Dunson Cheng
CATHAY GENERAL BANCORPAbout Dunson Cheng
Executive Chairman of Cathay General Bancorp and Cathay Bank since 2016; previously Chairman, President and CEO of the Bancorp (1994–2016) and President of Cathay Bank (1985–2015). He has over 40 years of banking experience, holds a Ph.D. in Physics, is age 80, and has served as a director of the Bancorp since 1990 (Cathay Bank since 1982) . 2024 company performance context: net income fell to $286M from $354M, diluted EPS decreased to $3.95 from $4.86, efficiency ratio worsened to 51.35% (46.97% prior), net interest margin declined to 3.04% (3.45% prior), and TSR was 6.82% vs 9.59% for the S&P U.S. BMI Banks – Western Region Index . Board leadership is separated (CEO vs Executive Chair) with a Lead Independent Director structure to mitigate independence concerns tied to Cheng’s executive-chair role .
Past Roles
| Organization | Role | Years | Strategic impact |
|---|---|---|---|
| Cathay General Bancorp | Executive Chairman | 2016–present | Board leadership, CEO mentoring, risk and investment oversight |
| Cathay General Bancorp | Chairman, President & CEO | 1994–2016 | Led growth and operations across the Bancorp and Bank |
| Cathay Bank | President | 1985–2015 | Direct operating leadership of bank franchise |
External Roles
| Organization | Role | Years | Notes |
|---|---|---|---|
| DiCon Fiberoptics, Inc. | Director | Not disclosed | Supplier of optical components |
| Foundation of Tsinghua University Center for Advanced Study | Board member | Not disclosed | Academic foundation governance |
| California Bankers Association | Former director | Not disclosed | Industry association leadership |
Fixed Compensation
| Year | Base salary ($) | Stock awards (grant-date fair value) ($) | Non-equity incentive plan compensation ($) | Change in pension/Nonqualified DC earnings ($) | All other comp ($) | Total ($) |
|---|---|---|---|---|---|---|
| 2024 | 625,000 | 1,367,936 | 496,800 | 43,041 | 32,233 | 2,565,010 |
| 2023 | 700,000 | 1,589,977 | 582,900 | 40,844 | 31,756 | 2,945,477 |
| 2022 | 730,523 | 1,589,900 | 891,000 | 38,774 | 29,796 | 3,279,993 |
- 2024 base pay was reduced ~14% (to $600,000 effective Apr 1, 2024) reflecting decreased responsibilities as CEO tenure progressed; SCT reflects partial-year impact .
- Perquisites exceeded $10,000 in 2024 (auto and club memberships included in “All other comp”) .
- Cheng maintains two legacy deferred compensation arrangements; 2024 aggregate earnings were $128,774 with an aggregate balance of $2,557,874; $43,041 of the interest was “above-market” and included in SCT .
Performance Compensation
Annual cash bonus design (2024):
- Target bonus as % of base salary: 100% .
- Metric weights (Cheng): EPS 56%, ROA 24%, Individual/Department 20% .
- 2024 outcomes: EPS $3.95 vs $4.45 target (77.53% payout for EPS portion); ROA 1.22% vs 1.35% target (80.74% payout for ROA portion); Individual rating produced 100% payout for Cheng’s individual portion; total bonus paid: $496,800 .
| Metric | Weight | Target | Actual | Payout % | 2024 Payout ($) |
|---|---|---|---|---|---|
| EPS | 56% | $4.45 | $3.95 | 77.53% | Included in total $496,800 |
| ROA | 24% | 1.35% | 1.22% | 80.74% | Included in total $496,800 |
| Individual/Department | 20% | Rating scale | 3.25–3.5 bracket equivalent for 100% payout | 100% | Included in total $496,800 |
| Total | 100% | — | — | Blended (component weights) | 496,800 |
Long-term incentives (granted June 28, 2024):
- 50% EPS (3-year cumulative EPS curve); 25% relative TSR vs KBW Regional Bank Index; 25% relative ROA vs the same index; 3-year performance period ending Dec 31, 2026; 0–150% payout range; earned RSUs vest/distribute within ~90 days post-period; dividend equivalents accrue and are delivered only upon vest/earn .
