Cathay General Bancorp (the ‘Bancorp’) operates as a holding company of Cathay Bank, a California state-chartered commercial bank (‘Cathay Bank’ or the ‘bank’), and eleven limited partnerships investing in affordable housing investments in which the bank is the sole limited partner.
The Bancorp is regulated as a bank holding company by the Board of Governors of the Federal Reserve System (‘Federal Reserve’). Cathay Bank is regulated as a California commercial bank by the California Department o...
Cathay General Bancorp (the ‘Bancorp’) operates as a holding company of Cathay Bank, a California state-chartered commercial bank (‘Cathay Bank’ or the ‘bank’), and eleven limited partnerships investing in affordable housing investments in which the bank is the sole limited partner.
The Bancorp is regulated as a bank holding company by the Board of Governors of the Federal Reserve System (‘Federal Reserve’). Cathay Bank is regulated as a California commercial bank by the California Department of Financial Protection and Innovation (‘DFPI’), and the Federal Deposit Insurance Corporation (‘FDIC’).
Business of the Bank
Cathay Bank was incorporated under the laws of the state of California on August 22, 1961, is licensed by the DFPI, and commenced operations as a California state-chartered bank on April 19, 1962. Cathay Bank is an insured bank under the Federal Deposit Insurance Act by the FDIC, but it is not a member of the Federal Reserve.
As of December 31, 2024, the bank had various branch offices in Southern California, Northern California, New York, Washington, Illinois, Texas, Maryland, Massachusetts, Nevada, New Jersey, and Hong Kong, and a representative office in Beijing, Shanghai, and Taipei. Deposit accounts at the Hong Kong branch are not insured by the FDIC. Activities of the Beijing, Shanghai, and Taipei representative offices are limited to coordinating the transportation of documents to the bank’s head office and performing liaison services.
The company’s primary market area is defined by the CRA delineation, which includes the contiguous areas surrounding each of the bank’s branch offices. It is the bank’s policy to reach out and actively offer services to low-to-moderate income groups in the delineated branch service areas. Many of the bank’s employees speak more than one language, including both English, and one or more Chinese dialects or Vietnamese, and are thus able to serve the bank’s English, Chinese, and Vietnamese speaking clients.
As a commercial bank, the bank offers products and services to businesses, such as checking and deposit, lines of credit, commercial and commercial real estate loans, merchant services and payment processing, treasury management services, international banking and financing services, and other customary banking services. The bank offers similar services that are available to consumers.
The bank primarily services individuals, professionals, and small to medium-sized businesses in the local markets in which its branches are located and provides commercial real estate loans, commercial loans, the U.S. Small Business Administration (‘SBA’) loans, residential mortgage loans, real estate construction loans, home equity lines of credit, and installment loans to individuals for household and other consumer expenditures.
Through the company’s Cathay Wealth Management business unit, the bank offers clients a range of investment products and services, such as stocks, bonds, mutual funds, insurance, annuities, and advisory services. As of December 31, 2024, all securities and insurance products provided by Cathay Wealth Management were offered by, and all financial consultants are registered with, Cetera Investment Services LLC, a registered securities broker/dealer and licensed insurance agency, and member of the Financial Industry Regulatory Authority and Security Investor Protection Corporation. Cetera Investment Services LLC and Cathay Bank are independent entities. The securities and insurance products offered by Cetera Investment Services LLC are not insured by the FDIC.
Securities
The company’s investment portfolio is managed to meet its liquidity needs through proceeds from scheduled maturities and is also utilized for pledging requirements for deposits of state and local subdivisions, securities sold under repurchase agreements, and Federal Home Loan Bank (‘FHLB’) advances. The portfolio consists of the U.S. government securities, mortgage-backed securities, collateralized mortgage obligations, corporate debt instruments, and mutual funds.
Loans
Commercial Real Estate Loans: Commercial real estate loans (also known as CRE loans) are typically secured by first deeds of trust on commercial properties. The company’s commercial real estate portfolio includes primarily commercial real estate, commercial retail properties, office buildings, warehouses, and owner-occupied industrial facilities, and secondarily, hotels, multiple-unit apartments, and multi-tenanted industrial properties.
The bank also makes medium-term commercial real estate loans which are generally secured by commercial or industrial buildings where the borrower uses the property for business purposes or derives income from tenants.
Commercial Loans: The bank provides financial services to diverse commercial and professional businesses in its market areas. Commercial loans consist primarily of short-term loans (normally with a maturity of up to one year) to support general business purposes, or to provide working capital to businesses in the form of lines of credit to finance trade. The bank continues to focus primarily on commercial lending to small-to-medium size businesses within the bank’s geographic market areas. The bank participates or syndicates loans, typically more than $25.0 million in principal amount, with other financial institutions to limit its credit exposure.
