7. Loans

Most of the Company's business activity is predominately with Asian customers located in Southern and Northern California; New York City; Houston and Dallas, Texas; Seattle, Washington; Boston, Massachusetts; Chicago, Illinois; Edison, New Jersey, and Hong-Kong. The Company has no specific industry concentration, and generally its loans are collateralized with real property or other pledged collateral of the borrowers. Loans are generally expected to be paid off from the operating profits of the borrowers, refinancing by another lender, or through sale by the borrowers of the secured collateral.

The components of loans in the condensed consolidated balance sheets as of September 30, 2011, and December 31, 2010, were as follows:


	September 30, 2011			December 31, 2010
	(In thousands)
Type of Loans:
Commercial loans	$	1,821,059		$	1,441,167
Real estate construction loans		249,003			409,986
Commercial mortgage loans		3,748,524			3,940,061
Residential mortgage loans		967,396			852,454
Equity lines		215,315			208,876
Installment and other loans		15,845			16,077

Gross loans		7,017,142			6,868,621
Less:
Allowance for loan losses		(209,116	)		(245,231	)
Unamortized deferred loan fees		(8,360	)		(7,621	)

Total loans, net	$	6,799,666		$	6,615,769

Loans held for sale	$	1,276		$	2,873

The Company transferred the only held for sale loan of $2.9 million at December 31, 2010, to other real estate owned ("OREO") in January 2011 and sold two held for sale loans of $2.4 million with a net gains of $109,000 in the second quarter of 2011. During the third quarter of 2011, the Company sold a held for sale loan at its carrying value. As of September 30, 2011, held for sale loans were comprised of one commercial mortgage loan of $776,000 and one construction loan of $500,000.

The Company identified impaired loans with a recorded investment of $320.3 million at September 30, 2011, compared to $382.0 million at December 31, 2010. We considered all non-accrual loans to be impaired. For impaired loans, the amounts previously charged off represent 23.6% at September 30, 2011, and 23.3% at December 31, 2010, of the contractual balances for impaired loans. The following table presents the average balance and interest income recognized related to impaired loans for the period indicated:


	Impaired Loans
	Average Recorded Investment								Interest Income Recognized
	For the three months ended				For the nine months ended				For the three months ended				For the nine months ended
	September 30,				September 30,				September 30,				September 30,
	2011		2010		2011		2010		2011		2010		2011		2010
	(In thousands)
Commercial loans	$	55,599	$	31,574	$	49,370	$	35,669	$	264	$	36	$	789	$	122
Real estate construction loans		78,307		88,496		83,011		95,010		488		243		1,461		729
Commercial mortgage loans		180,554		238,708		225,195		234,045		895		940		3,100		2,120
Residential mortgage and equity lines		17,798		11,558		17,252		10,813		9		15		28		37

Subtotal	$	332,258	$	370,336	$	374,828	$	375,537	$	1,656	$	1,234	$	5,378	$	3,008

The following table presents impaired loans and the related allowance for credit losses as of the dates indicated:


	Impaired Loans
	September 30, 2011						December 31, 2010
	Unpaid Principal Balance		Recorded Investment		Allowance		Unpaid Principal Balance		Recorded Investment		Allowance
	(In thousands)

With no allocated allowance
Commercial loans	$	36,594	$	26,111	$	—	$	41,233	$	27,775	$	—
Real estate construction loans		125,478		82,818		—		102,186		64,274		—
Commercial mortgage loans		169,495		131,342		—		211,717		156,305		—
Residential mortgage and equity lines		8,073		7,468		—		7,823		7,436		—

Subtotal	$	339,640	$	247,739	$	—	$	362,959	$	255,790	$	—

With allocated allowance
Commercial loans	$	22,902	$	18,879	$	2,270	$	13,930	$	7,748	$	2,925
Real estate construction loans		—		—		—		15,429		13,416		7,470
Commercial mortgage loans		44,036		42,220		3,930		98,593		96,449		3,812
Residential mortgage and equity lines		12,475		11,422		1,203		9,811		8,589		978

