Cathay General Bancorp (CATY) DEF 14ADefinitive proxy

What is the difference between a “stockholder of record” and a “beneficial owner?” These terms describe how your shares are held. If your shares are registered directly in your name with our transfer agent, then you are a “stockholder of record” of those shares. As a stockholder of record, you have the right to vote by proxy via the Internet, by telephone, by mail, or in person remotely at the annual meeting.

If your shares are held in an account by a broker, bank, trust company, or other similar organization, then you are a “beneficial owner” of those shares and the organization holding your shares is considered the “stockholder of record” for purposes of voting at the annual meeting. If you are a beneficial owner, you have the right to direct the organization holding your shares on how to vote the shares held in your account.

How do I vote my shares? If you are a stockholder of record, there are four ways to vote:

If you vote via the Internet, by telephone, or properly complete and mail the proxy card, and we receive it on or before the voting date, your shares will be voted as you direct. Even if you plan to attend the annual meeting online, we encourage you to cast your vote before the annual meeting via the Internet, by telephone, or if you prefer, by completing, signing, dating, and returning the proxy card.

If you are a beneficial owner and your shares are held in a brokerage account or by a bank or other nominee, your ability to vote by telephone or the Internet depends on your broker’s voting process. Please follow the directions provided to you by your broker, bank or nominee.

What are broker non-votes? The term “broker non-votes” generally refers to shares that are held by a broker or other nominee in its name for the benefit of its clients but that cannot be voted because the broker or nominee is precluded from voting on “non-routine matters” and has not received voting instructions from the beneficial owner on those matters.

If you hold your shares in a brokerage account and do not give voting instructions to your broker on proposals that are considered “non-routine,” your broker cannot vote them for you and your shares will be treated as broker non-votes. At the annual meeting, Proposal Four (Ratification of the Appointment of Independent Registered Public Accounting Firm) involves matters that we believe will be considered “routine,” while Proposal One (Election of Directors), Proposal Two (Advisory (Non-Binding) Vote to Approve Our Executive Compensation) and Proposal Three (Advisory (Non-Binding) Vote on Frequency of Future Advisory Votes on Executive Compensation) involve matters that we believe will be considered “non-routine.”

Therefore, it is important that you provide voting instructions for all proposals.

What if I don’t vote for some of the items listed in this proxy statement? If you are a stockholder of record and return your signed proxy card, or vote via the Internet or by telephone, the proxy holders will vote your shares, with respect to the items without specific voting instructions, according to the recommendations of the Board. The Board has designated Pin Tai and Heng W. Chen, and each of them individually, with power of substitution, as proxy holders.

May I change my vote? Yes. If you are a stockholder of record, you may revoke your proxy at any time before it is exercised by filing a written notice of revocation with our Assistant Secretary, by delivering to our Assistant Secretary a later signed and dated proxy card, or by a later dated vote via the Internet or by telephone. The deadline to vote via the Internet or by telephone is 11:59 p.m., Eastern Time, on May 17, 2020. You may also revoke your proxy if you attend the annual meeting and vote online during the annual meeting by following the website instructions. Unless you decide to attend the annual meeting and vote online at the annual meeting, we recommend that you change or revoke your prior instructions in the same manner as you originally gave them and provide enough time for the new voting instructions to reach us before the annual meeting begins. Once the annual meeting begins, you may only change or revoke your proxy by voting online at the annual meeting by following the instructions available on the meeting website.

How are the shares held by the Cathay Bank Employee Stock Ownership Plan Trust (the “ESOPT”) voted? Each participant of the Cathay Bank Employee Stock Ownership Plan has the power to direct the vote of the shares allocated to his or her account by providing voting instructions. Charles Schwab Bank, as Trustee of the ESOPT, will vote the shares allocated to a participant’s account as directed by the participant. If no direction is received by 11:59 p.m., Eastern Time, on May 13, 2020, with respect to any shares held by the ESOPT, the Trustee will vote such shares in the same proportion as the shares voted by the Trustee on any matter as to which it has received timely directions.

How does the Board recommend that I vote? The Board unanimously recommends that you vote your shares as follows:

None of our directors have informed us in writing that he or she intends to oppose any action intended to be taken by us at the annual meeting.

What is the vote required to elect directors and approve the other proposals?

Proposal One (Election of Directors)

The nominees receiving a majority of votes cast at the annual meeting will be elected as directors. A majority of votes cast means the number of votes cast “for” the director’s election exceeds the number of votes cast “against” that director’s election. Abstentions and broker non-votes will not count as “for” or “against” votes, so abstentions and broker non-votes will have no effect on the election of a director. If an incumbent director nominee fails to receive the requisite vote in an uncontested election, that director must offer to resign. Our Nomination and Governance Committee and the Board will then act on the tendered offer to resign in the best interest of Bancorp.

Proposal Two (Advisory (Non-Binding) Vote to Approve our Executive Compensation)

The affirmative vote of a majority of our shares of common stock present in person or represented by proxy and entitled to vote at the annual meeting is required to approve Proposal Two. Abstentions will be treated as present and entitled to vote and therefore will have the same effect as a vote against this proposal. Broker non-votes will not affect the outcome of the advisory vote. Because this vote is advisory only, it will not be binding on us or on the Board.

Proposal Three (Advisory (Non-Binding) Vote on the Frequency of Future Advisory Votes on Executive Compensation)

For Proposal Three, you may indicate whether you would prefer a vote on executive compensation every year, every other year, or every three years, or you may abstain from voting. Whichever of every year, every other year, or every three years receives the highest number of votes cast will be the frequency selected by our stockholders. Abstentions and broker non-votes will not affect the outcome of the advisory vote. The results of this voting are not binding on the Board. Because this vote is advisory only, it will not be binding on us or on the Board.

Proposal Four (Ratification of the Appointment of Independent Registered Public Accounting Firm)

The affirmative vote of a majority of our shares of common stock present in person or represented by proxy and entitled to vote at the annual meeting is required to approve Proposal Four. Abstentions will be treated as present and entitled to vote and therefore will have the same effect as a vote against this proposal. Brokers will have discretion to vote on this proposal.

Who will serve as inspector of elections? The inspector of elections for the annual meeting will be a representative of American Elections Services, LLC. Under Delaware law, the inspector of elections will rule on the proxies and ballots submitted and may consider evidence deemed to be reliable to reconcile proxies and ballots submitted by or on behalf of banks, brokers, their nominees, or similar persons that represent more votes than the holder of a proxy is authorized by the stockholder of record to cast, or more votes than the stockholder holds of record.

What happens if additional matters are presented at the annual meeting or a nominee is unable to serve as a director? As of the date of this proxy statement, the Board knows of no matters to be brought before the annual meeting other than the proposals specifically listed in the notice of annual meeting of stockholders. Nevertheless, if further business is properly presented, the proxy holders named in the enclosed proxy card will vote the shares in their discretion in accordance with their best judgment.

If any nominee for director named in this proxy statement becomes unavailable for any reason, or if any vacancy on the Board occurs before the election, the shares represented by any proxy voting for that nominee will be voted for the person who may be designated by the Board to replace the nominee or to fill that vacancy on the Board. However, as of the date of this proxy statement, the Board does not believe that any nominee will be unavailable or that any vacancy will occur.

How will proxies be solicited and who will pay for the solicitation? We will pay the cost of this solicitation of proxies. In addition to use of the mail, the officers, directors, and employees of Bancorp and its subsidiaries may solicit proxies personally or by telephone, facsimile, or electronic means. These individuals will not be specially compensated for these solicitation activities. Arrangements will also be made with brokerage firms and certain other custodians, nominees, and fiduciaries for forwarding solicitation materials to the beneficial owners of shares held of record by these persons, and we will reimburse them for their reasonable expenses incurred in forwarding these materials.

What happens if the annual meeting is adjourned or postponed? Your proxy will remain valid and the shares may be voted at any adjourned or postponed annual meeting. You will still be able to change your vote or revoke your proxy until the voting occurs.

Do I have rights or appraisal or similar rights of dissenters with respect to any matter to be acted upon at the annual meeting? None of the proposals to be acted upon at the annual meeting and discussed in this proxy statement carry rights of appraisal or similar rights of dissenters.

Under our certificate of incorporation and bylaws, the Board may consist of between three and 25 directors, and the number of directors within this range may be changed from time to time by the Board. The Board currently consists of 12 directors, each of whom is also a director of Cathay Bank, a California-chartered bank and wholly-owned subsidiary of Bancorp.

The Board has three classes of directors and our bylaws provide that the number of directors in each class should be as nearly equal in number as possible. The term of office of each class of directors is three years. The current term of the Class III directors will expire at the 2020 annual meeting of stockholders and, if elected at the 2020 annual meeting, the new term will expire at the 2023 annual meeting of stockholders. The current term of the Class I directors will expire at the 2021 annual meeting of stockholders. The current term of the Class II directors will expire at the 2022 annual meeting of stockholders.

Stockholders are being asked to elect four Class III directors. The Class III directors will hold office until the 2023 annual meeting of stockholders and their successors have been elected and qualified. The Board, based on the recommendation of the Nomination and Governance Committee and the unanimous vote of all independent directors of the Board, has nominated Nelson Chung, Felix S. Fernandez, Maan-Huei Hung, and Richard Sun to serve as Class III directors. All of the nominees, except Maan-Huei Hung, are currently directors of Bancorp and Cathay Bank, and have served continuously in these capacities since the dates indicated in the table in “Security Ownership of Nominees, Continuing Directors, and Named Executive Officers” below.

YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR EACH NOMINEE (NELSON CHUNG, FELIX S. FERNANDEZ, MAAN-HUEI HUNG, AND RICHARD SUN) AS CLASS III DIRECTORS.

Set forth below is information concerning each nominee for election as a Class III director, each of the Class I and II directors whose terms have not yet expired, and each executive officer. Each of the current directors is also a director of Cathay Bank, a wholly-owned subsidiary of Bancorp. The biographical information set forth below includes the person’s principal occupation, business experience over the last five years, positions held, and the experience, qualifications, attributes, or skills that led the Nomination and Governance Committee and the Board to determine that the person should serve as a director. In addition, they each have satisfied other criteria considered by the Nomination and Governance Committee and the Board in evaluating potential nominees and directors, including intelligence, personal character, integrity, and commitment to the community and Bancorp.

Nominees (Class III)

Nelson Chung is President of Pacific Communities Builder, Inc., which has built more than 4,000 home sites and developed more than 150 communities in Southern California. He received a Master of Urban Design degree and is a licensed architect, general contractor, and real estate broker in California.

Mr. Chung has been a Director of Bancorp and Cathay Bank since 2005 and has been a Lead Independent Director of Bancorp since May 2017.

Mr. Chung contributes managerial experience and his extensive knowledge of residential real estate development in Southern California, with which he has been involved for over 30 years. His academic background in urban design and his experience as an architect, general contractor, and real estate broker provide the Board with a unique perspective of the real estate market.