SBA Loans: The bank originates SBA loans under the national ‘preferred lender’ status. Preferred lender status is granted to a lender that has made a certain number of SBA loans and which, in the opinion of the SBA, has staff qualified and experienced in small business loans. As a preferred lender, the bank’s SBA Lending Group has the authority to issue, on behalf of the SBA, the SBA guaranty on loans under the 7(a) program, which may result in shortening the time it takes to process a loan. The 7(a) program is the SBA’s primary loan program, and can be used for financing a variety of general business purposes, such as the acquisition of land, buildings, equipment, and inventory, and working capital needs of eligible businesses, generally over a 5 to 25 year term. In addition, under this program, the SBA delegates loan underwriting, closing, and most servicing and liquidation authority and responsibility to selected lenders.
The bank utilizes both the 504 program, which is focused on long-term financing of buildings and other long-term fixed assets, and the 7(a) program. The collateral position in the SBA loans is enhanced by the SBA guaranty in the case of 7(a) loans, and by lower loan-to-value ratios under the 504 program. The bank has sold, and may in the future sell, the guaranteed portion of certain of its SBA 7(a) loans in the secondary market.
Residential Mortgage Loans: The bank originates single-family-residential mortgage loans. The single-family-residential mortgage loans consist of conforming, non-conforming, and jumbo residential mortgage loans, and are secured by first or subordinate liens on single (one-to-four) family residential properties. The bank’s products include a fixed-rate residential mortgage loan and an adjustable-rate residential mortgage loan. Mortgage loans are underwritten in accordance with the bank’s and regulatory guidelines, on the basis of the borrower’s financial capabilities, an independent appraisal of the value of the property, historical loan quality, and other factors deemed relevant by the bank’s underwriting personnel. The bank generally retains all mortgage loans it originates in its portfolio.
Real Estate Construction Loans: The bank’s real estate construction loan activity focuses on providing short-term loans to individuals and developers, primarily for the construction of multi-unit projects. Residential real estate construction loans are typically secured by first deeds of trust and guarantees of the borrower. The economic viability of the projects, borrower’s creditworthiness, and borrower’s and contractor’s experience are primary considerations in the loan underwriting decision. The bank utilizes approved independent licensed appraisers and monitors projects during the construction phase through construction inspections and a disbursement program tied to the percentage of completion of each project. The bank also occasionally makes unimproved property loans to borrowers who intend to construct a single-family residence on their lots, generally within twelve months. In addition, the bank makes commercial real estate construction loans to high-net-worth clients with adequate liquidity for the construction of office and warehouse properties. Such loans are typically secured by first deeds of trust and are guaranteed by the borrower.
Home Equity Lines of Credit: The bank offers variable-rate home equity lines of credit that are secured by the borrower’s home.
Installment Loans: Installment loans tend to be fixed rate and longer-term (one-to-six year maturities). These loans are funded primarily for the purpose of financing the purchase of automobiles and other personal uses of the borrower.
Deposits
The bank offers a variety of deposit products to meet its clients’ needs. As of December 31, 2024, the bank offered savings accounts, checking accounts, money market deposit accounts, certificates of deposit, individual retirement accounts, and public funds deposits.
The bank’s deposits are generally obtained from residents within its geographic market area. The bank utilizes traditional marketing methods to attract new clients and deposits, by offering a wide variety of products and services, and utilizing various forms of advertising media. From time to time, the bank may offer special deposit promotions.
Regulation and Supervision
The Bancorp is a bank holding company within the meaning of the Bank Holding Company Act and is registered as such with the Federal Reserve. The Bancorp is also a bank holding company within the meaning of Section 3700 of the California Financial Code. Therefore, the Bancorp and any of its subsidiaries are subject to examination by, and may be required to file reports with, the DFPI. DFPI approvals are also required for bank holding companies to acquire control of banks.
As a California commercial bank, the deposits of which are insured by the FDIC, the bank is subject to regulation, supervision, and regular examination by the DFPI and by the FDIC, as the bank’s primary federal regulator, and must additionally comply with certain applicable regulations of the Federal Reserve.
In the company’s last reported examination by the FDIC in June 2019, the bank received a CRA (Community Reinvestment Act) rating of ‘Satisfactory.’