Subtotal	$	79,413	$	72,521	$	7,403	$	137,763	$	126,202	$	15,185

Total impaired loans	$	419,053	$	320,260	$	7,403	$	500,722	$	381,992	$	15,185

The following table presents the aging of the loan portfolio by type as of September 30, 2011 and as of December 31, 2010:


	As of September 30, 2011
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Non-accrual Loans		Total Past Due		Loans Not Past Due		Total
	(In thousands)
Type of Loans:
Commercial loans	$	337	$	1,022	$	—	$	29,723	$	31,082	$	1,789,977	$	1,821,059
Real estate construction loans		—		—		—		49,997		49,997		199,006		249,003
Commercial mortgage loans		10,366		12,715		13,053		97,338		133,472		3,615,052		3,748,524
Residential mortgage and equity lines		948		3,596		—		15,656		20,200		1,162,511		1,182,711
Installment and other loans		300		—		—		—		300		15,545		15,845

Total loans	$	11,951	$	17,333	$	13,053	$	192,714	$	235,051	$	6,782,091	$	7,017,142


	As of December 31, 2010
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Non-accrual Loans		Total Past Due		Loans Not Past Due		Total
	(In thousands)
Type of Loans:
Commercial loans	$	7,037	$	2,990	$	—	$	31,498	$	41,525	$	1,399,642	$	1,441,167
Real estate construction loans		14,634		15,425		4,175		53,937		88,171		321,815		409,986
Commercial mortgage loans		12,569		9,430		831		144,596		167,426		3,772,635		3,940,061
Residential mortgage and equity lines		9,934		2,581		—		12,288		24,803		1,036,527		1,061,330
Installment and other loans		—		—		—		—		—		16,077		16,077

Total loans	$	44,174	$	30,426	$	5,006	$	242,319	$	321,925	$	6,546,696	$	6,868,621

The determination of the amount of the allowance for credit losses for impaired loans is based on management's current judgment about the credit quality of the loan portfolio and takes into consideration known relevant internal and external factors that affect collectibility when determining the appropriate level for the allowance for credit losses. The nature of the process by which the Bank determines the appropriate allowance for credit losses requires the exercise of considerable judgment. This allowance evaluation process is also applied to troubled debt restructurings since trouble debt restructurings are considered to be impaired loans.

A troubled debt restructuring ("TDR") is a formal modification of the terms of a loan when the lender, for economic or legal reasons related to the borrower's financial difficulties, grants a concession to the borrower. The concessions may be granted in various forms, including change in the stated interest rate, reduction in the loan balance or accrued interest, or extension of the maturity date that causes significant delay in payment.

At September 30, 2011, accruing TDRs were $126.3 million and non-accrual TDRs were $44.1 million compared to accruing TDRs of $136.8 million and non-accrual TDRs of $28.1 million at December 31, 2010. The Company has allocated specific reserves of $2.1 million to accruing TDRs and $1.2 million to non-accrual TDRs at September 30, 2011, and $3.6 million to accruing TDRs and $1.3 million to non-accrual TDRs at December 31, 2010. The following table presents TDRs that were modified during the first nine months ended September 31, 2011, and during the third quarter of 2011.


	TDRs Modified During the First Nine Months of 2011
	Accruing TDRs						Non-Accruing TDRs
	No. of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		No. of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(In thousands)						(In thousands)

Commercial loans		3	$	13,026	$	13,025		4	$	8,161	$	2,161
Real estate construction loans		2		36,848		26,544		1		7,382		7,382
Commercial mortgage loans		4		27,482		16,062		2		1,248		1,248
Residential mortgage and equity lines		2		1,125		1,125		1		451		451

Total		11	$	78,481	$	56,756		8	$	17,242	$	11,242

	TDRs Modified During the Third quarter of 2011
	Accruing TDRs						Non-Accrual TDRs
	No. of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		No. of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(In thousands)						(In thousands)

Commercial loans		1	$	14	$	14		1	$	363	$	363
Real estate construction loans		2		36,848		26,545		—		—		—
Commercial mortgage loans		3		23,708		14,270		—		—		—
Residential mortgage and equity lines		1		624		624		1		451		451

Total		7	$	61,194	$	41,453		2	$	814	$	814

Accruing TDRs at September 30, 2011, were comprised of loans collateralized by ten retail shopping and commercial use buildings of $71.6 million, eight office and commercial use buildings of $27.6 million, two hotels of $13.2 million, eight single family residences of $13.1 million, one land of $724,000, and two commercial loans of $45,000. We expect that the troubled debt restructuring loans on accruing status as of September 30, 2011, which are all performing in accordance with their restructured terms, will continue to comply with the restructured terms because of the reduced principal or interest payments on these loans.