Felix S. Fernandez has served as a leader at Wells Fargo in various capacities for over 15 years. In 2011, he retired as a Corporate Executive Vice President and Regional President of Community Banking for Wells Fargo in the Northern California region. He was responsible for up to 150 branches, $15 billion in deposits and $1.5 billion in loans, and 2,700 employees. Prior to working at Wells Fargo, Mr. Fernandez served as Executive Vice President of International Business Banking at State National Bank in El Paso, Texas, where he was responsible for the Mexico business market, and also served in various positions at Valley National Bank of Arizona (later a part of Chase Bank). Mr. Fernandez has been active in the community and business organizations throughout his career, including affiliations with the United Way, Boys and Girls Club of America, Boy Scouts of America, Bankers Association for Finance and Trade, and the Greater Sacramento Chamber of Commerce. He also served on the board of Sacramento State University Enterprise, Inc., Dignity Health Sacramento Service Region Board, Crocker Art Museum, the California Bankers Association, and Pan American Bank. He received a Master of Business Administration degree, with an emphasis in Finance. Mr. Fernandez has been a Director of Bancorp and Cathay Bank since 2013.

Mr. Fernandez brings with him valuable financial skills and diverse experience, along with a leadership record in the banking industry, all of which enhance the Board’s capacity to guide our future growth and development.

Maan-Huei Hung is a California attorney with over 40 years of experience in the Los Angeles area. Since 2016, Ms. Hung has been General Counsel for AHMC Healthcare Inc., a Southern California based company owning and operating eight hospitals and a health plan for Medicare members. Prior to that, Ms. Hung practiced transactional corporate law with an emphasis in banking and commercial law as well as healthcare laws. She served as General Counsel for General Bank and its publicly-held holding company GBC Bancorp until they merged with Cathay Bank and Cathay General Bancorp in 2003. She has also advised numerous financial and other non-financial institutions, both foreign and domestic, on management matters and legal and regulatory compliance associated with doing business in the U.S. She has also been a consultant for financial and healthcare clients on strategic opportunities and activities. From 1978 to 1988, she served as corporate in-house counsel in securities laws and corporate finance with Litton Industries, Inc. (which later merged with Northrop Grumman Corporation).

Ms. Hung was a founding member and a former president of Taiwanese American Lawyers Association. She was formerly a member of the Financial Institutions Committee of the State Bar of California and also formerly a member of the board of the International Bankers Association of California. She has served as legal counsel to the National Association of Chinese American Bankers ("NACAB") since 2002 and currently she also serves on the board of AHMC Health Foundation. Ms. Hung holds law degrees from the National Taiwan University and Yale University.

With extensive legal experience, Ms. Hung brings her legal expertise and her ability to analyze issues that will contribute to the Board's oversight and guidance for the growth and development of Bancorp and Cathay Bank. The Board will also benefit from her knowledge and insight having served as General Counsel for GBC Bancorp and General Bank and having worked with various types of business clients. In addition, Ms. Hung's community involvement provides her with knowledge and understanding of the communities that Cathay Bank serves, and her cross-industry and cross-cultural knowledge and experience will be an asset to the Board.

Richard Sun is the President of SSS Development, Inc., a real estate investment, development, and management company.

Dr. Sun received his D.D.S. in Dentistry in 1982 and practiced for 18 years. He also served as the Mayor for the 2012 and 2016 term and Council Member from 2009 to 2017 for the City of San Marino, California. Dr. Sun has over 30 years of experience in real estate investment and 10 years of experience serving on the boards of financial institutions. Simultaneously, he served in numerous leadership and management roles including his directorships on Trust Bank Board of Directors from 1995 to 2004 and on Omni Bank Board of Directors from 2008 to 2009. Also, he has been awarded certification by the UCLA Anderson Graduate School of Management’s Director Training and Certification Program. Dr. Sun is a community leader and has many years of civic service. He served on the Board of Governors of the Los Angeles County Natural History Museum from 2003 to 2017, as President of the Chinese American Elected Officials from 2015 to 2017, as a Committee Member of both the Economic Development Committee for Monterey Park and the Design Review Committee for San Marino from 2001 to 2004, and Board Member of the Workforce Investment Committee for Los Angeles County from 2000 to 2002. He also served on the Methodist Hospital Foundation Board from 2007 to 2016 and chaired the foundation in 2013.

Dr. Sun currently serves as a Board Member of the Chinese American Elected Officials, a non-profit organization that focuses on civic engagement, membership education, and community outreach. Dr. Sun is also a board member of the Cathay Bank Foundation.

Dr. Sun has been a Director of Bancorp and Cathay Bank since May 2017. He brings with him board experiences at financial institutions as well as his depth of knowledge and experience in both public and private companies. The Board believes that his diversified skills will add valuable entrepreneurial, managerial, and leadership perspectives to the Board.

Class III Director Not Seeking Reelection

Ting Y. Liu, Ph.D., was a co-founder and a director of General Bank and its publicly-held bank holding company, GBC Bancorp, until they merged with Cathay Bank and Bancorp in 2003. Mr. Liu was an aerospace research scientist for over 12 years, has been a real estate developer of motels and hotels, and co-founded Western Underwriter, an insurance company, in 1985. He also co-founded the Southern California Hotel/Motel Association in the early 1980s and was active in the Holiday Inn Franchisee Association where he served as the regional committee member for many terms. Mr. Liu received a Ph.D. in Aerospace Science. Also, he attended the UCLA Anderson Graduate School of Management’s Director Training and Certification Program. He has been a Director of Bancorp and Cathay Bank since 2003.

Mr. Liu’s extensive experience in commercial real estate development provides a valuable perspective on the real estate market, and his background in the insurance business provides knowledge of the insurance market. His previous service as a director of GBC Bancorp and General Bank provides additional commercial banking and financial institution experience.

After 17 years of dedicated service to the Board, Mr. Liu has decided not to stand for reelection and will retire and end his term as Class III director at the 2020 annual meeting.

Continuing Directors (Class I)

Michael M.Y. Chang is a retired attorney, having practiced law in Los Angeles for 30 years until retiring in 2000. He was the Secretary of Bancorp and Cathay Bank from 2001 to 2010. Mr. Chang is one of the founders of the Southern California Chinese Lawyers Association. He formerly served as a director of Chinatown Service Center, a community-based Chinese-American health and human services organization in Southern California. He received a Juris Doctor degree and a Bachelor of Science degree in

Accounting. Mr. Chang has been a Director of Cathay Bank since 1983 and of Bancorp since it was formed as a holding company in 1990.

Mr. Chang has been a well-respected attorney in Los Angeles for over 30 years, with the emphasis of his practice being in areas of business law, real estate, corporations, and taxation. The Board benefits from his legal experience and analysis of issues. His participation in the Chinese-American community in Southern California provides knowledge of the local economy, as well as business opportunities for Cathay Bank.

Jane Jelenko was a partner at KPMG LLP, a global audit, tax, and advisory services firm, where she became the first female consulting partner in 1983, and served over 25 years (from 1977 to 2003) in various capacities including the National Industry Director for its Banking and Finance group, a member of the firm’s board of directors, and the leader for the firm’s Banking and Investment Services Consulting group. She has also served on the Countrywide Bank board (Audit and Operations Committees), the Los Angeles Area Chamber of Commerce Executive Committee, and the Organization of Women Executives board. She currently serves on the boards of two SunAmerica Mutual Funds families, and on non-profit boards, including the Center Dance Arts of the Los Angeles Music Center, Dizzy Feet Foundation, The Gabriella Foundation, and the Constitutional Rights Foundation (emeritus). She received a Master of Business Administration degree in Finance. Also, she has been awarded certification by the UCLA Anderson Graduate School of Management’s Director Training and Certification Program. Ms. Jelenko has been a Director of Bancorp and Cathay Bank since 2012.

Ms. Jelenko brings to the Board her extensive managerial and finance experience and community service.

Pin Tai has been Chief Executive Officer of Bancorp and Cathay Bank since October 2016, Director of Cathay Bank since April 2015, and Director of Bancorp since August 2017. Mr. Tai joined Cathay Bank in 1999 as General Manager of New York Region with a goal to establish our footing in the East Coast region. In 2006, Mr. Tai became Executive Vice President and the General Manager of Eastern Regions, and then became the Deputy Chief Lending Officer in 2010 and the Chief Lending Officer in 2013. Mr. Tai was President of Bancorp from 2016 and President of Cathay Bank from 2015 to September 2019. He has also been a Director of Cathay Bank Foundation since 2004. Mr. Tai has over 32 years of banking experience. Prior to joining Cathay Bank, Mr. Tai worked at Bank of China in its New York office to help establish its commercial lending operations in the United States.

Anthony M. Tang has been Vice Chairman of the Board of Bancorp and Cathay Bank since 2014 and has over 30 years of banking experience. He was an Executive Vice President of Bancorp from 1994 to September 2013, Senior Executive Vice President of Cathay Bank from 1998 to 2013, Chief Lending Officer of Cathay Bank from 1985 to 2013, and Executive Vice Chairman of the Board of Bancorp and Cathay Bank from October 2013 to August 2014. Mr. Tang was formerly the Chief Financial Officer and Treasurer of Bancorp from 1990 to 2003. He received a Master of Business Administration degree. Mr. Tang has been a Director of Cathay Bank since 1986 and of Bancorp since it was formed as a holding company in 1990.

Through his service to Cathay Bank in various capacities for over 25 years, Mr. Tang brings to the Board an in-depth knowledge and understanding of its history and business, as well as his extensive knowledge of its operations including from a financial and accounting standpoint.

Peter Wu, Ph.D., has been Vice Chairman of the Board of Bancorp and Cathay Bank since 2014, and a Director, Chairman of the Board, President, and Chief Executive Officer of Cathay Bank Foundation since 2005. He was Chief Operating Officer of Bancorp and Cathay Bank from 2003 to 2014, and Executive Vice Chairman of the Board of Bancorp and Cathay Bank from 2003 to 2014. He was the Chairman of the Board of GBC Venture Capital, Inc. from 1997 to 2014 and President and Chief Executive Officer of GBC Venture Capital, Inc. from 2003 to 2014. Prior to joining Bancorp, Mr. Wu was a co-founder, Chairman of the Board, President, and Chief Executive Officer of General Bank and its publicly-held bank holding company, GBC Bancorp, until they merged with Cathay Bank and Bancorp in 2003. Mr. Wu received a Ph.D. in Mathematics. He has been a Director of Bancorp and Cathay Bank since 2003.

Mr. Wu provides commercial banking and managerial experience to Bancorp and Cathay Bank gained from his executive management positions with GBC Bancorp and General Bank, of which he was a co-founder, and then Bancorp and Cathay Bank. He also provides institutional knowledge of the history and operations of General Bank and GBC Bancorp.