The bank operates branches and/or loan production offices in California, New York, Washington, Illinois, Texas, Maryland, Massachusetts, Nevada, and New Jersey. While the DFPI remains the bank’s primary state regulator, the bank’s operations in these jurisdictions are subject to examination and supervision by local bank regulators, and transactions with clients in those jurisdictions are subject to local laws, including consumer protection laws. The bank also operates a branch in Hong Kong and a representative office in Beijing, Shanghai, and Taipei. The operations of these foreign offices and branches (and limits on the scope of their activities) are subject to local law and regulatory authorities in addition to regulation and supervision by the DFPI and the Federal Reserve.
On October 15, 2019, the FDIC adopted a final rule that revised the FDIC’s requirements for stress testing by FDIC supervised institutions, such as the bank, to conform with the Growth Act by raising the minimum threshold for applicability from $10.0 billion to $250.0 billion.
As of December 31, 2024, the Bancorp and the bank met all requirements to be considered well-capitalized under the Basel III Capital Rules.
The revised rules continue to restrict banking entities subject to the Volcker Rule, including the Bancorp and the bank and its subsidiaries, from engaging in activities that are considered proprietary trading and from sponsoring or investing in certain entities, including hedge or private equity funds that are considered ‘covered funds,’ subject to certain exceptions.
As the bank has more than $10.0 billion in assets, it is examined for compliance with CFPB regulation by the CFPB in addition to examinations of the bank by the FDIC and the DFPI.
The bank must comply with numerous federal and state anti-money laundering and consumer protection statutes and implementing regulations, including the USA Patriot Act, the Bank Secrecy Act, the Foreign Account Tax Compliance Act, the CRA, the Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act, the Equal Credit Opportunity Act, the Truth in Lending Act, the Fair Housing Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the National Flood Insurance Act, the California Homeowner Bill of Rights, and various federal and state privacy protection laws. The bank and Bancorp are also subject to federal and state laws prohibiting unfair or fraudulent business practices, untrue or misleading advertising, and unfair competition. Some of these laws are further discussed below:
The Equal Credit Opportunity Act (‘ECOA’) generally prohibits discrimination in any credit transaction, whether for consumer or business purposes, on the basis of race, color, religion, national origin, sex, marital status, age, receipt of income from public assistance programs, or good faith exercise of any rights under the Consumer Credit Protection Act.
The Truth in Lending Act (‘TILA’) is designed to ensure that credit terms are disclosed in a meaningful way so that consumers may compare credit terms more readily and knowledgeably. As a result of the TILA, all creditors must use the same credit terminology to express rates and payments, including the annual percentage rate, the finance charge, the amount financed, the total of payments, and the payment schedule, among other things.
The Fair Housing Act (‘FH Act’) regulates many practices, including making it unlawful for any lender to discriminate in its housing-related lending activities against any person because of race, color, religion, national origin, sex, handicap, or familial status. A number of lending practices have been found by the courts to be, or may be considered, illegal under the FH Act, including some that are not specifically mentioned in the FH Act itself.
The Home Mortgage Disclosure Act (‘HMDA’) grew out of public concern over credit shortages in certain urban neighborhoods and provides public information that will help show whether financial institutions are serving the housing credit needs of the neighborhoods and communities in which they are located. The HMDA also includes a ‘fair lending’ aspect that requires the collection and disclosure of data about applicant and borrower characteristics as a way of identifying possible discriminatory lending patterns and enforcing anti-discrimination statutes.
Finally, the Real Estate Settlement Procedures Act (‘RESPA’) requires lenders to provide borrowers with disclosures regarding the nature and cost of real estate settlements. Also, RESPA prohibits certain abusive practices, such as kickbacks, and places limitations on the amount of escrow accounts. Penalties under the above laws may include fines, reimbursements, and other civil money penalties.
The bank is a member of the FHLB of San Francisco.
The Bancorp is subject to the disclosure and regulatory requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, both as administered by the SEC.
The Bancorp is also subject to the Sarbanes-Oxley Act of 2002, provisions of the Dodd-Frank Act, and other federal and state laws and regulations which address, among other matters, required executive certification of financial presentations, corporate governance requirements for the board and its audit and compensation committees and their members, and disclosure of controls and procedures and internal control over financial reporting, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information.
The bank is required to have an annual independent audit, alone or as part of the Bancorp’s audit, and to prepare all financial statements in accordance with accounting principles generally accepted in the United States of America (‘GAAP’). The bank and the Bancorp are also each required to have an audit committee consisting entirely of independent directors. As required by NASDAQ, the Bancorp has certified that its audit committee has adopted formal written charters and meets the requisite number of directors, independence, and other qualification standards. As such, among other requirements, the Bancorp must maintain an audit committee that includes members with banking or related financial management expertise, has access to its own outside counsel, and does not include members who are large clients of the bank.
History
Cathay General Bancorp was founded in 1962. The company was incorporated in 1990 under the laws of the state of Delaware.
