Cathay General Bancorp Annual Report 2020

FY2020 Annual Report · Cathay General Bancorp

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Embracing change

2020 Annual Report

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United by a shared drive with our customers to forge new lives in Southern California,
we opened our doors more than half a century ago to serve the growing Chinese
American community in Los Angeles.

We helped our customers put down roots and worked with them to cultivate
communities. We supported their businesses, which continue to sustain generations.

Over time, we have expanded along with our customers. Cathay Bank has 61 branches
across the United States and one branch in Hong Kong, as well as a representative
office in Beijing, Shanghai, and Taipei.

While our customers have evolved and changed, their initiative and perseverance
remain the same. Each aims to achieve what is possible. All strive to live their best
lives. We are delighted to work alongside them—providing the financial tools and
services to get them where they want to go.

Cathay General Bancorp is the holding company for Cathay Bank and is publicly held
(Nasdaq: CATY), with $19 billion in assets.

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Embracing change

Embracing change is what fuels our success. It
motivates us to adopt new technologies and drives
our operational efficiency. Most importantly, it enables
us to navigate the challenges created by a global
pandemic. We remain strong and competitive as we
recognize the possibilities of accepting and adapting
to change.

Our lives changed drastically in 2020. Cathay Bank
responded with new remote access to banking
services for the health and safety of our clients.
We understand the struggle of our community and
responded with financial relief programs. We know
our clients rely on us and responded by maintaining
regular services and exploring options where we
could be of assistance, with the goal to emerge
together as a stronger community. As the future
unfolds, we believe we are more prepared than ever to
tackle the changes to come.

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Cathay Bank branches remained
open as essential businesses,
meeting directly with customers with
appropriate safeguards in place.

Resilience in the face of change

In a year like no other, we have demonstrated uncompromising strength and stability
in the midst of a global pandemic. At both branch and corporate levels, from lending
and retail to back office personnel, we provide widespread support to our clients. No
one could have predicted the havoc that the pandemic would bring to our lives, and we
responded with a steadfast commitment to safety and accessibility for our customers,
employees, and communities.

We rose to meet the challenge by providing remote options, in addition to in-person
access with added health and safety protocols. Safety and accessibility continue to be
our top priorities as we adjust to new ways of conducting business. We pivoted to online
services whenever possible, like the introduction of our new online account opening
feature and our online consumer mortgage portal that allows the ability to submit
online mortgage applications and/or schedule a virtual meeting with our mortgage loan
originator officers to answer questions.

When businesses were in peril, we responded with programs to help see them through.
Many customers experienced struggles with their businesses or investments and turned
to us for help to keep things up and running. We responded with short-term loan modi-
fication and mortgage relief options. To lend a hand to small businesses with cash flow
challenges, we funded 249 businesses with $2.475 million through our proprietary Smart
Relief Program. Our participation in the Paycheck Protection Program (PPP) as part of
the CARES Act resulted in 1,437 PPP loans totaling $266 million to small businesses in
2020. In the second round of PPP, we have received 1,851 loan applications and have
funded $121.9 million as of February 28, 2021.

During 2020, we provided more than $2 billion in loan modifications, which represented
about 13% of our $15.6 billion loan portfolio. By the end of 2020, most customers with
loan modifications had resumed regular payments, with approximately 1% of total loans
continuing to rely on some type of loan modification.

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Customers were encouraged to take
advantage of remote methods of
banking, including online banking
and ATMs for deposits and access
to cash.

Our team members worked together—
in branches or via work from home—to
ensure our customers’ financial needs
continued to be met.

“

Safety and accessibility
continue to be our top priorities
as we adjust to new ways of
conducting business. ”
——
Allen Peng, Executive Vice President,
Chief Retail Administrator

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Dear fellow stockholders,

We are pleased to announce that Cathay General Bancorp reported net income of $228.9 million and

earnings of $2.87 per diluted share for the year ended December 31, 2020.

