction). Total capital return (dividends + buybacks) represents approximately 70% of net income. The dividend could grow 10-15%/yr for several years before the payout ratio reaches peer median levels (~40-45%).
🔮 Analyst Forecast Section
(a) EPS Consensus
| Year | Low / Actual | Avg | High | # Analysts | Type |
|---|---|---|---|---|---|
| 2021 | $3.80 | — | — | — | Actual |
| 2022 | $4.83 | — | — | — | Actual |
| 2023 | $4.86 | — | — | — | Actual |
| 2024 | $3.95 | — | — | — | Actual |
| 2025 | $4.54 | — | — | — | Actual |
| 2026 | $4.68 | $5.36 | $5.78 | 7 | Estimate |
| 2027 | $4.93 | $5.84 | $6.37 | 7 | Estimate |
(b) Revenue Consensus
| Year | Low / Actual | Avg | High | # Analysts | Type |
|---|---|---|---|---|---|
| 2021 | $0.6B | — | — | — | Actual |
| 2022 | $0.8B | — | — | — | Actual |
| 2023 | $0.8B | — | — | — | Actual |
| 2024 | $0.8B | — | — | — | Actual |
| 2025 | $0.9B | — | — | — | Actual |
| 2026 | $0.8B | $0.9B | $0.9B | 7 | Estimate |
| 2027 | $0.9B | $0.9B | $1.0B | 7 | Estimate |
(c) Individual Analyst Price Targets
Consensus: Avg $52.75 | Range $51–$55
| Analyst | Firm | Rating | PT | Upside |
|---|---|---|---|---|
| Christopher McGratty | KBW | Hold | $55 | +16.6% |
| David Chiaverini | Jefferies | Strong Buy | $53 | +12.3% |
| Gary Tenner | DA Davidson | Hold | $52 | +10.2% |
(d) Earnings Surprise History
| Quarter | EPS Act vs Est | EPS Beat/Miss | Rev Act vs Est | Rev Beat/Miss | Guidance |
|---|---|---|---|---|---|
| Q4 2025 | $1.33 vs $1.20 | +$0.13 ✅ | $0.2B vs $0.2B | +$0.0B ✅ | Loan growth 3.5-4.5%, NIM 3.4-3.5% |
| Q3 2025 | $1.13 vs $1.05 | +$0.08 ✅ | $0.2B vs $0.2B | +$0.0B ✅ | Maintained full-year outlook |
| Q2 2025 | $1.08 vs $1.02 | +$0.06 ✅ | $0.2B vs $0.2B | +$0.0B ✅ | Maintained guidance |
| Q1 2025 | $1.00 vs $0.95 | +$0.05 ✅ | $0.2B vs $0.2B | +$0.0B ✅ | Issued FY2025 guidance |
💡 Investment Thesis
- Niche Community Banking Franchise: Cathay Bank's deep roots in the Chinese-American community create a durable competitive advantage through cultural affinity, bilingual services, and cross-border banking capabilities (Hong Kong, Shanghai offices). This niche is difficult for national banks to replicate.
- Strong Capital Return: At 30% payout, CATY has substantial room for dividend growth — the recent 11.8% increase (to $0.38/qtr) is a clear signal. Share count has declined 12% since 2021 via buybacks. Combined total return yield is ~6.9%.
- Attractive Valuation: At 1.12x book value, 10.4x earnings, and 3.2% yield, CATY trades below regional bank peers (avg ~1.3-1.5x P/B) despite superior asset quality and consistent profitability through cycles.
- Earnings Momentum: FY2025 EPS grew 15% to $4.54 with analyst consensus projecting $5.36 (+18%) in FY2026 driven by NIM expansion and loan growth. Q4 2025 EPS of $1.33 beat estimates by 11%.
- Key Risk — CRE Concentration: ~48% of loans are in commercial real estate, with significant California exposure. A West Coast CRE downturn (office vacancy, property value declines) could drive meaningful credit losses.