Continuing Directors (Class II)

Kelly L. Chan is a long-time owner of Phoenix Bakery Inc., a family-owned retail bakery that began in Los Angeles Chinatown and has been serving the Los Angeles area for over 80 years. Mr. Chan was reappointed as Vice President of Finance of Phoenix Bakery in November 2017 after retiring in 2012 from that position. Mr. Chan is a Certified Public Accountant with over 35 years of experience, and received a Master of Business Administration degree. He served in the U.S. Navy from 1970 to 1973 and in the U.S. Naval Reserve until his retirement in 2000 with the rank of Captain. Also, he has been awarded certification by the UCLA Anderson Graduate School of Management’s Director Training and Certification Program. Mr. Chan has been a Director of Cathay Bank since 1981 and of Bancorp since it was formed as a holding company in 1990. Mr. Chan also serves as a member of the Cathay Bank Foundation Audit Committee.

With over 40 years of experience in retail business, Mr. Chan offers the Board substantial management experience with privately held businesses, which constitute a significant portion of the customers of Cathay Bank. As a Certified Public Accountant, Mr. Chan adds additional expertise in accounting matters, and serves as chairman of the Audit Committee.

Dunson K. Cheng, Ph.D., has been the Executive Chairman of the Board of Bancorp and Cathay Bank since October 1, 2016. He was the Chairman of the Board, President, and Chief Executive Officer of Bancorp and Chairman of the Board and Chief Executive Officer of Cathay Bank from 1994 to September 2016, and the President of Cathay Bank from 1985 to March 2015. Mr. Cheng has over 30 years of banking experience. He also serves on the boards of DiCon

Fiberoptics, Inc. (a supplier of optical components, integrated modules, and test equipment for the fiber optics industry) and Tsinghua Education Foundation (N.A.) Inc. He formerly served on the board of directors of the California Bankers Association. Mr. Cheng received a Ph.D. in Physics. He has been a Director of Cathay Bank since 1982 and of Bancorp since it was formed as a holding company in 1990.

Mr. Cheng provides to the Board his extensive banking experience, his broad knowledge of the business and operations of Bancorp and Cathay Bank, and his strong management and leadership skills. His tenure as an officer and a director for over 30 years affords the Board valuable insight regarding all aspects of the business and operations of Bancorp and Cathay Bank.

Joseph C.H. Poon is the President of Edward Properties, LLC, a real estate development company that specializes in residential, industrial, and commercial projects, and has over 30 years of experience in real estate development. He received a Master of Business Administration degree and a Master of Science degree in Civil Engineering. Mr. Poon has been a Director of Cathay Bank since 1981 and of Bancorp since it was formed as a holding company in 1990. He served as the Lead Independent Director of Bancorp from July 2010 to May 2011.

Mr. Poon provides the Board with considerable managerial experience, as well as his extensive knowledge in commercial, industrial, and residential real estate construction and development. He also contributes his academic background in business and engineering.

Executive Officers

Heng W. Chen has been Executive Vice President, Chief Financial Officer, and Treasurer of Bancorp and Executive Vice President of Cathay Bank since 2003, and Chief Financial Officer of Cathay Bank since 2004. He was Vice President and Chief Financial Officer of Cathay Real Estate Investment Trust from 2003 to 2013 and has been a Director, Vice President, and Chief Financial Officer of GBC Venture Capital, Inc. since 2003. Prior to joining Bancorp, Mr. Chen had over 25 years of experience in the areas of finance, accounting, and banking at City National Bank, City National Corporation, and at Price Waterhouse. Mr. Chen was formerly a Certified Public Accountant and received a Master of Business Administration degree.

Irwin Wong has been Senior Executive Vice President of Cathay Bank since 2014 and Chief Administrative Officer of Cathay Bank since February 2019. Mr. Wong joined Cathay Bank in 1988 as Vice President of Branch Administration, advanced to Senior Vice President of Branch Administration in 1989, served as Executive Vice President of Branch Administration from 1998 to 2011, as Executive Vice President and Chief Risk Officer from 2011 to 2013, as Chief Retail Administration and Regulatory Affairs Officer from January 2014 to March 2015, and Chief Operating Officer of Cathay Bank from April 2015 to January 2019. He has also been a Director of Cathay Bank Foundation since 2002, and Chief Financial Officer/Treasurer of Cathay Bank Foundation from 2004 to 2011. Mr. Wong has over 35 years of banking experience. Mr. Wong is active in community organizations and serves as a director of Junior Achievement of Southern California, the California Council on Economic Education, and the Los Angeles Nashi Hongwanji Buddhist Temple.

Chang M. Liu has been the President of Cathay Bank since October 2019 and Chief Operating Officer of Cathay Bank since February 2019. He is also a Director of Cathay Bank since October 2019. Mr. Liu joined Cathay Bank in 2014 as Senior Vice President and Assistant Chief Lending Officer. He was Senior Vice President and Deputy Chief Lending Officer of Cathay Bank from 2014 to 2015; Chief Lending Officer at Cathay Bank from 2016 to 2019; and Executive Vice President of Cathay Bank from 2016 to October 2019. Prior to joining Cathay Bank, Mr. Liu was Executive Vice President and Chief Lending Officer at Banc of California (formerly known as “Pacific Trust Bank”) from 2011 to March of 2014. Mr. Liu has over 28 years of banking experience.

Kim R. Bingham has been an Executive Vice President of Cathay Bank since 2004 and Chief Risk Officer of Cathay Bank since 2014. Mr. Bingham joined Cathay Bank in 2004 as Chief Credit Officer and served in that capacity until December 2013. Prior to joining Cathay Bank, Mr. Bingham managed Private Banking for Mellon Bank in the Western United States and prior to this position, Mr. Bingham served in a series of increasingly responsible staff and management positions in lending and credit for City National Bank. Mr. Bingham has more than 30 years of banking experience.

Mark H. Lee is the Executive Vice President and Chief Credit Officer of Cathay Bank. Mr. Lee joined Cathay Bank in April 2017 as Executive Vice President, Special Advisor to the Office of the President and was appointed as the Chief Credit Officer of Cathay Bank in December 2017.   Mr. Lee has more than 29 years of banking experience and provides leadership and support to the Credit Administration function at Cathay Bank.

Prior to joining Cathay Bank, Mr. Lee has held senior leadership roles in Credit Administration and Loan Review, Loan Operations, and Asset Based Lending. He was the Senior Executive Vice President and Head of Corporate Banking of Bank of Hope (formerly known as BBCN Bank) from 2016 to 2017; Senior Executive Vice President and Chief Credit Officer of BBCN Bank (formerly known as Nara Bank) from 2009 to 2016; and Senior Vice President and Deputy Chief Credit Officer of East West Bank from 2007 to 2009.

Our business and affairs are managed under the direction and oversight of the Board. The Board is committed to maintaining the highest standards of business conduct and corporate governance. The Board has adopted Corporate Governance Guidelines, which, together with our certificate of incorporation, bylaws, Code of Ethics, and Board committee charters, form the framework for the governance of Bancorp. The Corporate Governance Guidelines, Code of Ethics and Board committee charters are available at www.cathaygeneralbancorp.com.

Beginning in 2020, the Board generally holds regular meetings every other month. Special meetings are called when necessary. During 2019, the Board held 11 meetings. In 2019, each director attended more than 75% of the aggregate total number of meetings of the Board held during the period for which he or she has been a director, and the total number of meetings held by all committees of the Board on which he or she served during the periods that he or she served. It is our policy to invite and encourage all members of the Board to attend Bancorp’s annual meeting of stockholders. All of our directors, except Felix S. Fernandez and Jane Jelenko, attended the 2019 annual meeting of stockholders.

Dunson K. Cheng has served as both Chairman of the Board and Chief Executive Officer of Bancorp since 1994. On October 1, 2016, Pin Tai was appointed as the Chief Executive Officer of Bancorp and Dunson K. Cheng continues to lead the Board in his role as the Executive Chairman of the Board.

The Chairman of the Board sets the agendas, presides at Board meetings, and generally takes the lead role in the boardroom. In the absence of the Chairman of the Board, a Vice Chairman presides at Board meetings. Any director may suggest the inclusion of items on the agenda and raise at any Board meeting subjects that are not specifically on the agenda for that meeting.

The Chairman of the Board can be designated by the Board as the Chief Executive Officer or the Executive Chairman. The Board does not require the separation of the offices of the Chairman of the Board and the Chief Executive Officer. The Board recognizes no single leadership model is right for all companies and at all times. The Board believes it is important to maintain flexibility in its Board leadership structure depending on the needs of Bancorp.

The Board believes that separating the roles of the Chief Executive Officer and Chairman of the Board is the most appropriate structure for Bancorp at this time. The Board believes that this structure provides clarity of leadership following the appointment of Mr. Tai as Chief Executive Officer, and that Mr. Cheng is uniquely qualified through his experience and expertise to continue leading Bancorp in his capacity as the Executive Chairman.

Moreover, the Board recognizes that managing the Board can be a separate and time intensive responsibility. By separation of the roles of Chief Executive Officer and Chairman of the Board, it allows Mr. Tai to devote his full attention to the supervision, management and control of the business and affairs of Bancorp and Cathay Bank, without the additional responsibilities of Chairman of the Board. The Board also believes that having a separate Chairman of the Board allows Bancorp to continue to benefit from Mr. Cheng’s vast organizational, business and industry experience and expertise in his role as Executive Chairman and from the business synergies and mentoring opportunities.

In accordance with our Corporate Governance Guidelines, if the Chairman of the Board is an employee, or not independent, an independent director shall be elected by the independent directors to serve as the Lead Independent Director.

The Lead Independent Director is elected by the majority of independent directors on an annual basis at the first executive session after the annual stockholders’ meeting, and is charged with the following responsibilities:

Currently, Nelson Chung serves as the Lead Independent Director.

The Board also accomplishes much of its governance and oversight role through its Audit, Compensation, Nomination and Governance, and Risk Committees that, with the exception of the Risk Committee, are made up entirely of independent directors. The chairs of these committees take the lead in matters coming within their purview. In addition, the independent directors meet at least quarterly in executive session. Finally, the Chairman of the Board serves at the pleasure of the Board, and the independent members of the Board (constituting a majority of the directors) can call special meetings if the need arises. The Board believes that Bancorp’s approach to risk oversight helps to ensure that the Board can choose different leadership structures as appropriate without experiencing a material impact on its oversight or risk.

Our Corporate Governance Guidelines provide that the Board shall be comprised of a majority of directors who, in the opinion of the Board, qualify as “independent directors” pursuant to the listing standards of The Nasdaq Stock Market LLC (“Nasdaq”). An “independent director” for purposes of the Guidelines means a person other than: (i) an executive officer

or employee of Bancorp or its subsidiaries, or (ii) any other individual having a relationship which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Board considered relationships, transactions, and/or arrangements with each of its directors, including those disclosed below under “Transactions with Related Persons, Promoters and Certain Control Persons,” and determined that the following eight of its current 12 members are “independent” as defined in the Nasdaq Stock Market Rules: Kelly L. Chan, Michael M.Y. Chang, Nelson Chung, Felix S. Fernandez, Jane Jelenko, Ting Y. Liu (who will not seek reelection this year), Joseph C.H. Poon, and Richard Sun. The Board has also determined that Maan-Huei Hung, who is nominated for the election at the 2020 annual meeting, is “independent” as defined in the Nasdaq Stock Market Rules.