Gross loans increased by $568.9 million, or 3.8%, to $15.6 billion as of December 31, 2020. This was

primarily due to an increase of $240.9 million in Paycheck Protection Program (PPP) loans and

increases of $279.8 million, or 3.8%, in commercial mortgage loans; $56.8 million, or 1.4%, in residential

mortgage loans; $76.6 million, or 22.0%, in equity lines of credit; and $99.6 million, or 17.2%, in real

estate construction loans; and offset, in part, by a decrease of $182.8 million, or 6.6%, in commercial

loans not including PPP loans. Total deposits grew by $1.4 billion, or 9.6%, to $16.1 billion as of

December 31, 2020. Total assets increased by $949.0 million, or 5.2%, to $19.04 billion as of December

31, 2020.

The Company’s capital ratios as of December 31, 2020, remain strong. Our Tier 1 risk-based capital

ratio of 13.53%, total risk-based capital of 15.47%, and Tier 1 leverage capital ratio of 10.94% calculated

under the Basel III capital rules all continue to place the Company in the “well capitalized” category

for regulatory purposes.

“

It is clear that our strength as
a company is made possible
by our dedicated and skilled
employees, led by the strategic
vision and leadership of our
management team. ”
——
Dunson K. Cheng, Executive Chairman

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We achieved these results despite the unprecedented challenges of a global pandemic, economic

upheaval, and political turmoil. Our loan portfolio held up well. Little to negative growth might

be expected in light of the COVID-19 shutdown, yet our loan growth was over 3.7%, an admirable

outcome given the circumstances. Net charge-offs remained low at less than $14.2 million or just

0.09% of loans outstanding. Deposits grew nearly 10%, from $14.7 billion to $16.1 billion.

From being named one of the Top 20 Forbes Best Banks in America 2021 and celebrating the

30th anniversary of our listing on Nasdaq to dealing with a global pandemic, this has truly been

a year marked with highs and lows. While some sectors have been hit hard, other industries have

remained strong. In every situation, we are committed to doing whatever possible to help support our

customers, local businesses, employees, and communities.

During the early stages of the pandemic, we stayed ahead of the curve by working with clients and

proactively rolling out financial assistance programs. We also continued to prioritize our digital

transformation. In 2020, we introduced online features to provide alternative contactless service

solutions while maintaining uninterrupted banking access. With user adaptability in mind, we

enhanced our online banking platform to allow for a more robust user experience.

Chang M. Liu was named President and CEO of Cathay Bank and Cathay General Bancorp on

October 1, 2020, taking the helm of the Company upon the retirement of Pin Tai in September.

It is clear that our strength as a company is made possible by our dedicated and skilled employees,

led by the strategic vision and leadership of our management team.

As 2021 unfolds, we will continue to increase performance on the funding and liability side in order to

improve our interest margin. We expect economic growth to be somewhat muted until distribution of

the COVID-19 vaccines improves and scientific information about the vaccines leads to a higher rate

of adoption. Once we can overcome these hurdles, we look forward to returning to some level

of normalcy.

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As we work with our customers to mitigate the impact of the pandemic, our longer-term plans to

expand our loan portfolio, especially commercial and industrial, remain a top priority.

Thank you for your continued trust during these extraordinary times. We eagerly await a time in the

near future when we can get back on the road once again to meet with and assist customers

in person.

Sincerely,

Dunson K. Cheng
Executive Chairman
of the Board

Chang M. Liu
President and Chief
Executive Officer

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Financial highlights

(dollars in thousands, except per share data)

2020

2019

Increase/(Decrease)

Amount

Percentage

For the Year

Net income

$ 228,860

$ 279,135

$ (50,275)

Net income per common share

Cash dividends paid per common share

2.87

1.24

3.48

1.24

(0.61)

-18.0%

-17.5%

0.0

At Year-End

Investment securities

Loans, net

Assets

Deposits

Stockholders’ equity

Book value per common share

Profitability Ratios

Return on average assets

Return on average stockholders’ equity

Capital Ratios

Tier 1 capital ratio

Total capital ratio

Leverage ratio

$
2
7
2

$
2
7
9

$229

$
1
7
5

$
1
7
6

$ 1,036,550

$ 1,451,842

$ (415,292)