Modifications of the loan terms during the first nine months of 2011 were in form of changes in the stated interest rate, reduction in the loan balance or accrued interest, or extension of the maturity date. Modifications involving a reduction of the stated interest rate were for the periods ranging from six months to five years. Modification involving an extension of the maturity date were for period ranging from nine months to four years. For the first nine months, charge-offs for accruing TDRs were $13.4 million for 2011 and $333,000 for 2010. A summary of TDRs by type of concession, by type of loan, and related allowance for credit losses as of September 30, 2011, and as of December 31, 2010, is shown below:


	As of September 30, 2011
Accruing TDRs	Principal Deferral		Rate Reduction		Rate Reduction and Forgiveness of Principal		Rate Reduction and Payment Deferral		Total		Allowance
	(In thousands)
Commercial loans	$	13,056	$	1,774	$	—	$	436	$	15,266	$	7
Real estate construction loans		16,820		9,725		—		5,776		32,321		—
Commercial mortgage loans		4,292		37,997		2,050		31,111		75,450		1,976
Residential mortgage loans		1,661		593		—		979		3,233		145

Total accruing TDRs	$	35,829	$	50,089	$	2,050	$	38,302	$	126,270	$	2,128


	As of September 30, 2011
Non-accrual TDRs	Interest Deferral		Principal Deferral		Rate Reduction		Rate Reduction and Forgiveness of Principal		Rate Reduction and Payment Deferral		Total		Allowance
	(In thousands)
Commercial loans	$	—	$	629	$	1,959	$	1,536	$	—	$	4,124	$	1,088
Real estate construction loans		—		14,426		13,664		—		—		28,090		—
Commercial mortgage loans		2,690		5,781		—		—		—		8,471		1
Residential mortgage loans		321		2,300		452		—		317		3,390		97

Total non-accrual TDRs	$	3,011	$	23,136	$	16,075	$	1,536	$	317	$	44,075	$	1,186


	As of December 31, 2010
Accruing TDRs	Principal Deferral		Rate Reduction		Rate Reduction and Forgiveness of Principal		Rate Reduction and Payment Deferral		Total		Allowance
	(In thousands)
Commercial loans	$	1,131	$	1,780	$	—	$	1,114	$	4,025	$	59
Real estate construction loans		752		17,226		—		5,776		23,754		117
Commercial mortgage loans		16,586		70,185		3,459		15,055		105,285		3,363
Residential mortgage loans		2,658		599		—		479		3,736		49

Total accruing TDRs	$	21,127	$	89,790	$	3,459	$	22,424	$	136,800	$	3,588


	As of December 31, 2010
Non-accrual TDRs	Interest Deferral		Principal Deferral		Rate Reduction		Rate Reduction and Payment Deferral		Total		Allowance
	(In thousands)
Commercial loans	$	—	$	—	$	2,310	$	—	$	2,310	$	1,159
Real estate construction loans		—		7,044		—		—		7,044		—
Commercial mortgage loans		1,239		14,112		—		1,113		16,464		75
Residential mortgage loans		340		1,037		—		951		2,328		69

Total non-accrual TDRs	$	1,579	$	22,193	$	2,310	$	2,064	$	28,146	$	1,303

A loan is considered to be in payment default once it is 60 to 90 days contractually past due under the modified terms. Two commercial TDRs of $932,000, two commercial real estate TDRs of $1.3 million, and one residential mortgage TDR of $2.9 million had payments defaults within the previous twelve months ended September 30, 2011. The TDRs that subsequently defaulted incurred $361,000 charge-off during the first nine months ended September 30, 2011.

Under the Company's internal underwriting policy, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification in order to determine whether a borrower is experiencing financial difficulty.

As of September 30, 2011, there were no commitments to lend additional funds to those borrowers whose loans have been restructured, were considered impaired, or were on non-accrual status.