In addition, the Board has determined that:

The independent directors meet in executive sessions without the presence of any members of Bancorp’s management on a regularly scheduled basis, but not less than four times a year. In 2019, the independent directors met 10 times in executive session.

The Board is responsible for the oversight of risk management, and it looks to Bancorp’s and its subsidiary Cathay Bank’s management to develop and implement policies, processes, and procedures to appropriately identify, manage, and control risk exposure. The Board’s function is, among other things, to review these policies, processes, and procedures and determine whether they are aligned and integrated with the Board’s corporate strategy and risk tolerance, functioning appropriately, and adequately fostering a culture of risk-adjusted decision making within the organization.

In its oversight role, the Board relies to a large extent on its committee structure. Each of the committees considers the management of risk within the particular area of its responsibility. For example, the Compensation Committee has responsibility for monitoring the performance, and regularly reviewing the design and function, of our incentive compensation plans and arrangements and seeks to ensure that they do not encourage executive officers to take unnecessary and excessive risks that threaten our value and do not encourage the manipulation of reported earnings to enhance the compensation of any employee. Separately, the Audit Committee oversees activities performed by the audit and loan review functions of Bancorp. The Board has delegated the general responsibility for overall risk management oversight to the Risk Committee. The Risk Committee meets periodically with the Chief Risk Officer. The Chief Internal Auditor of Cathay Bank reports on audit matters directly to Cathay Bank’s Audit Committee, which also evaluates the performance of the Chief Internal Auditor.

Risk management oversight is also provided through an internal committee of Cathay Bank, which is chaired by Cathay Bank’s Executive Vice President and Chief Risk Officer. This group meets at least quarterly and is responsible for evaluating relevant risk information, implementing appropriate strategies to address risks, and reporting the results to executive management, the Risk and Compliance Committee of the Cathay Bank Board of Directors, the Risk Committee, and the Board.

The Board receives regular reports from its committees, including the Risk Committee, regarding their deliberations and actions, as well as a quarterly report from the Chief Risk Officer of Cathay Bank, and regularly discusses and evaluates the risks we are facing and the effectiveness of actions being taken to monitor and control exposure from such risks. In addition, the independent directors meet at least annually in executive session with Cathay Bank’s Chief Risk Officer, Cathay Bank’s Chief Internal Auditor, and representatives of Bancorp’s independent registered public accounting firm.

The Audit Committee oversees Bancorp’s financial reporting on behalf of the Board. It appoints and evaluates Bancorp’s independent auditors, and reviews with the independent auditors the proposed scope of, fees for, and results of the annual audit. It reviews the system of internal accounting controls and the scope and results of internal audits with the independent auditors, the internal auditors, and Bancorp management. It considers the audit and non-audit services provided by the independent auditors, the proposed fees to be charged for each type of service, and the effect of non-audit services on the independence of the independent auditors.

As provided by its charter, the Audit Committee is comprised of three or more directors, and its members must meet the Nasdaq listing standards, the regulations of the SEC, and the requirements of the Federal Deposit Insurance Corporation.

All members of the Audit Committee are “independent” as defined in the Nasdaq listing standards. The Board conducted a review regarding whether any members of the Audit Committee meet the criteria to be considered an “audit committee financial expert” and determined that Mr. Chan, its Chairman, and Ms. Jelenko each qualifies as an “audit committee financial expert,” as defined in Item 407(d)(5) of the SEC’s Regulation S-K.

The Audit Committee does not have a policy for pre-approving services to be provided by Bancorp’s independent auditors. All services to be provided to Bancorp by its independent auditors are subject to review and approval by the Audit Committee in advance of the performance of the services, provided that the Audit Committee will not approve any non-audit services proscribed by Section 10A(g) of the Exchange Act in the absence of an applicable exemption.

The Audit Committee may delegate to a designated member or members of the Audit Committee the authority to approve such services so long as any such approval is reported to the full Audit Committee at its next scheduled meeting. The Audit Committee has not delegated such authority.

The purpose of the Compensation Committee is to exercise oversight with respect to the compensation philosophy, policies, practices, and implementation for our executive officers and directors, the administration of our equity-based compensation plans, and the administration of our incentive and other plans for our executive officers. In addition to its risk management responsibilities as described above, the Compensation Committee has responsibility for: (a) establishing our compensation policies and practices with regard to our Chief Executive Officer and the other executive officers; (b) reviewing and approving, at least annually, goals and objectives with respect to the performance of our Chief Executive Officer and the other executive officers; (c) evaluating, at least annually, the performance of our Chief Executive Officer and the other executive officers in light of the corporate goals and objectives and the performance evaluations; and (d) administering our equity-based compensation plans, including making awards and determining the terms and conditions of awards.

As provided by its charter, the Compensation Committee is comprised of at least two members of the Board. Each member of the Compensation Committee is required to be and is an “independent director” and otherwise qualifies as a member of the Compensation Committee under the Nasdaq listing standards; and qualifies as a “non-employee director” under Rule 16b-3(b)(3)(i) promulgated by the SEC under the Exchange Act.

The Investment Committee oversees Bancorp’s investment and funds management policies at the holding company level. This committee exists alongside the Investment Committee at Bancorp’s subsidiary, Cathay Bank.

All members of the Nomination and Governance Committee are “independent” as defined in the Nasdaq listing standards and the Nomination and Governance Committee is comprised of three or more members of the Board. This committee identifies and evaluates candidates qualified to serve as members of the Board and makes recommendations to the Board regarding such candidates. In addition, the committee has the following responsibilities with respect to corporate governance: (a) developing and recommending to the Board a set of corporate governance guidelines, reviewing and reassessing as appropriate the adequacy of any corporate governance guidelines adopted by the Board and recommending any proposed changes to the Board; (b) considering any other corporate governance issues that arise, developing appropriate recommendations for the Board, and addressing matters of corporate governance not otherwise delegated to other committees of the Board; (c) serving in an advisory capacity to the Board on matters of organizational and governance structure; (d) overseeing the implementation of the Board’s annual reviews of director independence; (e) developing and recommending to the Board a process to evaluate performance of the Board and its committees, and implementing and overseeing any process adopted; (f) reviewing and reassessing the adequacy of the various committee charters and recommending any proposed changes to the Board; and (g) assisting the Board in reviewing our senior management development and succession planning. Nominees for this 2020 annual meeting of stockholders were recommended by this committee and unanimously approved by all of Bancorp’s independent directors.

The policy of the Nomination and Governance Committee is to consider candidates properly recommended by our stockholders. In evaluating any such candidates, the Nomination and Governance Committee will consider the criteria described below. Any such recommendations should include the nominee’s name and qualifications for membership on the Board and should be directed to Georgia Lo, Assistant Secretary, Cathay General Bancorp, 777 North Broadway, Los Angeles, California 90012. In addition, our bylaws permit stockholders to nominate directors for election at stockholder meetings. To nominate a director, stockholders must give timely notice to our Secretary in accordance with our bylaws, which require that the notice be received by our Secretary within the time periods described under “Stockholder Proposals for 2021 Annual Meeting of Stockholders” below.

The Board and the Nomination and Governance Committee consider potential nominees based on such criteria as depth and breadth of relevant experience, intelligence, personal character, integrity, commitment to the community and to Bancorp, knowledge of the business of banking, compatibility with the current Board culture, and prominence—all in the context of the perceived needs of the Board at the point in time of the consideration. Nominees must also be acceptable to banking regulators. Bancorp seeks to ensure that at least a majority of the directors are independent under the Nasdaq listing standards and that members of Bancorp’s Audit Committee meet Nasdaq, SEC, and Federal Deposit Insurance Corporation requirements and that at least one of them qualifies as an “audit committee financial expert” under the rules of the SEC. When an independent director retires, resigns or declines to stand for reelection, the Nomination and Governance Committee generally will seek to identify and recommend to the Board candidates for election by the stockholders or by the Board to fill the vacancy who are independent as appropriate under all applicable standards.

Cathay Bank was founded in 1962 in Los Angeles, California, and is today America’s oldest bank founded by Chinese-Americans. Since that time, it has expanded into metropolitan areas of the U.S. that have substantial Chinese-American populations, as well as established a branch in Hong Kong and a representative office in Shanghai, Taipei, and Beijing. To better serve its customers, many of Cathay Bank’s employees speak both English and one or more Chinese dialects or Vietnamese. As Cathay Bank has grown and expanded, the Board and the Nomination and Governance Committee have been considering greater diversity for the Board, in terms of race, gender, national origin, geography, skills, experience, and/or expertise. While there is no specific policy in place with respect to diversity, a conscious effort has been made, and will continue to be made, to add to the Board otherwise qualified individuals who are representative of diverse backgrounds and experiences.

The process for identifying and evaluating candidates is commenced by the Board upon its determination of a need to nominate a director or fill a new position or vacancy on the Board. At the request of the Board, the Nomination and Governance Committee then seeks to identify potential candidates who meet the specific criteria given by the Board at the time of the request based on input from members of the Board and, if the Board deems appropriate, a third-party search firm.

The process begins with the Nomination and Governance Committee conducting inquiries into the backgrounds and qualifications of such candidates. If the Nomination and Governance Committee determines that a candidate is qualified to serve as a director and that he or she should be recommended to the Board, the Board will then review the recommendation and the accompanying information. If the Board is interested in a proposed candidate, it will designate a member to contact the candidate to discuss the proposed nomination, and determine if the candidate is interested in the nomination and if there is any reason why the Board should not proceed with the nomination. Depending on the outcome, the next step is for the candidate to meet with all members of the Board.

Following these meetings, and using the input from such interviews and the information obtained by the Nomination and Governance Committee, the Nomination and Governance Committee will evaluate whether the candidate meets the requisite qualifications and criteria and should be recommended to the Board. Candidates recommended by the Nomination and Governance Committee are then presented to the Board for selection as nominees for election by the stockholders or by the Board to fill a vacancy. The Nomination and Governance Committee expects that a

This Compensation Discussion and Analysis (“CD&A”) is intended to provide information relevant to an understanding of our executive compensation program, philosophy and objectives, our process for making compensation decisions, and our executive compensation components. We also address the factors most relevant to an understanding of our compensation policies and decisions regarding the 2019 compensation for each of the Named Executive Officers.

Named Executive Officers (“NEOs”)

For 2019, the five Named Executive Officers of the Company were:

Objectives of

Our Executive Compensation Program

It is our policy to build stockholder value by attracting, motivating, and retaining capable executive management and other key personnel for the purpose of achieving our business goals. We seek to implement this policy, in part, through our executive compensation program.

We believe that an effective executive compensation program is one in which executive officers receive compensation that is competitive with the practices of other financial institutions in our market area, but which at the same time ties compensation to our financial and operating performance and does not encourage the taking of unnecessary and excessive risk or encourage the manipulation of reported earnings. In addition, we believe that individual compensation should be based on the experience, performance, and responsibility level of the executive officers and their contributions towards achievement of our business goals.