- Cheng’s 2024 LTI grant: $1.368M grant-date fair value; target RSUs: 18,133 (EPS), 8,995 (TSR), 9,066 (ROA) .
| Grant date | LTI grant GDFV ($) | EPS RSUs (target) | TSR RSUs (target) | ROA RSUs (target) | Performance period | Payout range |
|---|---|---|---|---|---|---|
| 06/28/2024 | 1,367,936 | 18,133 | 8,995 | 9,066 | 1/1/2024–12/31/2026 | 0–150% by metric |
Vesting/realization:
- 2024 stock vested: 45,932 shares; value realized $1,966,808 .
- 2022 PSU payout (settled 2025): EPS 72.938%, TSR 125% (60th percentile), ROA 150% (89th percentile) for the 2022 grant cohort (applies company-wide to NEO awards) .
Equity Ownership & Alignment
| Category | Shares |
|---|---|
| Total beneficial ownership | 854,208 (1.22% of 70,004,272 outstanding) |
| Trusts (Dunson & Cynthia Cheng Trust + Nonmarital Trust) | 567,029 (384,577 + 182,452) |
| ESOP allocated to Cheng | 102,890 |
| Vested RSUs pending share issuance within 60 days (gross) | 45,932 |
- Pledging/hedging: Board policy prohibits pledging, margining, and hedging by directors/executives without advance Board approval; no such approvals have been granted (mitigates alignment risk) .
- Ownership guidelines: directors must hold ≥3x the annual cash retainer (all current directors meet or are within grace period) ; executive stock ownership requirement applies to the CEO; “We do not require any other officer to maintain a minimum ownership interest” (no specific executive ownership guideline for Cheng) .
Outstanding RSUs (as of Dec 31, 2024) – key tranches and dates:
| Tranche | Unearned RSUs (#) | Scheduled vest date | Notes |
|---|---|---|---|
| 2023 grant cohort (3-year PSU) | 21,842 | 12/31/2024 | Performance-based; includes accrued dividend equivalents |
| 2024 grant cohort (3-year PSU) | 18,744 | 12/31/2026 | Performance-based; 0–150% |
Note: Vesting dates may represent performance periods’ end; delivery generally within ~90 days post period, subject to continued employment and plan exceptions (retirement/death/disability/CIC) .
Employment Terms
| Term | Key provisions |
|---|---|
| Employment agreement | None disclosed for Cheng; only CEO has an employment agreement . |
| Change-in-control (CIC) agreement | Double-trigger cash severance upon involuntary termination without cause or resignation for good reason following a CIC; lump sum equals 3x (base salary + Applicable Annual Bonus); plus continued benefits for 3 years and outplacement up to $50,000 . |
| CIC cash example (hypothetical as of 12/31/2024) | $5,008,500 (3x multiple on $700,000 base + $969,500 Applicable Annual Bonus) (footnote 5). |
| Equity on CIC | No automatic acceleration if awards are continued/assumed by a public company; if not continued/assumed, estimated accelerated value $3,694,012 (hypothetical scenario as of 12/31/2024 at $47.61/share, assuming target performance) . |
| Tax gross-up | Older CIC agreements (including Cheng’s 2008 agreement) include potential excise tax gross-up, subject to a 110% “cutback” threshold; newer agreements (e.g., CEO 2020) do not include gross-ups . |
| Clawback | Company adopted a Dodd-Frank compliant clawback in Sept 2023 for restatements (3-year lookback); incentive pay subject to recovery . |
| Insider trading / pledging | Insider trading policy in place; pledging/margining/hedging prohibited without advance Board approval (none granted) . |
Board Governance
- Role and independence: Executive Chairman (not independent); committees: Investment and Risk . Board separates CEO and Chair roles; Lead Independent Director (currently Nelson Chung) presides over executive sessions and facilitates independent oversight .
- Attendance and process: Board met 7 times in 2024; all directors attended >75% of aggregate Board + committee meetings; independent directors met in executive session at least quarterly (six times in 2024) .
- Committee independence: Audit, Compensation, and Nomination & Governance committees are fully independent under Nasdaq/SEC rules .
- Say-on-pay support: 94.22% approval at 2024 annual meeting (positive indicator of shareholder alignment) .