-28.6%

523,733

948,990

1,417,093

123,861

1.63

3.5 %

5.2 %

9.6 %

5.4 %

5.7 %

15,475,364

19,043,134

16,109,401

2,418,144

30.41

1.22 %

9.70 %

13.53 %

15.47 %

10.94 %

14,951,631

18,094,144

14,692,308

2,294,283

28.78

1.61 %

12.63 %

12.51 %

14.11 %

10.83 %

$19,043

$2,418

$
1
8
0
9
4

$
1
6
7
8
5

$
1
5
6
4
0

$
1
4
5
2
1

$
2
2
9
4

$
2
,
1
2
2

$
1
,
9
7
3

$
1
,
8
2
9

Net Income (in millions)

Assets (in millions)

Stockholders’ Equity (in millions)

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Consumers can now send outgoing
domestic wires from online banking.

We launched our new consumer
digital banking platform, providing
a unified banking experience across
devices, self-service features, and
the ability to customize preferences.

“

We continue to focus on
enhancing process automation,
to improve our processes, gain
efficiencies, and promote a well-
rounded customer experience. ”
——
Robert Romero, Executive Vice President,
Chief Information Officer

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Our online account opening is based
on a responsive platform, for ease
and convenience on mobile, tablet
or desktop.

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Our mortgage portal added online
appointment scheduling, providing
customers the ability to not only
submit their application online
but also complete their mortgage
interview safely from home.

Adapting to change

Our commitment to digital transformation continued throughout this past year. Not
surprisingly, consumer adoption accelerated during the pandemic.

As part of the overall initiative, we added online appointment scheduling on our
mortgage portal for virtual meeting appointments with our mortgage loan originator
officers. Consumers can also submit mortgage applications online. These service
features provide convenience and an enhanced user experience in a safe environment.

In 2020, we made available the ability to open accounts online. We also added the wire
scheduling feature under our consumer online banking platform. We further enhanced
our consumer online platform to provide a seamless user experience across digital
devices with additional multilingual capability.

In addition to these technological improvements, we continue to focus on enhancing
process automation, to improve our processes, gain efficiencies, and promote a
well-rounded customer experience.

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“

Close to $2 million
was distributed to over
200 nonprofits. ”
——
Peter Wu, Co-Chair, Cathay Bank Foundation

Making change possible

The pandemic intensified the need for assistance in our communities. The Cathay Bank
Foundation responded by giving back through grants to community-based organizations
to be used specifically for COVID-19 relief. Close to $2 million was distributed to over
200 nonprofits.

Organizations receiving donations included the Chinatown Service Center to support
its work in community development and empowerment, the Boys & Girls Club of West
San Gabriel Valley for food and emergency supplies, the Pacific Asian Consortium in
Employment for its Assistance in Disaster program, Asian Health Services for technology
and mobile equipment, and Operation Hope to combat the COVID-19 crisis.

Cathay Bank employees responded to the call to assist communities by volunteering
2,000 in service hours across all nine states where we operate. Much of the service
involved conducting workshops on financial literacy and income tax preparation for small
business owners.

Despite the pandemic, the bank continued to host its annual toy drive for the Variety
Boys & Girls Club and the El Monte Police Department. We also held a Welcome Home
Kits drive commissioned by the Coalition for Responsible Community Development to
collect much-needed household items for homeless individuals and families.

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The Cathay Bank Foundation grant
to the Boys & Girls Club of West San
Gabriel Valley supported its Mock
Interview event for the Youth of the
Year program.

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Cathay Bank team members
supported the Coalition for
Responsible Community
Development by donating
to Welcome Home Kits that
included household goods,
bedding, and toiletries.