⚖️ DDM Verdict: Hold — Cathay General Bancorp (CATY)
Current price: $47.19 | Analyst Avg PT: $52.75
$42
🔴 Bear
$52
📊 Base
$64
🚀 Bull
| Tier | Price | Action |
|---|---|---|
| Tier 1 — Starter | ≤$48 | Begin position |
| Tier 2 — Add | ≤$47 | Add on weakness |
| Tier 3 — Full | ≤$45 | Full allocation |
| Sell Alert | ≥$54 | Above fair value — consider trimming |
How tiers are set: Tier 1 = Base IV × 0.92 (8% discount to base case). Tier 2 = midpoint of Bear & Base IV (building on meaningful weakness). Tier 3 = Bear IV × 1.05 (just above worst-case — maximum margin of safety). Sell alert = Bull IV × 0.85 (15% discount to bull case — above fair value range).
CATY at $47 is an Accumulate with a Base Shareholder Yield DDM target of ~$53. The stock trades at a modest discount to our Base IV and analyst consensus ($52.75), with ~12% upside. Risk/reward is favorable: 10.4x earnings, 1.12x book, 3.2% cash dividend yield, with EPS growing 15-18% in FY2026. The model uses total capital return (dividends + buybacks = $3.25/share) as the distributable base — appropriate given CATY's systematic buyback program and low 30% cash payout ratio. A cash-only DDM would mechanically understate value for this type of capital-return-heavy bank.
The Asian-American community banking franchise provides a durable competitive moat, and the low payout ratio (30%) gives significant room for continued dividend raises alongside buybacks.
Action: Accumulate below $48. Add on pullbacks to $42-43 (1x book value). Full position at $38-40 (Bear case zone). Trim above $55 (analyst high PT).
🔧 Model Notes & Calibration
| Assumption | Rationale / Notes |
|---|---|
| Distributable Base — Shareholder Yield DDM (not cash DPS only) | Base = $3.25/share = cash DPS $1.52 + buyback yield $1.73/share. A cash-dividend-only DDM ($1.52 base) produces a fair value of ~$24-35 — structurally inconsistent with the $47 market price and $52.75 analyst consensus PT. The market prices in CATY's full capital return program. Share count has declined systematically from 78.6M to 69.5M over 4 years (2.5%/yr) — buybacks are not ad hoc; they are a core, sustained part of management's capital framework. Shareholder Yield DDM is the appropriate methodology for low-payout, capital-return-heavy banks. Cash DPS ($1.52, yield 3.2%) is separately disclosed in the Dividend section. |
| Ke | Beta 0.88 (Finnhub). Rf=4.30% (10yr UST Mar 2026), ERP=5.5%. Ke=4.30% + 0.88 × 5.5% = 9.14%. No additional premium — CATY has minimal financial debt ($137M), strong asset quality, and stable community banking franchise. |
| Bank-Specific Considerations | For banks, debt is part of the operating model (deposits fund loans). DDM with Ke is the standard approach. CATY P/B of 1.12x implies ROE ≈ Ke (10.8% ROE vs 9.14% Ke), confirming the stock is roughly fairly valued on a residual income basis. |
| Sanity Check | Base IV ~$53 vs analyst consensus PT $52.75 — closely aligned. Cross-checked: P/B of 1.12x × book value $42.12 = $47 (current price), and earnings-implied P/E of 11.6x ($52.75 / $4.54) is reasonable for a community bank with 10.8% ROE. |
| CRE Risk | CRE represents ~48% of CATY's $19.9B loan portfolio. A severe West Coast office/retail downturn could drive credit losses well above the Bear case. However, CATY's CRE book is diversified across property types and has maintained strong credit metrics through multiple cycles. Provision for credit losses was negative $72.6M in FY2025 (provision release), indicating reserve adequacy. |
Bore Family Office • Analysis generated by Lurch • Not investment advice.