Compensation Structure Analysis
- Mix shift and risk: For Cheng, 2024 base salary was reduced (to $600k effective April 1), while performance-based equity remained the dominant long-term vehicle via PSUs with multi-year metrics (EPS/relative TSR/relative ROA) and clawback coverage—linkage to performance is explicit and formulaic .
- Bonus sensitivity: 2024 corporate underperformance vs EPS/ROA targets led to sub-target payouts (77.53% for EPS portion; 80.74% for ROA portion), while the individual component paid at 100%, yielding a total bonus of $496,800 (about 83% of target) .
- Equity risk/reward calibration: 0–150% payout curves, both absolute (EPS) and relative (TSR/ROA vs KBW Regional Bank Index), provide up/down variability; no automatic acceleration on CIC if awards are assumed, reducing windfall risk .
- Potential red flags: Legacy CIC excise tax gross-up eligibility for Cheng (older agreements) is shareholder-unfriendly and uncommon in newer contracts .
Vesting Schedules and Insider Selling Pressure
- 2024 vesting delivered 45,932 shares to Cheng (value realized $1,966,808); future scheduled PSU maturities include the 2025 and 2026 cycles with sizable unearned RSUs (e.g., 18,744 for 2026), which upon settlement can create liquidity events (subject to trading windows and withholding) .
- Company policy prohibits pledging/margining/hedging absent approval (none granted), limiting forced-selling risk from collateral arrangements .
Track Record, Value Creation, and Execution Risk
- 2024 outcomes were pressured: EPS and ROA below targets, NIM down, efficiency ratio up; TSR positive but lagged the regional bank index—bonus funding reflected these shortfalls via the EPS/ROA scoring .
- Historic PSU cohort (2022 grant) paid above target on TSR and ROA (125% and 150%), mixed on EPS (72.938%), indicating relative outperformance factors despite absolute earnings compression in 2024 .
- Governance mitigants: separated Chair/CEO structure, Lead Independent Director, fully independent key committees, and executive sessions help address dual-role concerns from an Executive Chairman .
Equity Ownership & Alignment (Director/NEO Holdings Snapshot)
| Holder | Shares | % Outstanding |
|---|---|---|
| Dunson K. Cheng | 854,208 | 1.22% |
Footnotes: holdings include trust, ESOP, and near-term settled RSUs; see “Equity Ownership & Alignment” table above for breakdown .
Say-on-Pay & Shareholder Feedback
- Say-on-Pay approval: 94.22% in 2024, indicating broad support for the program design/outcomes .
- Compensation consultant: Frederic W. Cook & Co. supports peer/pay design; peer set refreshed in 2024; committee oversight documented .
Employment Terms (Severance and Change-of-Control Economics)
| Component (CIC) | Provision |
|---|---|
| Cash severance | 3x (base + Applicable Annual Bonus) upon double-trigger termination |
| Benefits continuation | Up to 3 years; outplacement up to $50,000 |
| Equity | No automatic acceleration if assumed/continued; if not, acceleration valued at $3.694M hypothetically at 12/31/2024 (target) |
| Excise tax gross-up | Eligible under 2008 agreement (subject to 110% cutback threshold) |
| Clawback | Restatement-based recovery policy (adopted 2023) |
Investment Implications
- Pay-for-performance calibration: 2024 bonus math and 0–150% PSU curves worked as designed—under-target EPS/ROA reduced bonus funding; multi-year PSUs add leverage to relative TSR/ROA improvement prospects .
- Alignment and overhang: Cheng’s 1.22% ownership and policy-level prohibition on pledging/hedging support alignment; upcoming PSU settlements (notably 2026) can create periodic supply but within insider-trading constraints .
- Governance risk mitigated but gross-up persists: Separation of Chair/CEO and robust independent oversight reduce dual-role risk; however, legacy excise tax gross-up in Cheng’s CIC remains a shareholder-unfriendly feature to monitor .
- 2024 performance baseline: With EPS/ROA below targets and TSR lagging peers, forward PSU outcomes hinge on execution against earnings and relative metrics through 2026—watch estimate revisions and relative bank index trends for PSU accrual implications .