As part of the on-going monitoring of the credit quality of our loan portfolio, the Company utilizes a risk grading matrix to assign a risk grade to each loan. The risk rating categories can be generally described by the following grouping for non-homogeneous loans:

•

Pass/Watch – These loans range from minimal credit risk to lower than average, but still acceptable, credit risk.

•

Special Mention – Borrower is fundamentally sound and loan is currently protected but adverse trends are apparent that, if not corrected, may affect ability to repay. Primary source of loan repayment remains viable but there is increasing reliance on collateral or guarantor support.

•

Substandard – These loans are inadequately protected by current sound net worth, paying capacity or pledged collateral. Well-defined weaknesses exist that could jeopardize repayment of debt. Loss may not be imminent, but if weaknesses are not corrected, there is a good possibility of some loss.

•

Doubtful – The possibility of loss is extremely high, but due to identifiable and important pending events (which may strengthen the loan) a loss classification is deferred until the situation is better defined.

•

Loss – These loans are considered uncollectible and of such little value that to continue to carry the loan as an active asset is no longer warranted.

The following table presents loan portfolio by risk rating as of September 30, 2011, and as of December 31, 2010:


	As of September 30, 2011
	Pass/Watch		Special Mention		Substandard		Doubtful		Total
	(In thousands)
Commercial loans	$	1,681,005	$	43,125	$	91,094	$	5,835	$	1,821,059
Real estate construction loans		118,932		24,932		96,951		8,188		249,003
Commercial mortgage loans		3,310,957		77,153		360,414		—		3,748,524
Residential mortgage and equity lines		1,158,638		1,172		22,901		—		1,182,711
Installment and other loans		15,783		62		—		—		15,845


Total gross loans	$	6,285,315	$	146,444	$	571,360	$	14,023	$	7,017,142


Loans held for sale	$	—	$	—	$	776	$	500	$	1,276


	As of December 31, 2010
	Pass/Watch		Special Mention		Substandard		Doubtful		Total
	(In thousands)
Commercial loans	$	1,258,537	$	58,189	$	118,670	$	5,771	$	1,441,167
Real estate construction loans		191,455		53,172		153,857		11,502		409,986
Commercial mortgage loans		3,365,040		143,974		431,047		—		3,940,061
Residential mortgage and equity lines		1,026,216		6,109		28,846		159		1,061,330
Installment and other loans		15,535		542		—		—		16,077


Total gross loans	$	5,856,783	$	261,986	$	732,420	$	17,432	$	6,868,621


Loans held for sale	$	—	$	—	$	2,873	$	—	$	2,873

The allowance for loan losses and the reserve for off-balance sheet credit commitments are significant estimates that can and do change based on management's process in analyzing the loan portfolio and on management's assumptions about specific borrowers, underlying collateral, and applicable economic and environmental conditions, among other factors.

The following table presents the balance in the allowance for loan losses by portfolio segment and based on impairment method as of September 30, 2011, and as of December 31, 2010.


	Commercial Loans		Real Estate Construction Loans		Commercial Mortgage Loans		Residential Mortgage Loans and Equity Lines		Consumer and Other Loans		Total
	(In thousands)
September 30, 2011
Loans individually evaluated for impairment
Allowance	$	2,270	$	—	$	3,930	$	1,203	$	—	$	7,403
Balance	$	44,989	$	82,818	$	173,563	$	18,890	$	—	$	320,260

Loans collectively evaluated for impairment
Allowance	$	61,518	$	23,876	$	109,144	$	7,140	$	35	$	201,713
Balance	$	1,776,070	$	166,185	$	3,574,961	$	1,163,821	$	15,845	$	6,696,882

Total allowance	$	63,788	$	23,876	$	113,074	$	8,343	$	35	$	209,116
Total balance	$	1,821,059	$	249,003	$	3,748,524	$	1,182,711	$	15,845	$	7,017,142

December 31, 2010
Loans individually evaluated for impairment
Allowance	$	2,540	$	7,470	$	3,106	$	—	$	—	$	13,116
Balance	$	33,555	$	77,691	$	248,059	$	7,435	$	—	$	366,740