Further, we believe that an effective executive compensation program is one that is designed to align the interests of our executive officers with those of our stockholders through both cash and equity-based incentive compensation that rewards performance as measured against the achievement of our annual, long-term, and strategic goals.

Accordingly, our executive compensation program consists of cash and non-cash components, all of which are intended to work together to help fulfill the objectives of our compensation policy, which are to:

We seek to combine these compensation components, which are described below, in such a way as to best achieve these objectives.

2019 Performance

The following are highlights of our financial performance for 2019:

Total shareholder return for 2019 was 17%. 

2019 Executive Compensation Highlights

The following are significant developments with respect to our 2019 executive compensation decisions:

Components of Our 2019

Executive Compensation Program

The Compensation Committee believes that the design of our executive compensation program provides a proper balance among the key components, which are:

In addition, we provide our executive officers with:

Each of these components serves as a means to achieve one or more of the objectives of our executive compensation program. The Compensation Committee does not follow rigid formulas for allocating compensation among these various components. Instead, it utilizes its judgment taking into account our safety and soundness, as well as consideration of our business objectives, fiduciary and corporate responsibilities (including internal equity considerations and affordability), competitive pay practices and trends, and regulatory requirements.

We describe below each of these components and how determinations are made in general by the Compensation Committee under our compensation program for our executive officers. The specific amounts paid or awarded to our Named Executive Officers for 2019 and the rationale are set forth below under “Compensation Decisions for Named Executive Officers.”

Base Salaries

We provide our executive officers with a base salary to compensate them for services rendered during the year and to attract, motivate, and retain them. The Compensation Committee does not apply any fixed formula for setting base salaries for our executive officers. Instead, it considers a wide range of factors. In particular, the Compensation Committee considers our overall financial and operating performance and profitability, and its evaluation of each executive officer’s individual performance and contribution toward this overall performance and profitability. Our overall performance and profitability is determined, without any quantified targets or particular weighing, with reference to financial factors such as net income, EPS, return on average assets, return on average stockholders’ equity, efficiency ratio, and percentage increase or decrease in total assets, loans, and deposits.

The evaluation of each executive officer’s individual performance involves consideration of such factors as the significance of the executive officer’s services, level of responsibility, any changes in those responsibilities, and the achievement of individual performance goals or completion of

any strategic initiatives and special projects or assignments that may have been set from year to year, without any particular weight being assigned to these factors. As part of this evaluation, the Compensation Committee may consider the executive officer’s individual skills, experience, length of service, and compensation levels in past years, not only in relation to the individual’s performance in those years compared with the current year, but also in relation to competitive employment opportunities for that individual. Consideration is also given to changes in the cost of living.

The Compensation Committee also takes into consideration the base compensation of executive officers in equivalent positions at banks and bank holding companies considered to be similar to Cathay Bank and Bancorp. We believe it is helpful to consider comparative market information about compensation paid to executive officers of other companies in our business and geographic marketplace that seek similarly skilled and talented executives. We want to be able to retain our executive officers and, accordingly, we take into consideration publicly available information about compensation paid to executive officers at other financial institutions in making our decisions about compensation. However, we do not establish compensation levels based on benchmarking and we do not attempt to maintain a certain target percentile within any peer group to determine compensation. We view information on pay practices at other institutions as relevant to a general understanding of the market and for assessing the competitiveness and reasonableness of our executive compensation program.

Salary levels are typically considered in March as part of our employee performance review process. Salary levels may also be reviewed and adjusted for an executive officer upon a promotion or change in job responsibility or for special retention purposes. The Compensation Committee does not set any target range or apply any formulas or any particular minimum or maximum percentages. Instead, it considers the base salary increases on a case-by-case and year-by-year basis applying the factors set forth above. When permitted by law, the Compensation Committee takes into consideration the compensation history of the executive officers and will observe past ranges for reference and guidance without being bound or limited by them.

Cash Bonuses

The Compensation Committee adopted, effective January 1, 2014, an Executive Officer Annual Cash Bonus Program, as amended December 14, 2017 and on March 15, 2018 (the “Bonus Program”), pursuant to which our executive officers may be entitled to cash bonus awards that constitute cash awards under our 2005 Incentive Plan, as amended and restated effective May 18, 2015 (the “2005 Incentive Plan”). The purpose of the Bonus Program is to attract, motivate, and retain capable executive management and other key personnel by providing incentives that are commensurate with prudent risk taking, that do not pose a threat to safety and soundness, and that seek to link compensation to our overall strategic goals. To determine a participant’s bonus award, the Compensation Committee may establish for a “program year” company-wide financial criteria, including the achievement of quantifiable financial metrics (e.g., EPS, ROA, loan growth, deposit growth, and efficiency ratio) and metric and/or nonmetric individual or department-wide performance goals. Following completion of a program year, the Compensation Committee determines the extent to which the financial criteria and performance goals for each participant have been achieved or exceeded and the amount of the bonus award to be paid. The Bonus Program sets forth factors the Compensation Committee should take into account in determining financial criteria and performance goals and the circumstances in which the results and bonus awards may be adjusted, taking into account safety and soundness and risk-management. Any bonus awards are subject to a three-year clawback provision, whereby under specified circumstances some or all the amounts paid may be recovered or the value recouped.

Equity Incentives

The 2005 Incentive Plan permits us to grant stock options, stock awards (including shares, stock appreciation rights, stock units and other similar awards), and cash awards.

Equity awards under the 2005 Incentive Plan compensate eligible participants for their contributions to our business and encourage them to exert maximum efforts for our success by providing them with an opportunity to benefit from increases in the value of our common stock, thereby aligning the interests of the participants with those of our stockholders. In this manner, the awards serve as an incentive and reward for the achievement of our long-term business goals and a means to attract, motivate, and retain key personnel.

The Compensation Committee has authority to determine the number and type of equity awards for executive officers and other employees. Awards are generally based on a qualitative analysis of the individual’s performance and our overall performance and profitability, taking into account the factors discussed above under “Base Salaries” and “Cash Bonuses.” For general reference purposes only, the Compensation Committee also will consider the size of awards made in the past to each individual and also generally refer to the size of awards made at other banks and bank holding companies of comparable size and complexity. Consideration is also given to the estimated dilutive effect of such awards on our stockholders.

For the past several years, the equity incentive awards made by the Compensation Committee have been in the form of RSUs. For the executive officers including the Named Executive Officers, other than any equity incentive awards awarded in connection with the Bonus Program, the vesting of these RSUs has been based on performance, which currently consists of (1) EPS, (2) TSR compared to comparable banks, and (3) ROA as compared to comparable banks.

Awards generally have been made at Compensation Committee meetings where the intent to issue awards has been specified in advance of the actual meeting. Awards are also made on occasion during the year to newly hired or newly promoted officers or for special retention purposes. Such awards for new hires, promotions, and retention become effective on the date of approval of the award by the Compensation Committee. All awards are made at or above the fair market value of our common stock as quoted on the Nasdaq Global Select Market.

Retirement and Other Benefits

Bancorp’s primary retirement plan is the 401(k) Profit Sharing Plan, which is available to salaried employees of Cathay Bank who have completed one month of service and have attained the age of 21. Participants can contribute up to 75% of their eligible compensation for the year (subject to Internal Revenue Code limits). Cathay Bank matches 100% on the first 5% of eligible compensation contributed per pay period. The vesting schedule for the matching contribution is 0% for less than two years of service, 25% after two years of service and from then on, at an increment of 25% each year until 100% is vested after five years of service.

In addition, Cathay Bank maintains the Bank Employee Stock Ownership Plan (the “ESOP”), under which a participant’s benefits consist of cash (or cash equivalents) and shares of our common stock allocated to the participant. We have not made contributions since 2004, and do not expect to make any contributions in the future.

We also provide group life, health, dental, disability, and medical reimbursement plans that do not discriminate in scope, terms, or operation in favor of our executive officers and that are generally available to all salaried employees.

Our executive officers are eligible to participate in all of these plans on the same terms as other employees.

Perquisites and Other Personal Benefits

We provide our executive officers with perquisites and other personal benefits that the Board and the Compensation Committee believe are reasonable and consistent with our overall compensation program to better enable us to attract and retain employees for key positions. The Compensation Committee periodically reviews the levels of perquisites and other personal benefits provided to the executive officers. Currently, these perquisites consist primarily of automobile expenses and club memberships. For 2019, the aggregate amount of perquisites and other personal benefits provided to our Named Executive Officers was less than $10,000 each, except for our Executive Chairman, Dunson K. Cheng.

Establishing Our Executive Compensation

Role of Compensation Committee

The Compensation Committee, which is comprised of independent directors, exercises oversight with respect to the compensation philosophy, policies, practices, and implementation for our executive officers and directors. For information relating to the composition and responsibilities of the Compensation Committee, see “Compensation Committee” under section “Board of Directors and Corporate Governance” above.

The Chief Executive Officer and the Compensation Committee review the performance of each executive officer (other than the Chief Executive Officer and the Executive Chairman). The conclusions reached and recommendations made based on these reviews, which include salary adjustments, cash bonuses and equity awards, are then taken into account by the Compensation Committee as it makes decisions about compensation of the executive officers. With respect to the Chief Executive Officer and the Executive Chairman, the Compensation Committee reviews and approves the corporate goals and objectives relevant to the Chief Executive Officer’s and Executive Chairman’s compensation, evaluates the Chief Executive Officer’s and Executive Chairman’s performance against those objectives, and approves the Chief Executive Officer’s and Executive Chairman’s compensation based on those evaluations. Neither the Chief Executive Officer nor the Executive Chairman participates in any deliberations or voting regarding his own compensation.

The Compensation Committee has the authority to retain or obtain the advice of compensation consultants, legal counsel, or such other advisors to the Compensation Committee as it, in its sole discretion, deems necessary or advisable to assist it in carrying out its responsibilities. The Compensation Committee is responsible for the appointment, compensation, and oversight of the work of any such compensation consultant or other advisor. Before selecting an advisor or receiving advice, other than from our in-house counsel, the Compensation Committee makes inquiry and assesses the responses to determine whether there are any potential conflicts of interest. In making its determinations with respect to compensation, the Compensation Committee also has access to and seeks input from senior management, the Lead Independent Director, and other directors, as well as receiving administrative support and advice from the Chief Financial Officer, the General Counsel, the Chief Human Resources Officer of Cathay Bank, the Chief Risk Officer of Cathay Bank, our senior risk officers, and representatives of other departments of Cathay Bank.

Compensation Consultant

The Compensation Committee has retained Frederic W. Cook & Co., Inc. (“FWC”) as its compensation consultant. FWC reports directly to the Compensation Committee. Management has not retained its own compensation consultant. The Compensation Committee has conducted an inquiry and assessment with respect to FWC, and determined that it is independent of management, provides no other services to us or to management, has in place policies and procedures designed to prevent conflicts of interest, and has no conflicts of interest in acting as a compensation consultant to the Compensation Committee.

