Although 2020 has not been an easy year for any business, it hasn’t stopped Chinatown-based Cathay General Bancorp from charging forward with new beginnings and long-term goals. 

Not only did the fifth-largest bank in Los Angeles County name a new chief executive this fall, it has effectively navigated the choppy waters caused by the Covid-19 crisis, largely coming out the other side to now pursue an expansion of its client base and loan portfolio.

To help its borrowers cope with sharp declines in revenue triggered by the unexpected health emergency, Cathay capitalized on close relationships with its customers, providing personalized attention and individualized solutions, particularly to those in commercial real estate and retail. 

“We reached out to those customers to try to understand their rent roll and what was happening with their tenants,” said Chief Executive Chang Liu, who assumed his new position in October. “So, we try to understand that process and their timing and cash flow better in order for us to try to structure a modification plan that helps their business.”

Loan deferment program

The bank offered three-to-six-month loan deferments where needed, and many customers jumped at the chance: At one point this year, more than $2 billion of Cathay’s $15 billion loan portfolio was on some type of deferment program.

Cathay also launched a “smart relief loan program” that gave small zero-to-low interest rate loans to help business customers bridge the gaps in their cash flow.

Nine months into the pandemic, the strategy appears to have mostly worked. The great majority of the bank’s customers have come through the toughest months of the crisis and ended their deferment programs with 98% of Cathay’s loan portfolio now on regular payment schedules. 

“We feel pretty strong about our credit strength,” Liu said.

Of course, Cathay — and the entire economy, for that matter — isn’t home free on the pandemic yet, especially amid the current resurgence in Covid-19 cases. 

Liu expects some of Cathay’s customers that still have deferred loans will continue to need help, giving the example of the bank’s movie theater customers that are struggling with the pandemic shutdowns. 

“We’re trying to help them out to survive through at least until next summer,” Liu said.

Cathay’s work to mitigate the impact of the recession on its customers has not derailed its longer-term plans to expand its commercial and industrial loan portfolio. 

One way the bank is tackling that goal is by going beyond its traditional client base in Southern California’s Chinese American and Chinese immigrant communities. “Instead of playing in a smaller sandbox, why not play in the larger sandbox?” Liu said.

To do this, the bank, which has around 1,200 employees, recently brought on new leadership on its lending side as well as a new commercial banking team based in the San Fernando Valley that brings experience and contacts outside of the bank’s traditional communities. 

“They have a client base that at the moment we don’t have a lot of channels into,” Liu said. “By bringing on these kinds of teams, that helps us to perhaps gain access into new channels and a new client base.”

And Liu himself has marked a shift at the bank since he took over for Pin Tai as CEO. He has been modifying the internal messaging within Cathay to prioritize goals such as rebalancing the bank’s liability mix and driving down the cost of deposits. 

In the past, he said, Cathay would undertake campaigns to incentivize certificates of deposit, but he has put those efforts aside to instead promote bringing on more business accounts.

Reducing CD exposure

So far, the numbers show the new approach is having an impact. Cathay has reduced its total CD exposure from 50% a year ago to 43% today and aims to keep driving that number down to 38% or lower in 2021. 

“The bottom’s the limit as far as I’m concerned,” Liu said. “I just have to do this over time with the help of both our branch network people as well as our lending people.”

CDs have been substituted by an increase in noninterest-bearing deposits and low-interest-bearing deposits. Customers have also been accumulating more cash than usual during the pandemic, Liu said, as businesses remain conservative about deploying capital and consumers aim to save more during the crisis. 

Cathay grew its total assets to $19.2 billion as of June 30, from $17.6 billion at that time last year. Part of that increase has been due to federal Paycheck Protection Program loans of around $260 million, but it has also been thanks to growth in the residential and commercial real estate areas of the bank’s operations. 

Going forward into 2021 and beyond, Liu said the bank will look to serve its existing client base in new ways and seek out opportunities to persuade customers at other banks to move over to Cathay. The bank will also be on the lookout for potential acquisitions, although Liu said attractive valuations are hard to come by, and there aren’t any specific deals Cathay is looking at as of now. 

In the meantime, Liu is emphasizing to his teams the importance of the bank’s deposit mix and driving down its cost of funds.

“I’m being more vocal about it. I’m driving those changes. I’m asking the branches and the lending side to really focus on that,” he said. “I’m just kind of fine-tuning the message a little bit, reaching a broader population within the bank so that we can all row the boat in the same direction.”