“

Cathay Bank employees
responded to the call to assist
communities by volunteering
2,000 in service hours across all
nine states where we operate. ”
——
Bruce Gumbiner, First Vice President,
Director of Community Development

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Milestones and accomplishments

Cathay Bank launches online account opening and
online consumer wires. Cathay Bank advanced its
digital banking solutions with online account opening and
introduced online self-service domestic outgoing wires.

Irvine Parkview Branch opens. In September, Cathay
Bank opened a new branch, located in Irvine, California.
This adds to the bank's multiple locations in nine
states, as well as Hong Kong and representative offices
in Beijing, Shanghai, and Taipei.

Cathay General Bancorp celebrates 30 years
on Nasdaq. On October 21, Cathay General Bancorp
celebrated the 30th anniversary of its listing on
the Nasdaq Global Select Market. A virtual Nasdaq
opening bell ringing ceremony marked the occasion.

Cathay is named one of Forbes Best Banks in
America 2021. Forbes ranked Cathay General Bancorp
as one of the Top 20 banks for six years in a row.

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Corporate information

Board of Directors
1. Dunson K. Cheng
Executive Chairman of the
Board of Cathay General
Bancorp and Cathay Bank

2. Peter Wu
Vice Chairman of the Board
of Cathay General Bancorp
and Cathay Bank

3. Anthony M. Tang
Vice Chairman of the Board
of Cathay General Bancorp
and Cathay Bank

4. Michael M.Y. Chang
Retired Attorney and former
Secretary of Cathay General
Bancorp and Cathay Bank

5. Kelly L. Chan
Vice President of Finance,
Phoenix Bakery Inc., and
Certified Public Accountant

6. Nelson Chung
President of Pacific
Communities Builder, Inc.

7. Felix S. Fernandez
Retired Banker

8. Maan-Huei Hung*
General Counsel of AHMC
Healthcare Inc.

9. Jane Jelenko
Retired Financial Services
Partner of KPMG LLP

10. Chang M. Liu
President and Chief
Executive Officer of
Cathay General Bancorp
and Cathay Bank

11. Joseph C.H. Poon
President of Edward
Properties, LLC

12. Richard Sun
President of SSS
Development, Inc.

Director Emeritus
Patrick S.D. Lee
Ting Y. Liu

Cathay General Bancorp
Dunson K. Cheng
Executive Chairman of the Board

Peter Wu
Vice Chairman of the Board

Anthony M. Tang
Vice Chairman of the Board

Chang M. Liu
President and Chief Executive Officer

Heng W. Chen
Executive Vice President, Chief
Financial Officer, and Treasurer

May K. Chan
Senior Vice President, General
Counsel, and Secretary

Cathay Bank
Executive Officers
Dunson K. Cheng
Executive Chairman of the Board

Chang M. Liu
President and Chief Executive
Officer and Director of Cathay Bank

Heng W. Chen
Executive Vice President
and Chief Financial Officer

Kim R. Bingham
Executive Vice President
and Chief Risk Officer

Mark H. Lee
Executive Vice President
and Chief Credit Officer

Other Executive
Vice Presidents

Jim Haney
Executive Vice President and
Chief Lending Officer

Thomas Lo
Executive Vice President,
Director of Commercial and
International Banking

Kirk Malmrose
Executive Vice President, Director
of Commercial Real Estate and
Construction Lending

Allen Peng
Executive Vice President and
Chief Retail Administrator

Veronica Tsang
Executive Vice President and
Chief Retail Administrator

Marisa Marquisepe
Executive Vice President,
Director of Financial Crimes
Risk Management

Robert Romero
Executive Vice President
and Chief Information Officer

Jennifer L. Powells
Executive Vice President and
Chief Human Resources Officer

*Maan-Huei Hung is the newest member of the Board of Directors of Cathay General Bancorp and Cathay Bank. She
is the General Counsel for AHMC Healthcare Inc., a Southern California-based company that owns and operates eight
hospitals. Ms. Hung previously served as the General Counsel to General Bank and its public holding company, GBC
Bancorp, until its 2003 merger with Cathay Bank and Cathay General Bancorp. Ms. Hung is experienced in transactional
corporate law with an emphasis in banking and commercial law, and healthcare laws, and has advised numerous financial
and non-financial institutions, both foreign and domestic, on management matters, legal and regulatory compliance,
securities laws, and corporate finance. She is an attorney licensed in California, practicing for more than 40 years and
holds law degrees from National Taiwan University and Yale University. She is a founding member and former president of
the Taiwanese American Lawyers Association and has served as legal counsel since 2002 to the National Association of
Chinese American Bankers, and as a board member on the AHMC Health Foundation.