As part of its engagement, FWC informs the Compensation Committee on practices and trends in executive compensation in the banking sector and current guidelines on executive compensation of proxy advisory firms, and provides compensation data with respect to comparable financial institutions. FWC has assisted the Compensation Committee in numerous areas, including (a) structuring our equity compensation program, (b) assessing whether our incentive compensation program will be commensurate with prudent risk-taking and links specific performance to the overall quality and sustainability of our performance and profitability, and (c) reviewing the CD&A in our proxy statements.

FWC was consulted by the Compensation Committee as to how annual and long-term incentives might be structured and, in particular, with respect to the design of the Bonus Program and of the performance-based RSUs that are awarded by the Compensation Committee. In awarding the performance-based RSUs, the Compensation Committee also consulted with FWC as to the tax and accounting treatment of the units

compared to other forms of equity awards, the vesting provisions in the case of events such as death, disability, retirement, and change in control, and the range and scope of clawbacks. The amounts of the cash bonus and RSU awards were ultimately determined by the Compensation Committee. 

Peer Group

As part of its engagement, FWC has advised the Compensation Committee in its selection of a group of peer companies (“Peer Group”) for purposes of assessing the competitiveness of executive compensation and performance. In the fall of 2018, FWC reviewed the peer group adopted in 2017 and recommended several changes: one peer (PrivateBancorp) to be removed due to acquisition; one peer to be removed because of its size (Flushing Financial); and three peers to be added because they were size appropriate and, like Bancorp, located in major metropolitan areas (Berkshire Hills Bancorp, Columbia Banking System, and Pacific Premier). The Compensation Committee accepted FWC’s recommendation. As of December 31, 2018, total assets for the Peer Group ranged from $7.2 billion to $41.0 billion, and market capitalization ranged from $0.7 billion to $6.3 billion. By comparison, our total assets were $16.8 billion and our market capitalization was $2.7 billion, which placed us at the 49th and 42nd percentiles compared to the Peer Group. The Peer Group consisted of the following 19 companies:

•     Boston Private Financial Holdings, Inc.      

FWC again reviewed Bancorp’s peer group in the fall of 2019. It noted that MB Financial had been acquired. In addition, FWC recommended that First Midwest Bancorp be added, because it was size appropriate and, like the Company, located in a major metropolitan area. The Compensation Committee accepted FWC’s recommendations.

Compensation Decisions for Named Executive Officers

During 2019, the Compensation Committee held seven meetings to discuss, review, and/or deliberate about our compensation program and the appropriate levels of compensation for the executive officers. As discussed in this CD&A and elsewhere in this proxy statement, the Compensation Committee, consistent with its charter and the objectives of our compensation program, reviewed and considered relevant information available to it in making its compensation decisions.

Base Salaries. On March 1, 2019, the Compensation Committee adjusted the annual base salaries for each of our Named Executive Officers other than Mr. Liu, effective April 1, 2019. The resulting salary increases were approximately 3%. The annual base salaries for the Named Executive Officers before adjustment and after adjustment are as follows:

In making its determination of merit increases, the Compensation Committee took into consideration the executive compensation reports prepared by FWC, the peer analysis, the personal ratings and performance for each of the executive officers, and a presentation by Mr. Tai discussing management’s recommendations for merit increases with respect to executive officers other than Mr. Tai and Mr. Cheng.

Mr. Liu’s salary was increased from $317,339 to $380,000 in connection with his promotion in February 2019 from Executive Vice President and Chief Lending Officer of Cathay Bank to Executive Vice President and Chief Operating Officer of Bancorp and Cathay Bank.

Bonuses. As in previous years, the bonus calculations for Mr. Tai and Mr. Cheng’s bonus structure were primarily based on net income, as described below. With respect to the other Named Executive Officers, the Compensation Committee continued its use of the bonus program that was adopted in 2017, which has the following characteristics:

There was no bonus payout for performance below minimum levels and, with respect to the EPS and ROA goals, payout occurred on an interpolated basis for performance between threshold and target and between target and maximum. With respect to the performance rating component, the payout percentage advances in steps, i.e. a performance rating from 3.25 to below 3.75 would result in a 100% payout, a rating from 3.75 to below 4 would result in a 110% payout, etc.

By way of illustration, if an executive’s base salary was $100,000, the target bonus was 80%, the EPS, ROA, and individual/departmental percentages were 50%, 20%, and 30% respectively, and the percentages of achievement were 90%, 100%, and 110% respectively, a bonus of $78,400 would have been payable, computed as:

With respect to 2019, both the EPS and ROA goals were achieved slightly below target levels, EPS at $3.48 and ROA at 1.61%. These achievement levels resulted in payout percentages of 97.86% and 93.14% of target with respect to these two components of the bonus program, resulting in a weighted average payout percentage of 96.44%, excluding Mr. Liu. The achievement level for loan growth was 7.9%, resulting in a 126% payout percentage.

On February 28, 2020, the Compensation Committee determined the bonus amounts for the Named Executive Officers for 2019. The amounts awarded to the Named Executive Officers are as follows:

The basis on which the amounts of the cash bonus awards were determined was as follows for each of the Named Executive Officers.

Pin Tai

In March 2019 the Compensation Committee established the Company’s net income as the specific financial performance criteria for the award of a cash bonus to Mr. Tai for the 2019 measurement period. The terms of Mr. Tai’s pre-established net income goal provided for a minimum and maximum bonus, ranging from (1) 60% of his base salary as of January 1, 2019 based on minimum net income of $221.17 million to $229.57 million to (2) 175% of his base salary as of January 1, 2019 based on net income that exceeded $313.57 million. In the event net income achieved the budgeted amount of $279.97 million, the maximum payout was 115% of base pay. Under the plan, no bonus would have been payable to Mr. Tai if the Company’s net income was below $221.17 million, and the Compensation Committee retained the discretion to award a lesser amount than the bonus designated by the net income formula.

As part of the bonus process, individual/departmental goals were established for the Named Executive Officers. Mr. Tai’s goals included efforts with respect to management of his direct reports, recruitment of key officers, representation of the bank in business and community functions, improving and building relationships with key customers, supporting the Greater China Business Development Program, updating the three-year strategic plan, maintaining the bank’s core values and corporate culture, and providing strategic direction.

In February 2020 the Compensation Committee met and determined that Mr. Tai’s bonus for 2019 should be a cash payment of $795,000. Based on Company achievement of net income in the amount of $279.1 million, the maximum bonus payable under Mr. Tai’s bonus plan was $795,000. After evaluating Mr. Tai’s performance, the Compensation Committee’s determined to award him a bonus in that maximum amount.

Heng W. Chen

Mr. Chen’s individual/departmental goals included efforts with respect to supervising preparation of the Capital Plan; reducing Bancorp’s effective tax rate through investment in alternative energy funds and low income housing funds; managing capital through acquisitions, increased dividends, and possible stock buybacks; maintaining an active investor relations program; complying with applicable financial and regulatory reporting requirements; supervising the treasury function; assisting in implementing the new Current Expected Credit Losses (or CECL) accounting standard model, including development and documentation of key controls; and developing the three SVPs in the Finance Division as part of a long-term succession planning program.

The Compensation Committee determined that Mr. Chen’s bonus for 2019 should be based on the average corporate performance percentage of 96.44% applied to his target bonus percentage of 75%, resulting in a bonus payout of $356,000. While Mr. Chen’s individual performance was, as in prior years, taken into account, the Compensation Committee determined that, in light of financial performance for 2019, it was more appropriate to base the payout percentage solely on the financial performance metrics in the 2019 bonus plan.

Dunson K. Cheng

In March 2019, the Compensation Committee established the Company’s net income as the specific financial performance criteria for the award of a cash bonus to Mr. Cheng for the 2019 measurement period. The terms of Mr. Cheng’s pre-established net income goal provided for a minimum and maximum bonus, ranging from (1) 93.3% of his base salary as of January 1, 2019 based on minimum net income of $221.17 million to $229.57 million to (2) 208.3% of his base salary as of January 1, 2019 based on net income that exceeded $313.57 million. In the event net income achieved the budgeted amount of $279.97 million, the maximum payout was 148.3% of base pay. Under the plan, no bonus would have been payable to Mr. Cheng if the Company’s net income was below $221.17 million, and the Compensation Committee retained the discretion to award a lesser amount than the bonus designated by the net income formula.

Mr. Cheng’s goals included effectively participating in major management decisions in order to continue receiving the benefit of his unique expertise stemming from 23 years’ experience as our CEO; implementing management’s succession process; as well as contributing in the Company’s efforts to address long-term strategic issues in technology.

In February 2020 the Compensation Committee met and determined that Mr. Cheng’s bonus for 2019 should be a cash payment of $824,000. Based on Company achievement of net income in the amount of $279.1 million, the maximum bonus payable under Mr. Cheng’s bonus plan was $1,066,400. The Compensation Committee’s determination to award $824,000 took into account, among other factors, the Compensation Committee’s views with respect to limiting the overall size of the bonus pool and input from Mr. Cheng indicating that, despite the Compensation Committee’s conclusion that his performance had been very satisfactory with respect to his goals, a significantly smaller bonus than the maximum bonus he was eligible was an acceptable outcome, taking into account the overall interests of Bancorp.

Irwin Wong

Mr. Wong’s individual/departmental goals included goals with respect to deposit growth, loan growth, revenue contribution, wealth management referrals, cash management referrals, foreign exchange revenue, sales and services, and new customer acquisitions.

The Compensation Committee determined that Mr. Wong’s bonus for 2019 should be based on the average corporate performance percentage of 96.44% applied to his target bonus percentage of 80%, resulting in a bonus payout of $358,000. While Mr. Wong’s individual performance was, as in prior years, taken into account, the Compensation Committee determined that, in light of financial performance for 2019, it was appropriate to base the payout percentage solely on the financial performance metrics in the 2019 bonus plan.

Chang M. Liu

Mr. Liu’s individual/departmental goals included working with the lending EVPs and the head of syndication loans to help support and promote quality loan growth; working with the CAO to become more involved with all of his direct reports; increasing visibility with retail branches; assimilating finance related issues and topics from the CFO; contributing to Cathay Bank’s strategic direction of enhanced digital banking; and working with Executive Management to further focus and define Cathay Bank’s overall strategic and business plans.

As described above, the payout percentages for the EPS and ROA components of the bonus plan were 97.86% and 93.14%, respectively, and the payout percentage for loan growth was 126%. 70% of the weighted average of these percentages was 73.36%. Mr. Liu’s individual/departmental goal payout percentage was computed at 30% (i.e., a 100% rating times a 30% payout percentage), resulting in an overall payout percentage of 103.36%. This resulted in a bonus amount of $314,000.

In December 2020, the Compensation Committee approved the payment to Mr. Liu of $310,193, representing a portion of his overall bonus for 2020. The remaining $3,807 was paid in March. This procedure enabled the December payment to be deductible for federal income tax purposes whereas a portion of it might not have been deductible in 2020 due to the $1 million limitation on deductible compensation for named executive officers.