Loans collectively evaluated for impairment
Allowance	$	61,379	$	35,791	$	125,241	$	9,668	$	36	$	232,115
Balance	$	1,407,612	$	332,295	$	3,692,002	$	1,053,895	$	16,077	$	6,501,881

Total allowance	$	63,919	$	43,261	$	128,347	$	9,668	$	36	$	245,231
Total balance	$	1,441,167	$	409,986	$	3,940,061	$	1,061,330	$	16,077	$	6,868,621

The following table details activity in the allowance for loan losses by portfolio segment for the three months ended and for the nine months ended September 30, 2011, and September 30, 2010. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

For the Three Months Ended September 30, 2010 and 2011


	Commercial Loans			Real Estate Construction Loans			Commercial Mortgage Loans			Residential Mortgage and Equity Line			Installment and Other Loans			Total
	(In thousands)
June 30, 2010 Ending Balance	$	60,738		$	42,442		$	144,000		$	8,430		$	40		$	255,650

Provision for possible credit losses		7,266			14,255			(1,920	)		464			1			20,066
Charge-offs		(5,588	)		(9,014	)		(6,605	)		(140	)		—			(21,347	)
Recoveries		963			1,945			428			1			—			3,337

Net charge-offs		(4,625	)		(7,069	)		(6,177	)		(139	)		—			(18,010	)


September 30, 2010 Ending Balance	$	63,379		$	49,628		$	135,903		$	8,755		$	41		$	257,706


June 30, 2011 Ending Balance	$	65,860		$	37,683		$	117,014		$	9,307		$	36		$	229,900


Provision for possible credit losses		(1,366	)		9,324			951			(224	)		(1	)		8,684

Charge-offs		(1,219	)		(23,539	)		(5,264	)		(818	)		—			(30,840	)
Recoveries		513			408			373			78						1,372

Net charge-offs		(706	)		(23,131	)		(4,891	)		(740	)		—			(29,468	)


September 30, 2011 Ending Balance	$	63,788		$	23,876		$	113,074		$	8,343		$	35		$	209,116

For the Nine Months Ended September 30, 2010 and 2011


	Commercial Loans			Real Estate Construction Loans			Commercial Mortgage Loans			Residential Mortgage and Equity Line			Installment and Other Loans			Total
	(In thousands)
2010 Beginning Balance	$	57,815		$	45,086		$	100,494		$	8,480		$	14		$	211,889

Provision for possible credit losses		19,733			37,897			89,981			1,807			25			149,443
Charge-offs		(17,501	)		(38,213	)		(55,892	)		(1,605	)		—			(113,211	)
Recoveries		3,332			4,858			1,320			73			2			9,585

Net charge-offs		(14,169	)		(33,355	)		(54,572	)		(1,532	)		2			(103,626	)


September 30, 2010 Ending Balance	$	63,379		$	49,628		$	135,903		$	8,755		$	41		$	257,706

Reserve for impaired loans	$	3,126		$	11,263		$	8,089		$	980					$	23,458
Reserve for non-impaired loans	$	60,253		$	38,365		$	127,814		$	7,775		$	41		$	234,248
Reserve for off-balance sheet credit commitments	$	575		$	1,933		$	116		$	37		$	3		$	2,664

2011 Beginning Balance	$	63,919		$	43,261		$	128,347		$	9,668		$	36		$	245,231


Provision for possible credit losses		9,516			10,713			5,704			(458	)		(1	)		25,474

Charge-offs		(11,215	)		(34,394	)		(24,083	)		(1,044	)		—			(70,736	)
Recoveries		1,568			4,296			3,106			177						9,147

Net charge-offs		(9,647	)		(30,098	)		(20,977	)		(867	)		—			(61,589	)


September 30, 2011 Ending Balance	$	63,788		$	23,876		$	113,074		$	8,343		$	35		$	209,116

Reserve for impaired loans	$	2,270		$	—		$	3,930		$	1,203		$	—		$	7,403
Reserve for non-impaired loans	$	61,518		$	23,876		$	109,144		$	7,140		$	35		$	201,713
Reserve for off-balance sheet credit commitments	$	757		$	967		$	103		$	34		$	2		$	1,863