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777 North Broadway
Los Angeles, CA 90012

T 213 625 4700
F 213 625 1368

cathaygeneralbancorp.com
cathaybank.com

United States
California
Alhambra
Arcadia
Artesia
City of Industry
Cupertino
Diamond Bar
Dublin
El Monte
Fountain Valley
Fremont
Irvine
Los Angeles
Millbrae
Milpitas
Monterey Park
Northridge
Oakland
Ontario
Orange
Rancho Cucamonga

Richmond
Rowland Heights
Sacramento
San Diego
San Francisco
San Gabriel
San Jose
Temple City
Torrance
Union City
West Covina
Westminster
Illinois
Chicago
Westmont
Maryland
Rockville
Massachusetts
Boston
Nevada
Las Vegas
New Jersey
Edison

New York
Brooklyn
Elmhurst
Flushing
New York City
Texas
Houston
Plano
Washington
Bellevue
Kent
Seattle
Overseas
Hong Kong

Overseas
Representative
Offices
Beijing
Shanghai
Taipei

Registrar and Transfer Agent
American Stock Transfer and Trust Company, LLC
6201 15th Avenue, Brooklyn, NY 11219
T 800 937 5449

Forward-looking statements

Our annual report includes forward-looking statements within the meaning of the applicable provisions of the Private Securities Litigation Reform
Act of 1995 regarding management’s beliefs, projections, and assumptions concerning future results and events. We intend such forward-looking
statements to be covered by the safe harbor for forward-looking statements in these provisions. All statements other than statements of historical
fact are “forward-looking statements” for purposes of federal and state securities laws. Words such as “aims,” “anticipates,” “believes,” “can,” “continue,”
“could,” “estimates,” “expects,” “hopes,” “intends,” “may,” “optimistic,” “plans,” “predicts,” “possible,” “potential,” “projects,” “seeks,” “shall,” “should,”
“will,” and variations of these words and similar expressions are intended to identify these forward-looking statements. Forward-looking statements
by us are based on estimates, beliefs, projections, and assumptions of management and are not guarantees of future performance. These forward-
looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience
and our present expectations or projections. These and other factors are described in our Annual Report on Form 10-K (at Item 1A in particular)
for the year ended December 31, 2020; in other reports filed with the Securities and Exchange Commission (the “SEC”); and in other filings we
make with the SEC from time to time. Given these risks and uncertainties, readers are cautioned not to place undue reliance on any forward-
looking statement. Any forward-looking statement speaks only as of the date on which it is made, and, except as required by law, we undertake
no obligation to update or review any forward-looking statement to reflect circumstances, developments or events occurring after the date on
which the statement is made or to reflect the occurrence of unanticipated events.
Cathay General Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2020, and other filings with the SEC are available
at the website maintained by the SEC at www.sec.gov or by request directed to Cathay General Bancorp, 9650 Flair Drive, El Monte, CA
91731; Attention: Investor Relations; telephone 626 279 3296. These reports and filings are also available at www.cathaygeneralbancorp.
com. The information on the websites of Cathay General Bancorp and Cathay Bank is not part of this Annual Report.
Cathay Bank, Member FDIC, is an Equal Housing Lender.
FDIC insurance coverage is limited to deposit accounts at Cathay Bank’s U.S. domestic branch locations. Non-Deposit Investment Products
are NOT A DEPOSIT | NOT FDIC INSURED | NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY | NO BANK GUARANTEE | MAY
LOSE VALUE.

FPO

C000000

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