Equity Incentives 

Structure of Equity Incentives

The Compensation Committee has determined to award long term incentive awards to the Named Executives in the form of performance-based RSUs, using performance metrics that the Compensation Committee believes results in a strong alignment of investor and executive interests. Each executive is granted a target number of RSUs for each award type that is based on an approved dollar value, which would then be converted to an amount of RSUs, based on accounting values, which in the case of the TSR-based RSUs, uses the Monte-Carlo valuation model. In developing the program, the Compensation Committee considered the tax and accounting treatment of performance share units compared to other forms of equity awards, the vesting provisions in the event of death, disability or retirement or a change in control, and the range and scope of clawbacks.

If target performance is achieved, each RSU generally represents the right to receive one share of our common stock at the end of the performance period, subject to adjustment. Performance above the target generally results in payment of additional shares and performance below the target generally results in payment of fewer or no shares. The performance period for the RSU awards is three years. The metrics for the awards consisted of (1) an absolute EPS metric, (2) a TSR metric based on stock price growth plus dividends, relative to the companies in the KBW Regional Bank Index over the performance period, and (3) an ROA metric based on ROA relative to the companies in the KBW Regional

Bank Index over the performance period. The Compensation Committee chose these metrics because it concluded that successful performance against these metrics would align well with increases in long-term stockholder value. The value of the awards is split approximately 50/25/25 among these three metrics with the EPS metric being 50%.

The number of target RSUs will be increased to the extent that dividends are paid on our common stock, as if reinvested on the ex-dividend date in additional shares. If a “change in control,” as defined in the award agreement, occurs before the end of the performance period, a number of the target RSUs based on EPS or TSR or ROA may be earned depending on the timing of change in control and whether the RSUs are assumed by a public company. All the RSUs earned will be fully vested, and distribution of shares will commence generally within 90 days following the end of the performance period, provided the Named Executive Officer remains continuously employed through the performance period. Special provisions will apply if a Named Executive Officer dies, incurs a “total and permanent disability” or terminates employment on account of “retirement” as these terms are defined in the award agreement. Provision is made for cancellation of RSU awards or repayment under certain circumstances. In the event a restatement of our financial results occurs, up to 50% of the aggregate awards for that individual can be forfeited or cancelled, whether or not such units are vested. If a distribution of shares has already occurred, provision is made for the surrender of up to 50% of the total shares received or, if shares have been sold, repayment of the proceeds, but in no event more than 50% of the aggregate fair market value of all shares received by the employee pursuant to the award agreements.

RSUs Awarded in July 2019

In previous years RSUs have generally been granted in the last quarter of the year. This timing has been modified since 2017.

With respect to grants that might have been previously made in the last quarter of 2017, the timing of the grant cycle was modified, due to the enactment of the Tax Cuts and Jobs Act of 2017 (TCJA). It was decided to delay until 2018 the issuance of the LTI that had a performance metric based on EPS performance over the three-year period commencing January 1, 2018. This change occurred because management determined that it needed more time to consider the impact of the TCJA in order to compute the appropriate 2018-2020 EPS target for the RSUs using EPS as the performance metric. Accordingly, the Compensation Committee determined to delay the grant of the EPS RSUs to the Named Executive Officers until early 2018, which grant was made on March 15, 2018. The 2019 Proxy Statement contains information with respect to the EPS RSUs that were made to the Named Executive Officers in 2018.

The Compensation Committee determined to return to its pattern of issuing all three forms of RSUs at the same time in 2019 and grants were made to all the Named Executive Officers on July 18, 2019 other than Mr. Tai (as part of the negotiations resulting in his new Employment Agreement, an understanding was reached that he would not be provided any additional equity awards through the end of his employment).

The July 2019 grant values were as follows:

Reflecting the 50/25/25 split in value, these Named Executive Officers received the following RSUs:

In considering the award of performance-based RSUs, the Compensation Committee reviewed materials prepared by FWC, including an analysis of the base salaries, target bonus opportunities, long-term incentives, and total compensation of our Named Executive Officers, compared with proxy statement data for our Peer Group and survey data covering the banking industry.

The Compensation Committee discussed an analysis of EPS for the three-year performance period and used a projected cumulative EPS for that period to establish a target EPS for the three-year performance period ending December 31, 2021. The target EPS, in the opinion of the Compensation Committee, reflects reasonable earnings growth over the performance period and will not involve excessive risk to achieve. If the actual cumulative EPS for the three-year period equals the target, 100% of the RSUs will be earned and will be scaled up to 150% of the units if the actual cumulative EPS is up to 15% or more than the target. If the actual cumulative EPS is less than 100%, but not more than 15% below the target, the number of units earned will be scaled down to 50%. If the actual cumulative EPS is more than 15% below the target, none of the RSUs will be earned.

For the awards based on TSR, the number of earned RSUs will be determined by comparing our TSR from the award date to the end of the three-year performance period ending December 31, 2021, with the TSR of each of the companies in the KBW Regional Bank Index over the performance period. If our TSR over the performance period is below the 30th percentile when ranked against each of the peer companies, no RSUs will be earned. If the ranking is equal to the 30th percentile, 50% of the target RSUs will be earned. To the extent that our TSR is ranked above the 30th percentile, the number of earned target RSUs will be scaled up to 150% of the target restricted stock units for performance at or above the 70th percentile, so that 100% of the target RSUs will be earned for performance at the 50th percentile.

For the awards based on ROA, the number of earned RSUs will be determined by comparing our ROA for the three-year performance period ending December 31, 2021 with the ROA

of each of the companies in the KBW Regional Bank Index over the same period. For this purpose, ROA will consist of the average ROA over the three years. If our ROA over the performance period is below the 30th percentile when ranked against each of the peer companies, no RSUs will be earned. If the ranking is equal to the 30th percentile, 50% of the target RSUs will be earned. To the extent that our ROA is ranked above the 30th percentile, the number of earned target RSUs will be scaled up to 150% of the target RSUs for performance at or above the 70th percentile, so that 100% of the target RSUs will be earned for performance at the 50th percentile.

The 2019 Grant Cycle

As of the date of the 2020 Proxy Statement, no additional LTI incentives have been granted to the NEOs since the July 2019 LTI grants. The Compensation Committee expects to make additional LTI grants in 2020 and that these grants will both (1) continue to take into account performance in 2019 and thereafter and (2) continue to use the 50/25/25 structure employed beginning in 2016. As of the date of this Proxy Statement, however, the Compensation Committee has not determined on a date as of when these grants will be made.

Payout of 2016 Long-Term Equity Incentives

The performance period for the long-term equity incentives awarded in December 2016 ended December 31, 2019. With respect to the awards based on EPS, the payout percentage was 150%. With respect to the awards based on TSR, the Company’s ranking among the 43 companies was 14^th, resulting in a percentile ranking at the 69^th percentile, and the payout percentage was 148%. With respect to the awards based on ROA, the Company’s ranking among the 43 companies was 10^th, resulting in a percentile ranking at the 79^th percentile, and the payout percentage was 150%.

Risk Assessment

In June 2010, the federal regulatory agencies, including the Federal Reserve Board, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, jointly issued the “Guidance on Sound Incentive Compensation Policies,” which is based on the following three principles that are to be incorporated in incentive compensation practices:

In February 2014, the Board adopted an Incentive Compensation Policy to assist the Compensation Committee in complying with the Guidance, and adopted procedures by management to implement the policy.

One of the responsibilities of the Compensation Committee, as set forth in its charter, is to monitor the performance, and regularly review the design and function, of incentive compensation plans and arrangements to ensure that they do not encourage officers to take unnecessary and excessive risks that threaten our value and do not encourage the manipulation of reported earnings to enhance the compensation of any employee.

Our Compensation Committee meets on an annual basis with our Chief Financial Officer, our senior risk officers, namely the Chief Risk Officer, Chief Human Resources Officer of Cathay Bank, and our General Counsel, to review our compensation plans and evaluate the risks, both long-term and short-term, that we face. We conduct a regular review of the business units to identify and examine risks that may be posed to us and our safety and soundness. The Compensation Committee reviews our incentive compensation arrangements to seek to ensure that they do not encourage our executive officers to take any unnecessary or excessive risks that threaten our value, to identify features that could pose risks to us and limit those features to ensure that we are not unnecessarily exposed to risks, and to eliminate any features that would encourage the manipulation of our reported earnings to enhance the compensation of any employee. Among the matters considered are the balance between base and incentive compensation, between cash and equity compensation, and between service-based and performance-based compensation; whether performance goals are realistic and the maximum payout opportunities are reasonable; and whether awards are subject to a clawback. More specifically, in consultation with the senior risk officers, the Compensation Committee determines whether the amounts of the base salaries, the short-term cash bonuses and the LTI awards, both performance-based and time-based, for our executive officers appropriately balance risk and reward and do not encourage taking unnecessary and excessive risks or encourage the manipulation of reported earnings. 

Additional Information Relating to Executive Compensation

Ownership Guidelines

In February 2017, we amended our Corporate Governance Guidelines to provide that our Chief Executive Officer shall hold shares of our common stock with a value equal to three times the amount of his or her annual base salary. We do not require any other officer to maintain a minimum ownership interest in our stock. We believe our stock ownership requirements for the Chief Executive Officer, as well as our directors, further align the interests of the Chief Executive Officer and our directors with those of our stockholders by requiring them to hold substantial equity in Bancorp. Until the stock ownership requirements are met, the Chief Executive Officer may not sell, assign, transfer, or pledge any Bancorp stock.

Compensation Recovery Policy

A compensation recovery policy (or “clawback”) generally provides that bonuses or other incentive compensation awards are subject to forfeiture and recovery if such payments or awards were made based on materially inaccurate financial statements.

All outstanding performance-based RSUs awarded to executive officers are subject to a clawback provision, and our Bonus Program provides for a clawback of cash bonuses as well. The 2005 Incentive Plan also has a clawback provision. We believe the principles of a clawback in the event of materially inaccurate financial statements are consistent with our compensation philosophy, which ties compensation to our financial and operating performance and the overall increase in stockholder value, and which does not encourage the taking of unnecessary and excessive risks that could threaten our value or encourage the manipulation of reported earnings to enhance the compensation of any employee.

Employment Agreements

With the exception of the Change in Control Employment Agreements described in the next section, we have no employment agreements with any of the Named Executive Officers, with the exception of Mr. Tai.

Mr. Tai entered into an employment agreement in connection with his role as the Chief Executive Officer and President of Bancorp and Cathay Bank (the “Prior Employment Agreement”). The Prior Employment Agreement generally provided for a three-year employment term commencing October 1, 2016, subject to automatic one-year extensions unless notice of non-renewal was timely given thereunder. Base salary was initially set at $700,000 subject to annual review, and the Prior Employment Agreement provided that Mr. Tai was generally eligible to participate in the same benefit programs applicable to other senior executives, including eligibility for a country club membership and use of a luxury automobile. In the event Mr. Tai’s employment is terminated on account of death or disability, terminated by Bancorp for reasons other than cause, or he terminated employment for good reason, he would receive as severance an amount equal to 18 months base salary in addition to accrued obligations under the Prior Employment Agreement.

On June 20, 2019, Bancorp, Cathay Bank and Mr. Tai entered into a new Employment Agreement (the “Employment Agreement”) and a Consulting Agreement (the “Consulting Agreement”).

Under the Employment Agreement, the employment term commenced October 1, 2019 upon expiration of Prior Employment Agreement and continues through September 30, 2020 unless earlier terminated in accordance with its terms. Mr. Tai continues as CEO of Bancorp and Cathay Bank through the term of the contract. His salary for the term is $819,000 and he will earn a bonus of $110,614 if employed for the length of the contract (this is in addition to the bonus he earned for his performance in 2019). He is not entitled to any grant of equity awards during the term. He is generally eligible for the welfare benefit plans and vacation and fringe benefits that he received under the Prior Employment Agreement.

The Employment Agreement provides that each RSU subject solely to time-based vesting that is scheduled to vest prior to October 1, 2020, shall continue to vest on their scheduled dates subject to Mr. Tai’s continued employment and such time-based RSUs scheduled to vest after September 30, 2020 shall be forfeited (Mr. Tai received these RSUs in March 2017, 2018, and 2019 as part of the bonus process). With respect to the performance-based RSUs with employment periods ending December 31, 2020, subject to continued employment through September 30, 2020, Mr. Tai will vest on a pro-rata basis, subject to the level of achievement for the performance period.

In the event of Mr. Tai’s termination without cause or resignation for good reason (as those terms are defined in the Employment Agreement), he is entitled (in addition to certain accrued obligations) to salary continuation through the end of the term, a severance payment of $296,512, and vesting in his RSUs as if he continued employment through September 30, 2020.

The Consulting Agreement provides that, if Mr. Tai remains employed through September 30, 2020, he will render services as an independent contractor for a one-year period commencing October 1, 2020, advising Bancorp and Cathay Bank as requested from time to time. He will be paid a fee of $148,256 if he provides services through March 31, 2021, and an additional fee of $148,256 if he provides services through September 30, 2021. Absent permission, he will not provide services to any other financial institution during the term and, in addition, during the term he will not solicit any customer to stop or reduce business with Cathay Bank nor provide services in any capacity to a competitor of Bancorp. If the Consulting Agreement is terminated due to breach by Bancorp or Cathay Bank, Mr. Tai is generally entitled to fees for the balance of the term, subject to a general release by him. In the event of his breach, he is only owed fees due through the termination date.

The preceding description of the Employment Agreement and Consulting Agreement is not a complete summary and is qualified in its entirety by reference to the Employment Agreement and Consulting Agreement, copies of which have been filed by Bancorp as exhibits to the Form 8-K filed on June 21, 2019. For more discussion, see “Employment Agreement” below.

Change of Control Agreements

The Board desires to promote stability and continuity of senior management and to help align their interests with those of our stockholders in the event of a change in control or potential change in control of Bancorp. Accordingly, we have entered into Change of Control Employment Agreements (the “Control Agreements”) with some of our executive officers and Executive Vice Presidents of Cathay Bank. We believe that these agreements help to ensure that our key officers will remain fully engaged during a change in control or potential change in control. The Control Agreements provide for enhanced severance benefits in the event of a voluntary termination of employment for “good reason” or involuntary termination other than for “cause” following a “change in control.” Based on a review of information generally available to the public and the advice of outside legal counsel, the Board determined that these arrangements were competitive and reasonable. The Control Agreements do not influence our decisions surrounding the Named Executive Officer’s cash and equity compensation. For a more detailed discussion of the severance benefits, the events that would trigger payment of severance benefits and the Control Agreements in general, see “Potential Payments Upon Termination or Change in Control” below.

Response to 2019 Vote on Executive Compensation

The Board has been annually submitting to our stockholders a proposal to approve, on an advisory (nonbinding) basis, our executive compensation. At the 2019 annual meeting of stockholders, 98.54% of the votes cast were in favor of approving this proposal. The Compensation Committee was aware of and considered the results of the advisory vote on executive compensation, and has construed this favorable vote of stockholders as supporting its executive compensation decisions and policies. 

Pledging and Hedging Policy

The Board has adopted a policy that prohibits, unless advance approval has been obtained from the Board, all directors and executive officers (including the Named Executive Officers) from holding our securities in a margin account or otherwise pledging or hypothecating our securities as collateral for a loan, entering into hedging or monetization transactions or similar arrangements with respect to our securities, or engaging in certain other speculative trading in our securities. No such requests have been made and consequently no such approvals have been granted. 

Deductibility of Executive Compensation

The Compensation Committee had designed our bonus and LTI programs to conform to Section 162(m) of the Internal Revenue Code and related regulations so that payments under these programs would generally not count against the $1 million deduction limit that generally applied to Named Executive Officers. Accordingly, the bonus and LTI programs were designed so that payments would qualify under the exception for “performance-based” compensation. Changes to Section 162(m) in the TCJA eliminated the “performance-based” exception to the deductibility limit, except for a limited exception with respect to written, binding contracts in effect on November 2, 2017 that are not modified in any material respect after that date. California has passed conforming legislation generally effective January 1, 2019, with a limited exception for written, binding contracts in effect on March 31, 2019. As a result, starting in 2018 our executive compensation is not likely to be fully deductible.

Nonqualified Deferred Compensation

We do not have a deferred compensation program, and we have no current plans to implement such a program. However, we do have two deferred compensation arrangements with Dunson K. Cheng. For details regarding these deferral arrangements, see “Nonqualified Deferred Compensation” below.

Section 409A of the Internal Revenue Code provides that an employee receiving deferred compensation (including certain types of equity awards) is subject to additional income tax and interest charges unless the deferred compensation is paid pursuant to a plan and procedures meeting certain requirements of Section 409A. It is our intention to deliver any deferred compensation in a manner which complies with the requirements under Section 409A.

Accounting for Stock-Based Compensation

On January 1, 2006, we adopted FASB Accounting Standards Codification Topic 718, Compensation—Stock Compensation (“FASB ASC Topic 718) on a modified prospective basis. FASB ASC Topic 718 requires an entity to recognize compensation expense based on an estimate of the number of awards expected to actually vest, exclusive of awards expected to be forfeited.

With the adoption of FASB ASC Topic 718, the accounting treatment for all forms of stock options changed, thereby prompting us to review the relative merits of nonstatutory stock options and, more recently, restricted stock and RSUs. A desirable feature of restricted stock and RSUs is that they permit us to issue fewer shares, thereby reducing potential stockholder dilution. We believe that restricted stock and RSUs provide an equally motivating form of incentive compensation as stock options, and we will weigh the costs of restricted stock, RSUs, and nonstatutory stock option grants with their potential benefits as compensation tools. Stock options only have value to the extent that our share price on the date of exercise exceeds the exercise price on the grant date and are an effective motivational tool when the stock price rises over the term of the award. Restricted stock and RSUs serve to reward and retain executive officers through shares valued at the current price on the date the restriction lapses, which awards may be subject to both service- and performance-based conditions.

We believe that being able to award restricted stock and RSUs, separately or in combination, should serve our objectives of incentivizing our executive officers to focus on delivering long-term value to our stockholders. 

No person who was a member of the Compensation Committee during 2019 had any relationships requiring disclosure.

The Compensation Committee has reviewed and discussed with management the foregoing CD&A and, based on such review and discussion, has recommended to the Board that the CD&A be included in this proxy statement and incorporated by reference into Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2019.

Compensation Committee

Ting Y. Liu (Chairman)

Kelly L. Chan

Joseph C.H. Poon

Richard Sun

Our Named Executive Officers did not receive any benefits during 2019 under any defined contribution plan other than the 401(k) Profit Sharing Plan. We do not have any defined benefit plans.

We entered into a new employment agreement with Pin Tai dated as of June 20, 2019 (the “Employment Agreement”), in connection with his position as Chief Executive Officer of Bancorp and Cathay Bank.

The term of Mr. Tai’s employment (the “Term”) under the Employment Agreement began on October 1, 2019 and will continue through September 30, 2020, unless earlier terminated in accordance with the Employment Agreement. The Employment Agreement provides that Mr. Tai will continue to serve as Chief Executive Officer and a director of Bancorp and Cathay Bank.

During the Term, Mr. Tai is entitled to base salary of $819,000, and is eligible for a 2019 bonus under the terms of Cathay Bank’s cash bonus program and a special bonus of $110,614 for 2020. Mr. Tai is eligible for all welfare benefit plans and the same vacation and fringe benefits currently provided to Mr. Tai, all as set forth under the terms of the Employment Agreement. Mr. Tai’s existing restricted stock units continues to vest in accordance with the same vesting and other requirements under his existing award agreements, all as set forth in the Employment Agreement.

The Employment Agreement includes customary non-competition, employee and customer non-solicitation, confidentiality and non-disparagement clauses, for the periods specified in the Employment Agreement, and subject to the limitations and other applicable provisions in the Employment Agreement.

We may terminate Mr. Tai’s employment due to disability, or with or without “Cause” as defined in the Employment Agreement. Mr. Tai can terminate his employment with or without “Good Reason” as defined in the Employment Agreement. Employment under the Employment Agreement terminates automatically upon Mr. Tai’s death or expiration of the Term. On any termination, Mr. Tai will resign from each position as a director or officer.

If we terminate without Cause or Mr. Tai resigns for Good Reason, Mr. Tai will be entitled to (i) salary continuation through the end of the original Term; (ii) additional severance of $296,512, with half the amount payable on March 31, 2021 and the remaining half payable in October 2021; (iii) payment of 2019 target bonus amount (to the extent it is not payable as an accrued obligation upon termination) and the 2020 special bonus of $110,614; and (iv) continued vesting of RSUs as if Mr. Tai remained employed with us through September 30, 2020. All severance is subject to Mr. Tai signing and not revoking a separation agreement and general release in a form acceptable to us.

In the event of a “Change of Control” as defined in the Employment Agreement, the Employment Agreement will terminate and Mr. Tai’s employment will be exclusively governed by the Control Agreement, as further discussed below under “Potential Payments upon Termination or Change of Control.”

Concurrently with the execution and delivery of the Employment Agreement, we also entered into a consulting agreement, dated June 20, 2019, with Mr. Tai (the “Consulting Agreement”). The Consulting Agreement becomes effective only if Mr. Tai remains employed by us through September 30, 2020. If the Consulting Agreement becomes effective, the term of the consultancy will be for one year, from October 1, 2020 through September 30, 2021, unless earlier terminated under the terms of the Consulting Agreement (the “Consulting Term”).

Mr. Tai will be retained as an independent contractor under the Consulting Agreement, advising the Company and Cathay Bank as requested. Mr. Tai will be paid a fee of $296,512 during the Consulting Term. One half of the fee will be paid on March 31, 2021 and one half at the end of the Consulting Term provided he signs a general release of claims at the end of the Consulting Term.